FTC crackdown on law firm DEI efforts tests antitrust limits

By Mike Scarcella

Feb 4 (Reuters) - The U.S. Federal Trade Commission took a fresh tack last week in the federal government's crackdown on diversity, equity and inclusion efforts, warning 42 major law firms that their hiring practices may violate federal antitrust law.

By invoking alleged threats to competition, the strategy could buttress broader, ongoing efforts by President Donald Trump's administration to combat DEI using anti-discrimination law. But bringing an antitrust case would face a high bar, legal experts said.

The letters, issued on Friday by FTC Chairman Andrew Ferguson to Paul, Weiss, Rifkind, Wharton and Garrison; Latham & Watkins; Skadden, Arps, Slate, Meagher & Flom; and other prominent firms, focused on their participation in a certification program run by consultancy Diversity Lab aimed at expanding lawyers' access to leadership positions.

“Such agreements can distort competition for labor in legal professions, including along dimensions like hiring decisions, pay, and promotions,” the letters said, warning against "potentially anticompetitive collusion between law firms on DEI metrics."

WAGE 'COLLUSION' CASES

A growing number of lawsuits over the past decade have applied antitrust law to labor markets, alleging rival companies colluded to set wages and restricted job mobility by working together through industry trade groups or consulting firms.

Among those cases, a federal judge in December said major U.S. shipbuilders and consulting firms must face a private antitrust lawsuit accusing them of stifling pay and mobility for engineers and architects. Major meat producers have agreed to pay nearly $400 million to resolve similar claims that they broke antitrust law by conspiring with an industry consultancy to fix wages.

While none of those cases involved DEI, experts said antitrust provisions could be applied to diversity‑related hiring practices under narrow circumstances. The law could bar competing employers from conspiring to prefer certain job candidates over others, such as white males, said law professor Douglas Ross of University of Washington's law school.

The key obstacle for the FTC or other plaintiffs to bringing an antitrust case against law firms, Ross said, would be establishing that they had an agreement to restrict hiring or promotions. Without proof that the firms used the Diversity Lab's certification program to align their decisions, such a case would likely falter, he said.

An FTC spokesperson did not immediately respond to a request for comment on any plans to follow up on its letters.

'PIPELINE' FOCUS

The Diversity Lab, which also received a warning from the FTC, says on its website that its "Mansfield" certification program requires law firms to commit to expanding their leadership talent pipelines and to share knowledge about the process. It says the certification process is non-discriminatory and compels participants only to consider diverse applicants for leadership positions.

A Diversity Lab spokesperson did not immediately respond to a request for comment, nor did Paul Weiss, Latham or Skadden Arps.

Antitrust scholar Mark Lemley of Stanford Law School said that based on his understanding of the certification process, participation in the Diversity Lab program “seems extremely unlikely to be an antitrust violation.”

The FTC would have to show that the targeted law firms actually restricted the hiring of white employees, and that doing so was not an independent decision based on the firm's business interests.

“Unless there are facts suggesting both of those things that haven't been made public, this is the sort of claim based on parallel conduct that regularly gets thrown out by courts on a motion to dismiss,” Lemley said.

KEEPING PRESSURE ON FIRMS

The FTC letters ramped up scrutiny over diversity efforts that law firms already faced under Trump, who complained about legal industry hiring practices in executive orders he issued against a group of firms last year.

Many major law firms in recent months have publicly withdrawn or altered their public references to diversity, equity and inclusion, a Reuters special report showed.

In March, the U.S. Equal Employment Opportunity Commission demanded detailed hiring data from 20 major firms, including applicant names and whether race or gender influenced their employment decisions.