Auto Finance Excellence - February 2023

With affirmative action on the ropes, an upcoming Supreme Court decision likely will have ripple effects on private employers’ diversity programs.

In the current environment of mass layoffs, “talent wars,” and other workforce shifts, many employers (including lenders) are vigilantly attuned to the needs of their workers and those they seek to recruit. On its surface, affirmative action developments may not seem applicable to private companies since that practice typically impacts the higher education industry. However, since the U.S. Supreme Court uses affirmative action decisions as precedent for many other employment-based diversity decisions, employers would be well advised to note a pair of cases the U.S. Supreme Court currently is considering, which could end affirmative action programs entirely.

The court’s decision, expected in June, will have wide-ranging implications for all private employers, including lenders, particularly as investors are asking companies to disclose their diversity, equity, and inclusion goals, strategies, and workforce’s demographic makeup. Increasingly, the public’s expectations of companies have dovetailed with investors’ growing interest in diversity and inclusion.

Affirmative action sets the tone for Title VII hiring decisions

Since the late 1970s, colleges and universities have been permitted to use race as a factor in the admissions process, in some form, in a practice commonly referred to as “affirmative action.” The concept of affirmative action also is used by private employers to further their diversity goals.

For example, in the 1979 landmark case, United Steelworkers of America v. Weber, the Supreme Court addressed a voluntary plan designed to eliminate racial imbalances in a company’s craft workforce. Because Black people had historically been excluded from craft unions, only 1.83%, or five out of 273, of the craft workers at the plant in question were Black, even though the local workforce was approximately 39% Black. The company, therefore, reserved 50% of its craft-training program openings for Black employees.

Brian Weber, a white man, applied to the program and was denied because there were no spots available for him. He sued in 1974. The court upheld the voluntary program, finding that the plan was consistent with Title VII of the Civil Rights Act of 1964’s objective of “break[ing] down old patterns of racial segregation and hierarchy.”

The court later extended the Weber case’s decision to gender-based preferences in the 1987 case Johnson v. Transportation Agency. There, the employer implemented a voluntary affirmative action plan to address the significant underrepresentation of women in certain job categories. But the ’court’s holdings in Weber and Johnson did not grant employers carte blanche to implement voluntary affirmative action plans however they saw fit. Instead, according to this decision, voluntary affirmative action plans must:

• Be designed to eliminate a manifest imbalance in traditionally segregated job categories (i.e., it is remedial);
• Not unnecessarily trammel the interests of non-diverse candidates; and
• Be a temporary measure intended to attain, not maintain, a balanced workforce.

The current context

With claims of discrimination on the rise, if the court strikes down affirmative action in college admissions, then attacks on voluntary affirmative action plans are likely to soon follow. Employers will have to grapple with striking a healthy balance and managing inherent risk.

One of the most inherent risks lies in company messaging. When a company’s PR department issues diversity statements that are not properly vetted, liability can ensue. Public promises of race-based hiring quotas, for instance, could lead to liability. Employers should take care to avoid the sloppy use of labels and should proactively recognize and address the polarization that can result from DEI initiatives.

In the cases currently pending before the Supreme Court, Solicitor General Elizabeth Prelogar argued that corporate America “relies on having a diverse pipeline of individuals who had the experience of learning in a diverse educational environment and who themselves reflect the diversity of the American population.”

If diverse individuals are not admitted to college at the same or higher rates because of affirmative action, then businesses’ efforts toward diversity, equity, and inclusion may suffer. Not only may an organization’s diverse pipeline suffer, but hiring practices overall may change.

We can certainly expect an interesting debate, in the courts and in popular opinion, in the coming months. Now more than ever, employers who analyze their compliance ecosystem for diversity risks will be well-positioned to meet the workforce demands of the future.

This article was first published in Auto Finance Excellence, a sister service of Auto Finance News. McGlinchey is pleased to serve as the official Compliance partner of Auto Finance Excellence, providing insights and thought leadership through webinars, podcasts, and monthly columns.