Multinational companies are under increasing legal and social pressure to increase their representation of women in their work force. These pressures come, most recently, from Europe, which has passed a spate of laws requiring publicly traded companies to adopt quotas mandating a minimum percentage of women on their boards.
The most recent example is Germany, which as of March 2015 requires boards of companies listed on the German stock exchange to be made up of at least 30 percent women. Companies that fail to meet this fixed requirement risk the nullification of their existing boards.1
Germany is not the only European country imposing quotas. In 2003, Norway passed the first legislated mandatory quota aimed at publicly listed companies, requiring a fixed 40 percent quota level for female board of directors. Shortly thereafter, France, Spain, Italy, Iceland, Belgium and the Netherlands followed suit, enacting similar legislation.2
In many countries, employment laws impose quotas as a common method of advancing the rights of certain individuals, particularly those with disabilities.3 Normally, a failure to meet the quota may be sanctioned with a fine. However, some companies simply choose to pay the fine rather than comply with the quota. Further, the effectiveness of quotas may be challenged to the extent that they are perceived as a ceiling on the employer's obligations which, when satisfied, ends the discussion as well as the advancement of the quota subjects.
Of course, board membership does not by itself normally create an employment relationship. But as a response to these initiatives, some European companies have undertaken commitments to increase diversity beyond their boards and into their general work force. European clients are increasingly asking for guidance in taking the next logical step after adding women to their boards: requiring U.S.- based managers to consider gender in making employment decisions.
But in the United States, mandatory hiring quotas based on gender, or any other protected factor, may violate anti-discrimination laws. One person's progressive goal may be perceived as another's barrier to advancement. While the law encourages voluntary diversity and affirmative action, these efforts are subject to careful scrutiny to assure that they do not constitute unlawful "reverse discrimination."
Diversity in the workplace is of course an important goal. In Grutter v. Bollinger, the Supreme Court recognized: "Major American businesses have made clear that the skills needed in today's increasingly global marketplace can only be developed through exposure to widely diverse people, cultures, ideas, and viewpoints."4 Grutter's context was a challenge to a public university's admissions processes.
Prior to Grutter, the Supreme Court articulated in United Steelworkers v. Weber5 its test for determining whether race-conscious decisions in private employment, normally prohibited by anti- discrimination laws, could be permissible. In Weber, the court reviewed a collective bargaining agreement which required the employer's local plants to reserve at least 50 percent of certain jobs for African-Americans, until the percentage of skilled African-American workers in those jobs was comparable to their representation in the local labor force.
The court held that the plan complied with anti-discrimination law because it did not require any non- beneficiaries to be dismissed, did not create an absolute bar to the advancement of non-beneficiaries, and was a temporary measure, not designed to maintain racial balance. Thus, the plan did not "unnecessarily trammel the interests of white employees."
Similarly, in Johnson v. Transportation Agency,6 the Supreme Court upheld a county agency's affirmative action plan which used gender as a factor in promotion decisions in traditionally segregated jobs in which women were significantly underrepresented. The plan was aimed at remedying a manifest imbalance in a traditionally segregated job; again, it was temporary in nature, seeking to eradicate this imbalance; and, as it did not require non-beneficiaries to be dismissed or create a bar to their advancement, did not "unnecessarily trammel" the rights of non-beneficiaries. The Supreme Court has more recently chipped away at Grutter's full-throated endorsement of diversity. In Ricci v. DeStefano,7 the city of New Haven discarded the results of a pre-employment firefighters' examination that resulted in mostly white candidates having better scores, because the city feared that minority test-takers could sue for discrimination. As a result, non-minority firefighters sued, claiming that the decision constituted unlawful "reverse" discrimination.
