Supplier Diversity Programs Face Increased Scrutiny And Risk As The Spotlight Brightens On Corporate DEI Initiatives

• Published date: 22 August 2023
• Subject Matter: Corporate/Commercial Law, Employment and HR, Corporate and Company Law, Contract of Employment, Discrimination, Disability & Sexual Harassment, Diversity, Equity & Inclusion
• Law Firm: Seyfarth Shaw LLP
• Author: Ms Annette Tyman, Barry Miller and Brandon L. Dixon

Seyfarth Synopsis: While the potential impact on private companies' employee-focused DEI efforts has received much attention in the wake of the recent Supreme Court higher education affirmative action cases, another strategic area of focus in many organizations' DEI efforts is supplier diversity initiatives. Those programs have faced increased legal challenges and also pose substantial risk, due to the uncertainty surrounding the application of the Supreme Court's pronouncements on affirmative action in the context of supplier diversity initiatives.

As we reported, the recent Supreme Court cases Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, and SFFA v. University of North Carolina et al. ("SFFA") have caused a flurry of activity surrounding workplace DEI initiatives. However, because the frameworks used to analyze "affirmative action" in higher education and "affirmative action" in employment are distinguishable, the practical impact of the SFFA cases is the increased scrutiny and potential future challenges to these programs. The same is true for another pillar of many corporate DEI programs: efforts to diversify supply chains.

Supplier diversity programs are susceptible to serious challenge in a post-SFFA environment. Plaintiffs seeking to challenge supplier diversity initiatives typically bring such claims under Section 1981 of the Civil Rights Act of 1866 ("Section 1981"), which prohibits race discrimination in the making and enforcing of contracts. The Supreme Court has ruled that Section 1981 "offers relief when racial discrimination blocks the creation of a contractual relationship, as well as when racial discrimination impairs an existing contractual relationship, so long as the plaintiff has or would have rights under the existing or proposed contractual relationship." Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006). Therefore, a prospective supplier that is not awarded a contract or financial benefit based either on a preference for the race of the successful bidder, or due to their race as an unsuccessful bidder, may bring a claim under Section 1981.

Title VII, Section 1981, and "Affirmative Action"

There is a long history of litigants using Section 1981 in employment discrimination cases. As a result, Section 1981 jurisprudence in the employment context has developed in parallel to Title VII. Courts, for example, have borrowed the Title VII analytical framework and applied it to Section 1981 claims in...