On June 29, 2023, the U.S. Supreme Court struck down the affirmative action student admissions practices at Harvard College and the University of North Carolina at Chapel Hill (UNC) in a pair of cases brought by Students for Fair Admissions (SFFA).

On its face, the decision does not directly concern employment, as the Supreme Court’s prior ruling in Grutter v. Bollinger (2003) endorsing the limited use of race in pursuing the educational benefits of diversity was a special exception for college admissions that never applied to public and private employers.

However, the Supreme Court relied expressly on case law concerning race in employment to reach its decision in SFFA. And the SFFA decision’s holdings and language will have broader implications for corporate hiring practices, affirmative action for government contractors and other diversity, equity and inclusion (DEI) initiatives — and those effects may be felt sooner rather than later.

Background

As McGuireWoods noted in a June 29, 2023, alert, in SFFA a six-justice majority held that the admissions processes at Harvard and UNC violate Title VI of the Civil Rights Act of 1964 and, with respect to UNC as a public university, the Equal Protection Clause of the Fourteenth Amendment in the manner in which the schools consider race. The Supreme Court further held that the prior use of race as a stand-alone “plus factor” is unlawful because, among other reasons, “by accepting race-based admissions programs in which some students may obtain preferences on the basis of race alone, respondents’ programs tolerate the very thing that Grutter foreswore: stereotyping.”

Key Indirect Employment Implications

Most immediately, the Supreme Court’s decision is significant for government contractors and other entities involved in federally funded programs or activities, which are covered by, among other things, Title VI of the Civil Rights Act of 1964 (Title VI), Title VII of the Civil Rights Act of 1964 (Title VII) and/or Executive Order 11246.

The Supreme Court, in a majority opinion authored by Chief Justice Roberts, analyzed Harvard’s and UNC’s admissions policies under the Equal Protection Clause, noting in a footnote that, under Gratz v. Bollinger (2003), an admissions policy violates Title VI if it would also violate the Equal Protection Clause. The majority opinion also expressly relied on as support and cited four times to Richmond v. J.A. Croson Co. (1989), which held that a city’s race-based set-aside program for construction contracts violates the Equal Protection Clause. The majority also noted the dissents’ failure to address Croson.

Justice Gorsuch, joined by Justice Thomas, wrote separately in SFFA to say that the admissions practices at issue violate the plain meaning of Title VI — describing the statutory language as similar to Title VII in that “[b]oth Title VI and Title VII codify a categorical rule of individual equality, without regard to race.” Justice Gorsuch also noted that Title VI “prohibits only intentional discrimination,” citing to case law that there is no private right of action to enforce disparate-impact regulations under Title VI. As federal agencies continue to enforce disparate-impact regulations under Title VI, such regulations may become subject to a legal challenge in the aftermath of SFFA. Thus, arguably, the legal holdings and dicta in the SFFA decision may have later flow-down uses in challenges against and by federal contractors, subcontractors and other employers that receive federal funds.

More generally, the SFFA opinion suggests that federally required and voluntary affirmative action and other DEI initiatives will come under increased legal scrutiny in the corporate context. Several aspects of the Supreme Court’s ruling are likely to be cited in pending and future plaintiff cases challenging corporate hiring and other DEI practices — and as a defense in Office of Federal Contract Compliance Programs (OFCCP) and other enforcement agency actions. Challengers may argue, for example:

1. That the proffered rationales for affirmative action in education (like “producing new knowledge stemming from diverse outlooks,” “promoting the robust exchange of ideas” and “fostering innovation and problem-solving”), while reflecting “commendable goals,” are too amorphous to justify what the SFFA majority described as “the perilous remedy of racial preferences” — such that a similar argument could, in theory, be applied to DEI justifications generally.
2. That there is no “meaningful connection between [the] means [companies and other entities] employ and the goals they pursue” because affirmative action and other DEI programs assertedly rely on “opaque racial categories” that are “imprecise in many ways,” in some cases “plainly overbroad” and in other cases “underinclusive.”
3. That affirmative action in employment and vendor selection necessarily harms some individuals based on race, since contracting and hiring (like the Supreme Court asserted in SFFA regarding admissions) is arguably “zero-sum” where “[a] benefit provided to some applicants but not to others necessarily advantages the former group at the expense of the latter.”
4. That certain DEI practices and federally required affirmative action arguably violate Title VI’s and/or the Equal Protection Clause’s prohibition on racial stereotyping, citing the Supreme Court’s statement that “[w]e have time and again forcefully rejected the notion that government actors may intentionally allocate preference to those ‘who may have little in common with one another but the color of their skin.’”
5. That, although per the Supreme Court, “nothing in this opinion should be construed as prohibiting ... [consideration of] an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise,” Title VI does not permit “simply establish[ing] through ... other means” explicitly race-based policies that the Court found unlawful.

