In recent developments, a couple of court cases need to be noted by employers who do diversity activities. The first is the Fearless Fund case. Fearless Fund is an investment fund that sought to administer a contest that would have awarded $20,000 grants to small businesses owned by Black women. The American Alliance for Equal Rights (the Alliance), an organization led by Edward Blum, who led the charge against the Harvard and University of North Carolina’s race-conscious admissions policy, filed a federal lawsuit in Georgia against Fearless Fund stating the contest violated Section 1981 of the Civil Rights Act because the contest is a contract situation.
The trial court refused to issue an injunction to stop the contest. On appeal to the 11th Circuit Court of Appeals, a preliminary injunction was issued. The Court ruled in a 2-1 decision that the Fearless Fund's contest is substantially likely to violate Section 1981 of the Civil Rights Act, 42 U.S.C. § 1981, which prohibits race discrimination in making and enforcing private contracts. The Court found that (1) the plaintiff had organizational standing to sue because its (non-Black or male) individual members (who were not named in the complaint) were, but for the fact that the contest was limited to Black women, "able and ready" to apply to the Fearless Fund contest; (2) Section 1981 applied because the contest was a "contract"; and (3) no available defenses applied.
The contest was considered a contract by the Court because:
“a contract [is] an agreement between competent parties that is supported by consideration, mutual consent, and mutual obligation. That definition fits Fearless's contest to a T. Under [the contest rules], a winning entrant obtains $20,000 and valuable mentorship and, in return, grants Fearless permission to use its idea, name, image, and likeness for promotional purposes and agrees to indemnify Fearless to arbitrate any disputes that might arise.”
As such, § 1981 would apply to this case. It did not help that the Fearless Fund changed the terms of the contest. The original language had "by entering this contest, you agree to these official rules, which are a contract." But after the lawsuit was filed, Fearless Fund dropped the "contract" language from its rules and tweaked the specific benefits and obligations exchanged by Fearless Fund and its applicants.
Interestingly enough, Fearless Fund had a First Amendment defense that was easily swept aside by the Court, which held that the contest is not protected under the First Amendment because the First Amendment protects only the "right to harbor bigoted views" but not the practice of a "categorial race-based exclusion."
In another situation that did not involve a lawsuit, Tractor Supply implemented DEI programs within the company. However, an influential social media personality started a campaign against the company for hosting such programs. Robby Starbuck, a former Hollywood director turned conservative activist, posted a message on the social-media platform X saying, “It’s time to expose Tractor Supply.” He then said. “Let’s start buying what we can at other places.” Starbuck has about half a million followers on X, and the post spread quickly,
In response, management decided that its DEI programs at the rural chain were over, including related job roles, and so were some of its environmental initiatives and other causes frequently championed by social progressives.
As the Wall Street Journal points out:
“The effectiveness of Starbuck’s campaign—and Tractor Supply’s swift and decisive reversal—show how the tide has turned against efforts to promote diversity and inclusion in American corporations. Four years ago many companies saw it as a necessity to support these policies. Today some see it as too much of a risk.”
The takeaway for HR is not to have blinders on from those who might attack any DEI program. In today’s world it can come from anywhere. It does not mean that all diversity efforts need to be stopped. Programs such as celebration of various months, acknowledgement of various peoples, and fostering respect for all is still ok. The programs that may be leaning towards social equity are the problem. However, for federal contractors, diversity hiring and succession plan programs are still permitted for the time being, yet two cases, one against IBM by the Missouri Attorney General and one against Northwestern University by a private individual both argue that race based hiring initiatives violate the law.
Source: Arnold & Poter, 6/28/24, Am. All. for Equal Rts. v. Fearless Fund Mgmt., LLC, 103 F.4th 765 (11th Circuit Court of Appeals, 6/3/2024), The Wall Street Journal 6/30/24