Employers’ Diversity Data and Initiatives: Trade Secret or Open Book?
As many companies prepare to submit their annual “EEO-1” reports to the Equal Employment Opportunity Commission revealing their workforce statistics by race and gender for their U.S.-based employees by EEO job category, they face the increasing possibility that this information will become public. The decision last week by a federal district court vacating the administrative stay of a revision the EEOC proposed back in 2016, requiring employers to include compensation data by race and gender on a revised EEO-1 report, ups the ante further. Many companies consider such demographic data to be confidential. This raises the question whether a company’s diversity strategy—and its data reflecting success (or not) in implementing that strategy—qualify for protection under federal and state trade secret laws.
Employers Raise Novel Arguments in Familiar Contexts That Diversity Strategies and Data Are Trade Secrets
In light of the growing consensus that diverse workforces provide a competitive edge, many companies are devoting substantial resources to developing and enhancing strategies for the recruitment and retention of diverse employees, including senior-level executives. As with other areas in which companies spend resources in hopes of gaining a competitive edge, many companies consider their diversity strategy—and data reflecting that strategy—as proprietary. So it is no surprise that employers have recently challenged arguments that their diversity initiatives and data are entitled to trade secret protection. The tech industry has been on the forefront of such arguments.
For example, IBM recently relied on trade secret arguments in attempting to enforce its non-compete against its former chief diversity officer, who moved to Microsoft. IBM argued that the former employee knew confidential information about its diversity representation data, diverse external executive candidates it was pursuing, and proprietary methods of recruiting and retaining diverse employees. Because the case settled, the court made no substantive ruling on whether that information qualified as a trade secret. In another case involving Microsoft, this time a sex discrimination and harassment class action, Microsoft resisted the public filing of employee demographic data and diversity and inclusion efforts. Microsoft argued that its diversity initiatives are business trade secrets, pointing to the millions of dollars it spends to develop and implement them, the intangible “emotional connection” that the initiatives promote, and the potential for competitors’ unjust access to both the initiatives and Microsoft’s diverse employees. As for data, Microsoft argued that it may be “misconstrued,” causing disruption to business and confusion among customers and employees. The court agreed that the company’s diversity initiatives constituted trade secrets, but did not buy the idea that “raw diversity data” could cause competitive harm. Instead, the court noted that Microsoft seemed more concerned about negative effects on its reputation.
Arguments regarding trade-secret protections of diversity-related information may become increasingly common if, as expected, the EEOC initiates lawsuits based on the pay data companies might be required to disclose on the revised EEO-1.
Enter FOIA and the EEO-1…
Private employers with more than 100 employees must file annually with the EEOC a report—known as the “EEO-1”—showing race and gender numbers (and, potentially soon, compensation) for total U.S.-based employees for each of 10 defined job categories reflective of general levels within an organization. For years, the law seemed settled that such reports could not be publicly disclosed in response to requests under the federal Freedom of Information Act (FOIA). Although the EEOC had released aggregated data by geographic region and industry (and intends to release aggregated pay data based on the revised EEO-1 form), courts have generally held that the information in company-specific reports falls within the scope of the FOIA exemption for trade secrets and other confidential business information, the disclosure of which would cause substantial competitive harm to the business. More recently, however, the Department of Labor has flipped from its previous view that companies’ EEO-1s are FOIA-exempt and, at least as to certain requests for the EEO-1s of some large tech companies, has fulfilled those requests by publicly disclosing them. This follows press scrutiny—and litigation—particularly in the tech industry, and increased scrutiny by investors in publicly-traded companies. (Ironically, this change by the DOL comes as the U.S. Supreme Court prepares to hear oral arguments next month in a case that could expand the scope of this FOIA exemption.) At the same time, some companies have decided the best strategy for them is to voluntarily publicize their diversity data.
Whether employee diversity strategy and data is worthy of trade secret protection currently is a question focused on the tech industry. But that spotlight almost certainly will be pointed at many other industries as part of a larger public debate over whether the goal of increasing private employers’ workforce diversity is better served by mandatory disclosure of employers’ strategies and data or by competition between companies—competition that could be undermined by forced disclosure, including of data that companies are required to report to the government.
For now, employers should consider developing a strategy as to whether to treat their diversity initiatives and data, including EEO-1 reports, as discoverable or proprietary. Not only will such discussions prepare employers if a FOIA request comes knocking, but will also do so if the issue arises in non-compete or class action contexts. And, as they weigh these questions, employers should remain mindful that publicizing their diversity efforts might undercut future attempts to claim confidentiality. You can’t have your numbers and hide them too.
We will keep you updated as developments occur in this evolving area.