By Samantha Halem, Samuel Gates, Sarah Ruter April 2, 2025
Background
The Trump administration recently issued a series of executive orders aimed at restricting diversity, equity, and inclusion (DEI) programs. These executive orders have impacted businesses and organizations across the public and private sectors by revoking prior executive orders that promoted DEI and imposing new compliance obligations to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.”
Executive Order 14173 (“EO 14173”), titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” is of particular concern for federal contractors—those businesses and other organizations that contract with the United States government to provide goods or services in exchange for funds appropriated by Congress. Among other things, EO 14173 directs federal agencies to require that contractors certify that they do not “operate any programs promoting DEI that violate any applicable federal anti-discrimination laws.” Importantly, EO 14173 also requires certification that “compliance in all respects with all applicable federal anti-discrimination laws is material to the government’s payment decisions” for False Claims Act (FCA) purposes. This means that federal contractors may face significant legal exposure if they fail to align with EO 14173, including potential exposure to liability under the FCA.
The False Claims Act and Federal Contractors
The FCA imposes liability for a knowing submission of false or fraudulent claims for payment to the U.S. government. Particularly relevant to EO 14173, contractors can also be held liable for materially false or fraudulent statements made to influence contract payments if those statements are “material” to the government’s decision to make the payment. By specifically invoking the element of materiality requiring certification, EO 14173 signals that the administration intends to enforce its policies through the FCA.
In February, a federal district court in Maryland issued a preliminary nationwide injunction that temporarily halted enforcement of elements of EO 14173. Most notably for federal contractors, the injunction prohibited implementation of the “certification provision” of EO 14173. But that temporary relief was short-lived—the Fourth Circuit soon allowed the federal government’s request to stay the injunction pending appeal. As a result, federal agencies can renew efforts to require federal contractors to certify compliance, subject to potential liabilities under the FCA. In considering the government’s appeal, the Fourth Circuit will address the ultimate issue of whether the certification obligations are lawful to begin with. However, in light of this recent ruling, it is important that federal contractors take measures to ensure that their policies and programs are free of “illegal DEI.”
Although the EEOC has recently released guidance documents that attempt to define the contours of prohibited DEI programming, what exactly constitutes “illegal DEI” remains very much in question. But, in light of EO 14173, federal contractors that have existing DEI programs and initiatives and make statements about compliance with the Trump administration mandates, could potentially be in violation of the FCA.
Potential Exposure to False Claims Act Liability and Penalties
Federal contractors that fail to comply with the Trump administration’s DEI executive orders could face exposure to FCA liability. Contractors who falsely certify compliance with the Trump administration’s DEIrelated executive orders (or fail to update their certifications) risk submitting false claims that could trigger FCA liability. In addition to legal action initiated directly by the government, employees or subcontractors who observe or are involved in non-compliant (or what they assert are non-compliant) activities could file “whistleblower” lawsuits under the FCA, further increasing the risk of exposure and liability.
Under the FCA, contractors found in violation may be subject to monetary penalties per false claim, along with treble damages (three times the amount of damages the government sustains due to the false claim). Contractors found in violation of the FCA may risk losing existing federal contracts and being barred from future contracting opportunities. Even allegations of non-compliance with federal executive orders can harm a federal contractor’s future ability to secure government contracts.
Recommendations for Federal Contractors
Under EO 14173, it is not per se illegal to maintain DEI policies and programs. But, to mitigate the risk of FCA liability, federal contractors should consider the following actions:
The Bottom Line
Despite the ambiguity of what exactly constitutes “illegal DEI,” failure to comply with the Trump administration’s DEI executive orders, particularly in the context of alleged false certifications and misrepresentations related to diversity training and workforce programs, exposes federal contractors to significant risks under the False Claims Act. Contractors should consult legal counsel to ensure full compliance and avoid potential liability.
This is a rapidly evolving area of the law and HRW will continue to strive to keep employers updated on any changes. For questions or more information, please contact:
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By Samantha Halem, Catherine Reuben, Sophie Levine March 27, 2025
As you likely know by now, in the first few weeks of President Donald Trump’s second term, he issued a slew of executive orders, some of which target Diversity, Equity, Inclusion (DEI), and Accessibility (DEIA) programs. However, the exact scope of these orders remains unclear and leaves private employers with more questions than answers.
While the landscape continues to evolve, including multiple court actions filed and brand new guidance issued from the Equal Employment Opportunity Commission (EEOC), private employers must stay abreast of the legal environment to avoid running afoul of the law.
What does the Executive Order Say?
The Order, issued January 21, 2025, takes aim at “illegal DEI and DEIA policies”, revokes several prior executive actions, and contains specific action items for federal contractors. This client alert is only focused on “Section 4”, which addresses the non-federal contractor private sector employers. We will provide a separate Client Alert addressing the implications for federal contractors shortly.
As it pertains to the private sector, the Order “encourage[es] the private sector to end illegal DEI discrimination and preferences” and directs all agencies to enforce “longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.”
In addition, the Order directs the Attorney General, in consultation with the heads of all agencies and the Director of the Office of Management and Budget, to submit a report by May 21, 2025, to the Assistant to the President for Domestic Policy containing their recommendations for the enforcement of federal civil rights laws.
