Supreme Court decision ending affirmative action could impact employer diversity initiatives

UPDATE (7/19/23): In the few weeks since the US Supreme Court issued its decision, we already have seen activity challenging the employment and contracting practices of large employers by state Attorneys General, individual lawmakers, and some organizations.

On July 13, thirteen Attorneys General wrote a letter to Fortune 100 CEOs reminding them of their “obligations as an employer under federal and state law to refrain from discriminating on the basis of race, whether under the label of ‘diversity, equity and inclusion’ or otherwise” and stating that “[c]ompanies that engage in racial discrimination should and will face serious legal consequences.” According to the Attorneys General, these discriminatory practices include “explicit racial quotas and preferences in hiring recruiting, retention, promotion, and advancement” and “race-based contracting practices such as racial preferences and quotas in selecting suppliers, providing overt preferential treatment to customers on the basis of race, and pressuring contractors to adopt the company’s racially discriminatory quotas and preferences.”

Please reach out to the authors or your DLA Piper attorney if you have questions about these developments or the implications of the Supreme Court’s decision for your business or D&I initiatives.

On June 29, 2023, the US Supreme Court issued its much-anticipated decision in Students for Fair Admissions v. University of North Carolina and Students for Fair Admissions v. Harvard University, holding that both universities’ admissions programs violate the Equal Protection Clause of the Fourteenth Amendment.

The majority decision does not expressly concern laws applicable to private sector employers such as Title VII of the Civil Rights Act of 1964 (Title VII) – rather, it addresses the permissibility of considering race as a factor in college admissions under the Equal Protection Clause of the 14th Amendment and Title VI of the Civil Rights Act of 1964 (Title VI). That said, given Justice Neil Gorsuch’s concurring opinion (joined by Justice Clarence Thomas) noting that Title VI’s prohibition against discrimination on the basis of race, color or national origin is “[j]ust next door” to Title VII, it is anticipated that the decision could lead to greater scrutiny of diversity and inclusion (D&I) initiatives and race-based decisions in the workplace.

At the same time, companies are likely already familiar with challenges to Environmental, Social and Governance (ESG) and diversity and inclusion (D&I) initiatives, including private and shareholder litigation and federal and state regulatory action and litigation. Employers pursuing greater diversity and inclusion should continue to be thoughtful by structuring initiatives in ways that advance their values while not running afoul of state or federal anti-discrimination legislation and other state laws.

Below we discuss the Court’s decision and its potential impact on private employers. While the Court’s ruling is unlikely to disrupt many common D&I practices, employers are encouraged to review their D&I policies, programs, training, and communications to mitigate potential risk and ensure compliance with Title VII and similar state and local laws.

Background

In 2014, the group Students for Fair Admissions (SFFA) brought lawsuits against Harvard College and the University of North Carolina (UNC). SFFA argued that Harvard violated Title VI of the Civil Rights Act, which applies to private entities that receive federal funding, by discriminating against Asian American applicants. Similarly, the group asserted that UNC violated the 14th Amendment’s equal protection clause, which bars racial discrimination by government entities, by considering race in its admissions process.

Following bench trials, federal courts in both cases upheld the universities’ admissions policies as consistent with US Supreme Court precedent, including its 2003 ruling in Grutter v. Bollinger. In Grutter, the US Supreme Court held that the University of Michigan Law School’s use of race as a potential “plus” factor in its admissions decisions to further a compelling interest in obtaining the educational benefits that flow from a diverse student body did not violate the Equal Protection Clause, Title VI, or §1981. SFFA appealed both trial court decisions. The US Court of Appeals for the First Circuit affirmed the judgment in favor of Harvard, and SFFA petitioned the Supreme Court for a writ of certiorari without waiting for a judgment from the Fourth Circuit in the UNC case.

On January 24, 2022, the Supreme Court granted certiorari on two questions: 1) whether the Supreme Court should overrule Grutter v. Bollinger and hold that institutions of higher learning cannot use race as a factor in admissions; and (2) whether a university can reject a race-neutral alternative because it would change the composition of the student body, without proving that the alternative would cause a dramatic sacrifice in academic quality or the educational benefits of overall student-body diversity.

The Supreme Court holds that Harvard and UNC’s admissions programs violate the Equal Protection Clause

The majority decision, authored by Chief Justice John Roberts and joined by five other justices, held that Harvard’s and UNC’s admissions systems failed to meet the strict scrutiny standard, which required the respondents to show that the racial classification used “further[s] compelling governmental interests” and is “narrowly tailored” to achieve that interest. The majority also stated that the race-based state action must satisfy two additional requirements: they may “never use race as a stereotype or negative, and – at some point – they must end.”

Tracing the history of race-based admissions decisions from Regents of University of California v. Bakke in 1978 to Grutter, the majority opinion stressed that its decisions have insisted on limits to how universities may consider race in their admissions programs to guard against two primary dangers: (1) the risk that the use of race will “devolve into ‘illegitimate stereotyping’” and (2) the risk that race would be used as a negative to discriminate against those racial groups that were not the beneficiaries of the race-based preference. According to the majority, to manage these risks, Grutter imposed a final requirement – that they must end.

