American Companies Face Considerable Risks Implementing Their Diversity Plans Abroad

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For a variety of historical and social reasons, US law permits (and in some cases requires) employers to affirmatively track and provide opportunity to historically underrepresented groups in the workplace. Companies are permitted to (and in some cases must) gather data from candidates and employees regarding their identification with a protected group, so long as they are sufficiently qualified for the position. And, provided an employer’s actions do not discriminate in violation of US equal opportunity laws, US law allows for employers to increase opportunities for underrepresented employees.  

Setting aside any social, historical, and political considerations, laws that allow companies in the US to promote diversity, inclusion, and belonging programs often differ in material respect from international employment laws. 

The idea of lawfully gathering this information and then actively using it for ongoing employment decisions is fairly unique to the US, and few American multinationals realize it.

Many other countries approach inclusion and diversity from a “color blind” standpoint: employers are generally not permitted to inquire about candidates’ and employees’ identification with protected groups, at least for purposes of making hiring decisions, and they are required to treat every person objectively fairly without regard to their identification. While some jurisdictions allow the gathering of some personal information, and in a few narrow cases require employees to use this information (e.g., hiring of workers with disabilities), no jurisdiction permits employers to gather as much information and allows them to act on it as broadly as the United States.

Unwelcome news for US employers…

The first time a global client asked one of the authors (based outside the US) for a “template employment diversity form,” she was so unfamiliar with the American approach to inclusion and diversity that she didn’t know what they were after.

They wanted to track their workforce’s diversity attributes (asking every person about race, gender identity, sexual orientation, disabilities, etc.) so that they could track performance on their broader diversity targets. Again, this is typical practice in the US, where both discrimination and data privacy considerations are different.

When our colleague flagged that there were restrictions in Australia, the client patiently explained that “this is for diversity” and were incredulous when given the bad news that it still might be unlawful in Australia.

A different landscape outside the US

In Australia, it is generally not sufficient for an employer to simply seek to achieve workforce diversity. Discrimination is prohibited at Commonwealth and state level. Under many of these laws, positive discrimination is only lawful if an employer can demonstrate that there is current substantive inequality that will be remedied by the proposed measure.

Further, some laws (such as the NSW Anti-Discrimination Act 1977) require a formal exemption from a Tribunal, with limited or no capacity for unilateral positive discrimination. There are around 750,000 Australian business with NSW as their main state, but fewer than 150 organizations have current exemptions permitting positive discrimination. If information will be used for discrimination, it can be a separate breach of some state laws to collect it, raising the prospect that even asking for diversity details can result in risk for an employer.

This is a concern given that many diversity goals seem like aspirational rather than reachable targets. For example, 2017 research showed that there were fewer Australian companies run by women than by men named Peter or John. By 2020, there had been some improvement for gender diversity, but only around 5% of board directors in the ASX300 came from non-Anglo-Celtic backgrounds.

Australia is not alone in these issues. In Europe, positive action is only allowed within narrow limits. In the UK, the Equality Act 2010 allows positive action where there is demonstrated under-representation or disadvantage for a protected group and, specifically, the individual concerned. The employer also has to show that the positive action is proportionate – another hurdle to get over. For hiring and promotion, the exemption is even narrower – essentially allowing under-representation to be a “tiebreaker” only where candidates are equally qualified.

Ultimately, positive action that goes beyond target-setting and into practical steps is a risk for employers. For example, a UK police force recently lost a case for selecting a minority candidate over a white candidate to improve its diversity, on the basis the candidates were “not equally qualified.”

There are complex reasons for lack of diverse representation in many companies, and we do not suggest the discrimination laws are a cause. However, they result in complexity, risk, and difficulty instead of making it simple or easy for businesses to implement diversity initiatives outside the US.

Time for a re-think?

Many global companies are increasingly looking at diversity as a commercial issue, and seeking to partner with business that meet various diversity targets. Some employers are willing to take these risks, for example by insisting on all women shortlists for board roles, in order to speed up the pace of change. In countries where discrimination laws create complex hurdles to navigate, employers might miss the opportunity to get on board.

The American experience with inclusion and diversity, which permits employers to gather rather personal information and then make employment decisions based on that information, is an outlier. American employers must bear this distinction in mind when implementing inclusion and diversity initiatives globally.

Is it time to diversify discrimination laws outside the US so that we can all do better?

Erin, Tessa, and Dan are part of Seyfarth’s leading International Employment team. To find out more about discrimination laws outside the US and how they might affect your business, please reach out to them or anyone else on our specialist team. You can also read more about Global Employee DEI Data here, where Seyfarth experts Marjorie Culver and Caitlin Lane previously discussed ESG and DEI efforts.