In June, the U.S. Supreme Court’s decision to invalidate affirmative action in college admissions had ramifications that extended well beyond the realm of academia. In recent months, a flurry of legal actions has sought to extend the court’s stance against considering race in education to corporate diversity and inclusion policies.
For years, companies have strived to address inequality within their ranks by promoting diversity, particularly by hiring and advancing women and racial minorities. However, a series of lawsuits now claim that these efforts inadvertently perpetuate discrimination based on race and gender—ironically contradicting the very principles they aim to uphold.
So, does the Supreme Court’s affirmative action ruling directly apply to corporations?
In short, no, it doesn’t. Unlike colleges and universities, private employers have been prohibited from making race-based decisions since the Civil Rights Act of 1964. Companies are not allowed to reserve positions for minorities or hire applicants solely based on their race. Over the years, legal precedents have allowed employers to consider race, especially to address historical workforce disparities. However, there’s a growing pushback from litigants who wish to see these practices scaled back.
Stacy Hawkins, a law professor at Rutgers University and a former corporate employment lawyer specializing in diversity, suggests that employers can commit to workplace diversity without making explicit race-based employment decisions. This commitment might involve revising exclusionary aspects of the hiring process, exploring alternative talent pools, or providing support to underrepresented groups within the company.
But wasn’t diversity, equity, and inclusion (DEI) already under scrutiny before the Supreme Court decision?
Yes, indeed. Despite companies pledging $340 billion to improve racial equity in their workforces between May 2020 and October 2022 in response to the murder of George Floyd, corporate commitments to DEI have been on the decline. Conservative politicians and advocacy groups have also challenged DEI practices, such as Florida Governor Ron DeSantis banning spending on DEI at public colleges and universities in his state.
In July, 13 Republican attorneys general urged Fortune 100 companies, including Microsoft, to reevaluate their DEI policies in light of the Supreme Court’s affirmative action ruling, threatening serious legal consequences for those relying on race-based employment preferences.
Stephanie Creary, an assistant professor of management at the Wharton School of the University of Pennsylvania, points out that companies employ a wide range of strategies to enhance diversity, from customizing their recruitment efforts to offering support to underrepresented employees. However, since the inception of these efforts in the aftermath of the Civil Rights Act of 1964, they have faced significant opposition.
Modern DEI policies emerged from major racial discrimination lawsuits, such as the 2000 case involving Coca-Cola, which resulted in a $192 million settlement. To address allegations of racial discrimination, Coca-Cola had to modify performance evaluations and staffing and promotion procedures.
Now, corporate DEI practices are encountering their own legal challenges. In recent months, a steady stream of lawsuits and rulings has questioned the legality of DEI policies in the workplace. Some of these have been filed by the American Alliance for Equal Rights (AAER), founded by conservative activist Edward Blum, who was also behind the affirmative action cases that reached the Supreme Court.
In August, AAER filed a lawsuit against Fearless Fund, a venture capital firm, accusing it of racial discrimination due to a grant program exclusively for early-stage companies owned by Black women. While the group initially failed to secure an injunction, a panel of federal appellate judges temporarily halted the grant program in September.
In the same month, AAER sued two major corporate law firms, alleging that their diversity fellowships discriminate against non-minorities. One of the firms, Morrison Foerster, removed references to race from its fellowship descriptions, while Gibson, Dunn & Crutcher modified the criteria for its diversity and inclusion scholarship.
Conservative nonprofit America First Legal has also filed complaints against Kellogg’s, Nordstrom, and Activision Blizzard, claiming that their diversity and inclusion policies constitute racial discrimination. In Tennessee, a federal judge’s ruling in July disrupted the U.S. Small Business Administration’s 8(a) Business Development program, which had provided opportunities for historically disadvantaged groups.
So, what aspects of DEI practices are most likely to face scrutiny?
The primary goal of DEI efforts is to create inclusive workplaces for everyone. However, there is a misconception that these policies unfairly favor specific groups, which is a common argument in ongoing lawsuits. Data shows that people of color and women hold less than 14 percent of C-suite positions in Fortune 500 and S&P 500 companies as of 2023.
In the legal field, where diversity fellowships have already faced legal challenges, less than 5 percent of practicing attorneys are Black, despite Black individuals comprising roughly 15 percent of the U.S. population. About 10 percent of practicing attorneys belong to other minority groups.
To navigate this contentious landscape, employers should carefully assess their DEI efforts and ensure they comply with the law. Legal experts recommend being vigilant about the language used in DEI policies and communications and involving legal counsel in evaluations. While companies should remain committed to DEI, they must also effectively communicate their goals and vision to dispel misconceptions and legal challenges.
