This executive order undertakes to restore equality of opportunity and meritocracy by eliminating the use of disparate-impact liability which is a legal doctrine that holds that employers can be held liable for facially neutral policies if those policies disproportionately negatively affect a group of people based on a protected characteristic, such as gender or race. For instance, requiring that a job applicant have a high school degree could adversely impact black or Hispanic applicants.

This executive order states that it is “the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, federal civil rights laws and basic American ideals.” It directs all agencies to deprioritize enforcement of all statutes and regulations to the extent that they include disparate-impact liability. Additionally, it instructs the attorney general and chair of the EEOC to assess all pending investigations, civil rights suits or other positions taken in ongoing matters that rely upon the disparate-impact theory under every federal civil rights law within their respective jurisdictions and to take appropriate action with respect to such matters consistent with the policy of the executive order.

While this executive order means that the EEOC will probably not pursue charges of discrimination based upon disparate-impact liability during this administration, it does not mean that employers are no longer liable for such discrimination. This theory of liability was recognized by the United States Supreme Court in 1971 and then was codified in the Civil Rights Act of 1991. Until the Supreme Court case is overruled, and the statutory provision is repealed, employers are bound by both. Additionally, this executive order will not prevent employees from filing charges of discrimination and subsequently filing suit based upon those charges. Moreover, most of the states have civil rights statutes that mirror the Civil Rights Act of 1964 as amended by the Civil Rights Act of 1991.

This executive order could also have an impact on financial institutions. During the Biden administration, federal bank regulators made referrals of banks to the DOJ for redlining based upon a disparate impact theory. The activities involved occurred during Trump’s first term in office. Lending institutions can expect this to occur again, should the current administration be succeeded by a Democratic administration.