Applying these standards, the majority decision first examined the respondents’ stated compelling interests, including “training future leaders, acquiring new knowledge based on diverse outlooks, promoting a robust marketplace of ideas, and preparing engaged and productive citizens.” While the Court noted that these goals are laudable, it concluded that they were not “sufficiently coherent for purposes of strict scrutiny” so far as courts cannot measure these goals or know when they have been achieved. The majority further held that the respondents’ admissions programs failed to articulate a connection between those goals and the means to achieve them. (Notably, the majority stated that its opinion does not address the issue of whether race-based admissions programs further compelling interests at US military academies.)

The majority next turned to the requirement that race may not be used as a negative or operate as a stereotype. According to the Court, college admissions are “zero-sum” and, thus, the benefit provided to some applicants and not others “necessarily advantages the former at the expense of the latter.” It also held that respondents’ admissions programs require stereotyping – “the offensive and demeaning assumption that [students] of a particular race, because of their race, think alike” – which is contrary to the core purpose of the Equal Protection Clause.

Finally, the majority held that the admissions programs lack “a logical end point.” According to the Court, “[b]y promising to terminate their use of race only when some rough percentage of various racial groups is admitted,” respondents’ admissions programs “effectively assure[] that race will always be relevant.” The majority was unpersuaded by the respondents’ argument that the durational requirement could be satisfied with periodic reviews to determine whether racial preferences are still necessary to achieve student body diversity, noting “Grutter never suggested that periodic review could make unconstitutional conduct constitutional. To the contrary, the Court made clear that race-based admissions programs eventually had to end—despite whatever periodic review universities conducted.”

While the majority concluded by emphasizing that “[n]othing 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,” it also cautioned against implementing alternative proxies that would violate the spirit of the ruling -- “Universities may not simply establish through application essays or other means the regime we hold unlawful today.”

The potential impact of the Court’s decision on workplace D&I programs

While the Court’s decision does not expressly change the framework under Title VII or similar state and local anti-discrimination laws, Justice Gorsuch drew the parallel between Title VI and Title VII in his concurring opinion, joined by Justice Thomas: “If this exposition of Title VI sounds familiar, it should. Just next door, in Title VII, Congress made it “unlawful . . . for an employer . . . to discriminate against any individual . . . because of such individual’s race, color, religion, sex, or national origin.”  Justice Gorsuch writes that both Title VI and Title VII “codify a categorical rule of ‘individual equality, without regard to race.’”  The Court’s ruling, as further highlighted by Justice Gorsuch’s concurrence, reminds employers of the requirements under Title VII when pursuing diversity and inclusion initiatives in the workplace.

This can be a challenge in light of third-party mandates.  On the one hand, expectations for companies to improve corporate diversity remain high in the US and globally. SEC disclosure rules (currently on appeal before the Fifth Circuit) require Nasdaq-listed companies to disclose board-level diversity statistics, and proxy advisory firms and shareholders are keeping pressure on companies to make progress on D&I and racial justice issues. The SEC’s 2020 human-capital disclosure requirements are eliciting more and more diversity data, which we expect to continue. Employers are also seeing more regulation and pressure from stakeholders concerning equality issues, including harassment, pay transparency and pay equity.

At the same time, the limits of regulatory and employer initiatives to promote diversity are being tested. Recent lawsuits highlight the risk of reverse discrimination claims. Employees and applicants have alleged that they were terminated or subjected to adverse employment actions because of their company’s efforts to achieve goals under a D&I initiative in violation of anti-discrimination laws, or as a result of an organization’s employment policies or practices that reflect a preference for women and minorities.

State laws to promote diversity have been struck down by courts. Trial courts struck down both of California’s board diversity laws – SB 826, the board gender diversity statute, and AB 979, the board diversity statute regarding “underrepresented communities.” Appeals are pending. More recently, in Alliance for Fair Board Recruitment v. Weber, the US District Court for the Eastern District of California granted the Plaintiff’s motion for summary judgment, holding that AB 979 was facially unconstitutional because it imposed quotas based on racial and ethnic classifications.

More states are enacting and introducing legislation to prohibit certain D&I practices (eg, mandatory training, D&I offices). While most of these laws concern diversity efforts in state agencies and state-funded public institutions, some cover private employers. Florida’s HB-7 (currently enjoined and on appeal) would prohibit private employers from requiring workers to attend training or instruction that espouses or promotes certain concepts relating to race, color, sex or national origin.

Shareholders are exerting pressure on both sides. Shareholders have filed more than a dozen lawsuits in recent years challenging the accuracy of public companies’ stated commitments to diversity (these have generally failed at the motion to dismiss stage). Meanwhile, anti-ESG proposals, including challenges to D&I policies, are on the rise (and may be impacting support for ESG proposals).

