EEOC Announces Enforcement Focus on “Illegal Preferences Against American Workers”
On Wednesday, February 19, 2025, Acting Equal Employment Opportunity Commission (“EEOC”) Chair Andrea R. Lucas announced the EEOC plans to target employers that “illegally prefer non-American workers,” as well as “staffing agencies and other agents that unlawfully comply with client companies’ illegal preferences against American workers” through increased enforcement of Title VII’s national origin protections.
This latest statement expounds upon the enforcement priorities Lucas laid out in her January 21, 2025, statement, which included “protecting American workers from anti-American national origin discrimination.”
This week, Lucas explained that the EEOC intends to partner with other federal agencies, including the Department of Justice, the Department of Homeland Security, and the Department of Labor to achieve “enhanced investigation and enforcement” of Title VII protections for American employees.
Notably, the announcement also indicates that the EEOC’s enforcement focus will include non-American employees who are authorized to work in the United States, including “visa holders and other legal immigrants.” Citing a “large-scale problem in multiple industries nationwide,” Lucas stated that the EEOC is committed to not only “decreasing demand for illegal alien workers,” but also “decreasing abuse of the United States’ legal immigration system.”
As Proskauer previously reported, the EEOC still lacks a quorum, which may limit the Commission’s ability to effect Lucas’s agenda, as Commission approval is required before the EEOC initiates a case alleging a systemic pattern or practice of discrimination.
‘What Is a Woman?’ Alabama Governor Signs Bill Declaring There Are Only Two Sexes
On February 13, 2025, Alabama Governor Kay Ivey signed into law Senate Bill 79 / Act 2025-3, declaring that there are only two sexes, male and female. Originally introduced on February 4, 2025, the legislation amends Alabama Code § 1-1-1, which defines certain words used throughout the Alabama Code. Officially codified as the “‘What Is a Woman?’ Act,” the act carries implications for various aspects of public policy, legal definitions, data collection, and protections of sex-based rights and spaces.
Quick Hits
Alabama’s “‘What Is a Woman?’ Act” applies “wherever state law classifies individuals on the basis of sex or otherwise mentions individuals as being male or female, men or women, or boys or girls.”
According to the act, there are only two sexes: male and female.
Under the act, public entities may establish certain single-sex spaces or environments without running afoul of anti-discrimination laws.
The act becomes effective on October 1, 2025.
About the Act
The act follows President Donald Trump’s Executive Order 14168, titled, “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government,” declaring there are two sexes. The act applies throughout the Alabama Code where the law classifies individuals based on sex or as “male” or “female” and proclaims that men and women “are legally equal but not physically the same.” It aims to prevent “unjust sex discrimination” while “maintaining safety, privacy, and fairness for both sexes.”
These definitions apply for purposes of applying the act’s provisions:
“(1) Boy. A human male who has not yet reached adulthood.
(2) Father. The male parent of a child or children.
(3) Female. When used in reference to a natural person, an individual who has, had, will have, or would have, but for a developmental anomaly, genetic anomaly, or accident, the reproductive system that at some point produced ova.
(4) Girl. A human female who has not yet reached adulthood.
(6) Male. When used in reference to a natural person, an individual who has, had, will have, or would have, but for a development anomaly, genetic anomaly, or accident, the reproductive system that at some point produces sperm.
(7) Man. An adult human of the male sex.
(9) Mother. The female parent of a child or children.
(10) Person. Includes an individual, corporation, partnership, company, or other business entity.
(14) Sex. When the term is used to classify or describe a natural person, the state of being male or female as observed or clinically verified at birth.
(18) Woman. An adult human of the female sex.”
The act allows public entities to establish single-sex spaces or environments “when biology, privacy, safety, or fairness” are at stake. The law explicitly provides that school districts, public schools, state agencies, and political subdivisions that “collect[] vital statistics related to sex as male or female for the purpose of complying with anti-discrimination laws …” shall identify individuals as “either male or female.”
Implications
The act reflects an ongoing push to define sex and gender identity in the United States. The bill’s sponsor, Senator April Weaver (R-Alabaster), said the law is a necessary measure “for clarity, certainty and uniformity in the courts and in the laws of Alabama,” and Governor Ivey called the act “common sense.” Detractors of the act say it does not protect women and is a restrictive approach relying on gender stereotypes that discriminates against transgender Alabamians. Nine states have similar laws, and several others are pushing to enact similar laws this year.
This act may change the way public employers are currently collecting and reporting data from employees, students, and others, and may implicate issues relating to bathrooms, locker rooms, and other typically sex-segregated spaces. The act affects any aspect of Alabama law where the law classifies individuals based on sex or as “male” or “female,” which could implicate state anti-discrimination laws and other employment laws for both public and private employers. The implications for private employers are less clear than those for public employers, but the act could affect any required reporting to public entities where individuals may be classified based on sex. As with any legislative change, the act may spark discussions about its implications, but it remains to be seen how this law will shape the legal and social landscape in Alabama.
Recent Executive Orders: What Employers Need to Know to Assess the Shifting Sands
In January 2025, President Trump issued a flurry of executive orders. Several may significantly impact employers; the key aspects of these orders are described below, although this is not an exhaustive summary of every provision.
1. Diversity, Equity, and Inclusion (DEI) Programs and Affirmative Action Compliance Obligations
The “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” Executive Order contains many provisions that may significantly impact federal contractors and private employers. First, this order revoked Executive Order 11246 (E.O. 11246), which, among other things, required federal contractors to engage in affirmative action efforts, including developing affirmative action plans concerning women and minorities. In addition to revoking E.O. 11246, President Trump’s order requires that the Office of Federal Contract Compliance (OFCCP) immediately cease promoting diversity, investigating federal contractors for compliance with their affirmative action efforts, and allowing or encouraging federal contractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin. Further, the order states that federal contract recipients will be required to certify that they do not “operate any programs promoting diversity, equity, and inclusion (DEI) that violate any applicable Federal anti-discrimination laws.” This order does not impact affirmative action obligations concerning individuals with disabilities and protected veterans.
Second, private sector DEI efforts are also addressed in the order, which effectively states that the President believes such practices are illegal and violate civil rights and anti-discrimination laws. This order further provides that the Attorney General, in coordination with relevant agencies, must submit a report that identifies the most “egregious and discriminatory” DEI practices within the agency’s jurisdiction, including a plan to deter DEI programs or principles (whether the programs are denominated as DEI or not); identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profits, large foundations, select associations and/or education institutions with endowments over one billion dollars; identify “other strategies to encourage the private sector to end illegal DEI discrimination;” and identify potential litigation and regulatory action or sub-regulatory guidance that would be appropriate.
