DEI in 2024: What Employers Should Consider on the Horizon

This year brings plenty of uncertainty for employers who are evaluating what, if anything, to do with respect to their Diversity Equity and Inclusion (DEI) programs and initiatives in the aftermath of the June 29, 2023 Supreme Court decision ending the use of affirmative action in college admissions in Students for Fair Admissions v. The University of North Carolina and Students for Fair Admissions v. Harvard University (“SFFA”). In SFFA, the Court overturned 45 years of prior precedent and held that the admissions systems used by UNC and Harvard, which consider race amongst other factors, as unconstitutional under the Equal Protection Clause and Title VI. Although employment law, including the federal anti-discrimination statute, Title VII of the Civil Rights Act of 1964, was not referenced in SFFA, the decision has placed corporate DEI programs and initiatives as well as government affirmative action programs in the crosshairs of legal action.

Affirmative Action Employment Law and DEI Initiatives

Affirmative action in education and employment differs significantly. Since the Civil Rights Act of 1964, employers have always been prohibited from making employment decisions based on legally protected classes under Title VII. For instance, courts have held that there can be no “race-conscious” or “gender-conscious” hiring or promotion decisions at work.

Affirmative action was originated by executive order from President John F. Kennedy in 1961 and required federal contractors to treat all applicants and employees equally based on their protected class. Currently, Executive Order 11246 requires federal contractors to engage in affirmative action to ensure that applicants and employees are treated equally without regard to any protected status, but also requires contractors to promote diversity in the workplace, including to establish placement goals if women or minorities are underutilized in their workforces and collect data of applicants and employees regarding their race and ethnicity, among other factors.

DEI programs by private employers differ significantly depending on the employer, but they are designed to promote diversity, equity, and inclusiveness in the workplace. These programs may include training on non-discrimination and cultural differences in the workplace, monitoring and ensuring fairness in hiring, promotions or pay, and providing resources and creating affinity groups geared towards individuals based upon their protected classes.

Again, neither anti-discrimination laws in the employment context nor affirmative action obligations for employers were at issue in SFFA.  Nevertheless, employers are caught between a rock and hard place when it comes to their DEI initiatives and programs. To take no action based upon SFFA may open an employer up to potential liability. To eliminate or substantially alter a DEI program or messaging may have the same consequence.

Increased Risk to Employers After SFFA

Since SFFA, there has been a rise in:

• • Reverse discrimination suits under Title VII and Section 1981 challenging specific, individual employment decisions, as well as companies’ efforts to increase diversity of their suppliers and other contracting partners.
  • Shareholder lawsuits and threats. For example, 13 Attorneys General sent a letter to Fortune 100 CEOs in August 2023 cautioning them on legal consequences for using race as a factor in hiring and employment.
  • Focus on law firms and diversity fellowship programs. For example, after being sued by activist groups such as American Alliance for Equal Rights and Do No Harm, in October 2023, law firms and companies changed their eligibility criteria’s to open application to all candidates and not just minorities to get those suits dropped.
  • Changes in policy stemming from SFFA. For example, a federal judge struck down a key provision of the Small Business Administration’s 8(a) Business Development Program that provides funding to minority-owned businesses. Under new guidelines, race is no longer enough to automatically qualify a business owner as “socially disadvantaged,” which is a step to enter the program, and instead must submit personal narratives to justify “socially disadvantaged” status.

Aspects of SFFA are likely to be cited in future lawsuits by plaintiffs in actions seeking to invalidate specific DEI programs as well as governmental affirmative action programs including under Executive Order 11246. Examples include:

• • Rationales for affirmative action in education such as producing new knowledge stemming from diverse outlooks, promoting the diverse exchange of ideas and fostering innovation are too amorphous to justify the remedy of racial preferences.
  • DEI programs geared towards increasing diversity or providing some advantage or preference based upon a protected class (particularly race and ethnicity) are illegal under Title VII because it harms some individuals who do not enjoy such benefit.
  • Aspects of federally required affirmative action violates the Equal Protection Clause’s prohibition on racial stereotyping and cannot withstand strict scrutiny.

What’s On the Horizon for DEI for Employers?

In addition to the increase in legal activity based upon SFFA, the Supreme Court’s looming decision in Mudrow v. City of St. Louis could dramatically expand the scope of what is regarded as actionable conduct under Title VII and have a profound impact on DEI programs. Historically, courts mostly view actionable conduct under Title VII as limited to ultimate employment decisions such as hiring, firing, promotions, etc. If the Supreme Court were to expand that scope, aspects of DEI programs such as creation and support of affinity groups or increased support of certain individuals who pursue professional development may be viewed as illegal workplace policies that allocate professional opportunities to employees in a discriminatory manner.

With more diversity-related employment litigation on the horizon because of SFFA, employers need to carefully assess their current DEI programs and messaging. At the same time, employers need to be equally careful with any decision to eliminate or significantly alter their DEI programs. Pulling the plug on of DEI programs or erasing references to DEI such as on a company’s website can also be cited as evidence of discrimination.  For example, such actions may signal that the company was merely playing lip service to DEI values or send a chilling messaging that qualified, diverse candidates are not welcomed and should not apply.

Employers can take several steps to reduce the risk for their existing DEI programs and initiatives:

• • Promote diversity, equity and inclusiveness as values without reference to specific steps or actions.
  • Open diversity programs and benefits to all including affinity groups.
  • Avoid rigid numerical quotas, which are illegal per se.
  • Do not associate compensation in connection with diversity metrics.
  • Conduct privileged assessment of DEI programs to mitigate risk.
  • Review DEI initiatives so ensure they are legally compliant.
  • Ensure controls over DEI communications and disclosures.

Please contact Rebecca Sha or any member of the Phelps Labor and Employment team if you have questions or need advice or guidance.