President Donald Trump is concluding his first week in office for his historic second term and has not wasted any time at all with issuing executive orders under federal law declaring national border and energy emergencies, ending censorship and the weaponization of the federal government and even declassifying any and all documents to do with the assassinations of John Kennedy, Robert Kennedy, Sr. and Martin Luther King, Jr.
But one that stands out were a trio of executive orders abolishing all legally dubious diversity, equity and inclusion (DEI) programs and offices in the entire federal government and eliminating all racial and gender preferences in hiring and promotion in the federal government and opting for a merit-based system in federal hiring, consistent with the Fifth and Fourteenth Amendments and the Civil Rights Act that abolished racial, sexual and religious preferences and quotas.
And it’s not just the federal government that will have to comply with the provisions of the Constitution and the Civil Rights Act — so will everyone else. In the order entitled, “Ending Illegal Discrimination And Restoring Merit-Based Opportunity,” Trump also announced his intention to enforce federal civil rights laws on states including schools and universities and on private employers as specifically required under Titles VI and VII of the Civil Rights Act.
For states, Trump is immediately focused on enforcing race and gender-neutral admissions at colleges and universities to bring into effect the 2023 Supreme Court ruling Students for Fair Admissions, Inc. v. President and Fellows of Harvard College that found affirmative action admissions policies to violate the Fourteenth Amendment and the Civil Rights Act: “the Attorney General and the Secretary of Education shall jointly issue guidance to all State and local educational agencies that receive Federal funds, as well as all institutions of higher education that receive Federal grants or participate in the Federal student loan assistance program under Title IV of the Higher Education Act, 20 U.S.C. 1070 et seq., regarding the measures and practices required to comply with Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023).”
And the order outlines that the administration will enforce federal civil rights laws against DEI programs by private employers: “the Attorney General, within 120 days of this order, in consultation with the heads of relevant agencies and in coordination with the Director of OMB, shall submit a report to the Assistant to the President for Domestic Policy containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”
Taken together, these effectively ban DEI nationwide. Although to be fair, racial and gender preferences in any direction already violate federal civil rights laws, it’s just that for decades a series of executive actions and court precedents have sought to allow them for minorities who were historically discriminated against and even those who were not.
Diversity hiring quotas like these might appear to run afoul of the 1964 Civil Rights Act’s prohibition on employment discrimination on the basis of race or sex: “It shall be an unlawful employment practice for an employer… to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or … to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.”
However, thanks to the 1979 ruling by the Supreme Court ruling Steelworkers v. Weber which ruled that employment policies that racial preferences on the basis of race and sex in favor of women and minorities, which plaintiffs argued was reverse discrimination, were not a violation of the Civil Rights Act, in effect legalizing employment discrimination against whites and males. This was a sharp departure from more racially neutral interpretations of the Civil Rights Act by federal courts that preceded the decision.
Then Associate Justice William Rehnquist, who would go on to become the Court’s 16th Chief Justice in 1986, in his dissenting opinion, compared the Court’s rewriting of the Civil Rights Act to the totalitarian regime portrayed in George Orwell’s 1984, writing that law was written plainly, “Taken in its normal meaning, and as understood by all Members of Congress who spoke to the issue during the legislative debates, this language prohibits a covered employer from considering race when making an employment decision, whether the race be black or white.”
Rehnquist blasted the majority of the court, adding, “the Court behaves much like the Orwellian speaker earlier described, as if it had been handed a note indicating that Title VII would lead to a result unacceptable to the Court if interpreted here as it was in our prior decisions. … Now we are told that the legislative history of Title VII shows that employers are free to discriminate on the basis of race: an employer may, in the Court’s words, ‘trammel the interests of the white employees’ in favor of black employees in order to eliminate ‘racial imbalance.’… Our earlier interpretations of Title VII, like the banners and posters decorating the square in Oceania, were all wrong.”
But in light of the 2023 ruling on college admissions, if racial preferences in college admissions are unconstitutional under 14th Amendment equal protection, then so are those by corporations today via their “diversity, equity and inclusion” racial and gender hiring quotas, one of the cornerstones of the Environmental, Social and Governance (ESG) investment model that seeks not profit, per se, but through ownership of companies to impose certain social agendas.
