1866 civil rights law used to challenge equity policies

Some companies change DEI criteria in attempt to avoid legal action

YORK – Opponents of workplace diversity programs are increasingly banking on a section of the Civil Rights Act of 1866 to challenge equity policies as well as funding to minorityowned businesses.

Section 1981 of the act was originally meant to protect formerly enslaved people – or Black people specifically – from economic exclusion. But now the American Alliance for Equal Rights – a group run by Edward Blum, the conservative activist who challenged affirmative action in higher education and won – is citing the section to go after a venture capital fund called the Fearless Fund, which invests in businesses owned by women of color. A federal appeals court temporarily blocked funding for Fearless Fund’s grant program as the case proceeds.

Conservative activists have brought lawsuits using the 1981 section against other companies and institutions, including insurance company Progressive and pharmaceutical giant Pfizer. The cases are being monitored carefully as the battle over racial considerations shift to the workplace following the U.S. Supreme Court’s June ruling ending affirmative action in college admissions.

While the 1981 statute had been used well before the latest affirmative action ruling to prove reverse discrimination, Alphonso David, Fearless Fund’s legal counsel who serves as president & CEO of The Global Black Economic Forum, said that there’s a “coordinated use of Section 1981 now that we did not see before.”

Here’s what’s happening and what the impact could be:

The 1866 Civil Rights Act is a federal law prohibiting discrimination on the basis of race, color, and ethnicity when making and enforcing contracts. Section 1981 specifically 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 McDonald v. Santa Fe Trail Transportation decision broadened those protections, ruling Section 1981 prohibits racial discrimination in priNEW vate employment against white people as well as people of color.

“It’s a very clever game plan,” said Randolph McLaughlin, a civil rights attorney and law professor at Pace University, referring to the use of the 1866 law. “They want to turn civil rights law upside down.”

The standard of proof for the 1981 section is high because of the Supreme Court’s 2020 decision in Comcast v. National Association of African Americanowned Media establishing that the plaintiff who sues for racial discrimination under the section bears the burden of showing that race was the central cause in denying a contract opportunity – as opposed to a motivating factor.

Title VII of the 1964 Civil Rights Act protects employees and job applicants from employment discrimination based on race, color, religion, sex and national origin. If the plaintiff opts to sue under Title VII, then he or she needs to file a charge with the Equal Employment Opportunity Commission. That’s a process that takes up to 180 days. After that, the plaintiff can file a lawsuit. Choosing the 1981 route is much quicker.

Section 1981 is also broader than Title VII, which generally applies to employers who have 15 or more employees, legal experts said. Also under Title VII, a plaintiff can recoup only up to $300,000 in compensatory and punitive damages total. Section 1981 has no limitation.

Title VII does have a lower standard of proof than Section 1981. Plaintiffs only have to show race was a motivating factor, not a central cause.

In its lawsuit, American Alliance For Equal Rights seeks relief by arguing that the fund’s Fearless Strivers Grant Contest, which awards $20,000 to Black women who run businesses, violates Section 1981 by excluding some people from the program because of their race.

Attorneys for the Fearless Fund have argued in court filings that the grants are donations, not contracts, and are protected by the First Amendment.

David, the Fearless Fund’s legal counsel, says that if these types of grants are considered contracts, one can make the argument that grants issued in many other forms and contexts could also be considered contracts.

“Think of every foundation out there that issues grants,” David said. “They issue grants to people of different demographic groups. They issue grants only to women. They issue grants to survivors of earthquakes. Are those all contracts?”