The Supreme Court ruled in favor of the non-minority firefighters. The court said it did not "question an employer's affirmative efforts to ensure that all groups have a fair opportunity to apply for promotions and to participate in the process by which promotions will be made." But the employer's action in invalidating the test results on the basis of race, "absent a strong basis in evidence of an impermissible disparate impact, amounts to the sort of racial preference that Congress has disclaimed…and is antithetical to the notion of a workplace where individuals are guaranteed equal opportunity regardless of race."8
In June 2015, the Supreme Court decided to take another look at this issue, accepting certiorari in Fisher v. University of Texas at Austin,9 in which the plaintiff has challenged the university's affirmative action plan, claiming she was denied admission because she is white.
If the Fisher case sounds familiar, it is because the court decided Fisher in a previous incarnation, in 2013, when it held that while a court could accept the university's view that diversity has academic benefits, it is up to a court to determine whether the use of race was truly necessary to bring that about.10 The court therefore remanded the case to the U.S. Court of Appeals for the Fifth Circuit to make that determination.11
It is not clear whether the court will now take the opportunity to adopt a more restrictive view of affirmative action (at least in the context of university admissions), or provide clearer guidance for the courts in assessing how to conduct this analysis, but the issue of diversity and voluntary affirmative action's limits remains quite alive.
What Can Employers Do?
Anti-discrimination laws are increasingly challenging. Federal, state, and city laws are not always consistent. Employers struggle to comply while seeking to increase diversity among various groups— women, disabled individuals, racial minorities, and the myriad other categories of protected classes. An excellent study on these issues published by the New York City Bar, Committee on Labor & Employment Law, identifies initiatives that employers can undertake to promote diversity.12 They can lawfully establish policies meant to respond to remedy past discrimination. They can encourage leaders to participate in diverse organizations meant to support and foster diversity. They can seek diverse slates of qualified candidates when making hiring and promotion decisions. They can encourage a culture to provide and foster networking and mentoring, and require training on diversity and discrimination.
But if an employee can show she was denied an opportunity in a discrete employment decision as a result of that policy, the claim may be difficult to defend. Individual employment decisions based on protected status generally remain unlawful unless they are part of a policy that is temporary in nature and that responds to a goal of remedying past discrimination.
Anti-discrimination enforcement agencies expect that all race- and gender-identifying information will be severed from the applicant's credentials. But implementing a quota system runs the risk that recruiters, human resource professionals or hiring managers will feel compelled to inject gender into their decisions. A hiring manager who testifies that he or she needed to include a certain number or percentage of women in the interview pool for a job opening may open a company to liability under these laws.
Diversity remains a worthy goal for multinational employers. European companies can and should make every effort to increase their diverse employee populations. And, requiring that 20 percent of board members be women is fine.
But adopting a culture of quotas that carries over into workplace decisions is risky business and may land an employer in a hornet's nest of legal problems.
1. A. Smale and C.C. Miller, "Germany Sets Gender Quota in Boardrooms," New York Times (March 6, 2015).
2. See generally, Working Paper, "The Quota-instrument: different approaches across Europe," European Commission's Network to Promote Women in Decision-making in Politics and the Economy (text completed in June 2011), http://ec.europa.eu/justice/gender-equality/files/quota-working_paper_en....
3. Quotas of this nature are in place in China, France, Germany, Italy, the Netherlands, Russia, South Korea, Spain, Taiwan, Turkey, and the Ukraine.
4. Grutter v. Bollinger, 539 U.S. 306, 321 (2003).
5. 443 U.S. 193 (1979).
6. 480 U.S. 616 (1987).
7. 557 U.S. 557 (2009).
8. Id. at 584.
9. Docket No. 14-981
10. L. Denniston, "The mystery of Fisher II review," SCOTUSblog, http://www.scotusblog.com/2015/07/the-mystery-of-fisher-ii-review/.
11. Fisher v. University of Texas at Austin, 133 S. Ct. 2411 (2013).
12. See generally "Employer Diversity Initiatives: Leal Considerations for Employers and Policymakers" (April 2012), http://www2.nycbar.org/pdf/report/uploads/20072272-EmploymentDiversityIn....
Philip M. Berkowitz is a shareholder and U.S. co-chair of Littler’s International Law Practice Group. He is based in the firm’s New York City office. This article is reprinted with permission from the September 10, 2015 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.