Companies Can Look to Federal Contractors for Numerical DEI Model

Workplace diversity, equity, and inclusion programs have faced intense scrutiny following the US Supreme Court’s decision striking down race-based affirmative action in higher education a year ago. Although the decision didn’t apply to workplaces, employers face competing pressures to honor past commitments to DEI and avoid potential legal risks associated with such programming.

With this increased scrutiny, employers may want to conduct a proactive risk assessment of their DEI policies and initiatives to identify higher-risk programs and ensure they are implemented in a legally defensible way. Employers may want to think about their DEI programs on a risk continuum, and borrow a page from federal contractors when considering their approach.

On the higher end of this continuum are numerical DEI goals, which are now under a microscope. Quotas, set-asides, preferences, and exclusions based on race or any other protected trait are illegal; that was the case before and after last year’s decision.

However, the legal parameters around aspirational goals are more nuanced. Such goals have become popular targets for legal challenge—for example, that a certain percentage of executives will be women by a certain year, or to increase the number of underrepresented minorities in the workforce by a certain percentage over a period of time.

This may be the case for a number of reasons. Target goals are often posted on companies’ public-facing websites, published in annual ESG reports, and cited in company press releases and other diversity materials, so they are easy for plaintiffs and advocacy groups to find. They may also sound like quotas, depending on how they are messaged and implemented in practice, particularly when they are treated as key performance indicators tied, for example, to employee compensation. So, can employers set aspirational numerical goals in a legally defensible way and if so, how?

One way employers may want to craft such numerical goals is to borrow key concepts and best practices from regulations that apply to federal contractors. As part of the annual affirmative action program process, federal contractors are required to establish placement goals for underutilized women and minorities.

To set these placement goals, federal contractors must estimate the number of qualified minorities or women available for employment in a given “job group” (as defined by the affirmative action regulations), expressed as a percentage of all qualified people available for employment in the job group.

To determine availability, federal contractors must consider both external availability (percentage of minorities or women with requisite skills in the reasonable recruitment area) and internal availability (percentage of minorities or women among those promotable, transferable, and trainable within the federal contractor’s organization).

Contractors then compare the percentage of minorities and women in each job group with the availability for those job groups, and establish a placement goal if percentages are less than would be expected, given the availability.

AAP placement goals aren’t quotas or preferences or set-asides; such things are impermissible under the affirmative action regulations. They are aspirational goals in the form of objective targets that are designed to be reasonably attainable because they are rooted in the employer’s actual workforce and labor market data.

The AAP placement goal process is a bit dated, as it is specifically designed to meet particular regulatory requirements. But it reflects some important best practices for setting numerical DEI goals that employers may want to consider. Employers may benefit from working with legal counsel as they work to determine whether, and to what extent, numerical DEI goals may be appropriate. This includes thinking critically about:

• The basis for the numerical DEI goal
• Whether there is actually underrepresentation, considering all phases of the employment life cycle, including hires, promotions, and terminations
• If there is underrepresentation based on the relevant, local labor market

As employers consider whether to adopt aspirational numerical goals, they may also want to address the geographical and temporal scope of the goal, as well as if the local labor market or some other data source of qualified workers supports the goal.

The end goal isn’t to have more representation for the sake of it, but to remove discriminatory barriers to achieving representation. This requires employers to undertake a robust analysis to identify real representation issues.

They should be thoughtful about how the goals are first communicated, then implemented, to ensure they are appropriate and defensible. And employers may want to view goals as a means of measuring progress, rather than the final objective.

There are many caveats to modeling DEI goal setting on federal contractor AAP requirements, particularly if the employer is also a federal contractor that may need to set AAP placement goals on an annual basis.

The landscape around DEI programing generally, and numerical goal setting in particular, is complicated, nuanced, and rapidly evolving. With increased scrutiny of aspirational goals, employers should ensure they are data-driven, messaged appropriately, and implemented in a narrowly tailored, legally defensible way.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

T. Scott Kelly is shareholder at Ogletree Deakins and co-chair of the firm’s Office of Federal Contract Compliance Programs compliance, government contracting, and reporting practice group.

Emily M. Halliday is of counsel at Ogletree Deakins and member of the firm’s Office of Federal Contract Compliance Programs compliance, government contracting, and reporting practice.

Both are members of Ogletree Deakins’ diversity and inclusion practice group and founding members of the firm’s DEI task force.

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