The legal risks hiding in your diversity initiatives

An organisation’s approach to diversity and inclusion (D&I) in the workplace is largely driven by its cultural norms and ideals. There are no laws mandating that employers must undertake D&I initiatives. Nevertheless, there are aspects of common D&I initiatives that cross over into employment law, says Aaron Goonrey (pictured above), partner at Lander & Rogers. In fact, D&I policies can raise legal risks and challenges if not implemented thoughtfully and properly.

The evidence-based benefits of D&I

The business benefits of diverse and inclusive environments are well documented. According to McKinsey & Company’s 2020 report Diversity wins: How inclusion matters, companies with more than 30% women executives were more likely to outperform companies with between 10 and 30%. In turn, these companies were expected to outperform those with even fewer women executives, or none at all. In the case of ethnic and cultural diversity, McKinsey found that the likelihood of outperformance was higher for diversity in ethnicity than for gender.

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“According to the Diversity Council of Australia's 2021-2022 Inclusion@Work Index, workers in inclusive teams are four times less likely to leave their job in the next 12 months, and four times more likely to work extra hard. This has clear advantages for improving employee retention, reducing recruitment costs and supporting productivity ─ not to mention, boosting employee engagement and satisfaction,” Goonrey says.

D&I and the law in Australia

In Australia, at a federal, state and territory level, D&I is broadly encouraged.  At the same time, it’s unlawful to discriminate against a person or group based on protected attributes, including gender, race, sex, sexual orientation, age and disability. However, the laws are equal in terms of the protections afforded, and do not discriminate against or prefer one category of person to another.

“Within federal anti-discrimination laws, there exist ‘special measures’ provisions that allow acts of ‘positive discrimination’ to encourage greater access to opportunities for certain groups of disadvantaged people,” Goonrey says.

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There are certain requirements to meet the special measures provisions in relevant legislation. Broadly speaking, a measure needs to be directed at increasing opportunities for the disadvantaged group, and be reasonable and appropriate to achieve that objective.

“The issue of gender quotas, particularly at an organisation’s leadership level, may be seen as an extension of a special measure,” Goonrey says. “However, it may also leave an organisation open to claims of unlawful discrimination if it does not meet the requirements of a special measure. A case in point is a current claim in the US against BHP by a former male executive, who alleges that BHP’s 2025 gender balance target adversely affected his career at BHP.”

Communication is key: D&I data and establishment of initiatives

Many organisations wish to know their baseline for D&I metrics in the workplace, implementing surveys and reporting to track employee demographics. When asking employees for a comprehensive catalogue of their personal information (such as race, gender, sexual orientation, marital status, carer’s responsibilities, religion, age, disability, etc), a common misstep is failing to provide a reason for why the employee should disclose their personal information and what the organisation intends to do with that information.

“Clearly communicating to staff the reasons for collecting this information is paramount. Indeed, the same can be said for the introduction of any D&I initiative. Organisations should be prepared to ask and answer the questions: What is the purpose of the exercise? What is to be gained? Why should the employee ‘buy in’?,” Goonrey says.

Some employees may fear that their collected information, or a particular D&I initiative, could be used to discriminate against them. There is also a risk of breaching privacy laws in relation to the collection of “sensitive information”. Accordingly, companies are recommended to permit employees to provide such information anonymously and through a system that does not identify them. Employees should also have the option of not defining any requested attribute; that is, they can “prefer not to say”.

Additional steps for legal compliance

“Organisations should take steps to ensure their D&I initiatives and policies are legally and reasonably sound, and do not unintentionally and unlawfully discriminate when hiring and firing employees (subject to the special measures provisions mentioned above). The D&I hiring practices of an organisation may occasionally lead to inadvertent breaches of anti-discrimination law, particularly where the intent was to hire from a disadvantaged group but an objective criterion was overlooked in choosing the best candidate,” Goonrey says.

This may leave the organisation exposed to unlawful discrimination claims and/or general protections claims under the Fair Work Act 2009. Similarly, when an organisation terminates employees in a redundancy situation and an objective benchmark is not used, the terminated employees may perceive that they were chosen because they do not meet certain D&I standards.

“It is a fine balancing act but, when done properly, D&I initiatives can ensure an organisation and its people are set up for long-term success,” Goonrey says.