20 June 2024

Recent Court Decision May Become a Roadmap For Challenging DEI Initiatives

The lawsuit, American Alliance for Equal Rights v. Fearless Fund Management, LLC, was brought by the American Alliance for Equal Rights (AAER), a nonprofit organization opposed to race-based classifications and preferences, against the Fearless Fund and related entities. The lawsuit centered around the Fearless Strivers Grant Contest, a competition offering $20,000 grants, along with mentorship opportunities, exclusively to businesses owned by Black women.

AAER argued that the grant program violates 42 U.S.C. § 1981, which prohibits race discrimination in the making and enforcement of contracts. Fearless Fund countered that the grants were not contracts and should be considered charitable contributions protected under the First Amendment. They further argued that their program fell under the “remedial programs” exception to § 1981, which permits race-conscious initiatives to address racial imbalances.

The Eleventh Circuit ultimately sided with AAER, concluding that the grant program likely violates § 1981 because the grants, in exchange for promotional considerations, constitute contracts. Additionally, the court found Fearless Fund’s program does not meet the requirements for the “remedial programs” exception since it creates an “absolute bar” to entry for non-Black women. The court also rejected Fearless Fund’s First Amendment defense, distinguishing between advocating for and engaging in discrimination.

This ruling has significant implications for the broader landscape of diversity, equity, and inclusion (DEI) initiatives. It follows a trend of legal challenges against corporate DEI programs across various organizations, including Amazon, Pfizer, Progressive Insurance, and Starbucks. The AAER, spearheaded by Edward Blum, who also played a key role in the Students for Fair Admissions v. Harvard case that led to the Supreme Court limiting race-based college admissions, has been instrumental in these challenges. This suggests a potential shift in the legal interpretation and acceptance of race-based DEI programs in corporate and non-profit settings.

The Eleventh Circuit’s decision to uphold the standing of AAER, despite representing three anonymous business owners who claimed they would have applied to the Fearless Fund program but for the race-based eligibility criteria, adds another layer of complexity. This aspect has led to a “circuit split” as it contradicts a previous ruling in the Second Circuit, where standing was denied to an organization challenging Pfizer’s fellowship program due to the anonymity of the plaintiffs.

While this ruling is not binding in Michigan, as it falls under the jurisdiction of the Eleventh Circuit (covering Alabama, Florida, and Georgia), it underscores the evolving legal landscape surrounding DEI initiatives. In light of these developments, Miller Johnson strongly advises clients to proactively review their corporate governance practices, organizational documents, mission statements, and DEI programs to discern whether those practices and programs are impacted by this developing area of law. A proactive approach will help clients understand potential legal risks while effectively pursuing their organizational goals and values concerning diversity and inclusion.