As expected, the U.S. Supreme Court’s ruling in the Students for Fair Admissions Inc.’s lawsuit against Harvard University and the University of North Carolina, which challenged the constitutionality of the universities’ race conscious admission policies, has quickly created a division along ideological lines as to what the ruling means for workplace diversity, equity, and inclusion (DEI) initiatives, including in the financial services industry.
Unlike college affirmative actions which are governed by Title VI of the 1964 Civil Rights Act, private workplace DEI programs are governed by Title VII of the Act as well as other federal and state employment anti discrimination laws. Using protected characteristics, such as race, to make employment decisions is generally illegal under these laws.
On July 13, 2023, a group of 13 Republican state attorneys general sent a letter to the CEOs of Fortune 100 companies to “remind you of your 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.” The Republican AGs assert that “racial discrimination in employment and contracting is all too common among Fortune 100 companies and other large businesses” and that discriminatory practices include “explicit racial quotas and preference in hiring, recruiting, retention, promotion, and advancement” as well as “race-based contracting practices, such as racial preferences and quotas in selecting suppliers.”
The AGs assert that the Supreme Court’s rationale for striking down the universities’ affirmative action programs under Title VI applies equally to Title VII and other laws restricting race-based discrimination in employment and contracting. They observe that “[c]ourts routinely interpret Title VI and Title VII in conjunction with each other, adopting the same principles and interpretations for both statutes.” They further observe that “State courts frequently look to Title VII to interpret their own prohibitions against race discrimination in employment practices.” The AGs conclude their letter by urging the CEOs “to immediately cease any unlawful race-based quotas or preferences your company has adopted for its employment and contracting practices” and by warning the CEOs that “if you choose not to do so, know that you will be held accountable—sooner rather than later—for your decision to continue treating people differently because of the color of their skin.
Reacting to the Republican AGs’ letter, a group of 21 Democratic state attorneys general, on July 19, sent a letter to the Fortune 100 CEOs “to reassure you that corporate efforts to recruit diverse workforces and create inclusive work environments are legal and reduce corporate risk for claims of discrimination.” Going further, the Democratic AGs call the Republican AGs’ letter “an attempt to intimidate the businesses and workers of America” and urge businesses “to double-down on diversity-focused programs because there is still much more work to be done.” The Democratic AGs stress that the SCOTUS decision “does not directly address or govern the behavior or the initiatives of private sector businesses.” They point out that Title VII, not Title VI, applies to private sector employers and assert that “it is irresponsible and misleading to suggest that [the SCOTUS decision] imposes additional prohibitions on the diversity, equity, and inclusion initiatives of private employers.”
The Democratic AGs note that following the SCOTUS decision, the Equal Employment Opportunity Commission issued a statement clarifying that it remains lawful for employers to implement DEI and accessibility programs. The Democratic AGs state that private employers “should continue to be aware of the demographics of their workforce and their contracting partners, and make efforts to recruit, attract , and retain diverse workforces consistent with the strictures of Title VII and [42 U.S.C.] Section 1981.” The AGs indicate that “[c]ompanies remain free to remedy historic inequities” by: (a) adjusting recruiting practices, (b) developing better promotion and retention strategies, and/or (c) furthering leadership development and accountability.”
Most recently, Rep. Maxine Waters (D-Calif.), who is the Ranking Member of the House Financial Services Committee, joined the public discourse on the implications of the SCOTUS decision on the financial services industry. Rep. Waters was the chief architect of Section 342 of the Dodd-Frank Wall Street Reform Act, which established the Offices of Women and Inclusion within financial regulatory agencies and was designed to create fair and inclusive work environments within the financial services industry. In her August 7, 2023 letter to the CEOs of the Fortune 100 financial services companies, Rep. Waters discusses the continued need for workplace diversity initiatives and expresses her hope that the Democratic AGs’ letter “reassures you that efforts to achieve a diverse workforce and inclusive workforce environment is not only legal, but also avoids discriminating against diverse groups who have long been excluded from top companies.”
Beyond the public exchange of letters, we anticipate increased litigation that ultimately may impact the legality of certain DEI initiatives that have become best practices under Section 342 and beyond. Ballard Spahr is tracking these issues closely. We recently released an episode of Ballard Spahr’s Business Better Podcast in which we discuss the SCOTUS decision. Titled “Is DEI at Risk? Considerations on the U.S. Supreme Court Ruling Against Affirmative Action Programs,” the episode looks at the decision’s potential implications across multiple settings, from university admissions policies, to workplace and other DEI programs. To listen to the episode, click here.
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