How Does the Supreme Court’s Affirmative Action Rulings Affect Employer DEI Initiatives?

The highly anticipated United States Supreme Court decisions regarding affirmative action in higher education have been the topic of much discussion around water coolers and boardrooms alike. On June 29, 2023, the Court issued two rulings (hereafter referred to as “the SFFA Opinion”)¹ that severely limit the use of race in admissions processes at universities (see our prior Advisory, which provides a summary of the ruling for more details).

While the SFFA Opinion does not directly apply to private employers, companies have nonetheless begun to consider the impact of the ruling on their own efforts to increase diversity, equity, and inclusion (DEI) in the workplace. But despite the attention-gathering headlines in the press, the SFFA Opinion has not sounded the “death knell” for all such DEI efforts. Any corporate DEI efforts that were lawful before June 29 are still lawful today, and vice versa for anything that was unlawful before June 29. Nevertheless, the SFFA Opinion will assuredly increase the scrutiny placed on DEI efforts by employers, whether by private litigation or state or federal efforts to curb the use of DEI in the workplace. Indeed, just a few days ago, on July 7, 2023, Senator Tom Cotton sent a letter to the CEO of Target referencing the SFFA Opinion and stating that, if the company did not end certain DEI initiatives, it "should expect significant and likely costly litigation." This Advisory provides a brief overview of the existing law and some considerations for employers that are revisiting their various diversity policies following the SFFA Opinion.

Existing Law Regarding “Affirmative Action” for Private Employers

Title VII of the Civil Rights Act of 1964 — the federal statute governing private employers — has, with some narrow exceptions, long prohibited the use of protected classifications (such as race, gender, etc.) as a factor in employment decisions.² The same is true for most state and local laws that prohibit employment discrimination on these and other protected characteristics. This may come as a surprise to many who assume (erroneously) that racial and gender diversity is a legitimate factor to consider in employment decisions such as hiring or promotion. Title VII does permit employers to engage in “affirmative action,” but only in exceptionally limited circumstances to overcome the effects of past or present discrimination, where the employer (1) conducts a self-analysis to determine whether its employment practices have resulted in disparate treatment; (2) determines there is a reasonable basis for concluding that action is necessary based on that self-analysis and to remediate the effects of that discrimination; and (3) develops a reasonable affirmative action plan to address the problems identified by the self-analysis.³ In addition, a voluntary affirmative action plan must meet a number of enumerated requirements, such as being a concerted, reasoned program (rather than one or more isolated events) and being temporary (i.e., in effect only as long as necessary to achieve the plan’s objective).⁴

Affirmative action programs may also be permissible when required or imposed by court order, by consent decree, or settlement with the EEOC. They are mandated by government regulations for certain federal contractors,⁵ and enforced by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), which requires annual certification of compliance.⁶

Even still, those rules prohibit the use of quotas or preferential treatment based on race or sex or from considering protected classes in employment decisions. See, e.g., Executive Order 11246.

Impact of SFFA Opinion on Private Employers’ DEI Initiatives

Most private-employer DEI efforts do not meet the requirements of a formal, lawful “affirmative action” plan under Title VII or Executive Order 11246. Thus, these DEI efforts must be neutral as to any protected classes.

While the SFFA Opinion has no precedential effect over private employers operating under Title VII, the Supreme Court’s decision is likely to influence (and embolden) how certain employees, activist groups, legislatures, and even judges view the legality of DEI initiatives. For example, we have observed a recent uptick in so-called “reverse discrimination” complaints (i.e., discrimination complaints, usually from white, male employees) that we expect to only continue to grow in the wake of the SFFA Opinion. This increase in activity may result in increased negative outcomes (such as employee unrest, potential litigation costs, or even state enforcement actions) for employers with non-compliant DEI programs.

With this in mind, we offer a few considerations for employers who currently utilize, or are contemplating introducing, DEI programs in their workplace:

• Review How Existing DEI Policies Discuss Protected Classifications. Employers should make sure that their DEI policies do not provide any preference based on race, gender, etc. — such as setting quotas or targets for specific racial minorities in the workforce.
  
  

  Employers should also take a close look at some commonly used DEI programs that expressly use a candidate’s race or gender at various stages of the employment process. For example, many employers have adopted a form of the NFL’s “Rooney Rule,”⁷ requiring recruiters to ensure that a pre-set percentage of a candidate pool be comprised of minority candidates. Other employers have signed on to policies prompted by clients that require the employer to staff projects with a minimum percentage of minority workers.⁸ Others have created affinity groups that are limited to persons of a certain protected category. While the legality of these policies will come down to fact-specific inquiries and should be discussed with outside counsel, we believe any such policies that expressly reference race or gender are more likely to be challenged following the SFFA Opinion.

• Clearly Define the Goals for Your DEI Initiatives. Employers should make sure their stated goals for their DEI initiatives are both lawful (i.e., tethered to the percentage of the labor pool that is qualified for the position) and clearly defined. The more “soft” or “nebulous” an employer’s policy (such as a general statement to “increase the number of minority employees in our workforce” without any explanation of how the company intends to accomplish this goal or for how long, and without any reference to the qualified labor pool), the more it may be perceived as a pretense for unlawful discrimination.

• Train Managers on the Goals of Your DEI Policies and How To Discuss Them With Employees. Companies can only talk and act through their employees. As such, managers must be well trained on DEI programs so they can accurately convey the programs’ goals and applications to their reports and apply the programs in a lawful manner. Formal and periodic trainings may also provide some level of defense if a manager makes an unlawful employment decision.

• Can Overcoming Obstacles Associated With a Protected Classification Be Considered? Finally, one of the most interesting pieces of the SFFA Opinion is its comment that “nothing in this opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise.” SFFA Opinion at Slip Op. 39-40. Employers may be tempted to use this same analysis and consider how race or gender may have motivated or impacted a candidate’s life. But given Title VII’s prohibition on the use of protected classification as a basis for employment decisions, employers should take caution before including such questions on their applications or recruiters’ interview scripts.

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While the SFFA Opinion does not directly impact private employers’ DEI practices, employers should be aware that the Court’s decision is likely to bring further examination — from private litigants, political interest groups, state attorneys general, and, potentially, legislatures⁹ — of corporate policies to ensure they are complying with Title VII.

Please feel free to contact the attorneys listed in this Advisory for further guidance or analysis.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.