Three Ward and Smith attorneys described what can happen when a DEI initiative goes wrong, placing an organization in a legal stalemate with its employees.
In a unique, interactive session that was part of the firm’s annual In-House Counsel seminar, participants evaluated potential DEI outcomes by analyzing three fictional scenarios. With elements pulled from real-life cases, the discussion illustrated how the stakes can become increasingly high with DEI practices.
Each participant assumed a different role, from in-house counsel and employee to accuser and accused, creating a lively examination of the benefits of DEI and the challenges associated with implementation, as well as how to develop solutions for evolving issues in the DEI landscape.
The discussion was led by Ken Gray, leader of the Labor and Employment Law Group, X. Lightfoot, an employment and personal injury attorney, and Avery J. Locklear, a labor and employment attorney.
The Technology Company Scenario
The first scenario involved a well-intentioned technology company that recently hired a new SVP in charge of Diversity, Equity, and Inclusion (DEI), Jordan Ellis. The business in question is a tech leader with over 10,000 employees across the U.S.
Ellis was asked to perform an assessment of the company’s workforce and leadership diversity. He found a number of areas in need of improvement, including female representation in leadership, Black/African American representation in leadership, and Asian/Hispanic representation in leadership.
Tasked with improving these metrics by the CEO, Ellis re-evaluated the Director of Communications role held by John Roe, a White man with a strong track record. Ellis then made the decision to inform Roe of a strategic shift within the company and relieved him of his duties.
The role was split into two new positions that were filled by two qualified deputies: one a White woman, the other a Black woman. Ellis believed the move aligned with the company’s DEI goals, representing a strategic step in making the leadership more inclusive and diverse.
Potential Response to Litigation?
The audience was asked to determine if any possible defense asserted by the company in response to a claim made by Roe represented a house of cards. “This was a fairly clear example of discrimination in relation to Title VII,” noted Gray, “which prohibits discrimination based on race, color, religion, sex, and national origin.”
The scenario was based on a real case, Duvall v. Novant Health, Inc. “In this case, a white management level employee who received above average evaluations got the axe,” said Gray. “It was a one-week jury trial, and the jury awarded $10 million.”
The decision made clear that it is permissible for employers to use DEI programs; however, these programs may not form the basis for adverse employment decisions.
“Some call this reverse discrimination, but I just call it discrimination. It’s important to note that the Act doesn’t say in regard to sex, the female sex, or in regard to race, the Black race or the Brown race. It just says race, it just says sex,” Gray explained.
The case established a significant precedent and illustrated a pitfall associated with poorly implemented DEI programs.
A Venture Capital Fund’s Contested Contest
The next scenario involved a venture capital fund interested in supporting businesses led by women of color. To close the funding gap, the fund created a grant contest with a prize of $50,000, growth tools, and mentorship opportunities.
Eligibility was open to Black women who were U.S. residents, with businesses that were at least 51 percent Black woman-owned. The audience discussed potential legal issues an in-house attorney could face as a result of the contest, which included an entry form with official competition rules.
The rules were explicit, stating in all caps that, “BY ENTERING THIS CONTEST, YOU AGREE TO THESE OFFICIAL RULES, WHICH ARE A CONTRACT…”
Two companies with owners who were not Black women were rejected after submitting applications for the contest. The Chief Legal Officers for both companies, Vegan Now and Well Soul, were members of the Collective of Corporate Counsel (CCC), a national bar association promoting the common business interests of in-house counsel through education, networking, and advocacy.
Would it be permissible for CCC to sue on behalf of Vegan Now and Well Soul? Did the rules on the entry form constitute a contract? The audience considered these and other questions.
The contention of CCC was that the form constituted a contract since the potential contest winners entered into a bargain-for-exchange when they applied. CCC’s argument was based on 42 USC § 1981, a federal law prohibiting discrimination on the basis of race, color, and ethnicity when making and enforcing contracts.
CCC also contended that the contest violated section 1981 due to its terms, as it categorically excluded non-black applicants from eligibility because of race. “If this sounds familiar, the reason is that it mirrors the factual pattern of a case that went before the 11th Circuit Court of Appeals,” commented Lightfoot.