In recent weeks, several corporations have rolled back or limited their DEI programs, presumably in anticipation of, or in reaction to, this order. Notably, the order does not prohibit all DEI policies and initiatives; rather, it impacts only those determined to be discriminatory and illegal, e.g., quotas or explicit preferences for women and/or minorities. Policies focusing on workplace inclusion, broadly defining diversity, and adhering to merit-based hiring may reduce the risk of violating this order.
2. Sex and Gender as Protected Characteristics
The “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government” Executive Order redefines federal policy about sex and gender, stating that the federal government will only recognize sex (meaning biological sex – male or female) and not gender. This order directs federal agencies to end initiatives that support “gender ideology”; use the term “sex” not “gender” in federal policies and documents; enforce sex-based rights and protections using the order’s definition of “sex”; and rescind all agency guidance that is inconsistent with the order, including the Equal Employment Opportunity Commission’s “Enforcement Guidance on Harassment in the Workplace” (April 29, 2024), among others. This order also mandates that all government-issued identification documents, including visas, reflect the biological sex assigned at birth and seeks to limit the scope of the U.S. Supreme Court decision in 2020 that held that “sex discrimination” includes gender identity and sexual orientation. This order also directs the EEOC and U.S. Department of Labor (DOL) to prioritize enforcement of rights as defined by the order.
3. Artificial Intelligence
In 2023, former President Biden issued an executive order regarding the potential risks associated with artificial intelligence (AI), which resulted in the DOL releasing guidance on May 16, 2024, entitled “Department of Labor’s Artificial Intelligence and Worker Well-being: Principles for Developers and Employers.” On January 23, 2025, President Trump issued an executive order regarding AI entitled “Removing Barriers to American Leadership in Artificial Intelligence,” which rescinded President Biden’s order. President Trump’s order instructs federal advisors to review all federal agency responses to President Biden’s order and rescind those that are inconsistent with President Trump’s order. Accordingly, the DOL and any other related federal agency guidance, including the 2024 AI guidance issued by the OFCCP, will be rescinded. Employers incorporating such guidance into their policies and practices should respond appropriately. Despite this change in the federal landscape, employers should keep in mind that several states have recently passed laws governing AI use in the workplace, highlighting potential violations under federal and state anti-discrimination laws through AI use.
Below are links to the relevant Executive Orders.
Executive Order 14173 – “Ending Illegal Discrimination and Restoring Merit-Based Opportunity”
Executive Order 14168 – “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government”
Executive Order 14151 – “Ending Radical And Wasteful Government DEI Programs And Preferencing”
Executive Order 14179 – “Removing Barriers to American Leadership in Artificial Intelligence”
New Jersey Updates Discrimination Law: New Rules for AI Fairness
The New Jersey AG and the Division on Civil Rights’ new guidance on algorithmic discrimination explains how AI tools might be used in ways that violate the New Jersey Law Against Discrimination. The law applies to employers in New Jersey, and some of its requirements overlap with new state “comprehensive” privacy laws. In particular, those laws’ requirements on automated decisionmaking. Those laws, however, typically do not apply in an employment context (with the exception of California). This New Jersey guidance (which mirrors what we are seeing in other states) is a reminder that privacy practitioners should keep in mind AI discrimination beyond the consumer context.
The division released the guidance last month (as reported in our sister blog) to assist businesses as they vet automated decision-making tools. In particular, to avoid unfair bias against protected characteristics like sex, race, religion, and military service. The guidance clarifies that the law prohibits “algorithmic discrimination,” which occurs when artificial intelligence (or an “automated decision-making tool”) creates biased outcomes based on protected characteristics. Key takeaways about the division’s position, as articulated in the guidance, are listed below, and can be added to practitioners’ growing rubric of requirements under the patchwork of privacy laws:
The design, training, or deployment of AI tools can lead to discriminatory outcomes. For example, the design of an AI tool may skew its decisions, or its decisions may be based on biased inputs. Similarly, data used to train tools may incorporate the developers bias and reflect those biases in their outcomes. When a business deploys a new tool incorrectly, whether intentionally or unintentionally, the outcomes can create an iterative bias.
The mechanism or type of discrimination does not matter when it comes to liability. Whether discrimination occurs through a human being or through automated tools is immaterial when it comes to liability, according to the guidance. The division’s position is if the covered entity discriminates, they have violated the NJLAD. Additionally, the type of discrimination, whether disparate or intentional, does not matter. Importantly, if an employer uses an AI tool that disproportionately impacts a protected group, then they could be liable.
AI tools might not consider reasonable accommodations and thus could result in a discriminatory outcome. The guidance points to specific incidents that could impact employers and employees. An AI tool that measures productivity may flag for discipline an individual who has timing accommodations due to a disability or a person who needs time to express breast milk. Without taking these factors into account, the result could be discriminatory.
Businesses are liable for algorithmic discrimination even if the business did not develop the tool or does not understand how it works. Given this position, employers, and other covered entities, need to understand the AI tools and automated decision-making processes and regularly assess the outcomes after deployment.
Steps businesses, and employers, can take to mitigate risk. The guidance recommends that there be quality control measures in place for the design, training, and deployment of any AI tools. Businesses should also conduct impact assessments and regular bias audits (both pre- and post- deployment). Employers and covered entities should provide notice about the use of automated decision-making tools.
Putting it into Practice: This new guidance may foreshadow a focus by the New Jersey division on employer use of AI tools. New Jersey is not the only state to contemplate AI use in the employment context. Illinois amended its employment law last year to address algorithmic bias in employment decisions. Privacy practitioners should not forget about these employment laws when developing their privacy requirements rubrics.
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What Will Trump 2.0 Mean for Employee Benefits?—One Place to Look for Clues: Project 2025
Even as high-priority issues such as diversity, equity, and inclusion (DEI), immigration, and Ukraine take center stage in the first months of the new presidential administration, many employers are wondering what the next four years might mean for employee benefits.
Quick Hits
The Heritage Foundation’s Project 2025 provides clues for potential employee benefits changes under the second Trump administration.
Project 2025 calls for reversing federal rules that added gender identity, sexual orientation, and pregnancy as protected classes covered under the nondiscrimination provisions of the Affordable Care Act.
Project 2025 also proposes eliminating the dispute resolution process under the No Surprises Act in favor of a “truth-in-advertising approach.”
