How Companies Can Prepare for the Next Round of DEI Litigation

This article was also published by the Harvard Law School Forum on Corporate Governance.

Within weeks of the Supreme Court’s decision striking down affirmative action in college admissions last year, Republican attorneys general for 13 states sent a letter to Fortune 100 CEOs condemning their DEI initiatives in the workplace. They threatened to hold companies accountable for “illegal preferences” in employment and contracting practices.

Missouri Attorney General Andrew Bailey has made good on that threat by filing the first lawsuit by a state Attorney General against a company for allegedly violating the Missouri Human Rights Act. Bailey asserts that IBM subjects job applicants to unlawful racial and gender quotas and bases employees’ pay and employment statuses on whether they participate in DEI practices that he alleges are discriminatory.

“It has come to my attention that IBM has adopted an unlawful policy that blatantly favors applicants of a certain skin color over others, and that managers within the company who refuse to comply with said policy face adverse action, including and up to, termination. . .” Bailey said. 

When making employment decisions, the suit alleges, IBM uses a “diversity modifier,” a standard requiring the company to annually obtain certain hiring quotas based on race, color, national origin, sex or ancestry. Racial and gender quotas violate the Missouri Human Rights Act, which protects job applicants and employees from unlawful, discriminatory practices. 

For companies that believed that the backlash over corporate DEI initiatives was declining after a flurry of litigation, the Missouri lawsuit is a stark reminder that companies with a commitment to diversity remain under scrutiny and need to make sure those initiatives are legally compliant. 

How Companies Can Advance DEI Amidst Increasing Legal Scrutiny

Here is what companies can do in reaction to this latest attack on corporate DEI initiatives:

1. Assess DEI programs, even if changes have been made, to ensure they are legally compliant. 

• That assessment should involve an audit of whether the language of those initiatives will pass legal muster. It also should encompass how managers and employees interpret and apply the programs. 
• Programs that are exclusionary or reward decision-making based on race or another protected characteristic—or that set goals with quotas—represent the “low hanging fruit” for successful legal challenges.

2. Determine whether your company has operations in states whose Attorney General signed the July 2023 letter threatening litigation over DEI initiatives—and act accordingly.

• Those states are Kansas, Tennessee, Alabama, Arkansas, Indiana, Nebraska, Iowa, South Carolina, Kentucky, West Virginia, Mississippi, Missouri and Montana.
• Companies in those states should accelerate assessments of their DEI initiatives as no doubt other state Attorneys General will file similar suits, especially in the run-up to the 2024 elections.

3. Increase internal controls over public disclosures of DEI initiatives to make sure they are accurate and consistent with programs and objectives.

4. Continue to determine and articulate the business case for diversity.

•  Point to objective and measurable gains companies with a commitment to advancing diversity have achieved.

Orrick’s DEI Task Force working with our State Attorneys General Practice can advise you on the risks you face in the jurisdictions in which you operate and provide bespoke solutions to reduce the risks associated with advancing diversity.