The Legal Assault on Corporate Diversity Efforts Has Begun

Comcast
settled a case accusing it of illegally favoring minority-owned small-business customers with grants and marketing advice.
Amazon
has been sued in Texas over a program offering an extra $10,000 to Black- or Latino-owned delivery-service contractors.
Starbucks
directors and executives are being sued by a shareholder arguing they violated their duty to investors by supporting diversity policies. 

Dozens of corporate law firms and major employers have received letters from Republican officials warning them to adhere to laws prohibiting racial quotas and preferences in employment and contracting decisions.

Edward Blum,
who also organized the challenge that culminated in the U.S. Supreme Court’s decision to overturn affirmative action, used a recently formed nonprofit group to sue Georgia investment manager Fearless Fund, charging that a grant program for startups is discriminatory. Fearless makes early-stage investments in businesses run by women of color.

Companies say their initiatives fall within the law. Many say they remain committed to increasing the demographic diversity of their workforces and suppliers, citing business benefits and the hurdles some groups continue to face in American corporations. 

Privately, many are asking their lawyers if and how much they should modify their methods in light of the affirmative-action decision.

Many of the legal efforts against corporate diversity programs predate the high court’s June 29 decision. That ruling, centered squarely on higher-education admissions, didn’t address employment or business practices. 

But it added momentum to an effort by conservative activists and public officials to challenge corporate diversity programs. Companies have long relied on rationales similar to those buttressing affirmative action at universities—that there are benefits to diversity. By dismissing that rationale, the high court weakened the justification for other programs that promote it. 

“Anything a company’s doing that is treating someone differently because of their race, even if it’s a small part of the decision-making process, is going to be scrutinized,” said Dan Lennington, a former Wisconsin deputy solicitor general and deputy counsel for Wisconsin Institute for Law and Liberty, the legal group behind the Comcast lawsuit.

Employment lawyers say it is likely a matter of time before one of these cases reaches the Supreme Court. Some companies have decided they aren’t going to wait for the court to weigh in. That is especially true for programs that were quickly adopted after the May 2020 killing of George Floyd in police custody, said Angela Berg, who led the global DEI practice at HR consulting firm Mercer and now consults independently.

Some executives “were uncomfortable with equity programs from the get-go,” said Berg, referring to initiatives such as mentorship or training programs. The Supreme Court has changed the risk calculation, she said.

Companies are evaluating diversity programs in light of litigation threats that often seem designed to stoke public fear, said Fordham University law professor Atinuke Adediran. She has received inquiries on the subject from an association of human-resources officers at large companies. “Most of what the firms are doing for diversity is legal,” she said. “Companies may need to be ready to defend themselves.”

A Civil War weapon

Cable giant Comcast limited a small-business grant program to companies at least 51% owned and operated by someone identifying as Black, indigenous, a person of color, or female—people the company said had been disproportionately affected by the coronavirus pandemic.

The Wisconsin Institute for Law and Liberty, in suing Comcast in April 2022, cited the 1866 Civil Rights Act. One provision often referred to as Section 1981 says all Americans should have the same rights to sue and enforce contracts “as is enjoyed by white citizens.” The Wisconsin Institute, which says it supports litigation promoting “individual initiative and ordered liberty that leads to prosperity,” essentially turned that section on its head by gathering several white, male business owners as plaintiffs.

In mid-September, when Comcast announced the next round of grants, it opened the program to all small businesses. Two months later, Comcast settled the litigation.

A Comcast spokesman declined to comment. In a news release about the program in May, Comcast described the program as evolving “from helping businesses survive the pandemic, to helping businesses and their communities thrive with a focus on economic growth.”

A federal lawsuit against Amazon.com filed outside Dallas in July 2022 also invokes the 1866 law. It targets a program awarding an additional $10,000 to Black, Latino and Native American delivery-service contractors to defray startup costs. The lawsuit also criticizes an Amazon program aimed at helping Black-owned businesses sell products on Amazon’s website. 

The plaintiff, a Denton County, Texas, resident, wants to apply to start an Amazon delivery-service contractor, but says she won’t until the company eliminates the assistance for minority contractors or offers whites and Asians the same benefit, the complaint says. The plaintiff can’t apply to become an Amazon delivery service partner “without subjecting herself to racial discrimination,” the lawsuit says.

The case seeks class-action status. It was filed by attorneys including the general counsel of America First Legal, a Washington, D.C., nonprofit headed by former Trump administration adviser

Stephen Miller.
America First Legal describes itself as combating “an unholy alliance of corrupt special interests, big tech titans, the fake news media, and liberal Washington politicians.”