Plan sponsors may find clues in Project 2025, the far-reaching report produced by Washington, D.C., think tank Heritage Foundation as a blueprint for a second Trump administration and actually written in part by a number officials in the first Trump administration and public advocates for the 2024 Trump presidential campaign. (The president distanced himself from Project 2025 during the campaign, although several contributors are serving in the new administration.)
Specifically, three chapters of the 900-plus page report may offer insight for plan sponsors: one covering the U.S. Department of Health and Human Services (HHS), one covering the U.S. Department of the Treasury (Treasury), and one covering the U.S. Department of Labor (DOL) and related agencies.
Below, we dust off our copies of the report—originally released in 2023—and recap a few notable Project 2025 employee benefits policy recommendations (and the specific page numbers in the report):
ACA Section 1557: Reverse federal rules that added gender identity, sexual orientation, and pregnancy as protected classes covered under the nondiscrimination provisions of Section 1557 of the Affordable Care Act (ACA). These provisions have a limited impact on employee benefit plans, and in 2020, the Trump administration issued regulations that removed provisions detailing specific forms of discrimination, including gender dysphoria treatment, health insurance participation, and benefit plan design. (Page 475)
No Surprises Act: Encourage the U.S. Congress to revisit the 2021 legislation, including addressing the “deeply flawed system for resolving payment disputes between insurers and providers.” Project 2025 advocates eliminating the dispute resolution process in favor of a “truth-in-advertising approach.” (Page 469)
State restrictions on “anti-life” benefits: Encourage Congress and the DOL to “clarify” that the Employee Retirement Income Security Act (ERISA) would not preempt state attempts to prevent employer-sponsored health benefit plans from offering plan coverage for abortion, surrogacy, or other “anti-life” health care benefits (Page 585)
Individual Retirement Accounts (IRAs): Increase the IRA contribution limit to equal the amounts that can be contributed under 401(k) or 403(b) plans with respect to married couples. (Page 588)
Independent contractor benefits: Project 2025 encourages Congress to provide “a safe harbor” from employer-employee status when an employer permits independent contractors to participate in employer-provided benefits. Traditionally, only common law employees can participate in employer-sponsored retirement programs. (Page 591)
ESG investing: Encourage the DOL to prohibit ERISA retirement plans from investing plan assets based on any factor other than investor risks and returns, specifically environmental, social, and governance (ESG) factors. In addition, Project 2025 encourages the DOL to consider taking “enforcement and/or regulatory action to subject investment in China to greater scrutiny under ERISA” based on a perceived lack of compliance with American accounting standards and state control of Chinese companies. (Page 606)
Multiemployer plans: Project 2025 advocates greater scrutiny and reporting requirements for multiemployer plans, which are jointly administered by unions and employers. Among the specific recommendations is that the Pension Benefit Guaranty Corporation (PBGC), which insures defined benefit pension plans, require more detailed and timely reporting from plans. (Page 609)
ESOPs: Project 2025 recommends the DOL issue regulations that encourage greater participation in employee stock ownership plans (ESOPs). (Page 610)
Cap benefits deductibility: Project 2025 recommends limiting the amounts that employers can deduct for certain benefit costs to $12,000 or less per year per full-time equivalent employee. Retirement plan contributions would not count against that limit, and only “a percentage” of contributions to health savings accounts (HSAs) would count toward such limitation. (Page 697)
Deductibility for dependent coverage: Limit the ability of employers to deduct the value of health insurance and other benefits provided to employee dependents who are 23 or older. (Page 697)
Universal Savings Accounts (USAs): Establish accounts for taxpayers to contribute up to $15,000 of post-tax wages into USAs, similar to Roth IRAs. Investment gains would be nontaxable, portable, and withdrawable at any time for any purpose without penalty. (Page 696)
What GSA Contractors Need to Know About the New FAR Deviation for Revoked Executive Order 11246, Equal Employment Opportunity
On February 18, 2025, the General Services Administration (“GSA”) announced that it issued GSA Class Deviation CD-2025-04 (“the GSA Class Deviation”) effective February 15, 2025, to implement Executive Order (“EO”) 14173 titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which, as Blank Rome has previously written about here and here, revoked the landmark 60-year-old EO 11246 titled “Equal Employment Opportunity.”
Below is a summary of the key takeaways.
Overview:
The GSA Class Deviation only applies to GSA solicitations, contracts, and real property leases. However, it may serve as a preview of how other agencies will implement the revocation of EO 11246.
The GSA Class Deviation does not include new contract clauses or certifications, whether for the expected Diversity, Equity, and Inclusion certification required by EO 14173, or any other subject.
Supplement 1 to the GSA Class Deviation removes the term “gender identity” from FAR 22.801 and from clauses in FAR Part 52 that include the term. The apparent purpose of this removal is to comply with EO 11246 titled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.” Notably, Supplement 1 to the GSA Class Deviation states that GSA Contracting Officers (“COs”) “must” notify contractors that “as of February 15, 2025, all uses of the term ‘gender identity’ are not to be recognized or used prospectively by Federal contractors.” There is no guidance on whether or how this prohibition will be made contractually applicable, or the extent of its purported applicability within a contractor’s organization or operations, e.g., to strictly internal communications, to external communications that do not include GSA, to communications with commercial partners, in oral communications, etc. There is likewise no guidance on how, in practical terms, a GSA contractor should cease to “recognize” the phrase “gender identity” nor does the GSA Class Deviation provide or refer to a definition of the phrase “gender identity.” Given these and other issues, we expect this prohibition will be litigated after an affected GSA contractor receives the required CO notice. We recommend that GSA contractors confer with counsel regarding whether and how to respond to a CO notice on this issue. The GSA Class Deviation does not address or purport to prevent GSA contractors from allowing their employees to specify preferred pronouns. (An Office of Personnel Management Memo dated January 29, 2025, has directed the heads of federal agencies to disable Outlook features that prompt government employees for their pronouns.)
Updates Regarding New or Open Solicitations, New Contracts, or Leases with at Least Six Months of Performance Remaining:
COs must amend solicitations or otherwise incorporate the GSA Class Deviation changes prior to contract award. This will generally require the removal of any and all representations and certifications related to affirmative action and equal opportunity compliance. Notably, the GSA Class Deviation does not purport to modify or rescind any applicable affirmative action and equal opportunity obligations arising under a GSA contractor’s contracts or leases with states.
COs must notify contractors that although SAM.gov may continue to require responses to representations based on provisions that will no longer be included in GSA solicitations (such as FAR 52.222-25 Affirmative Action Compliance and FAR 52.212-3(d) Offeror Representations and Certifications – Commercial Products and Commercial Services), GSA COs will neither consider those representations when making award decisions nor enforce the requirements of those clauses.
