FTC’s Threat to Law Firms Over DEI Takes Unusual Antitrust Angle

An FTC letter warning law firms that participating in a diversity certification program could constitute “anticompetitive collusion” is a novel legal move, even within the agency’s shift in its approach to labor market competition.

Federal Trade Commission Chairman Andrew Ferguson informed DLA Piper, Paul Weiss, and 40 other major law firms in a Jan. 30 letter that their agreements with legal consulting firm Diversity Lab to establish and meet standards for diverse hiring pools could be potentially unlawful and distort competition for legal talent.

These actions could expose firms to liability under the Sherman and FTC Acts, he said, citing laws typically used to prevent price-fixing and market manipulation.

The agency’s use of labor-market antitrust theory isn’t new. It recently expanded its enforcement from consumer issues to employment matters, including no-poach agreements and wage-fixing, to promote competition in labor markets, legal scholars and former FTC attorneys said.

But Ferguson’s letters represent the latest escalation of the Trump administration’s multi-faceted approach to challenging DEI efforts in corporate America, including the novel application of decades-old laws.

Applying the antitrust theory to a publicized initiative aimed at increasing diversity, inclusion, and equity at law firms moves the agency’s enforcement authority into untested legal territory, said Stephen Calkins, a professor at Wayne State University Law School who also served as FTC general counsel under President Bill Clinton. “This particular kind of focus is unusual.”

“The letter has loudly and clearly sent a warning to law firms not to have communications that might get them in trouble with the antitrust police,” he said.

The Mansfield Certification program encourages firms to include at least 30% of “qualified underrepresented talent out of the unlimited number of people considered” for promotions and hiring.

For a viable enforcement action, evidence that the firms shared sensitive information through the program in ways that reduced labor mobility and caused wage suppression would be required, Calkins said.

Liability Framework

Shortly after his appointment, Ferguson announced the creation of a joint labor market task force to target several practices, including “collusion or unlawful coordination on DEI metrics, which may have the effect of diminishing labor competition by excluding certain workers from markets, or students from professional training schools, on the basis of race, sex, or sexual orientation.”

The Mansfield program was at issue in a case brought by Perkins Coie and three other Big Law firms, challenging Trump’s executive order targeting their DEI efforts. A Washington, DC federal judge rejected the administration’s claim that Perkins Coie’s participation in the program was evidence of racial discrimination.

The program “expressly does not establish any hiring quotas or other illegally discriminatory practices, requiring only that participating law firms consider attorneys from diverse backgrounds for certain positions,” the judge said.

The administration has appealed that decision.

Employers that independently apply DEI strategies to hiring and promotions wouldn’t violate antitrust law, though they could still be subject to civil rights laws, said Alexander “Sasha” Volokh, a professor at Emory Law.

Antitrust legal risks would arise if there was evidence that the firms exchanged competitively sensitive information and coordinated over hiring, promotion, or compensation decisions in ways that suppress competition for legal talent.

Ferguson’s letter indicates the law firms participating in Mansfield Certification hold monthly “knowledge-sharing calls.” If the firms on those calls jointly commit to specific hiring practices, that would likely constitute an agreement, contract, or conspiracy under Section 1 of the Sherman Act, resulting in a “per se violation”, Volokh said.

“We expect that the firms should be competing with each other” on hiring practices, he added.

‘Difficult’ Burden

Sharing information can sometimes be illegal under antitrust law, but legal precedents in traditional antitrust actions show it’s usually “very difficult” for enforcers to prove it amounts to more than just an unlawful agreement, Calkins said.

Many trade associations routinely circulate this kind of information, and it rarely results in successful enforcement cases, he added.

Robert Lande, a professor at the University of Baltimore School of Law, said FTC discovery could be burdensome and intrusive for law firms.

Some of the FTC’s concerns are standard antitrust issues, but the legal path of any action in the DEI context is unclear.

“We’re in a murky area here,” as there’s no analogous case to use to determine how it would play out practically in court, he said.

Pressure Tactic

If the FTC brings a legal action to court, it would be subject to the rigorous “rule of reason” legal analysis, which allows defendants to argue pro-competitive justifications, or the “quick look” shortcut analysis to determine whether a business practice or agreement unlawfully restrains trade.

But there’s no guarantee that courts will get a chance to answer the legal questions raised by Ferguson’s letters.

The tactic could just be another instance in which the administration threatens enforcement under a novel legal theory to pressure businesses or law firms into reaching settlements or dismantling their DEI programs, legal scholars said.

That policy approach is “absolutely standard in the Trump administration,” Volokh said.