Dozens of lawsuits filed after companies fail to fulfill diversity promises, per a new report
Nearly 40 suits allege that an array of corporations — including Wells Fargo & Co. and Delta Air Lines — made false claims about their diversity and equity efforts over the past three years.
Some large corporations are at the center of dozens of lawsuits due to their failure to live up to diversity commitments they made, most of which came after George Floyd’s death at the hands of Minneapolis police.
Following Floyd’s murder in 2020, many businesses moved quickly to issue statements and adopt new procedures to combat racial, ethnic and gender inequalities among their employee ranks. According to Bloomberg Law, several investor and employee lawsuits mention those new policies, and more are sure to follow if firms don’t incorporate DEI pledges into board and staff operations.
“You’re going to likely — at least for a while — continue to see that tested,” said Tyree Jones, who chairs Reed Smith’s Global Labor and Employment Group, Bloomberg Law reported. “Particularly as more companies too, sign on with very clear DEI goals and objectives, and then their employees or shareholders seek to hold them accountable for that.”
Nearly 40 lawsuits allege that various businesses, including Wells Fargo & Co. and Delta Air Lines Inc., made false claims about their efforts to diversity and equity over the past three years.
Wells Fargo is embroiled in at least five shareholder lawsuits asserting the bank violated its fiduciary duties by breaking federal anti-discrimination rules. The company allegedly performed “sham interviews to nominally fulfill a diversity-enhancing policy,” according to one suit last month filed by the Asbestos Workers Philadelphia Pension Fund.
Wells Fargo’s board took action on DEI concerns “only after negative media coverage forced them to,” the lawsuit claims. According to internal documents cited by the pension fund, the board still had “major difficulties” meeting its DEI goals after chief executive officer Charlie Scharf launched his “Diverse Search Requirement” program, which mandated interviewing diverse candidates for any open positions paying more than $100,000 annually.
Bloomberg Law ran searches on lawsuits for “diversity,” ‘DEI” and “diversity, equity and inclusion” and other terms to gauge the scope of cases shareholders and employees filed against firms in the United States since Floyd’s May 2020 killing enraged millions.
Sarah Fortt, worldwide co-chair of Latham & Watkins LLP’s environmental, social and governance practice, noted that the rise in lawsuits appears to result from increased employment discrimination claims “based on historically protected classes, such as race/ethnicity and gender.” She also noted a spike in “‘reverse discrimination’ claims.”
According to a March 2021 lawsuit against Delta Airlines, a worker faced sexism, discrimination, antagonism and harassment, alleging treatment that violated its policies. Citing the company’s internal ethical policy manual, equal employment opportunity and non-discrimination policy, the employee claimed Delta neglected its policies and procedures.
A judge rejected the case five months later only because the employee failed to file the allegations — reaching back to 2017 — within the 300-day requirement period.
According to Bloomberg Law, a Wells Fargo spokesperson declined to comment on the lawsuit and Delta did not answer a request for comment.
Some of the lawsuits take the form of shareholder derivative proceedings, in which investors claim that a company’s failure to achieve specific DEI goals — such as raising the proportion of women in management — caused the value of its stock to decline.
Jones stated that shareholder derivative actions have been present in the responses he has observed over the past two years, “really on both sides of the coin.”
“Either challenging that the company was really fulfilling its stated commitment to DEI objectives,” he said, according to Bloomberg Law, “or questioning whether the company’s commitment to DEI objectives was actually taking away from the bottom line and a non-business related distraction.”
DEI-specialized lawyers, academics and practitioners contend that companies must balance the needs of the business, employees, shareholders and customers when creating progressive initiatives while averting legal action from any of those groups.
Jones and others suggested that one strategy is formulating policies “aspirationally” or in general terms. Instead of creating a strict quota to employ a specific number of people of color for its board, a corporation may aim to match the proportion of people of color in its workforce to that of people of color on its board.
Elena Philipova, director of sustainable finance at Refinitiv, a data and research division of the London Stock Exchange Group, said the most prosperous businesses are open and honest about their objectives, pay attention to their staff and incorporate DEI objectives into all operations.
“It really needs to be genuine and authentic and built into the DNA of the organization,” noted Philipova, Bloomberg reported, “and then being transparent about it.”
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