COs must not include the following clauses in new GSA solicitations:
FAR 52.222-21, Prohibition of Segregated Facilities
FAR 52.222-22, Previous Contracts and Compliance Reports
FAR 52.222-23, Notice of Requirement for Affirmative Action to Ensure Equal Employment Opportunity for Construction
FAR 52.222-24, Preaward On-Site Equal Opportunity Compliance Evaluation
FAR 52.222-25, Affirmative Action Compliance
FAR 52.222-26, Equal Opportunity
FAR 52.222-27, Affirmative Action Compliance Requirements for Construction
FAR 52.222-29, Notification of Visa Denial
Finally, COs must “ensure” that GSA contractors understand that the FAR subparts related to Equal Opportunity for Veterans and Employment of Workers with Disabilities are not affected. Additionally, the GSA Class Deviation states that it does not affect existing federal laws on civil rights, non-discrimination, or any laws that generally apply to a company regardless of whether it is a government contractor.
We will continue to monitor and report on developments as federal agencies continue their efforts to implement EOs and other directives relevant to government contractors.
Compliant Hiring: Current Legal Obligations When Building Your Workforce [Video]
Navigating the complexities of hiring can be challenging, especially when it comes to ensuring compliance with various legal standards. In this recorded webinar, Bracewell Labor & Employment partner Kelly Robreno Koster and associate Caroline Melo Chapman discuss the current legal landscape affecting hiring and how employers can comply with the latest laws while also building a diverse and productive workforce. Key topics that will be discussed include:
Equal pay laws, including pay transparency obligations;
Background checks;
Ban-the-box laws;
Drug testing; and
Strategies to mitigate bias.
Two Separate Claims of Action in Relation to Employment Discrimination
Most people are familiar with Title VII of the Civil Rights Act of 1964, it frequently used by aggrieved employees. However, Section 1981 of the Civil Rights Act of 1866 is another legal mechanism that can be used to bring employment discrimination claims.
Before bringing an employment discrimination claim, it is important to understand the differences between these two statutes, when they apply, and how they operate.
Overview
The Civil Rights Act of 1866 was enacted shortly after the Civil War, with the aim to protect the rights of newly freed slaves. Section 1981 was an original part of the Act, which guaranteed that all individuals within the United States enjoy the same right to make and enforce contracts, regardless of race. Over the years, the Supreme Court has interpreted Section 1981 to apply broadly to various forms of racial discrimination in contractual relationships, including employment.
The Civil Rights Act of 1991 amended Section 1981 to include protections against discrimination in the performance, modification, and termination of contracts, and clarified that it applies to both private and public discrimination.
Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e) prohibits employment discrimination based on race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), or national origin. Title VII was a pivotal piece of legislation in the fight against employment discrimination in the United States. Its historical context is deeply rooted in the broader Civil Rights Movement of the 1960s, which sought to address systemic racial discrimination and inequality. Title VII also established the Equal Employment Opportunity Commission (“EEOC”) to enforce its provisions and handle workplace discrimination complaints.
Scope of Protection
One of the key differences between Title VII and Section 1981 lies in the scope of protection they offer. Title VII provides a broad range of protections against various forms of discrimination, including race, color, religion, sex, and national origin. It covers all aspects of employment, such as hiring, firing, promotions, compensation, and other terms and conditions of employment. Additionally, Title VII applies to employers with 15 or more employees, including federal, state, and local governments, as well as private and public sector employers.
In contrast, Section 1981 specifically addresses racial discrimination in the making and enforcement of contracts. This includes employment contracts, but its protections are limited to race and do not extend to other protected characteristics covered by Title VII. Section 1981 applies to all employers, regardless of size, and does not require the involvement of the EEOC for enforcement. This means that individuals can bring claims directly to federal court without first filing a charge with the EEOC, which can be a significant advantage in certain cases.
Types of Discrimination
Title VII addresses a broad spectrum of discriminatory practices in the workplace. It prohibits discrimination based on race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), and national origin. This includes disparate treatment, disparate impact, harassment, and retaliation.
Section 1981, on the other hand, is specifically concerned with racial discrimination. It ensures that all individuals, regardless of race, have the same rights to make and enforce contracts, which include employment contracts. This statute addresses both intentional discrimination and discriminatory practices that affect the ability to enter into or maintain contractual relationships. While Section 1981 does not explicitly cover other forms of discrimination like sex or religion, it provides robust protection against racial discrimination in the workplace and other contractual settings.
Enforcement and Remedies
Title VII is enforced by the Equal Employment Opportunity Commission (EEOC), which investigates discrimination complaints, mediates disputes, and can file lawsuits on behalf of employees. Before filing a lawsuit under Title VII, individuals must first file a charge with the EEOC. Remedies under Title VII can include reinstatement, back pay, front pay, compensatory damages for emotional distress, and punitive damages for particularly egregious conduct. The amount of compensatory and punitive damages is capped based on the size of the employer, ranging from $50,000 to $300,000
Section 1981, in contrast, allows individuals to bypass the EEOC and file lawsuits directly in federal court. This can expedite the legal process for those facing racial discrimination. Remedies under Section 1981 are similar to those available under Title VII, including compensatory and punitive damages, but there are no caps on the amount of damages that can be awarded. This makes Section 1981 a powerful tool for addressing racial discrimination, providing broader potential financial recovery for plaintiffs.
It is important to note that these are general distinctions between Title VII and Section 1981, and specific legal requirements may vary in different jurisdictions.
Consulting with an attorney who specializes in employment litigation can provide further guidance on the application of these laws to the facts and circumstances of specific cases.
DEI Executive Orders and Related Litigation
Executive Summary
On January 20, 2025, President Donald Trump signed 26 executive orders (EO), a record number of EOs signed by a President on Inauguration Day.1 In his first two weeks as President, a handful of these orders directly call for the end of diversity, equity and inclusion (DEI) and diversity, equity, inclusion and accessibility (DEIA) programs in both the public and private sectors. DEI is a framework for organizations to promote fair and equal opportunities throughout the organization. These EOs follow DEI bans that have been enacted by various states, terminating DEI programs and practices in their respective colleges and universities during former President Biden’s administration.2
President Trump called for each agency to conduct civil compliance investigations of “publicly traded corporations, large non-profit corporations or associations, foundations with assets of $500 million or more, State and local bar and medical associations and institutions of higher education with endowments over 1 billion dollars”3 to end “illegal discrimination and preferences.”4 President Trump holds that DEI programs are in violation of the Civil Rights Act of 1964, undermine national unity, and threaten the safety of the American people by “diminishing the importance of individuals merit, aptitude, hard work and determination when selecting people for jobs and services.”5 The EOs detail the first course of action – all federal agencies, coordinating with the Attorney General and Office of Management and Budget (OMB), must remove all DEI programming and policies from its records and amend rules and regulations to advance “the policy of individual initiative, excellence and hard work.”6
Download the latest summary of Executive Orders terminating DEI programs. The chart is current as of February 18, 2025, and will be updated as new information becomes available.
