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Employers at the Crossroad: The DEI Data Dilemma
Tuesday, June 1, 2021

The social movements occurring across our country have some companies and organizations renewing their focus and commitment to making long-term changes and fostering a more inclusive workforce through Diversity, Equity and Inclusion (DEI) initiatives. Many companies have been moved to publicly commit to address historical disparities experienced by underrepresented groups and provide information and data to acknowledge the problem and be part of the solution.

But organizations are discovering that instituting a DEI initiative is a complex and dynamic endeavor that requires a strategic, comprehensive plan and an effective monitoring process. Employers must consider carefully the compliance challenges, the cause of any DEI gaps, and the best way to move their organization toward their goals while proactively avoiding or mitigating potential legal and reputational damages resulting from a class and collective action alleging systemic discrimination.

In this issue of the Class Action Trends Report, Stephanie L. Adler-Paindiris, a principal in the Orlando office of Jackson Lewis and co-leader of the firm’s General Employment Litigation Practice Group, and Michael D. Thomas, a principal in the firm’s Los Angeles office, discuss the complex intersection between an employer’s legitimate desire to be part of the solution and the possible risks of remedial efforts.

The quandary

“Statements and supporting data acknowledging race-based disparities can be powerful tools for employers seeking to advance meaningful change and equity in the workplace,” Michael Thomas notes. A business or organization also may face mounting pressure from politicians, employees, advocacy groups, and activist shareholder groups to produce such information. For example, on March 18, 2021, House Committee on Financial Services Chairwoman Rep. Maxine Waters and Chair of the Subcommittee on Diversity and Inclusion Rep. Joyce Beatty sent a letter to the nation’s 31 largest investment firms requesting DEI-related data, including:

  • Workforce and board diversity;

  • Spending with diverse suppliers, including the use of diverse asset management firms; and

  • Challenges implementing diversity and inclusion policies and practices.

Many employers are thinking about how they are addressing the issues and whether they should discuss publicly what they are doing about them. “However, if made without engaging in a strategic process with the assistance of counsel and under privilege, these disclosures and actions can derail the company’s DEI efforts and create class exposure for the employer,” Stephanie Adler-Paindiris warns. This area of law is full of landmines that must be navigated carefully to advance important DEI goals while protecting the organization. The decision of whether a company should disclose information depends on a variety of factors, including legal requirements, internal pressure, and public relations.

Employers that release DEI data without the assistance of counsel risk inviting adverse consequences, such as increased scrutiny by government agencies regarding alleged systemic discriminatory practices. Similarly, shareholder derivative lawsuits may seek to hold directors and officers of major companies accountable for alleged failures to uphold their commitment to diversity, equity, and inclusion. Unfortunately, many of the lawsuits sometimes originate with data released by an employer in an effort to support its DEI programs.

The conundrum: Acknowledge pay, promotion, and other historical disparities based on race, gender, and other protected characteristics, but face costly, protracted, and unfounded litigation. How can employers be transparent about creating an equitable workplace without inviting a potential class action lawsuit?

Proactive steps

Employers must be thoughtful when developing a comprehensive DEI strategy. This is especially so when considering aggregating or releasing DEI-related data,   and it is imperative for employers to anticipate the potential business and legal impact of releasing data. The risks include, but are not limited to, monetary exposure, injunctive relief, and reputational damage. Based on their public statements and strategic plans, the U.S. Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) have placed greater emphasis and scrutiny on potential discriminatory systemic practices and pay equity — a trend that will undoubtedly increase under the Biden administration.

With these considerations in mind, Adler-Paindiris and Thomas suggest employers work closely with counsel to implement the following steps when pursuing a DEI initiative or in aggregating or releasing DEI-related data:

  1. Conduct a DEI assessment. Making public statements or releasing DEI-related data without first analyzing the figures and identifying targets and goals can be harmful to an organization, its workplace culture, and its employees. Moreover, it may invite a lawsuit. Therefore, a pre-disclosure assessment will be most advantageous. However, even if the employer has already made public statements or commitments, it is not too late to work with legal counsel to assess current DEI initiatives to determine where performance is not meeting objectives and to identify steps to adjust or enhance efforts.

Understandably, many corporations postpone or avoid completely their DEI assessments out of fear such assessments will uncover major diversity deficiencies and ultimately result in significant legal, financial, and reputational damage. However, these are reasons to be proactive and conduct the assessment with the guidance of counsel. Adler-Paindiris and Thomas encourage organizations to meet the moment, assess their DEI initiatives, and work with counsel to safely address any shortcomings.

  1. Implement “race/gender-neutral” DEI efforts. DEI measures and initiatives that are designed and implemented in a race- and gender-neutral fashion are significantly less likely to raise legitimate legal issues. These include reviewing policies and practices for biases or revising job descriptions and announcements for requirements that could limit the pool of job applicants.

Importantly, where neutral measures have failed, the U.S. Supreme Court and the EEOC have authorized race/gender-conscious programs and employment selection decisions as exceptions to the prohibition under Title VII of the Civil Rights Act against taking race and gender into account in employment decisions — provided such actions are taken pursuant to a compliant Voluntary Affirmative Action Plan (VAAP) covering all the necessary requirements. Consistent with the rationale and requirements of the leading cases on this issue, the EEOC also has established VAAP guidelines.

  1. Focus on pay equity; monitoring and benchmarking. Consider proactive pay equity analyses by gender, race and ethnicity, age, and other factors to remediate inequities. Use advanced regression analyses for pay equity and adverse impact analyses of various job categories and workplace functions to facilitate prompt corrective actions. Also, consider ongoing monitoring of workplace DEI performance to proactively prevent patterns of workplace inequities — or the appearance of such inequities — from emerging. There is an array of tools that can be employed to better assess corporate performance in the workplace, including:

  • Regular statistical benchmarking (including creation of industry/geographic-specific databases) of workforce demographics to determine “gaps/underutilizations” and address them on an ongoing basis;

  • Dramatically increased use of “big data” to identify status, trends, and problems to assist in addressing them; and Industrial/organizational psychologists and other experts to create and validate pre- and post-employment tests.

  1. Adopt enhanced EEO policies and related training. Ensure that all company workplace fairness policies are recognized as a senior management priority, and that they are regularly updated, accurate, and available to all employees. It is also important to provide comprehensive training of affected personnel to ensure that practices effectively implement company policies.

    Similarly, ensure the organization’s internal complaint systems, processes, and outcomes enhance credibility with employees. This will help prevent employees from seeking an alternative “external source” (such as private counsel) and can serve as a high-functioning “early warning system” to aid both the company and its employees.

  2. Develop an authentic DEI narrative. Finally, it can be helpful to develop a narrative around DEI data that authentically represents the voices and experiences of the organization’s workforce. Both internal and external stakeholders are asking for DEI-related data and greater transparency. If an employer decides to release data, it should underscore DEI goals: know the intended goals for collecting data, understand the data, and be specific in what it does with that data.

    Once an employer is confident with its data, even if the numbers are not as anticipated, it should work with legal counsel on a narrative that resonates with diverse employees, allies, and other stakeholders in order to build “buy in.” Only if the narrative is authentic to the organization and its employees will leaders be able to build credibility and trust and minimize the likelihood employees will seek an alternative avenue to address workplace concerns. 

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