Many companies in recent years, especially in the wake of the 2020 unrest, made pledges to advance diversity, equity and inclusion within their own workforces. However, such pledges may in fact run afoul of the law.

For example, both Microsoft and Wells Fargo made pledges to hire more Black executives for senior management positions as part of their diversity initiatives; however, the US Labor Department’s Office of Federal Contract Compliance Programs subsequently sent letters to both firms stating their actions could, in fact, be discriminatory. The agency indicated that statements made by Microsoft CEO Satya Nadella and Wells Fargo President and CEO Charles Scharf could violate federal affirmative action laws, CBS News reported.

At issue are apparent quotas (i.e., to double the number of black people), which is illegal, and whether methods to achieve those quotas are discriminatory.

Microsoft. Microsoft’s case stems from a June 2020 blog post in which it pledged to double the number of Black and African American people managers, senior individual contributors, and senior leaders in the US by 2025. Microsoft also said that senior leadership would be evaluated based upon their progress in improving diverse representation, which “will have a direct impact on year-end compensation decisions.”

Dev Stahlkopf, Microsoft’s corporate VP and general counsel, wrote in an October 2020 blog post that its OFCCP letter focused on whether Microsoft’s commitment to double the number of Black and African American people managers, senior individual contributors and senior leaders in its workforce by 2025 could constitute unlawful discrimination on the basis of race, which would violate Title VII of the Civil Rights Act.

He stated at the time Microsoft is confident that its diversity initiative complies fully with all US employment laws.

“The OFCCP suggested that this initiative ‘appears to imply that employment action may be taken on the basis of race,’” Stahlkopf wrote. “The letter asked us to prove that the actions we are taking to improve opportunities are not illegal race-based decisions. Emphatically, they are not.”

Wells Fargo. Meanwhile, Wells Fargo’s Scharf sent a letter to employees saying, “Wells Fargo is committed to doubling Black leadership over the next five years.” He stated the company will “aggressively recruit senior managers from outside the company, which will in turn better position Wells Fargo to promote from within for its top leadership roles.”

Although federal contractors must establish affirmative action goals, they must not engage in discriminatory practices in meeting said goals, the OFCCP’s letter to Wells Fargo stated. “[Federal] contractors may not discriminate on the basis of race or color for purpose of providing additional opportunities to individuals of a particular race, and quotas are expressly forbidden,” wrote Craig Leen, director of the OFCCP.

Scharf subsequently sent another statement to employees outlining Wells Fargo’s plans to increase diversity. In addition to the new senior leader hires, the banking behemoth recently launched a “returnship” program focused on diverse talent who have been out of the workforce for an extended period; it is also requiring diverse candidate slates for key roles with compensation of more than $100,000 and increasing business with diverse suppliers.

Good faith. The OFCCP maintains that affirmative action goals established under its regulations are flexible targets, not rigid quotas. Failure to meet such goals should not result in sanctions as this may result in an adverse impact if this is not required by business necessity.

A federal contractor who shows good faith in trying to improve diversity will not face sanctions but when contractors fail to come up with adequate affirmative action programs on their own, the government may do it for them.

Reflecting the workforce. Attorney Janette Levey Frisch told SIA that organizations should consider whether their staff reflects the available workforce, which, in addition to Black workers, includes other minorities, individuals with disabilities, women, LGBTQ, etc.

“Do you need to double the number of black managers to balance it with the available workforce?” she says. “If it’s just a statement arbitrarily that ‘we are going to double the number of black managers,’ without any thought to the rest of the workforce, then I can see how that could be problematic in terms of prohibitions against discrimination.”

In addition, citing a specific number might sound like a quota. “Affirmative action is not supposed to be a quota,” Levey Frisch says. “You are supposed to aspire to have your company’s workforce reflect the workforce that is out there and available.”

If you do not hire someone because they don’t fit your diversity hiring criteria and you don’t hire them solely based on the fact that their race, gender or ethnicity etc. doesn’t conform, that decision “could support allegations of discrimination, and that sounds like you are undermining the very purpose of affirmative action and anti-discrimination provisions,” she says.

State Mandates

But away from federal law, there are moves at the state level to change the diversity of America’s commercial organizations using quotas. California in 2018 passed a law requiring all public companies based in the state to have at least one female director by the end of 2019. At the close of 2021, boards with five directors must have at least two women, and those with six or more have at least three. Failure to comply costs $100,000 the first year and three times as much after that. California’s law is facing legal challenges but in the meantime, companies are taking steps to comply. And in 2020, the state expanded on those diversity requirements to include at least one director from underrepresented communities.

Flexibility over rigidity is the key to setting diversity goals and they work best when both aligned to business strategy and when considering facts and relevant data. A useful analogy in a staffing context is comparing quotas and targets with service-level agreements and key performance indicators. Quotas are either a ceiling or a floor for the employment of minorities or women. Placement goals are reasonably attainable objectives or targets that are used to measure progress toward achieving equal employment opportunity.

An affirmative action plan should set out possible means for implementation of the diversity goals. It should lay out methods which the contractor will use to communicate his equal employment opportunity policy to his supervisors and employees, to unions and other recruiting sources, etc. Each contractor should develop audit and reporting systems which will measure the effectiveness of the program against the goals or targets identified as necessary for attainment of the business’ strategy.