Implications: Enforcement of the Orders and Impact on Tax-Exempt Organizations
Federal agencies are working to revise their rules and regulations to redefine which DEI programs and policies are “illegal.” Generally, the Internal Revenue Service (IRS) has a mechanism in place known as the illegality doctrine that revokes an organization’s tax-exempt status if the organization is formed for an illegal purpose or its activities violate public policy, and a substantial part of the organization’s activities were in furtherance of that illegal purpose or violation of public policy. Under Section 501(c)(3) of the Internal Revenue Code, nonprofit organizations qualify for tax-exempt status when 1) the purpose of the organization is charitable; 2) the activities are not illegal, contrary to public policy, or in conflict with express statutory restrictions; and 3) the activities are in furtherance of the organization’s exempt purpose and are reasonably related to the accomplishment of the purpose.7 Depending on the structure of the orders and degree of enforcement, promoting DEI programs and policies in an organization could be subject to IRS investigation under the illegality doctrine. It is unclear from the orders what DEI initiatives would be contrary to public policy.
Federal agencies have issued guidance expanding upon what DEI programs fall under their authority. For example, a memorandum was released by the Department of Justice’s Civil Rights Division (Department) detailing that the Department will enforce all federal civil rights laws by investigating, eliminating and penalizing “illegal DEI and DEIA preferences, mandates, policies, programs and activities in the private sector and in educational institutions that receive federal funds.”8 The Department clarified that activities related to “educational, cultural or historical observance”9 are not prohibited under the law so long as they do not engage in exclusion or discrimination. Guidance has not been issued by the IRS categorizing DEI programs that would jeopardize an organization’s tax-exempt status.
Implications: Civil Litigation for Tax-Exempt Organizations
Tax-exempt organizations may be vulnerable to litigation brought by the federal government or private actors. The government has not brought civil lawsuits against tax-exempt organizations in violation of the EOs, however, private actors have begun filing lawsuits against organizations whose DEI practices are allegedly in violation of federal and state laws. On February 11, 2025, Pacific Legal Foundation, on behalf of a California high school student, filed a complaint against UCSF Benoiff Children’s Hospitals for its Community Health and Adolescent Mentoring Program for Success (CHAMPS) violating the Equal Protection Clause of the Fourteenth Amendment and California’s Proposition 209.10 CHAMPS is an internship that “supports minority high school students interested in health professions.”11 Pacific Legal Foundation argues that CHAMPS should not include a racial component when considering which students qualify for this program that provides internship experience and mentorship in the hospital setting.12
Other lawsuits were filed by private parties against organizations over their DEI practices before the EOs were signed. In one example, on January 12, 2025, the American Alliance for Equal Rights, a nonprofit organization whose mission is to “challeng[e] distinctions and preferences made on the basis of race and ethnicity”13, filed a complaint in U.S. District Court for the Middle District of Tennessee against McDonald’s for funding a college scholarship program for students with “at least one parent of Hispanic/Latino heritage.”14 The scholarship program is funded by McDonald’s and administered by International Scholarship & Tuition Services, a for-profit company. The parties ultimately settled with McDonald’s, agreeing to allow non-Latino individuals to qualify for the scholarship program.
Conversely, other organizations in opposition to the EOs argue that the EOs are unconstitutional and vague. Several lawsuits have been filed, seeking an injunction to block the federal government from enforcing these anti-DEI orders. The National Association of Diversity Officers in Higher Education, along with other plaintiffs, filed a complaint in US District Court for the District of Maryland Baltimore Division on February 3, 2025, against Trump and several federal agencies, that argues the anti-DEI orders violate several clauses under the Constitution including the Spending Clause, the Due Process Clause under the Fifth Amendment, Separation of Powers and Free Speech Clause under the First Amendment.15
Overall, these ongoing lawsuits are divided into substantive and procedural legal arguments on the constitutionality of the EOs and DEI practices. Opponents of DEI base their complaints on substantive laws, arguing that DEI programs and policies violate the Equal Protection Clause and Title VI Civil Rights Act of 1964 because they do not center meritorious qualifications for employment, internships, grants or other opportunities. On the other hand, defenders of DEI highlight the EOs are procedurally unconstitutional. They argue the executive branch cannot unilaterally enforce laws that go against the will of Congress (Spending Clause) and targeted organizations are not provided with sufficient notice about what is prohibited under the EOs by not defining key terms such as DEI or DEIA (Due Process Clause). These different legal approaches may shape the changing DEI legal landscape to adhere to the ruling in Students for Fair Admissions case or leave this issue open to further challenges for tax-exempt organizations to navigate the best practices that are in alignment with their charitable purposes while complying with federal state laws on DEI.
Suggested Actions
Review your organization’s internal governing documents, DEI policies and programs and how those policies and programs further your organization’s charitable purpose.
Survey the organization’s ongoing federal, state, and local grants to ensure they comply with current federal regulations to the extent they are funded through federal funds, or to the extent state funds do not have similar restrictions at the state level.
Review your organization’s scholarship programs, applications, joint venture agreements, and other relevant agreements. Pay special attention to the qualifications for applicants in any application forms, internal policies or external marketing materials. Additionally, evaluate any agreements that reference the organization’s charitable purpose, particularly those related to DEI practices. Consider ways to achieve your organization’s goals while minimizing risk exposure.
[1] See The Washington Post, Here are the executive actions and orders Trump Signed on Day 1 (January 13, 2025) https://www.washingtonpost.com/politics/2025/01/20/trump-executive-orders-list/.
[2] See Best Colleges, These States’ Anti-DEI Legislation May Impact Higher Education (January 22, 2025) https://www.bestcolleges.com/news/anti-dei-legislation-tracker/.
[3] See White House, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (January 21, 2025) https://www.whitehouse.gov/presidential-actions/2025/01/ending-illegal-discrimination-and-restoring-merit-based-opportunity/.
[4] Id.
[5] Id.
[6] Id.
[7] Rev. Rul. 80-278, 1980-2 C.B. 175.
[8] Department of Justice Ending Illegal DEI and DEIA Discrimination and Preferences (February 5, 2025) https://www.justice.gov/ag/media/1388501/dl?inline.
