News

Consistent with President Trump’s Executive Order “Restoring Equality of Opportunity and Meritocracy” (“Restoring Equality EO”) wherein he proclaimed the “policy of the United States [is] to eliminate the use of disparate-impact liability”, according to an internal Agency memo obtained by Bloomberg Law, the U.S. Equal Employment Opportunity Commission (“EEOC”) has been instructed to close all pending worker charges based solely on unintentional discrimination claims, with limited exceptions.[1] This will end a 50-year history of the EEOC investigating unintentional discrimination, or “disparate impact”, claims.

Disparate Impact Theory of Liability

Disparate impact theory prohibits employment practices that, while neutral on their face, disproportionately affect members of a protected class and are not job-related or necessary for business operations. Historically, the EEOC has used this theory to challenge policies that result in statistical disparities, even if there is no intent to discriminate.

The “disparate impact” theory of discrimination is traced back to the 1971 Supreme Court ruling in Griggs v. Duke Power Co.[2] In Griggs, prior to passage of the Civil Rights Act of 1964, the employer openly discriminated against black employees by prohibiting them from working in better-paid departments within their facility.[3] After 1964, the employer, instead, required that employees pass aptitude tests in order to transfer to the better-paid departments.[4] However, employees who were hired before the new requirement did not have to pass the aptitude tests.[5] The Court noted that the test did not measure employees’ ability to learn or perform the jobs in those departments.[6] Instead, the testing requirement resulted in a disproportionate number of black employees remaining in the lower-paid positions while the vast majority of higher-paid positions were held by white employees.[7] The Supreme Court held that employment prerequisites that are unrelated to the requirements for the job and result in hiring disparities on the basis of any protected class violate Title VII of the Civil Rights Act of 1964.[8] In reaching this conclusion, the Court reasoned that Title VII “proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation.”[9]  Since then, the disparate impact theory of liability has been utilized in federal and many state courts.[10]

Application in DEI Space

While the Administration has made clear that it does not tolerate intentional discrimination of any kind, in contrast to the Restoring Equality EO’s rejection of the disparate impact theory, the Administration may support this theory in limited contexts, when evaluating Diversity, Equity, and Inclusion (“DEI”) policies and practices.  For example, the Department of Justice in its July 29, 2025, memorandum “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination” outlined recommended best practices under Title VII and other laws, including scrutinizing “neutral criteria for proxy effects[,]” which suggests that employers should still be concerned about disparate impact of facially neutral programs, at least in some circumstances.[11]

What This Means for Employers

While this update may mean the end of the EEOC investigating disparate impact claims, the Restoring Equality EO does not erase the existing disparate impact jurisprudence nor restrict private lawsuits. Ultimately, Congress or court decisions will be needed to change employer liability in this area. Employers must also continue to be mindful of state laws that recognize the disparate impact theory of liability.

With this announcement, Employers should:

• Watch for EEOC closure letters and notices of right to sue within the next month for any pending disparate impact claims;
• Recognize that employees may still bring private disparate impact claims. Facially neutral workplace policies, practices, artificial intelligence tools, termination decisions, etc. should still be monitored for potential disparate impact;
• Continue to evaluate DEI programs and practices, including those that are facially neutral, against administration guidance;
• Continue to conduct privileged disparate impact analysis of group separations

Our team will continue to monitor developments in EEOC policy, and we are available to answer your questions, assist with policy reviews, risk assessments, and litigation preparedness. If you have questions about how this update may affect your business, please contact your Michael Best attorney or a member of our team listed on this alert.