In the year since the Supreme Court's highly anticipated decision in Students for Fair Admissions v. Harvard and Students for Fair Admissions v. University of North Carolina (SFFA), effectively eliminating race-conscious college admissions decisions, opponents of diversity, equity and inclusion (DEI) initiatives have raised numerous challenges to corporate DEI efforts, often citing SFFA, though the decision did not address DEI in the workplace. These challenges, which have taken the form of litigation, shareholder demand letters and letter-writing campaigns targeting major corporations, have brought intense scrutiny to many common DEI initiatives, including diversity representation goals; DEI-related compensation incentives; targeted fellowship, training and mentorship programs; and supplier diversity efforts. The following is a brief review of some of these challenges as well as some considerations for moving forward.
Key Litigation
Since the SFFA decision, there has been a sharp uptick in litigation challenging corporate DEI programs and initiatives, alleging that they require unlawful employment and contracting decisions to be made on the basis of race, in violation of Title VII of the Civil Rights Act of 1964 or 42 U.S.C. § 1981 (Section 1981) (the federal anti-discrimination contracting provision).
For example, the American Alliance for Equal Rights (AAER)—an organization founded by Ed Blum, who also founded Students for Fair Admissions—sued three law firms alleging that their paid diversity fellowship programs for law school students violated Section 1981 because the fellowships were limited to students of certain backgrounds. Each law firm subsequently modified its program to open it up to students of all backgrounds and the AAER withdrew the lawsuits. Notably, litigation in this area has not been limited to law firms; for instance, Pfizer likewise changed one of its fellowship programs to race-neutral applicant criteria after being sued by another activist organization.1
The AAER has also set its sights beyond workforce issues, successfully challenging Atlanta-based Fearless Fund's grant contest awarding funding and mentorship opportunities exclusively to Black women-owned businesses. On June 3, 2024, the Eleventh Circuit preliminarily enjoined the venture capital firm's contest, ruling that the AAER was likely to succeed in demonstrating that the program violates Section 1981's prohibition on race-based contracting decisions and is not protected by the First Amendment. As another example of challenges beyond workforce issues, in a case addressing a constitutional challenge to a government business development program, a white female business owner successfully sued the Small Business Administration (SBA), alleging that its presumption of eligibility for the program based on membership in certain racial groups was unconstitutional.2
To be sure, not all challenges to corporate DEI initiatives have been successful. In September 2023, a shareholder lawsuit brought by the American Civil Rights Project challenging several of Starbucks' DEI efforts was dismissed, with the court observing that the complaint "resembles nothing more than a political platform."3 In several other cases, courts have dismissed Title VII and Section 1981 claims for lack of standing.4
Other Challenges to Corporate DEI Efforts
Opponents of DEI initiatives have increasingly used vehicles other than litigation to challenge DEI efforts, continuing a trend that began even before the SFFA decision. Over the past year, groups like America First Legal have sent letters to dozens of companies and boards threatening litigation over a range of DEI programs they allege to be discriminatory. They have also sent letters requesting that government agencies, including the Equal Employment Opportunity Commission and the Department of Labor's Office of Federal Contract Compliance Programs, investigate companies' DEI practices. In addition, the National Center for Public Policy Research and other groups have submitted shareholder proposals—none of which have been successful—calling for "audits" examining whether companies' DEI efforts impermissibly discriminate in favor of members of underrepresented groups.
State attorneys general have also weighed in on SFFA's impact on corporate DEI efforts, with competing letters from Republican and Democratic state attorneys general regarding the lawfulness of corporate DEI programs. Congress is also sending such letters, with Republican members criticizing companies' efforts to recruit and promote diverse workforces while the Congressional Black Caucus, Congressional Asian Pacific American Caucus and Congressional Hispanic Caucus seek information confirming companies' continued commitment to DEI.
Impact of Muldrow v. City of St. Louis
While SFFA did not directly apply to corporate DEI programs, the Supreme Court's recent decision in Muldrow v. City of St. Louis could have significant impact in this area. In its April decision, the Court rejected a "heightened harm" requirement for Title VII cases, holding that an employee must show only that a discriminatory act brought about "some harm" with respect to an identifiable term or condition of employment. As we reported in a previous alert, this standard lowers the burden on plaintiffs and may lead to an increase in claims challenging certain types of workplace DEI programs, even beyond those seen in the litigation to date.
Even with the increased scrutiny, companies can lawfully maintain a strong commitment to DEI and continue to pursue a range of legally compliant efforts in support of their commitment. In the current climate, however, it is prudent for companies to assess their efforts with an eye to mitigating potential legal risk, including by:
- Reviewing DEI programs and strategies to ensure compliance with applicable law;
- Ensuring accurate communications about DEI programs and strategies; and
- Training key stakeholders on how to design and implement legally compliant DEI initiatives.
WilmerHale's Anti-Discrimination Practice and Labor and Employment Practice are closely monitoring developments in this area and regularly advising clients on the evolving legal landscape and how best to design and implement lawful DEI initiatives.
Footnotes
1. The lawsuit has, however, to date, been unsuccessful in court, with the Second Circuit denying standing to the plaintiff organization. See Do No Harm v. Pfizer Inc., No. 23-15, 2024 WL 949506 (2d Cir. Mar. 6, 2024).
2. Following this decision, the SBA issued interim guidance asking all prospective and current 8(a) participants to prepare social disadvantage narratives to certify (or recertify) their status to be eligible for new contracts. See Ultima Servs. Corp. v. U.S. Dept. of Agriculture, No. 2:20-CV-00041 (E.D. Tenn. Jul. 19, 2023).
3. Nat'l Ctr. for Pub. Policy Rsch. v. Schultz, 2023 WL 5945958, at *12, 22-CV-267-SAB (E.D. Wash. Sep. 11, 2023).
4. See, e.g., Do No Harm v. Pfizer Inc., No. 23-15, 2024 WL 949506 (2d Cir. Mar. 6, 2024) (denying standing where the plaintiff's members were not identified by name); Roberts & Freedom Truck Dispatch v. Progressive Preferred Ins. Co., No. 23-cv-1597 (N.D. Ohio May 21, 2024); Crystal Bolduc v. Amazon.com Inc., No. 4:22-cv-615-ALM (E.D. Tex. Apr. 25, 2024) (dismissing for lack of standing a claim challenging certain Amazon diversity grants). By contrast, the Eleventh Circuit found in the Fearless Fund case discussed above that the AAER had sufficient standing to pursue its claims on behalf of anonymous individuals who had not applied for the grant program in question. American Alliance for Equal Rights v. Fearless Fund Management, LLC, No. 23-13138 (11th Cir. 2024).
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