[9] Id.
[10] See Pacific Legal Foundation, UCSF healthcare internship selects participants based on race, denying students equal access to educational opportunities https://pacificlegal.org/case/ucsf-minority-healthcare-scholarship-discrimination/.
[11] See UCSF Benoiff Children’s Hospitals, CCCH Programs CHAMPS https://www.ucsfbenioffchildrens.org/about/ccch/programs/champs.
[12] G.H., a minor, by Rebecca Hooley the mother, legal guardian, and next friend of G.H., Plaintiffs v. UNIVERSITY OF CALIFORNIA BOARD O F REGENTS; USCSF BENIOFF CHILDREN’S HOSPITALS; Michelle Ednacot, in her individual and official capacity as the CHAMPS program manager at UCSF BENOIFF CHILDREN’S HOSPITAL OAKLAND; Dr. Nicolas Holmes, in his individual and official capacity as President of UCSF BENOIFF CHILDREN’S HOSPITALS; and Janet Reilly, in her official capacity as President of the UNIVERSITY OF CALIFORNIA BOARD OF REGENTS, Defendants, 4:25-cv-01399, (N.D. Cal. 2/11/2025).
[13] See American Alliance for Equal Rights, https://americanallianceforequalrights.org/.
[14] American Alliance for Equal Rights v. McDonald’s Corporation; McDonald’s USA, LLC; International Scholarship & Tuition Services, Inc., 3:25-cv-00050, (M.D. Tenn. 1/12/2025).
[15] NATIONAL ASSOCIATION OF DIVERSITY OFFICERS IN HIGHER EDUCATION; American Association of University Professors; Restaurant Opportunities Centers United; Mayor and City Council of Baltimore, Maryland, Plaintiffs, v. Donald J. TRUMP, in his official capacity as President of the United States; Department of Health and Human Services; Dorothy Fink, in her official capacity as Acting Secretary of Health and Human Services; Department of Education; Denise Carter, in her official capacity as Acting Secretary of Education; Department of Labor; Vincent Micone, in his official capacity as Acting Secretary of Labor; Department of Interior; Doug Burgum, in his official capacity as Secretary of the Interior; Department of Commerce; Jeremy Pelter, in his official capacity as Acting Secretary of Commerce; Department of Agriculture; Gary Washington, in his official capacity as Acting Secretary of Agriculture; Department of Energy; Ingrid Kolb, in her official capacity as Acting Secretary of Energy; Department of Transportation; Sean Duffy, in his official capacity as Secretary of Transportation; Department of Justice; James McHenry, in his official capacity as Acting Attorney General; National Science Foundation; Sethuraman Panchanathan, in his official capacity as Director of the National Science Foundation; Office of Management and Budget; Matthew Vaeth, in his official capacity as Acting Director of the Office of Management and Budget, Defendants., 2025 WL 391958 (D.Md.)
The Supreme Court Gears Up to Resolve Circuit Split on Class Injury Requirements
On January 24, 2025, the Supreme Court granted certiorari in Laboratory Corp. of America v. Davis, No. 24-0304, which may result in the resolution of a long-standing circuit split on a dispute key to class certification. In its petition for writ of certiorari, petitioner Labcorp sought Supreme Court review of an issue that has divided federal circuit courts: what should courts do when a putative class contains numerous members who lack any Article III injury?
The underlying class action was filed against Labcorp, a leading clinical diagnostic laboratory, alleging that Labcorp’s self-service check-in kiosks, which are not independently accessible to blind individuals, violate the Americans with Disabilities Act (ADA) and California’s Unruh Act. The standing issue concerned how many members of the class were actually injured—Labcorp presented evidence that a significant percentage of visually-impaired patients were either unaware of or did not intend to use the self-service kiosks, preferring to check in with the front desk. Despite these standing issues, and applying existing Ninth Circuit law, the district court in the underlying action certified the class and the Ninth Circuit affirmed.
In its petition for certiorari, Labcorp identified three Circuit blocs that answer the question of absent class member injury in different ways: (1) “the Article III Circuits,” which deny class certification where the class includes members who have suffered no Article III injury; (2) “the De Minimis Circuits,” which apply Federal Rule of Civil Procedure 23(b)(3) and not Article III to reject classes where there are more than a de minimis number of uninjured members; and (3) “the Back-End Circuits” (including the Ninth Circuit), which do not deny class certification based on Article III issues with uninjured class members and only deny class certification under Rule 23(b)(3) if the class contains a large number of uninjured members.
The Supreme Court granted certiorari on the question: “Whether a federal court may certify a class action pursuant to Federal Rule of Civil Procedure 23(b)(3) when some members of the proposed class lack any Article III injury.” Notably, both the district court and Ninth Circuit’s decisions were unpublished. This suggests that the Court is likely poised to address the Circuit split and provide a definitive answer to the question whether any or many uninjured class members may be encompassed within a class in at the time of class certification. An answer restricting class certification to those who suffered harm from the alleged legal violation would be a game-changer for defendants facing lawsuits challenging practices that affect few people but present large potential exposure—such as those under the ADA and those concerning labels on consumer products that do not drive consumer purchasing decisions.
February 14 Dear Colleague Letter Signals Enforcement focus on Race-based preferences, DEI
On February 14, 2025, the U.S. Department of Education’s Office for Civil Rights (OCR) issued a Dear Colleague Letter (DCL) which, for the first time, previewed how the Education Department under the second Trump administration will scrutinize race-based preferences and DEI initiatives in K-12 and higher education.
As many college administrators have been expecting, the DCL reflects the administration’s view that any preferential treatment based on race is discriminatory. This includes some facially neutral efforts to increase on-campus racial diversity and some DEI-specific training and programming.
The DCL provides the following key insights:
The administration will seek to expand the prohibition on race-based preferences in admissions by broadly interpreting the Supreme Court’s decision in Students for Fair Admissions v. Harvard to apply to other areas of college and university operations including financial aid, hiring, training, and programming.
The administration views race-based segregation, including in dormitories, graduation ceremonies, and facilities as drawing unlawful race-based designations, even if it is voluntary.
The administration specifically listed programming that includes explicit race-consciousness, including “under the banner of DEI,” as an example of race-based discrimination, which it referred to as “toxic[]” and “indoctrinat[ion.]”
The DCL states that “DEI programs” that “teach students that certain racial groups bear unique moral burdens that others do not” are discriminatory and “stigmatize students who belong to particular racial groups.” It is unclear how the administration plan to regulate curriculum that it views as discriminatory in this way, and, if so, whether that regulation will apply to higher education.
