It has been a few months since the United States Supreme Court issued its ruling in Students for Fair Admissions v. Harvard, a landmark case involving affirmative action. The court’s decision prohibits universities from expressly considering race in the admissions decision-making process. While the opinion concerns affirmative action programs in higher education, it could have significant, indirect consequences for companies and their diversity, equity and inclusion (DEI) programs.
Students for Fair Admissions v. Harvard
Students for Fair Admissions, Inc. (SFFA) sued Harvard University and the University of North Carolina (UNC), alleging that their admissions processes were discriminatory in violation of Title VI of the Civil Rights Act of 1964 (Title VI). Both schools had employed admissions processes that took race into consideration, among other factors, in making admissions decisions.
The Supreme Court held that Harvard and UNC’s approach for achieving student body diversity violated the Equal Protection Clause of the 14th Amendment and Title VI. Title VI does not apply to companies; however, Title VII of the Civil Rights Act (Title VII)—which does—was expressly referenced in Justice Neil Gorsuch’s concurring opinion. Specifically, Justice Gorsuch noted that Title VI’s prohibition against discrimination on the basis of race, color or national origin is “[j]ust next door” to Title VII.
Within weeks of the ruling, attorneys general from 13 states sent a joint letter
to the chief executive officers of Fortune 100 companies warning them that utilizing race-based preferences, even in the interest of serving DEI initiatives, may violate federal and state anti-discrimination laws. The letter shows how some state enforcement agencies are interpreting the Supreme Court’s decision as empowering them to shut down DEI efforts more broadly.
Indeed, some corporations and other entities are already facing litigation over their DEI initiatives.
- In August 2023, the American Alliance for Equal Rights (AAER), a group founded by Edward Blum, the activist behind Students for Fair Admissions v. Harvard, sued the Fearless Fund, an Atlanta-based investment fund. The Fearless Fund maintains a program that awards grants of up to $20,000 to Black women entrepreneurs through its Strivers Grant. AAER’s lawsuit
alleges that the grant program violates Section 1981 of the Civil Rights Act of 1866 (Section 1981), which prohibits racial discrimination in contracts. The Fearless Fund argued, among other things, that the grants are awards and not contracts and are protected by the First Amendment. The Fearless Fund scored an initial victory when a district court ruled that the AAER’s lawsuit was unlikely to prevail and permitted the fund to continue its Strivers Grant program. However, the victory was short-lived, as the 11th Circuit Court of Appeals has since granted AAER’s motion for an injunction, overturning the lower court’s decision and temporarily halting the Fearless Fund from continuing the Strivers Grant program for the duration of the lawsuit.
- In August 2023, AAER also sued two law firms—Morrison & Foerster and Perkins Coie—in federal district courts in Florida and Texas, respectively, for providing diversity fellowships based on the same theory in the Fearless Fund case that the fellowships violated Section 1981. AAER alleges that by offering the diversity fellowships, which were restricted to applicants from underrepresented groups and tied to paid internships, the firms are expressly refusing to contract with certain applicants based on their race and ethnicity. After the lawsuits were filed, both firms revised the eligibility criteria for their fellowships to open the programs to all law school students. In response, AAER dropped its lawsuits against the firms.
- America First Legal, a conservative legal organization, has filed complaints with the U.S. Equal Employment Opportunity Commission (EEOC) against several companies, including the Kellogg Company, alleging that their DEI programs, which seek to increase the representation of women and racial and ethnic minority employees within their organizations, are discriminatory. These complaints allege that such programs should be investigated for violations of Title VII, and they cite the companies’ publicly disclosed DEI goals and progress against such goals as evidence of their discrimination.
Defense of Corporate DEI Initiatives
These calls for the dismantling of corporate DEI programs have also been met by statements and actions affirming DEI initiatives. Shortly after the attorneys general issued their letter calling DEI programs into question, 21 attorneys general countered with their own letter
to the Fortune 100 CEOs expressing support for their DEI initiatives and seeking to reassure them that such efforts are legal and reduce corporate risk. In addition, following the Harvard decision, the chairman of the EEOC explicitly reaffirmed
the legality of DEI programs, noting that the decision did not address “employer efforts to foster diverse and inclusive workforces or to engage the talents of all qualified workers, regardless of their background.”
Stakeholders, including investors, have expressed support for DEI initiatives. Large institutional investors continue to push for board and employee diversity and other DEI initiatives. Proxy voting policies, under which such investors may vote against directors or for DEI shareholder proposals at companies lacking progress on DEI issues, do not appear to have changed in the wake of the Harvard decision. Although there has been some recent decline in support for certain DEI-related shareholder proposals, as we noted in our recent report, institutional investors have supported such proposals in situations where diversity is lacking and have strongly opposed shareholder proposals that are hostile to DEI initiatives.
The Supreme Court’s decision does not mean that companies must eliminate their DEI programs, but they should reevaluate their existing DEI commitments, policies and public statements and consider whether such programs are compliant with existing anti-discrimination laws. Some actions to consider include:
- Reviewing existing DEI programs and policies to assess potential legal risk in light of the Harvard decision. For example, employers should not provide any preference (or exclusion) based on race or other protected categories. Also, setting quotas or targets in the workforce is highly likely to be scrutinized. However, employers can continue to set aspirational goals for improving diversity. Crafting language that aligns with the organization’s DEI goals while staying within legally permissible parameters is a nuanced undertaking, and consulting with legal counsel is strongly advised.
- Updating training programs on diversity, anti-discrimination, anti-harassment and bias across the entire organization. Training efforts should include training managers on the goals of the company’s DEI policies and how to discuss them with employees.
- Analyzing the organization’s practices and their DEI implications.
- Recruiting and outreach efforts focused on diversifying the candidate pool remain lawful. This means employers may continue programs aimed at connecting with minority applicants, including high schools in diverse communities, HBCUs and organizations that promote women, minorities, veterans, disabled individuals and other underrepresented groups. However, employers should be cautious about considering protected categories as a basis for employment decisions.
- Existing mentoring programs that promote career development remain legal. However, employers should open such programs to all employees regardless of race or other protected category.
- Business or affinity groups also remain legal, just as they were before the Harvard decision. However, employers should review membership guidelines to ensure that anyone interested in the group’s focus may join and membership is not limited by sex, race or any other protected category.
- Preparing management and the board of directors to engage with investors and other key stakeholders on DEI initiatives. In discussing DEI programs and strategy, explain how they benefit the entire organization and advance broader corporate goals and strategy. The organization should understand the views of such stakeholders on DEI policies and anticipate potential changes resulting from litigation and/or regulatory developments.
The Supreme Court’s Harvard decision does not make corporate DEI initiatives unlawful. However, the decision could be a sign that DEI programs will see additional legal challenges in the future. To ensure compliance, companies should consult with legal counsel and periodically review and assess their DEI strategies and commitments.