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Wednesday, October 03, 2018

Diversity Requirements and Inclusion Riders

I’m excited to guest-blog here this month. A quick introduction: I’m now in my thirteenth year at the Elisabeth Haub School of Law at Pace University, where I currently serve as an associate dean and teach Employment Law, Constitutional Law, and Education Law.

During this past year, I’ve been examining the various customer/client preferences that can provide the basis for successful employer defenses to what would otherwise be actionable discrimination under Title VII.  I call them the “preferred preferences," because they actually get some deference from courts.  They include preferences like aesthetic appeal, physical privacy from the opposite sex, convenience, and more.  My article about the topic is coming out soon in the North Carolina Law Review, and a draft is available here.  I'll also be speaking about it at an employment law symposium at Belmont Law School this Friday.

In doing this research, I’ve become very interested in what might become another preferred client preference: diversity. Last year, Facebook announced that it would require women and ethnic minorities to account for at least 33 percent of law firm teams working on its matters.  (Here's the NY Times article about it.)  HP likewise announced a numerical minimum for how many female and ethnically diverse attorneys must work on their matters, warning law firms that it would “withhold up to 10% of all amounts invoiced by law firms that do not meet or exceed our minimal diverse staffing requirements.”

Even more recently, at the 2018 Academy Awards, actress Frances McDormand said—at the conclusion of her acceptance speech for the best actress Oscar—“I have two words to leave you with tonight, ladies and gentleman: inclusion rider.” McDormand was drawing on the work of Professor Stacy Smith, a USC communications professor who coined the “inclusion rider” term a few years ago.   The basic concept is for prominent actors and actresses to insist upon, as riders to their individual contracts with the studio, a certain level of diversity among the cast and crew.  If you're curious, Professor Smith's sample inclusion rider template appears here.

I completely understand and appreciate the sentiment behind these pushes within the corporate world and in Hollywood.   What I’m fascinated by, though, is the legal question of how much employers (whether it’s a law firm whose client is Facebook, or a studio trying to sign an A-list actor with an inclusion rider) can respond to these preferences. For example, can a law firm explicitly take race and sex into account when staffing Facebook’s matters to make sure it hits Facebook's 33% target, or does that violate Title VII’s prohibition against differential treatment on the basis of race and sex?  My view is that both doctrinally and normatively, it makes much more sense for employers to be proactive rather than reactive.   These new pushes should prompt them, even more, to  create broadly-applicable policies that promote equal employment opportunity for all employees, as opposed simply responding to individual client or customer diversity targets in a one-off fashion that may well subject them to liability.

This also connects up with the new law that California Governor Jerry Brown just signed, requiring publicly traded corporations headquartered in California to include at least one woman on their boards of directors by the end of 2019.  That said, the big difference is that now it's the government imposing this sort of target as an actual legal requirement, not just a private party expressing it as a preference. I agree with the many people who have flagged serious constitutional questions about this--to be discussed in a future post!

 

Posted by Emily Gold Waldman on October 3, 2018 at 11:41 AM | Permalink

Comments

Leaving aside the merits of the new California law, it is very likely unconstitutional as applied to corporations that are incorporated in other states. See VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 (Del. May 5, 2005).

Posted by: Douglas Levene | Oct 5, 2018 1:26:49 PM

@Emily.

"Private actors can’t be sued for violating the Constitution.."

Correct. The thrust of my first comment was to question the continuing validity of that reality. I have grave doubts that the government/private party distinction has merit in the corporate context. That is the distinction that I was saying doesn't make much sense given the practical realities of the way America is governed today.

As I see, people should be able to sue corporations for violating the constitution because in so many respects they act just like the government. One area where this change in the law is desperately needed is in the privacy arena where the government uses corporations all the time to end run around the 4A.

Posted by: James | Oct 4, 2018 1:20:39 PM

Acme Inc. requires outside counsel to staff 25% "diversity" lawyers, so Firm complies. (1) Does Firm tell Diversity Associate why she/he/zie was staffed on Acme's matter? If the Firm is fully candid, what does it say to Associate?

Suppose Diversity Associate's desired career path isn't really furthered by that particular assignment. (2) Should we conclude that that's a sacrifice worth making (although Acme and Firm aren't the ones paying the price)?

Suppose Firm hits a stagnant or retrenchment period and that 20% of Firm's revenue come from corporate clients that demand diversity. (3) Can Firm can use race, ethnic heritage, and gender in deciding who to let go?

Posted by: anon | Oct 4, 2018 12:26:14 PM

Here's another question that arises with the diversity requirement. Suppose a law firm agrees to the diversity requirement. It then competes for business with a public agency that requires it to affirm as a condition of the contract, that it doesn't discriminate in violation of the law. Can the firm honestly represent that it doesn't discriminate? What if after the contract is signed the public agency finds out about the diversity requirement? What remedies does it have? Can the person who made the representation be prosecuted for perjury?

Posted by: AYY | Oct 4, 2018 11:46:50 AM

The academy awards quote adds some glamor to the post, but relying on it for anything substantive is probably not a good idea.

The answer to your question is obvious. Of course it's a violation of Title VII. Why wouldn't it be? And if a law firm does it, they'll be violating state bar anti-discrimination rules and could at least theoretically end up in State Bar Court.

A more interesting question is whether an attorney who misses out on an assignment because of the quota system, and then sues the law firm for discrimination can bring into the suit the corporation that requires quota participation, and if so, whether the general counsel of that corporation (assuming he has made the decision to require quota participation by outside law firms) can potentially be found in violation of state bar antidiscrimination rules.
There's another question about whether the quota system serves the best interests of the shareholders so maybe the corporate law experts can address whether that presents any issues in terms of duties to shareholders.

Posted by: AYY | Oct 4, 2018 12:43:31 AM

James, I understand your point, but I was making a somewhat different one—that the CA law can be challenged in court as unconstitutional. Private actors can’t be sued for violating the Constitution (subject to some narrow exceptions that aren’t applicable here). If, say, a law firm complied with Facebook’s diversity requirement by explicitly taking race or gender into account when staffing Facebook’s matters, then the potential legal challenge would for a law firm employee to sue the law firm employer under Title VII, which does apply to private employers. So it’s not that the law firm employee would have no potential legal challenge, but just that the relevant challenge would not arise under the Constitution.

Posted by: Emily Gold Waldman | Oct 3, 2018 10:59:28 PM

"That said, the big difference is that now it's the government imposing this sort of target as an actual legal requirement, not just a private party expressing it as a preference. I agree with the many people who have flagged serious constitutional questions about this..."

It seems to me that this distinction makes as much sense as the distinction between trial rights and plea bargaining rights in the criminal law context where 98% of all cases end in plea bargains. The corporate world has expanded so dramatically and become so powerful that saying "the government can't do that but corporations can" sound really good in theory but has the practical effect of leaving most people without any protection whatsoever.

Posted by: James | Oct 3, 2018 9:35:55 PM

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