The DCL closes by directing educational institutions to: (1) ensure that their policies and actions comply with existing civil rights law; (2) cease all efforts to circumvent prohibitions on the use of race by relying on proxies or other indirect means to accomplish such ends; and (3) cease all reliance on third-party contractors, clearinghouses, or aggregators that are being used by institutions in an effort to circumvent prohibited uses of race.
The DCL also promises that more guidance is forthcoming in a matter of weeks. Please stay tuned and call your Hunton lawyer with any concerns related to compliance with federal law or interpretation of Department of Education guidance.
False Claims Act Liability Based on a DEI Program? Let’s Think It Through.
One of the more attention-grabbing aspects of Executive Order (“EO”) 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” is the specter of False Claims Act (“FCA”) liability for federal contractors based on their Diversity, Equity, and Inclusion (“DEI”) programs. Many workplace DEI programs have been viewed as a complement to federal anti-discrimination law—a tool for reducing the risk of discrimination lawsuits. The new administration, however, views DEI programs as a potential source of discrimination. EO 14173 proclaims that “critical and influential institutions of American society . . . have adopted and actively use dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA) that can violate the civil-rights laws of this Nation.” To counteract this potential “illegal” use of DEI programs, the Trump administration is leveraging the FCA, a powerful anti-fraud statute, to enforce its policy within the federal government contractor community.
We discuss below the framework of the FCA, how it might apply to federal contractor DEI programs under the administration’s orders, and potential hurdles the government may face in pursuing FCA claims based on a contractor’s allegedly illegal DEI program. We recommend steps contractors can take to mitigate potential FCA risks when evaluating their own DEI programs.
How Does the False Claims Act Work?
The FCA creates civil monetary liability for those who submit to the government (1) a false or misleading claim or statement, (2) while knowing that the claim was false, and where (3) the false claim or statement is material to the government’s payment decision.
The courts have recognized a number of circumstances that can give rise to FCA liability. As relevant to EO 14173, the government might assert that a contractor submits a “legally false” claim when it knowingly fails to comply with a contractual or legal requirement, even if the contractor otherwise performs the services or provides the goods that are the subject of the contract. This theory posits that the contractor “impliedly certifies” its compliance with a material term or requirement at the time it submits its claim for payment.[1]
The consequences of FCA liability can be significant. The statute allows the government to recover treble damages (i.e., three times the amount that the government was harmed), plus civil penalties that attach to each false or fraudulent claim.[2] Government contractors also may find themselves facing severe collateral consequences, as a finding of FCA liability often leads to suspension and debarment proceedings, which threaten the contractor’s eligibility for future federal awards.
One of the unique features of the FCA is its whistleblower provisions, which allow a private person (or company) to file an FCA lawsuit on behalf of the government. Such qui tam lawsuits are filed in court, but under seal—i.e., not available to the public—to allow the government to investigate the claims and decide whether to participate in the whistleblower’s claims. The FCA provides strong financial incentives to would-be qui tam plaintiffs, by allowing them to share in any recovery to the government, and to recover their attorney’s fees and costs incurred in bringing the action.
Whistleblower-initiated FCA activity is on the increase. Recent data shows that nearly 1,000 qui tam actions were filed in fiscal year 2024. Further, of the $2.9 billion that the government recovered through the FCA in 2024, more than $2.4 billion resulted from qui tam cases. Whistleblowers received more than $400 million through these recoveries.
How Might Federal Contractor DEI Programs Give Rise to FCA Liability?
EO 14173 requires every government agency to include in every contract or grant award a provision confirming that the contractor understands and agrees that “its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions,” for purposes of the FCA. Those agreements must also require contractors and grantees to certify that “it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws.” By citing the FCA and specifically invoking the element of materiality requiring certification, EO 14173 signals that the administration intends to enforce its policies through the FCA.
Once a contractor provides the certification envisioned by EO 14173,[3] the potential exists for the government or a whistleblower to initiate an FCA action on the theory that the contractor’s DEI program violates federal anti-discrimination law. Some government contractors may think they should immediately abolish their DEI programs in order to neutralize the potential risk of costly FCA investigations and litigation. But as we explain below, actually winning an FCA case on the basis that the contractor’s DEI program violates applicable federal law will not be slam dunk.
What Are Some Potential Hurdles to Proving an FCA Violation Based on a DEI Program?
The plaintiff, whether the government or a whistleblower, bears the burden of proving each element of the alleged FCA violation. The elements of falsity, scienter, and materiality could each face obstacles of proof in establishing liability based on allegedly improper DEI program.
Falsity. To establish falsity, the government must show that the defendant contractor submitted a claim for payment to the government without disclosing that its DEI program violated federal anti-discrimination laws. The government may try to argue that some portion of the contractor’s DEI program is manifestly unlawful, but federal courts are divided as to whether contemporaneous, good faith differences in interpretation related to a disputed legal question (e.g., what constitutes “illegal DEI”) are “false” under the FCA. A number of courts require that an alleged statement or “implied certification” is objectively false.
Adding to the uncertainty here, neither the EO nor the versions of the contractor certification proposed so far define key terms such as “promoting,” “DEI,” and “illegal DEI.” The administration’s apparent view that certain DEI programs violate anti-discrimination statutes, such as Title VII of the Civil Rights Act, may not receive the deference that the courts once extended to the Executive Branch.[4]
Scienter. A false statement or certification is not actionable under the FCA unless the contractor “knew”—or at a minimum, recklessly disregarded—the falsity at the time its claim was submitted. A contractor’s honestly held, good faith belief in the truthfulness of its certification is a strong defense to liability.[5] Where contractors are required already to comply with federal anti-discrimination laws, it seems likely that they hold a good faith belief that their DEI programs are consistent with, and not contrary, to those laws. We expect that the government will face significant hurdles in proving that contractors “knowingly” engaged in “illegal” DEI programs.
Materiality. While EO 14173 expressly invokes materiality language in its anticipated contract and grant provisions, that alone is insufficient to establish the materiality element under the FCA. Indeed, the Supreme Court has held specifically that a contract provision or regulation requiring compliance as an express condition of payment is not dispositive on materiality.[6] Instead, establishing the materiality element under the FCA requires consideration of a variety of factors, including whether the government continued to pay the contractor’s claims in full, knowing that there were questions as to the legality of the contractor’s DEI program. Given the demanding standard required to establish materiality, contractors should not feel pressured to readily concede this element merely because the of a DEI certification in their contracts.
What Steps Should Federal Contractors Take to Reduce Their Risk?