As described in the Order, the report shall identify: (1) key sectors of concern; (2) the most egregious and discriminatory practitioners in each sector of concern; (3) a plan to deter illegal discrimination; (4) strategies to encourage the private sector to end illegal DEI and comply with all federal civil rights laws; (5) potential litigation, and; (6) potential regulatory action and guidance.
As part of this plan, each agency is directed to identify up to nine potential civil compliance investigations of: publicly traded corporations, large non-profits, foundations with assets of 500 million dollars or more, state and local bar and medical associations, and institutions of higher education with endowments over one billion for their alleged use of illegal DEI programs.
Indeed, on March 17, 2025, the EEOC Acting Chair, Andrea Lucas, sent letters to 20 law firms requesting information about DEI-related employment practices.
The Order does not, however, include any limiting language on the planned investigations, so it is always possible this list could expand.
The order does not explicitly direct the private sector to eliminate DEI. Instead, it encourages the private sector to end illegal DEI discrimination.
What is an illegal DEI program?
The Order does not define what constitutes an “illegal” DEI/DEIA initiative. The administration appears to be defining DEI both subjectively and broadly to describe a myriad of awareness and anti-discrimination programs and trainings. The term DEI itself is not defined anywhere in federal civil rights statutes. However, the EEOC, the federal government agency responsible for enforcing federal anti-discrimination laws, recently issued guidance and answers to many frequently asked questions.
The EEOC guidance makes clear what has always been true: the Executive Order does not, and cannot, alter existing federal anti-discrimination laws such as the Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, and the Age Discrimination and Employment Act. Those laws remain in effect and apply equally to all workers, as they always have.
On that point, certain employment actions have always been illegal under long-standing civil rights law that still remain in effect. Quotas, set asides, and policies that explicitly favor or disfavor employees based on any protected characteristic, including but not limited to race and sex, have never been legal under anti-discrimination laws. As such, employment practices such as internships which explicitly prefer certain groups, affinity groups that are not open to all employees, and hiring practices that provide preferences to certain groups are particularly suspect and vulnerable to investigation at this time. Any such program or practice will need to be assessed with a case-by-case, fact-intensive analysis.
What else has happened since President Trump issued the Order?
In the immediate aftermath of the Order, state attorney generals took action in line with their political parties.
For example, Republican attorneys general from eleven states sent notice letters to six leading financial institutions threatening to take action based on their existing DEI programs.
Correspondingly, sixteen Democratic state attorneys general, including Massachusetts Attorney General Andrea Joy Campbell, elected to issue guidance affirming that DEI and DEIA programs were consistent with their interpretation of federal and state anti-discrimination laws. The Democratic attorney generals critiqued Trump’s Order, stating that it “conflates valid and legal programs and practices supporting diversity, equity, inclusion, and accessibility with unlawful preferences in hiring and promotion.”
Finally, the Acting Chair of the EEOC noted that her priorities include:
“evenhanded enforcement of civil rights laws for all Americans, including by rooting out unlawful DEI-motivated race and sex discrimination; protecting American workers from anti-American national origin discrimination; defending the biological and binary reality of sex and related rights, including women’s rights to single-sex spaces; protecting workers from religious bias and harassment; and remedying other areas that have been historically under-enforced by the agency.”
Does my company need to get rid of DEI programs?
No.
However, the threat of litigation and investigation looms large. Even properly designed DEI and DEIA programs may be targeted by these investigations.
Still, private employers should not throw the baby out with the bathwater without first examining their policies and procedures. Furthermore, standard anti-discrimination and anti-harassment trainings are still strongly advised and are not affected by this Order.
To mitigate their risks and maintain compliance even during this rapidly changing landscape, we recommend employers consider reviewing existing DEI and DEIA policies and initiatives; reviewing recruitment, hiring, and advancement policies and procedures to ensure decisions are merit-based and not quota-based; opening affinity groups to all; and providing equal access to voluntary trainings.
As always, employers should not hesitate to consult with their HRW employment counsel. In particular, HRW employment counsel can conduct a privileged review of policies and procedures and provide guidance and suggestions for moving forward.
A word about affinity groups
The Acting Director of OPM, Charles Ezell, appointed by President Trump, issued a memorandum stating that affinity groups may continue to host events, provide mentorship programs, and celebrate cultural events, provided these activities are open to everyone and not restricted to people in a particular protected class. This is in alignment with existing federal anti-discrimination laws.
A note on federal contractors and higher education
Federal contractors and higher education institutions are more explicitly impacted by President Trump’s Executive Order. If you fall into one of these categories, you should reach out to counsel if you have received any notice from the government about immediate changes.
This is a rapidly evolving area of the law and HRW will continue to strive to keep employers updated on any changes. For questions or more information, please contact:
Sophie Levine (slevine@hrwlawyers.com / 617-348-4327);
Samantha Halem (shalem@hrwlawyers.com / 781-235-4878);
Catherine Reuben (creuben@hrwlawyers.com / 617-348-4316); or
Any member of the HRW Team.
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