Firms Face Increased Litigation Risks
The business world is currently anticipating a surge in litigation risks concerning Diversity, Equity, and Inclusion (DEI) programs. This follows the reinstatement of executive orders from the second Trump administration. These orders direct federal agencies to eliminate DEI initiatives and scrutinize private employer practices, thereby raising concerns among directors and officers (D&O) and employment practices liability (EPL) insurance providers.
On March 14, the 4th Circuit Court of Appeals ruled that the government is likely to prevail in defending the executive orders after a brief pause in February. The court stated that the orders do not violate the First and Fourth Amendments. According to Jonathan Meer, a partner at the law firm Wilson Elser, federal agencies are now expected to determine how to implement the directives. Primarily, these directives require agency heads to collect data on DEI programs.
Meer noted that while most of the executive orders primarily impact internal government programs, some also involve government contractors, potentially affecting private companies. He added that developing new requirements for public companies would take time.
The executive orders have also intensified the attention on DEI initiatives, attracting scrutiny from attorneys general across the political spectrum. A group of attorneys general issued a joint statement in February asserting the legality of DEI initiatives. In March, another group urged a major retailer to end its DEI program.
Meer explained that the increased scrutiny of DEI programs creates additional considerations for company directors and officers. Insurers are actively monitoring the developing legal landscape. Lindsay Cunningham, North American leader for Willis Towers Watson’s public sector an education industry division, stated that D&O coverage providers are preparing for a potentially more litigious environment.
While Trump’s executive orders have brought attention to DEI programs, a significant portion of the legal activity stems from the 2023 Supreme Court decision that struck down affirmative action.
Notable DEI Legal Cases
Over the past few years, several significant legal cases have emerged where plaintiffs have alleged discrimination resulting from DEI hiring practices.
One notable case is Ricci v. DeStefano (2009). In this landmark case, 19 white firefighters and one Hispanic firefighter sued the city of New Haven, Conn. The city had invalidated a promotion exam because no Black firefighters scored high enough to be promoted. The Supreme Court sided with the plaintiffs, ruling that the city’s decision to disregard the test results violated Title VII of the Civil Rights Act. The court found that there was no strong evidence to prove that the test was biased against minority candidates.
A more recent case involved Bryan D. Winter, a former financial advisor. Winter filed a lawsuit against Edward Jones, alleging that the company’s DEI policies discriminated against white financial advisors. The lawsuit claims that the firm’s equity initiatives favored diverse advisors regarding compensation, benefits, and career advancement opportunities. This, according to the suit, created a disadvantage for white advisors.
Cunningham noted that lawsuits against corporate DEI programs often attempt to position cases within the framework of the Supreme Court’s 2023 decision, while also alleging that directors and officers breached their duties of care and loyalty. She added that insured entities are now managing much of the burden in managing these risks.
