On Monday, June 3, 2024, the U.S. Court of Appeals for the Eleventh Circuit held that a contest providing venture-capital funding to only Black women was substantially likely to violate section 1981 of the Civil Rights Act of 1866.
Background
The case, American Alliance for Equal Rights v. Fearless Fund Management, LLC, centers on the Fearless Strivers Grant Contest, which Fearless Fund Management operates to award grants to small businesses owned by Black women. The contest is restricted to businesses that are at least 51% owned by Black women. The winning contestant is guaranteed a $20,000 cash prize and ongoing mentorship.
The American Alliance for Equal Rights sought a preliminary injunction to stop the contest from limiting applications to Black women owned businesses. They argued the application’s race-based restriction violates § 1981, which provides that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens.”
The Decision
The Eleventh Circuit, in a split 2-1 decision, ordered the U.S. District Court for the Northern District of Georgia to grant the Alliance’s request for a preliminary injunction preventing Fearless from closing its contest to only small businesses owned by Black women. In so holding, the Eleventh Circuit held that Alliance had standing to sue and the contest constituted a contract for purposes of § 1981. In particular, the Eleventh Circuit found that the contest constituted a “contract” because entrants entered into a bargained-for exchange with Fearless when they participated in the contest. The Court highlighted that “a winning entrant obtains $20,000 and valuable mentorship and, in return, grants Fearless permission to use its idea, name, image, and likeness for promotional purposes and agrees to indemnify Fearless to arbitrate any disputes that might arise.”
The Court also explained that the contest is not likely sufficiently “expressive” to warrant protection under the First Amendment’s Free Speech Clause. The Court emphasized that “[i]f that refusal [to allow non-Black applicants to enter the contest] were deemed sufficiently ‘expressive’ to warrant protection under the Free Speech Clause, then so would be every act of race discrimination, no matter at whom it was directed.” The Court held that “[a]lthough Fearless will presumably need to change its contest rules to bring itself into compliance with § 1981, that burden pales in comparison to the interest in rooting out race discrimination in all its forms.”
Significance
The Eleventh Circuit’s decision is in line with other recent reverse discrimination cases challenging diversity initiatives. See Students for Fair Admissions v. Harvard, 600 U.S. 181 (2023). It is yet to be seen whether other circuits will follow the Eleventh Circuit’s decision, but employers should be cognizant of this issue in creating and setting diversity initiatives.