The case involved the American Alliance for Equal Rights and a venture capital fund out of Atlanta, the Fearless Fund. “Ultimately, the court ruled that the membership organization did have standing to sue on behalf of its members, and the contest likely violated Section 1981 of the Civil Rights Act of 1866,” added Lightfoot.
The Fearless Fund settled the lawsuit and discontinued the contest as a response.
Breaking Boundaries Baristas
In the final scenario, the team explored how a well-intentioned coffee shop owner brewed trouble in her organization with a DEI policy gone wrong. Hiring people of diverse backgrounds and creating a welcoming environment for her team was a central focus for the owner, Linda Harper, who operates three local branches with 20 employees.
One of Linda’s employees, Sam Rowe, was assigned female at birth. “Sam has been living as a man and recently shared that his new pronouns are he/him,” said Locklear. “Though Sam’s announcement was mostly accepted, some of the team didn’t felt comfortable with his transition.”
A heterosexual female colleague, Olivia Spencer, struggled to adapt to Sam’s pronouns and had to be corrected multiple times. A heterosexual male colleague, Ben Paulson, admits the transition makes him somewhat uncomfortable. However, he has respected Sam’s pronouns.
Locklear asked whether Olivia’s and Ben’s behavior has risen to the level of creating a hostile work environment. The answer, of course, is that it depends and, as it is with so many other topics within the legal profession, there is no such thing as a one-size-fits-all, bright-line rule that can be applied to every situation.
Slurs and the misuse of pronouns by co-workers can encourage similar behavior from customers. To illustrate this idea, Gray described a case in which he assisted a client in 2016. “People would approach the coworkers and ask whether their colleague was a man or a woman,” he said. “This would occasionally result in slurs, and the customers would pick up on that, perpetuating the hostile work environment.”
The facts have to be evaluated in the context of every situation. “It boils down to whether the behavior was so severe and pervasive it created a hostile work environment. There’s no magic number of how many harassing events need to occur,” advised Locklear. “It’s based on all the circumstances.”
The EEOC issued new guidance on transgender employees in the workplace in April of 2024. A key aspect of this guidance was the misgendering of employees in front of coworkers and customers to the extent it made them uncomfortable.
“If it’s a long-term employee, there are going to be mistakes, and everyone has to give each other a little bit of grace, but whenever in doubt, you can always just use that person’s name,” added Locklear.
Mandatory Work Events
In an effort to foster unity and celebrate Pride Month, Linda organizes a mandatory drag queen night for the entire workforce. Her hope is that an evening with celebrity impersonator, Holly Wood, could bring the team together through a shared experience emphasizing inclusion.
While some employees are pumped about the event, some, including Ben and Olivia, are not comfortable attending. Sam also feels uneasy, sensing the event is directed at him in a way that feels awkward instead of supportive.
Ben asks to be excused from the event; Linda reiterates that attendance is mandatory and disciplinary action will follow if employees fail to attend.
The day after, Olivia tells Linda she feels the company is “too woke,” and she no longer enjoys working there. Sam describes new tension with his colleagues and feels some are treating him differently as a result of the event.
After some reflection, Linda realizes her approach may have inadvertently caused discomfort among the employees she wanted to support with her commitment to inclusivity. To move forward, she begins considering new ways to promote understanding and respect within her team.
The audience considered what went wrong and there was vast consensus that the event should not have been mandatory.
“This could have been fun, but making it mandatory was a bad idea, especially since it was a social event and an employee had already expressed discomfort,” Locklear explained.
Though the scenario was farfetched, it holds a number of important lessons for employers, Locklear added. “One is to educate your workforce,” she said. “Another could be to update your policies so a person who is transitioning knows who they can talk to about it.”
Any information provided in confidence should remain confidential. Being open about new ideas and willing to have frank discussions with employees is advisable. Assessing whether dress codes are gender-neutral could be another proactive way to foster a positive work environment.
Conclusion
The employment attorneys highlighted well-intentioned actors taking steps that caused issues for members of their fictional workforces. The team cautions in-house counsel against unintended consequences and offers training insights in Part 2 of the session.