Today, the question of reverse discrimination posed by ESG’s DEI corporate policies might be decided differently by today’s Supreme Court more than 40 years later.
And now, thanks to the plan outlined by Trump, those court cases are almost certainly going to headed to federal courts as the order includes identifying egregious cases of discrimination and pursuing litigation as necessary: “The report shall contain a proposed strategic enforcement plan identifying: (i) Key sectors of concern within each agency’s jurisdiction; (ii) The most egregious and discriminatory DEI practitioners in each sector of concern; (iii) A plan of specific steps or measures to deter DEI programs or principles (whether specifically denominated ‘DEI’ or otherwise) that constitute illegal discrimination or preferences. As a part of this plan, each agency shall identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars; (iv) Other strategies to encourage the private sector to end illegal DEI discrimination and preferences and comply with all Federal civil-rights laws; (v) Litigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest; and (vi) Potential regulatory action and sub-regulatory guidance.”
On the final note of “[p]otential regulatory action and sub-regulatory guidance” there is also assuredly work to be done as well including under the Employment Retirement Income Security Act (ERISA) by the Barack Obama Labor Department in 2015 allowing Environmental, Social and Governance investments — including DEI programs — into tax-deferred, employer-based retirement savings accounts like the $6.3 trillion 401(k) market and other defined benefit and defined contribution plans totaling $11.9 trillion.
A 2020 regulation by the Trump Labor Department watered this regulation down a bit, mirroring a 2008 regulation by the George W. Bush Labor Department, but was promptly overturned via a May 2021 executive order by President Joe Biden defining climate change a financial risk under ERISA and affirmed later via a 2022 regulation by the Biden Labor Department. The 2008 regulation was actually a revision of a 1994 regulation by the Bill Clinton Labor Department, which in turn were revisions to the rules made by prior administrations.
These attempts to hold back ESG depend on fiduciary rules, that state as long as investments remain profitable commensurate with other non-ESG investments, then environmental, social and other factors may be taken into consideration when making economically targeted investments.
All of these rules are based on the fiduciary duties and obligations defined under federal law in 29 U.S.C. Section 1104, which states, “a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and… for the exclusive purpose of … providing benefits to participants and their beneficiaries; and … defraying reasonable expenses of administering the plan; … with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; … by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and … in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III.”
But like the 2008 Bush Labor Department regulation — and every other rulemaking on this subject in fact — the 2020 Trump Labor Department once again affirmed the “all things being equal” test. None have dared to overturn that via a rulemaking.
The 2020 rulemaking stated, “Under the final rule, plan fiduciaries, when making decisions on investments and investment courses of action, must focus solely on the plan’s financial risks and returns and keep the interests of plan participants and beneficiaries in their plan benefits paramount. The fundamental principle is that an ERISA fiduciary’s evaluation of plan investments must be focused solely on economic considerations that have a material effect on the risk and return of an investment based on appropriate investment horizons, consistent with the plan’s funding policy and investment policy objectives. The corollary principle is that ERISA fiduciaries must never sacrifice investment returns, take on additional investment risk, or pay higher fees to promote non-pecuniary benefits or goals.”
So far, so good, but then the Trump Labor Department, like every single Labor Department before it, affirmed ESG investments would continue to be allowed by fiduciaries: “The final rule recognizes that there are instances where one or more environmental, social, or governance factors will present an economic business risk or opportunity that corporate officers, directors, and qualified investment professionals would appropriately treat as material economic considerations under generally accepted investment theories.”
Under that rubric, in theory DEI programs at private corporations could continue as long as the companies were profitable and generated adequate returns for investors. So could slavery for that matter, but slavery is unconstitutional under the Thirteenth Amendment and so is racial discrimination under the Fourteenth Amendment, so now, in principle when the Labor Department looks at the ESG rule again, under the Trump anti-DEI executive order, it will have to take into consideration whether retirement investments can be made to companies that are clearly violating Title VII of the Civil Rights Act.
In short, Trump has declared war on DEI. And it will not go lightly. There will be fights every step of the way, including in federal court, just as segregation had to be fought in decades past until finally, the Supreme Court does its job and in the words of Marbury v. Madison (1803) “say[s] what the law is”. This is a sea change.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