Despite these likely obstacles to establishing FCA liability, EO 14173 will no doubt engender FCA investigations and whistleblower complaints in the upcoming months. To prepare for the new legal landscape, contractors should take the following precautions.
Conduct a Thorough, Privileged Analysis of All Aspects of the DEI Program
Contractors may think that abolishing their DEI program will erase the FCA risk. However, the government has cautioned that those who try to hide DEI activities by “misleadingly relabeling” them,[7] will still face scrutiny. Accordingly, FCA whistleblowers may be undeterred by the absence of a specific program called DEI, particularly if such an initiative existed previously.
To be clear, even under EO 14173, it is not illegal to have a DEI program. If a contractor has such a program, now is the time to undertake a comprehensive review to ensure that it comports with current anti-discrimination laws. There are several benefits to engaging counsel to conduct this review, even if the contractor believes its DEI program is lawful. First, evaluating the program through the more critical lens of the current administration can identify any aspects that should be amended to mitigate misunderstanding and risk. Second, engaging in such a review can help establish the contractor’s good faith belief in the truthfulness of its DEI certification. Third, the review can allow a contractor to explain to the government, if necessary, the legality and business value of each element of its DEI program.
Conduct a Privileged Assessment of Public-Facing DEI Messaging
Federal contractors also should undertake a privileged review of all public-facing DEI messaging and disclosures. These can appear in various places including on a company’s website, in its SEC filings, in recruiting materials, and on intranet platforms. Again, this evaluation can identify and mitigate the risk that any portion of the DEI program appears unlawful, even if it is not in practice or substance. Changes to descriptions of a company’s DEI program or its commitments to non-discrimination should be made in consultation with counsel and appropriate internal and external stakeholders, to avoid inadvertent legal admissions or the perception that a company has abandoned its previously stated commitment to compliance with the law.
Maintain Real-Time Awareness and Develop a Strategy Regarding the Certification
Agencies already have begun sending their own versions of a DEI certification to contractors as proposed bilateral modifications to existing contracts, often with a demand for a response within just a few days. For new contracts, the government may include the new certification in a portal with other representations and certifications that a contractor must complete in connection with maintaining eligibility or submitting proposals. It is critical to anticipate, identify, and be ready for the moment when a DEI certification becomes applicable to the contractor organization. Contractors should identify the person(s) within their organization likely to receive the certification requests and provide them with instructions and training on how to respond.
We also recommend consulting legal counsel in connection with making any proposed certification. Contractors may be able to present alternative responses to agency requests, rather than immediately agreeing to an ill-defined certification. For instance, the contractor might bring the ambiguities in the certification language to the attention of the Contracting Officer, while contemporaneously memorializing the basis for the contractor’s reasonable interpretation of the ambiguous certification to assist in the defense of a future FCA claim.
Do Not Retaliate Against Employees (or Anyone) Asking Questions About the Legality of the DEI Program
In the coming months, potential whistleblowers may be sizing up whether there is a possibility for an FCA action. In so doing, they may raise questions or concerns about a contractor’s DEI program. The FCA includes anti-retaliation provisions that can expose a company to an employment lawsuit, even if a substantive FCA violation cannot be established. Anticipating how to address questions about the DEI program (and documenting such exchanges) may help avoid potential legal challenges. Contractors should also confirm that employees have multiple, safe avenues to report, and provide managers and human resources professionals with guidance for responding appropriately.
Review and Consider Updates to Internal Company Policies on DEI
Contractors should consider whether to update internal policies to reflect that they contemporaneously reviewed the requirements of EO 14173 and made efforts to comply with its directives. For instance, internal policies could be amended to more clearly state that employment decisions are based on merit and not on protected characteristics. Policies could be developed that expressly disallow race or gender-based quotas, workforce balancing, required composition of hiring panels, diverse slate policies, or DEI training relying on stereotypes. Having recently updated policies that align with the new EO may provide greater protection in the event of a government investigation, particularly if contractors can demonstrate that these new policies are subject to an internal control schedule to test for compliance.
Conclusion
We anticipate the administration will seek to vigorously enforce the requirements of EO 14173. Indeed, the EO contemplates civil compliance investigations of numerous entities ranging from publicly traded corporations to institutions of higher education. Although contractors should remain vigilant about compliance, they should also keep in mind that FCA liability for an allegedly “illegal DEI” program is not a foregone conclusion, even in the face of a certification regarding materiality. The government (or whistleblower) must still establish an FCA violation on the specific facts at issue and likely will face challenges given the many ambiguities in the EO and in the certifications and provisions proposed to date. Even a meritless FCA suit quickly dismissed, though, is something contractors will want to avoid. Thus, it is critical to undertake steps to mitigate the risk of a qui tam action.
[1] The Supreme Court acknowledged the implied false certification theory of FCA liability in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016).
[2] 31 U.S.C. § 3729(a)(1).
[3] How the government will include this certification into all federal contracts is not yet clear. Some contractors have begun receiving proposed bilateral contract modifications with certification language (each slightly differently worded). For new contracts, the certification likely will appear on a portal along with other routine government contracts representations and certifications. It is also worth noting that, the ordered DEI certification should be subject to notice and comment rulemaking under the OFPP Act, 41 U.S.C. § 1707; yet the administration has paused rulemaking under a memorandum dated January 20, 2025 titled Regulatory Freeze Pending Review – The White House. Failure to engage in rulemaking could render the proposed DEI certifications unenforceable. See Navajo Ref. Co., L.P. v. United States, 58 Fed. Cl. 200, 209 (2003) (contract clause invalid because no notice and comment process occurred pursuant to the OFPP Act); La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211, 221–22 (2003) (same), abrogated on other grounds by Tesoro Hawaii Corp. v. United States, 405 F.3d 1339 (Fed. Cir. 2005).
[4] See Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412-13 (2024) (holding that courts should not defer to administrative agencies’ interpretations of statutes that are clear and unambiguous).
[5] See United States ex rel. Schutte v. SuperValu, Inc., 598 U.S.C. 739, 749 (2023) (“The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonably person may have known or believed.”).
[6] See Universal Health Servs., Inc. v. Escobar, 579 U.S. 176, 190 (2016) (“. . . not every undisclosed violation of an express condition of payment automatically triggers liability. Whether a provision is labeled a condition of payment is relevant to but not dispositive of the materiality inquiry.”).
[7] See, e.g., Ending Radical And Wasteful Government DEI Programs And Preferencing – The White House (Feb. 5, 2025; Dep’t of Justice, Office of Attorney General Memorandum (February 5, 2025).