Early in the New Year, McDonald’s announced that as a result of an outside law firm audit it would be  ending some of its diversity practices, citing as the reason the U.S. Supreme Court’s 2023 decision outlawing affirmative action in college admissions. Notwithstanding this corporate action, just a few days later McDonald’s was hit with a civil rights lawsuit filed by a conservative activist alleging that a Hispanic scholarship program the company sponsors is discriminatory based on race. As discussed below, this new lawsuit is just the latest anti-ESG lawsuit conservative activists have filed based on DEI-related and other issues. A copy of the January 12, 2025, complaint in the new McDonald’s lawsuit can be found here.

Background

Since 1985, McDonalds has sponsored the HACER scholarship program. (“Hacer” means “to do” or “to make” in Spanish.) The program by its terms is restricted to rising high school students who have at least one parent of Latino or Hispanic heritage. Each year the program awards scholarships to 30 high-school students in amounts of between $5,000 and $100,000. Since its inception, the program has awarded more than $33 million in scholarship funds to over 17,000 Hispanic and Latino students. The program is administered by a Nashville-based company, International Scholarship & Tuition Services (ISTS).  

The Lawsuit

On January 12, 2025, the American Alliance for Equal Rights, filed a lawsuit against McDonald’s, related entities, and ISTS. The complaint is signed on behalf of the AAER by its President, Edward Blum. Blum is a conservative activist whose lawsuits against Harvard University and the University of North Carolina led to the U.S. Supreme Court’s ruling striking down the use of race in college admissions.

The complaint specifically references, and indeed opens with, an acknowledgement of McDonald’s recent announced effort to walk back some of its DEI efforts. The complaint notes that while McDonald’s has expressed a new commitment to “treat everyone” fairly, “it didn’t mean everyone.” The company, the complaint alleges, is, notwithstanding its recently announced efforts to alter its diversity practices, is continuing “a program that blatantly discriminates against high-schoolers based on their ethnicity.”

The complaint alleges that the kind of “discrimination” it alleges in connection with the HACER scholarship program “was never lawful, even before Harvard held that colleges cannot use race or ethnicity in admissions. The complaint emphasizes that non-Hispanics are not eligible for HACER scholarships, and that in the history of the program a non-Hispanic has never been awarded a HACER scholarship. The complaint cites various publicity efforts by McDonald’s about the program which the complaint alleges “confirms” the program’s “discriminator purpose and operation.”

The complaint alleges further that members of the American Alliance for Equal Rights are “being harmed” by the “racially discriminatory program.” The complaint refences a specific, unnamed individual, who is a high school student in Arkansas. The complaint alleges that she is a competitive candidate with a 3.8 GPA who would like to apply for the HACER program, but who would be ineligible for a scholarship award because she does not satisfy the program’s ethnicity eligibility requirements.

The complaint alleges that the program violates Section 1981 of the Civil Rights Act of 1866. Because a provision of Section 1981 specifically prohibits racial discrimination in connection with contracts, the complaint contains specific allegations that the arrangement between program applicants and McDonalds is contractual.

The complaint seeks a declaratory and injunctive relief, and specifically request a preliminary injunction, noting that the deadline of this year’s scholarship program is February 6, 2025. The complaint also seeks nominal damages of $1. A January 13, 2025, Wall Street Journal article about the lawsuit (here) quotes Blum as saying that “his hope is that McDonald’s pauses the program so that it can be opened to all under-resourced high-school students regardless of their ethnic heritage.”

Discussion

The Journal article to which I linked above describes this new lawsuit a “the latest in a growing body of cases by various activist groups challenging corporate diversity initiatives.” I would go even further than that; I would say it is the latest in a series of cases brought by conservative activists to try to punish companies who have been proactive on ESG-related issues in general. In that regard, I note the American Airlines case, which I recently discussed here, where a conservative activist has successfully sued the company for its use of ESG funds in its defined contribution plan.

In my view, McDonald’s can be excused if its executives feel like saying “What the hell?” The company just took the extraordinary step of saying it as stepping back some of its diversity initiatives, and now it is being sued for not going far enough? The Journal article quotes a McDonald’s statement about the lawsuit as saying that as part of its evolving posture with respect to diversity it “will be reviewing programs, in partnership with our franchisees as applicable, to ensure these programs align with our vision moving forward.”

Given the publicity and the fact of the lawsuit itself, which the company must now defend, you can certainly see how other companies might now be gun shy about any ESG issues. Readers undoubtedly are aware of the phenomenon of “greenhushing,” where companies soft-pedal the company’s position with respect to ESG issues. But this lawsuit and similar efforts seek more than just to compel radio-silence; it bespeaks an effort to eradicate any corporate efforts that do not comply with the activists’ agenda.

The Journal article comments that this lawsuit “could reverberate.” A range of companies and nonprofits, the article notes, offer scholarships tied to ethnicity and race. The article specifically cites, for example, the 600 scholarships available to students who identify as Jewish, and the scholarships offered to children and grand-children of the mostly Irish members of the Order of Hibernians.

The one thing that seems clear is the anti-ESG backlash has momentum. The momentum seems likely to continue – if not accelerate – in the incoming Trump administration. There could be more ESG backlash litigation ahead.