Federal Court Proceeding Signal the Latest Challenges to Equity and Inclusion in Contracting

Federal Court Proceedings Signal the Latest Challenges to Equity and Inclusion in Contracting

Recent legal cases affecting affirmative action programs for businesses owned by minorities and women have raised concerns for stakeholders nationwide. The current political climate, the upcoming election cycle, and the makeup of the U.S. Supreme Court and the lower federal courts are significant threats to all civil rights and diversity and inclusion programs to increase opportunities for minority- and women-owned businesses. Although these programs have faced and withstood challenges for several decades, the current legal climate has proponents on high alert that the current challenges are the most significant in over a half-century.

While many diverse business owners are concerned about the current legal climate, their primary concern is executing contracts during the present economic expansion, managing inflation, and overcoming workforce challenges. However, these businesses recognize the potential storm clouds on the horizon. They must monitor the legal proceedings to adjust quickly if a court ruling substantially changes their business model.

Four legal actions lie at the core of business owners’ current concerns and indicate what may be ahead for their companies. The first is the ruling by the Supreme Court against affirmative action programs in higher education. The second is a federal district court ruling in Tennessee requiring the U.S. Small Business Administration 8(a) Business Development program to end the rebuttable presumption of social disadvantage for minority-owned businesses in the application process. The third is a district court decision enjoining the U.S. Department of Commerce Minority Business Development Agency from providing services to MBEs. The most recent court proceeding is a complaint filed in Kentucky challenging the federal DBE Program. All four cases can potentially impact diverse business inclusion programs in government and private sector contracting.

U.S. Supreme Court Ruling Against Affirmative Action in College Admissions

In June 2023, the U.S. Supreme Court ended race-based affirmative action in higher education admissions. Directly overruling decades of settled law, the Court held that considering race in the admissions process at Harvard University and the University of North Carolina violated the Equal Protection Clause in the Fourteenth Amendment and Title VI of the Civil Rights Act of 1964. This ruling has already led to challenges to affirmative action efforts in employment and contracting.

The Supreme Court’s ruling against affirmative action in college admissions has several implications that may eventually impact diverse business owners. First, the ruling against considering race in college admissions could lead to more challenges to considering race in diverse business program participation. The outcome of such challenges could lead to fewer business owners in the government and corporate contracting market and fewer opportunities for those businesses still participating.

Another implication of this decision is the potential impact on diversity, equity, and inclusion (DEI) programs by government entities and corporations to increase the employment and advancement of diverse individuals, creating a more inclusive workforce and more inclusive initiatives in these organizations. Although the current ruling directly impacts college admissions, the fallout could lead to removing all DEI efforts by government and corporate entities.

SBA 8(a) Program Ruling in Tennessee

A second legal proceeding impacting minority- and woman-owned businesses is a June 2023 federal district court judge ruling in Tennessee. The judge ruled the U.S. Small Business Administration 8(a) Business Development Program’s use of rebuttable presumption of social disadvantage for minority business owners was unconstitutional. A “rebuttable presumption” means something is presumed true unless proven otherwise. The burden of proof lies with the party who wishes to dispute or disprove the presumption. In the SBA 8(a) Business Development program, minority-owned businesses are presumed to be socially disadvantaged, qualifying for the program unless proven not to be.

The decision forced the SBA to suspend new applications for the 8(a) program and to require existing 8(a) participants previously admitted to the program because of the social disadvantage presumption to submit a social disadvantage narrative to establish that the participant is personally and socially disadvantaged. The long-term effect of this ruling could lead to the SBA revamping the 8(a) program to require business owners to show evidence of discrimination and require federal agencies to create goals for the program by analyzing the utilization of minority- and women-owned firms by different federal agencies and calculating contracting goals for the agency, instead of the current practice of setting-aside contracts for firms in the 8(a) program.  The plaintiff also challenges SBA’s ability to set aside any new contracts solely for 8(a) firms.  The case is pending.

MBDA Ruling In Texas

The Minority Business Development Agency’s supportive services and technical assistance to MBEs through its Dallas/ Fort Worth area, Orlando, and Wisconsin offices have been preliminarily enjoined.  The court held that MBDA lacked evidence of discrimination in the market for federal contracts; the groups included were both over- and under-inclusive, and there had been no serious efforts to utilize race-neutral approaches to achieve the desired results.  The case is pending.

DBE Program Complaint Filed in Kentucky

The latest legal proceeding, filed in a U.S. District Court in Eastern Kentucky, involves a challenge to the USDOT’s Disadvantaged Business Enterprise Program on its face.  The plaintiffs claim the DBE Program violates the U.S. Constitution’s Due Process Clause, which prohibits the federal and state governments’ deprivation of “life, liberty, or property” without due process of law.  They claim the program has “failed,” is not based on the federal government’s “compelling interest,” and that the program is not “narrowly tailored.” There is no state defendant.

In addition to these cases, challenges have been filed against various agencies for providing preferences on the basis of race in distributing different types of government business assistance. The City of Houston and a local agency have been sued over their M/ WBE programs for local funds. Numerous cases are pending against private-sector DEI initiatives, too.

As these legal proceedings progress in the coming months, minority and women entrepreneurs would be wise to keep abreast of these cases and potential changes to diverse business programs nationwide. Although changes often occur slowly, adverse decisions at the federal court level could also immediately impact business owners.