Tying Performance Reviews to Diversity Metrics: Potential Legal Issues

As companies increasingly strive to improve diversity in their workforce, employers are implementing various tactics in an attempt to make these goals a reality.  One recent trend has been tying manager performance reviews and bonuses to achievements in diversity hiring.  While such policies may be an effective method for companies to increase diversity in their ranks, employers should also be cognizant of their potential legal consequences.  

It is certainly permissible for companies to promote diversity in their hiring practices; but diversity initiatives that are too rigid, or treat non-minority candidates unfairly, or have a demonstrable negative impact on others based primarily on profile factors such as gender, age or race, could trigger claims of discrimination from job applicants or employees who do not fall within the parameters of the company’s diversity targets.  Pairing diversity goals with managerial performance reviews and employment incentives and rewards can be fraught despite the best of intentions.

Title VII generally prohibits employers from making employment decisions on the basis of race, gender or other protected categories, but what about instances in which such decisions are aimed at promoting an underrepresented class?  Neither the U.S. Equal Employment Opportunity Commission nor the courts have provided a clear answer to this question; but the legal framework relating to affirmative action for both private employers and in university admissions is instructive.  

In United Steelworkers v. Weberthe U.S. Supreme Court held that an affirmative action plan that reserved certain openings in a plant for African American employees did not violate Title VII’s prohibition against racial discrimination.  In so holding, the Court found it important that the plan, like Title VII itself, was “designed to break down old patterns of racial segregation and hierarchy,” and did not “unnecessarily trammel” the interests of the non-minority employees in that it did not require the discharge and replacement of such workers, or create an “absolute bar” to the advancement of those employees.  Many courts have subsequently looked to this “unnecessarily trammel” standard in assessing the legality of affirmative action plans

In Johnson v. Transportation Agencythe Supreme Court found that an affirmative action plan, which led the employer to pass over a male employee with a higher test score in favor of a female employee, did not violate Title VII’s prohibition on gender-based decision-making.  In upholding the company’s plan, the Court specifically noted that if the company had implemented a strict quota system, its validity could be called into question. Because instead, the plan expressly directed that numerous factors, including the qualifications of female applicants for particular jobs, be taken into consideration, the plan was upheld as legal.

In contrast, in Ricci v. DeStefanothe Supreme Court held that the City of New Haven, Connecticut, had violated Title VII by discarding the results of a promotional examination for firefighters on which white candidates had outperformed minority candidates.  The Court found that in discarding the test, the City had impermissibly made a race-based decision without sufficient evidence that the exam did not remain lawful as job-related and consistent with business necessity, despite its disparate impact on minority candidates.

The Supreme Court has also on several occasions addressed the legality of affirmative action plans in the educational context.  Because they receive federal funds, the universities’ policies are analyzed under the strict scrutiny standard applied to race-based classifications under the Fourteenth Amendment’s Equal Protection Clause.  However, we suggest the Court’s analysis is instructive in the private employer context as well, particularly in light of the burgeoning trend of employers integrating diversity goals with performance reviews, incentives and rewards.  

In Regents of University of California v. Bakkethe Supreme Court held that a medical school’s separate admissions process for economically disadvantaged and minority candidates was illegal, to the extent that it utilized quotas that failed to take into account individual rights.  The Court noted, however, that it was still permissible for the university to take race into account as a factor in future admissions decisions.

More recently, the Supreme Court upheld affirmative action policies in admissions in Grutter v. Bollinger and Fisher v. University of TexasIn Grutter, the Court held that an admissions system in which racial diversity was considered a “plus” in an applicant’s file, but did not prevent comparison with all other candidates, was permissible.  In Fisher, the Court reiterated that a university cannot impose a fixed quota system to achieve diversity, but held that the program in question was legal because it was narrowly tailored to promote the university’s compelling interest in racial diversity.  

Currently pending before a federal court in Boston is Students for Fair Admissions, Inc. v. President and Fellows of Harvard Collegea case filed against Harvard University in 2014 on behalf of Asian American students, alleging that Harvard has intentionally discriminated against Asian American applicants by limiting the number who will be admitted to Harvard each year.  The plaintiffs allege that Harvard has implemented what amounts to an illegal quota system in order to limit the number of Asian American students, while Harvard claims that it does not use quotas, and race is just one of many factors considered in admissions decisions (including “personality”).  Both parties have asked the court to grant summary judgment in their favor.

With the pending retirement of U.S. Supreme Court Associate Justice Anthony Kennedy, the question of racial diversity as a compelling interest in both the university and employment settings will likely receive increasing attention and review.

The takeaway for employers attempting to craft their own diversity policies is to steer clear of strict quota systems, in favor of policies that focus on flexible targets which allow managers to factor diversity into their decision-making as a “plus,” while continuing to consider all candidates, inclusively, and without over-reactive or unreasonably heightened emphasis on profile.  International corporations in particular should be mindful of the differences between the law in the United States, where quotas are typically considered unlawful, and Europe, where quotas are often lawful, and in several instances, even mandated by the government.  The New York City Bar Committee on Labor & Employment Law has compiled a useful guide for employers on this topic that suggests several diversity initiatives that are plainly within the legal boundaries addressed above.  Some examples include:

  • Establishing a senior-level diversity committee with executive committee representation to support diversity efforts;
  • Requiring mandatory, ongoing education concerning diversity issues, such as discrimination and inherent bias trainings; and
  • Ensuring that programs assisting employees in managing work and personal life, such as flexible work arrangements and family care leaves, are available to all, regardless of gender or race.

The trend in favor of diversity in hiring will likely continue to intensify, as both employees and clients increasingly expect diverse teams at the companies that they work for and with which they partner.  Keeping in mind the above framework can help employers work toward these worthwhile goals, while avoiding any related legal pitfalls.

Jill Kahn MarshallThis article is intended only as a general discussion of these issues.  It is not considered to be legal advice or relied upon. For more information, please contact RPJ Associate Jill Kahn Marshall, who counsels clients on employment matters, including discrimination, sexual harassment and contracts. Ms. Marshall is admitted to practice in New York and Massachusetts, as well as the U.S. District Courts for Massachusetts and the the Southern and Eastern Districts of New York.  Attorney Advertising.