Amazon has moved to dismiss the lawsuit, saying its selection process for delivery contractors is race-neutral and that the plaintiff doesn’t have standing to sue because she hasn’t applied to be an Amazon contractor. 

In court filings, the company calls her complaint “the epitome of an abstract and generalized grievance by a member of the general population about an internal corporate program that has no actual effect on her.” 

Amazon declined to comment on the lawsuit. “We believe in the importance of diversity, equity, and inclusion,” a spokesman said in a written statement. “We’ll investigate the potential impact of any legal decisions on our programs and adjust as necessary to comply with the law.”

The workplace discrimination argument

Title VII of the Civil Rights Act of 1964 bans workplace discrimination. The recent affirmative-action decision didn’t address employment practices directly. But Supreme Court Justice

Neil Gorsuch
in a concurring opinion noted “materially identical language” on discrimination in the laws governing higher education and employment. 

Starbucks officers and directors were sued in August 2022 by National Center for Public Policy Research, a conservative think tank that owns 56 shares in the coffee chain. It accuses Starbucks of violating Title VII and Section 1981, and the officials of breaching their fiduciary duty to shareholders by embracing policies it says violate antidiscrimination law in areas including employment, supplier contracts and executive compensation.   

Under the policies, Starbucks says it wants at least 30% of its workforce at all levels to be Black, indigenous or people of color by 2025. It plans to implement an analytics tool that lets managers see their progress and uses workforce diversity measures to help set executive pay.

Starbucks and company officials are seeking to dismiss the case, with a hearing scheduled for Friday. They say NCPPR hasn’t shown any real harm from the policies, which are covered by a legal principle that gives company officials broad discretion in running their business, and that courts have upheld diversity policies as permissible. Abandoning them would leave Starbucks vulnerable to other litigation, they say. 

“We remain committed to creating a culture of warmth and belonging, where everyone is welcome,” a company spokeswoman said. 

In court, Starbucks and its officials also argue NCPPR doesn’t represent shareholders, who have rejected previous proxy proposals from the group suggesting Starbucks favors liberal or “woke” perspectives.

Coca-Cola
is among the companies that has already backtracked. In early 2021, then-General Counsel

Bradley Gayton
addressed a letter to outside law firms saying that 30% of new legal work for the soda giant should be performed by lawyers who are women, LGBTQ+, disabled or members of racial and ethnic minority groups. Law firms had to report demographic data to Coke, which could cut their fees if the guidelines weren’t met, the letter said. Gayton stepped down from the role three months later.

American Civil Rights Project, a nonprofit law firm that also represents NCPPR in its Starbucks lawsuit, threatened to sue Coke on behalf of shareholders. In a letter to the company that June, the group called the policies “textbook violations” of Section 1981.

In early 2022 Gayton’s successor, Monica Howard Doublas, wrote to the American Civil Rights Project that while the company remained fully committed to advancing DEI in the legal profession, she had contacted law firms to tell them the guidelines were never company policy. 

A chilling effect

America First Legal Foundation, the group backing the Texas lawsuit against Amazon, has written to the Equal Employment Opportunity Commission, urging the four current commissioners to bypass the usual complaint process and open investigations into diversity practices at a range of brand-name companies.

Andrea Lucas, who was nominated to the commission by President Trump, declined to comment on the likelihood that she or other commissioners would open investigations. She said she sees “significant legal and practical risk” in many corporate diversity programs. “Equal opportunity is our charge,” she said of the agency’s mission, “but the law does not demand equal outcomes.”

Civil-rights lawyers say conservative activists’ arguments distort the original purpose of laws designed to protect groups that, historically, have had fewer labor-market opportunities or difficulty cracking corporate ceilings.

“The intent here is more political gain and a chilling effect—unfortunately it’s effective,” said Katy Youker, an attorney with the Lawyers’ Committee for Civil Rights Under Law, which has been tracking challenges to corporate programs.

In Florida, a federal judge last year halted enforcement of provisions in HB 7, better known as the Stop Woke Act, which would have restricted private employers from conducting some diversity-related training. The judge said the measures violated companies’ free speech rights. Gov.
Ron DeSantis’s

administration has appealed the decision.

The pressure leaves employers vulnerable to litigation for either going too far or not far enough in addressing barriers to equity and inclusion, lawyers say.

“Employers still have obligations to comply with civil rights statutes,” said Charles McLaurin, senior counsel with the NAACP Legal Defense and Educational Fund. Rolling back DEI programs designed to expand workplace opportunities, he added, “has the potential of creating a hostile environment for certain marginalized groups. Companies would still face exposure.”

Write to Theo Francis at theo.francis@wsj.com and Lauren Weber at Lauren.Weber@wsj.com