Taken together, these developments signal an increasingly fraught environment for employers – and heightened legal risk. Accordingly, employers are encouraged to consider steps to mitigate risk and reinforce existing obligations under anti-discrimination laws. Potential actions to consider include:

• Review voluntary affirmative action plans. Under current federal case law, voluntary employer affirmative action plans may be permissible under Title VII in certain circumstances. Key issues include whether the plan is designed to correct a clear imbalance in a traditionally segregated job category; whether the plan unnecessarily trammels the interests of those outside the group that the plan is designed to protect; and whether the plan is temporary and intended to attain, not maintain, a balanced workforce. Employers should assess potential vulnerabilities in any voluntary plans, which may be the subject of future challenges based on the Supreme Court’s decision, which addresses each of these issues, albeit in the context of the Equal Protection Clause applicable to state actors (with the Court presuming that “discrimination that violates the Equal Protection Clause … committed by an institution that accepts federal funds also constitutes a violation of Title VI”).
  
  
• Assess other diversity and inclusion programs and initiatives to ensure compliance with anti-discrimination laws. The Court’s decision is unlikely to impact many common strategies such as:
  
  
  • Diversity and inclusion vision and mission statements focused on building an inclusive and supportive environment for all employees and recognizing the value of diverse perspectives
  • Training and communications to facilitate a diverse and inclusive environment, including on topics such as bias, authenticity, agility, allyship, and inclusive leadership
  • Resource groups open to all employees that focus on the development, advancement, and retention of members
  • Compliant practices to gather EEO data from employees on a voluntary basis
  • Efforts to impact pipeline development and recruiting (eg, partnering with third parties to target diverse communities)
  • Periodic analysis of job descriptions to remove unintended obstacles to entry and promotion
  • Source and applicant tracking with disposition codes to understand potential shortcomings in the recruitment and selection process
  • Engagement surveys to understand whether employees see the organization as a place where they can grow and be promoted
  
  More aggressive measures, such as pledges from leadership to achieve specific targets or exclusionary programs, may attract attention from lawmakers or potential plaintiffs; however, Title VII only prohibits employment decisions based on protected characteristics such as race, color, sex and national origin. Aspirational goals themselves do not violate Title VII. 
  
  
• Review diversity and inclusion training and communications for any statements or type of language that could be viewed as unlawful. For example, the Supreme Court criticized “the pernicious stereotype that ‘a black student can usually bring something that a white person cannot offer.’” Employers should therefore be wary to avoid suggestions in their diversity and inclusion materials that might be interpreted (or misinterpreted) by a reviewing court as some form of “stereotype” or “assumption” that individuals of a particular race or ethnic group, because of such race/ethnicity, “think alike.”
  
  
• Ensure management oversight. A company’s diversity and inclusion commitments can appear in a variety of official, formal, and informal communications and materials such as SEC filings, website descriptions, corporate social responsibility reports, recruiting materials, third-party ESG questionnaires, RFP responses, and more. The scope of diversity and inclusion efforts may require the involvement of various departments and functions, including sustainability/corporate social responsibility, legal, human resources, marketing, communications, talent development, investor relations, and compliance. Companies should ensure that D&I information is disclosed in a consistent and lawful manner across the organization and externally.
  
  
• Train managers and supervisors on their obligations under anti-discrimination laws and the importance of keeping race, ethnicity, gender and other protected characteristics out of employment decision-making. Managers and supervisors should apply consistent, non-discriminatory standards and document legitimate, nondiscriminatory reasons for employment decisions.
  
  
• Monitor state laws and anticipate challenges. In recent years, so-called “stop-woke” and “anti-ESG” movements have emerged. Companies pursuing diversity and inclusion initiatives must look not only to stakeholder interests, but also monitor compliance with often conflicting legal regimes. They may also be targeted by lawmakers or other stakeholder groups based on their commitments, similar to campaigns against some companies based on their health plan coverage following the Supreme Court’s decision in Dobbs.

• Prepare to address employee speech and conduct issues in the workplace and off-duty on controversial topics like affirmative action and LGBTQ rights (both addressed by the Supreme Court this term) by:
  
  
  • Reviewing employment policies related to workplace conduct, speech and expectations (eg, code of conduct, respectful workplace, social media, IT use, dress code).
  • Considering guidelines around employee discussions on internal message boards.
  • Ensuring clear procedures for reporting and responding to complaints of violations of company policy and training managers and supervisors on how to respond, including by developing strategies to ease workplace tensions.
  • Being mindful of various laws that may be implicated by employee speech or activity (eg, discrimination, harassment, retaliation, NLRA, off-duty conduct laws, state laws protecting political expression).

While the Supreme Court’s decision in Students for Fair Admissions has upended the admissions policy landscape for many public and private colleges and universities, it does not expressly alter the Title VII framework applicable to private employers or require employers to abandon or modify otherwise lawful D&I programs, policies, and initiatives. It could, however, portend future litigation seeking to apply the Court’s rationale to parallel anti-discrimination laws governing employers, as well as lead to more scrutiny of, and challenges to, workplace D&I efforts generally. Employers are thus encouraged to monitor the landscape for ripple effects in the coming months and consider how best to mitigate risk consistent with their strategy, values, and culture.

Please reach out to the authors or your DLA Piper relationship attorney if you have questions about how the Supreme Court’s decision may impact your diversity and inclusion initiatives.