United States: Fifth Circuit Scrutinizes Corporate Diversity Initiatives

After the U.S. Supreme Court held that Harvard University engaged in unlawful racial discrimination against Asian Americans in its efforts to achieve student body diversity, businesses have rightly sought legal guidance on how to ensure that their diversity initiatives do not run afoul of their obligations under civil rights law. Two recent Fifth Circuit cases demonstrate that judges are receptive to, and litigants may therefore be inclined to bring, challenges to various sorts of corporate diversity initiatives.

In Price v. Valvoline,¹ the Fifth Circuit affirmed a grant of summary judgment to Valvoline in a Title VII employment discrimination case. But in a concurring opinion, Judge Ho highlighted "Plaintiff's contention that the use of the term 'diversity' may be evidence of his employer's discriminatory intent." The plaintiff in that case alleged that "a plant manager told a supervisor that the company 'needed more diversity in the workplace.'" And the plaintiff "took that reference to 'diversity' to mean that the company should hire fewer African Americans in the future, due to the racial composition of the existing workforce at the plant." After summarizing arguments that diversity initiatives, if not appropriately crafted, can be discriminatory, Judge Ho observed, "this won't be the last time someone objects that diversity is being used as a license to discriminate."

In Alliance for Fair Board Recruitment v. U.S. Securities & Exchange Commission, the Fifth Circuit considered a challenge to a Nasdaq rule that the SEC approved which would require Nasdaq-listed companies to have on their boards of directors at least one woman and at least one person who is either a racial minority or LGBTQ+ or else explain why the company failed to meet these diversity objectives. The Alliance for Fair Board Recruitment argued that the rule violated the Constitution's guarantees of equal protection and freedom of speech and exceeded the statutory authority of the Securities & Exchange Commission. Though a Fifth Circuit panel initially rejected the challenge,² the Fifth Circuit has granted rehearing en banc and scheduled oral argument for May 14, 2024.³

Diversity policies that seek to ensure that people of all backgrounds have opportunities to succeed in an environment that is welcoming and free of hostility are in accord with the purposes of civil rights laws. But as these two Fifth Circuit cases show, policies that appear to be crafted to achieve racial balancing or quotas are at risk of being challenged in court and held unlawful. Businesses seeking to avoid costly litigation alleging violations of civil rights laws, or who are the target of such litigation, should consult with counsel such as the attorneys in Butler Snow's Commercial Litigation practice group.

Foonotes

1. https://www.ca5.uscourts.gov/opinions/pub/23/23-20131-CV0.pdf

2. https://www.ca5.uscourts.gov/opinions/pub/21/21-60626-CV0.pdf

3. https://www.ca5.uscourts.gov/opinions/unpub/21/21-60626-CV1.pdf

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