Is Disparate Impact Discrimination Gone?

Applies to: All Employers with 15+ Employees
Effective: April 23, 2025

Discussion

A recently signed Executive Order 14281, titled “Restoring Equality of Opportunity and Meritocracy,” instructs federal agencies to “deprioritize” enforcement of disparate impact discrimination under Title VII of the Civil Rights Act. The Order includes disparate impact theory as part of the “pernicious movement” that focuses on “irrelevant immutable characteristics, regardless of individual strengths, effort, or achievement.” Enforcement of disparate impact discrimination is now being lumped into the same category of alleged unfair treatment of employees as activities that promote diversity, equity, and inclusion.

What is disparate impact theory?

The Executive Order defines disparate impact theory as when a “presumption of unlawful discrimination exists where there are any differences in outcomes in certain circumstances among different races, sexes, or similar groups, even if there is no facially discriminatory policy or practice or discriminatory intent involved, and even if everyone has an equal opportunity to succeed.” It says that disparate impact requires businesses to “engage in racial balancing.”

However, disparate impact theory is a specifically recognized form of discrimination under Title VII of the Civil Rights Act. First identified by the U.S. Supreme Court in 1971, and later adopted by Congress in 1991, disparate impact discrimination occurs when a facially neutral policy or practice disproportionately impacts people based on their protected class. For example, requiring a credit history check for all new hires may appear facially neutral but may have a disparate impact on lower-income individuals or certain racial groups. This reality led to some states enacting laws that limit the use of credit checks in hiring except under approved circumstances.

Disparate impact discrimination is different from disparate treatment discrimination under Title VII, which occurs when an employer treats one applicant or employee differently than a similarly situated applicant or employee because of that individual's protected class. Disparate treatment can be more easily identified than disparate impact in that it is, by definition, intentional; whereas disparate impact focuses on the causal effect of the policy or practice.

Does the President have the power to eliminate statutory theories of liability?

As established by the U.S. Constitution, the President cannot change established law enacted by Congress, meaning that he cannot remove disparate impact discrimination from Title VII. This is highlighted by the fact that the Executive Order instructs federal agencies to “deprioritize” enforcement. Moreover, Title VII created the EEOC and charged it with enforcement of Title VII laws. Whether the President can direct federal agencies not to follow their statutory mandates will likely be another issue brought before the courts. Further, based on last year’s Supreme Court ruling in Loper Bright, which overturned the long-standing Chevron decision that gave deference to federal agency interpretations, any legal challenge will be forced to reckon with Title VII itself rather than the EEOC’s interpretations or directives.

What does this mean for employers?

This means that, for now, the EEOC will not be enforcing disparate impact discrimination claims against employers, and may even seek to dismiss its own previously filed lawsuits based on this type of discrimination. Because the Executive Order also seeks to evaluate where disparate impact discrimination enforcement exists, including at the state level, the White House appears to be evaluating how it can challenge these laws more broadly. However, because it remains established law at the federal and, in some cases, state levels, employers are still at risk of being held liable for disparate impact discrimination and should continue to follow applicable federal, state, and local laws.

Action Items

1. Review the Executive Order and Fact Sheet for more information.
2. Review claims of disparate impact discrimination with legal counsel.

As federal policies evolve, rely on our team of compliance leaders to help you stay on top of key actions, pending legislation, and regulatory changes that may impact your organization. Visit OneDigital's resource page for real-time updates: Federal Policy Updates for Employers: What to Watch in 2025.