Further, several cases are already percolating through lower courts in which plaintiffs allege corporate DEI initiatives violate federal and state nondiscrimination laws. In the wake of the Supreme Court’s SFFA college affirmative-action ruling, these and similar suits are likely to gather steam.

Other Likely Legal Challenges (Including Some Beyond Employment)

The SFFA decision gives ample reason to believe that the current Supreme Court and some lower courts may be receptive to legal challenges: (a) to corporate practices that bear similarities to the admissions policies at Harvard and UNC; and (b) under similar nondiscrimination statutes. Federal laws prohibiting racial discrimination in the private sector include the following:

• Title VI of the Civil Rights Act (for federally funded programs and activities) provides that “[n]o person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.”

• Title VII of the Civil Rights Act (for employers) provides that “[i]t shall be an unlawful employment practice for an employer (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual ... because of such individual’s race, color, religion, sex, or national origin; or (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities ... because of such individual’s race, color, religion, sex, or national origin.”

• Executive Order 11246 (for covered federal contractors and subcontractors) provides that “[t]he contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, sexual orientation, gender identity, or national origin.”

• 42 U.S.C. 1981 (for private contracts) provides that “[a]ll persons within the jurisdiction of the United States shall have the same right ... to make and enforce contracts ... as is enjoyed by white citizens.”

• Section 1557 of the Affordable Care Act (for healthcare providers) provides that “an individual shall not, on the ground prohibited under title VI [and other federal anti-discrimination laws] be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving Federal financial assistance.”

The Supreme Court’s college affirmative action decision will significantly influence how federal courts — and the Supreme Court itself in future cases — construe these laws going forward.

Potential Implications for Federal Contractors’ Affirmative Action Plans

In addition to the above, although the terminology is similar, employers should know that nothing in the Supreme Court’s SFFA college affirmative action decision strikes down the current legal structures that allow federally required affirmative action in employment for covered federal contractors and subcontractors (or voluntary employment affirmative action programs in certain other instances).

However, future challengers may assert that three aspects of current OFCCP affirmative action plan (AAP) regulations arguably conflict with the Supreme Court’s analysis in SFFA: (1) the premise of statistical balance with a qualified labor market, especially where an employer’s current employee representation (or “incumbency”) is significant; (2) the lack of any temporal endpoint (i.e., OFCCP regulations may require a covered employer to establish a placement goal in a job category that in prior years never needed one); and (3) the suggestion that the development and implementation of AAPs are not designed to address an employer’s own historical discrimination but to address societal discrimination or diversity generally.

For example, per the Supreme Court in SFFA:

The problem with these approaches is well established. “[O]utright racial balancing” is “patently unconstitutional.” That is so, we have repeatedly explained, because “[a]t the heart of the Constitution’s guarantee of equal protection lies the simple command that the Government must treat citizens as individuals, not as simply components of a racial, religious, sexual or national class.” By promising to terminate their use of race only when some rough percentage of various racial groups is admitted, respondents turn that principle on its head. Their admissions programs “effectively assure that race will always be relevant ... and that the ultimate goal of eliminating” race as a criterion “will never be achieved.”

Additional Considerations for Corporate Diversity Programs

The SFFA ruling adds to an already complex legal landscape for corporate legal departments. In addition to private plaintiffs challenging corporate practices, companies face increased scrutiny from shareholders both for the DEI policies they adopt (or fail to adopt) and for their alleged failure to live up to those commitments. State and federal regulators also scrutinize corporate hiring and other practices, sometimes from opposite perspectives. Finally, public interest organizations such as American First Legal are likely to increasingly target corporate diversity programs in the aftermath of SFFA.

Corporate counsel should be aware of the types of claims that are being brought — and may be brought in the future — and should consider how they can appropriately evaluate and manage legal risk while pursuing their companies’ DEI objectives.