A recent article in the online City Journal magazine raises interesting questions about corporate diversity set-asides in employment or subcontracting. The article, with the slightly sensational title “Did Marathon Petroleum Prioritize DEI Over Safety,” reports a 2021 email by Marathon’s then-CEO setting forth a new bonus metric. Specifically, the article alleges, Marathon set a 30% target for hiring women and a 30% target for hiring racial minorities. The article also claims that Marathon tied diversity targets into its bonus structure, as the City Journal reports that a (since deleted) line on the Marathon website read: “We link executive and employee compensation to DE&I metrics.”
The article further notes Marathon’s decision to prioritize supplier diversity. Specifically, Marathon’s annual spending on “diverse suppliers” increased from $277 million to $795 million from 2020 to 2023. (The article does not say what percentage this is of Marathon’s total subcontractor bill). Notably, this all predates the Supreme Court’s 2023 decision striking down racial quotas at Harvard University, which acted as a wake-up call to many companies who were practicing what they believed was “beneficial” racial discrimination. It is quite telling that Marathon has deleted this language from its external website.
There is, of course, nothing inherently unlawful about awarding contracts to businesses which happen to be owned by women or racial minorities. However, if Marathon awarded contracts to companies because they were owned by women or minorities, that is a potential violation of a federal law known as Section 1981. This law, which is part of the Civil Rights Act of 1866, states that all races must be treated equally regarding “the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.”
A corporation, of course, has no race or ethnicity — although its owners and executives most certainly do. Despite this seemingly obvious fact, courts across the country have allowed corporations to bring claims under Section 1981 when their contractual rights are impinged because of racial considerations. (This 2023 Sixth Circuit case lists a number of such decisions in footnote 3). In other words, companies who lose out on valuable subcontracts due to diversity set-asides or quotas may have the right to sue for compensation. And Section 1981 is unique among anti-discrimination laws in its unusually lengthy statute of limitations — four years, in most cases.
As always, where the rubber hits the road is evidence. It is one thing to simply say that your company lost out on a subcontract, and you think it’s unfair. To bring a lawsuit, you need receipts — black and white evidence showing that race was unlawfully used to tip the scales to choose one subcontractor over another. For example, in White Glove Staffing v. Methodist Hospital, the hospital’s chef allegedly told a potential subcontractor that he “only really wanted to work with Hispanics,” and eventually cancelled the contract because they sent African-American workers instead. As one court held, in these kinds of situations the corporation has a sort of “imputed racial identity” which allows it to bring a lawsuit under Section 1981. It makes no legal difference whether that “imputed” racial identity is black, as in White Glove Staffing, or white, as alleged in the Marathon Petroleum article. Discrimination in any direction violates Section 1981.