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Today: May 27, 2024
January 15, 2024
1 min read

Unveiling the Silenced Strategy of DEI Foes Targeting VC Funds

TLDR:

  • Opponents of workplace diversity programs are using Section 1981 of the Civil Rights Act of 1866 to challenge equity policies and funding to minority-owned businesses.
  • A conservative activist group is using Section 1981 to go after venture capital fund Fearless Fund, which invests in businesses owned by women of color.

Opponents of workplace diversity programs have found a new legal strategy to challenge equity policies and funding to minority-owned businesses. They are relying on Section 1981 of the Civil Rights Act of 1866, originally intended to protect formerly enslaved people from economic exclusion. Now, a conservative activist group called the American Alliance for Equal Rights is using this section to go after Fearless Fund, a venture capital fund that invests in businesses owned by women of color. The group argues that Fearless Fund’s grant program violates Section 1981 by excluding certain individuals from the program based on race.

Section 1981 grants all individuals within the U.S. jurisdiction the same rights and benefits as “enjoyed by white citizens” regarding contractual relationships. However, the Supreme Court’s 1976 decision in McDonald v. Santa Fe Trail Transportation expanded these protections to include racial discrimination against white people as well as people of color. The standard of proof for the 1981 section is high, with the plaintiff needing to show that race was the central cause in denying a contract opportunity.

Opponents of workplace diversity programs are using Section 1981 instead of relying on Title VII of the 1964 Civil Rights Act, which protects against employment discrimination based on race, color, religion, sex, and national origin. Title VII requires the plaintiff to file a charge with the Equal Employment Opportunity Commission and go through a lengthy process before filing a lawsuit. Section 1981 allows for a quicker legal route and has no limitations on compensatory and punitive damages.

The case against Fearless Fund is significant because it challenges the use of grants as contracts. The American Alliance for Equal Rights argues that the fund’s Fearless Strivers Grant Contest, which awards $20,000 to Black women who run businesses, violates Section 1981 by excluding individuals based on race. Fearless Fund’s legal counsel argues that if these grants are considered contracts, then grants issued in many other contexts could also be considered contracts. The case could potentially end up at the Supreme Court.

Similar lawsuits have already led to changes in diversity fellowship programs at some companies. Law firms Morrison Foerster and Perkins Coie opened their fellowship programs to all applicants of all races after being sued, and Pfizer dropped race-based eligibility requirements for a fellowship program after a lawsuit was dismissed. These lawsuits are being closely monitored as the battle over racial considerations in the workplace continues.

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