Category: civil rights

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).

U.S. House of Representatives Takes Up Bill to Codify Recently Revoked Executive Order 11246

On February 5, 2025, a bill was introduced in the U.S. House of Representatives seeking to codify the recently revoked Executive Order 11246.

Quick Hits

The U.S. House of Representatives is considering H.R. 989, legislation that would codify the provisions of recently revoked Executive Order 11246.
H.R. 989 has been referred to the House Committee on Education and the Workforce.

Representatives Shontel Brown (D-OH) and Jamie Raskin (D-MD) introduced H.R. 989, “To codify Executive Order 11246 titled ‘Equal Employment Opportunity,’” which, as of February 18, 2025, had forty-seven cosponsors (all Democrats) representing twenty-five states and the District of Columbia. After being introduced in the House, the bill was immediately referred to the House Committee on Education and the Workforce.
H.R. 989 appears to be a direct response to Executive Order 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”), which on January 21, 2025, revoked Executive Order 11246, an order that had been in place, and amended, since issued in 1965 by President Lyndon Johnson.

Updated: The Future of Gender-Affirming Care – New Legal and Regulatory Considerations for Hospitals Providing These Services

As legal and policy developments continue to evolve, hospitals and health care professionals that provide gender-affirming care face new uncertainties regarding federal funding, compliance, and patient access. While these changes may not impact health care organizations that do not offer gender-affirming services, those that do must stay informed to navigate the rapidly changing legal landscape.
Gender-affirming care, which includes medical and psychological interventions for transgender and nonbinary individuals, is a service endorsed by the American Medical Association, the American Academy of Pediatrics, and the Endocrine Society. New federal guidance and pending legal disputes raise questions about how hospitals and health care professionals that offer these services may continue to do so while maintaining compliance with evolving regulations.
A key concern for these institutions is the potential impact on federal funding for hospitals that provide gender-affirming care, particularly for minors. Recent executive actions and policy statements have signaled that certain federal funding streams—such as Medicare and Medicaid reimbursements, medical education grants, and research funding—could be subject to additional scrutiny. While the full extent of enforcement remains unclear, agencies such as the Department of Health and Human Services and the Centers for Medicare & Medicaid Services are expected to issue further guidance that could affect reimbursement policies and institutional funding structures.
Late last week two federal courts granted temporary restraining orders (“TROs”) enjoining parts of President Trump’s Executive Order 14187, related to gender affirming care, and Executive Order 14168, related to recognition of gender identity. 
On February 13, a federal court in Maryland granted a nationwide TRO prohibiting the U.S. Department of Health and Human Services (“HHS”), Health Resources and Services Administration, National Institutes of Health, National Science Foundation, and any subagencies of HHS from conditioning or withholding federal funding based on the fact that a healthcare entity or health professional provides gender affirming medical care to a patient under the age of nineteen. The TRO will be in effect for 14 days. The order also requires the federal agencies to file a status report by February 20 to inform the court about their compliance with the order. The TRO only enjoins the provisions of Executive Orders 14187 and 14168 related to federal funding and grant conditions. The other provisions of EO 14187, including those directing the Secretary of HHS to take appropriate regulatory and sub-regulatory actions in the Medicare and Medicaid programs and in health insurance coverage offered through Exchanges to end gender affirming care for children, remain in effect.
On February 14, a federal court in Washington granted a second TRO related to EO 14187, temporarily blocking enforcement and implementation of both the EO provision related to conditions on federal funding and the provision redefining the term “female genital mutilation” under a U.S. criminal statute. The TRO will also be in effect for 14 days and applies only within the states of Washington, Oregon and Minnesota.
The temporary restraining orders have paused some of the executive order’s effects, but they are only short-term measures. If they expire without further legal intervention, hospitals and health care professionals that provide gender-affirming care could once again face challenges related to federal funding, compliance risks, and regulatory enforcement. While the funding restrictions are currently blocked, the executive order also directs federal agencies to take broader action against gender-affirming care in federal programs, which could lead to further administrative and regulatory hurdles.
For hospitals and health care professionals that provide gender-affirming care and rely on Medicare and Medicaid reimbursements, federal research grants, or medical education funding, this uncertainty makes it difficult to plan ahead. There is also the question of how federal agencies will interpret and apply these policies once the TROs expire, particularly in states with existing protections for gender-affirming care.
Hospitals and health care professionals that provide gender-affirming care need to assess their financial risk, legal position, and potential compliance strategies now rather than waiting for additional court rulings. Being proactive in understanding the risks and preparing for different scenarios will help institutions navigate what remains a highly fluid and unpredictable regulatory environment.
Given the shifting regulatory environment, hospitals and health care professionals that continue to offer gender-affirming care should take proactive steps to mitigate risks and ensure compliance. Conducting a thorough review of federal funding sources will be essential in assessing exposure to potential funding restrictions. Performing an inventory of the types of gender-affirming care being provided as well as gender-affirming mental health support and research is also advisable. Engaging with legal and policy experts to develop compliance strategies will help institutions navigate changing regulations while maintaining patient care commitments.
Additionally, in states where gender-affirming services remain protected, hospitals and health care professionals may still face federal scrutiny but could have stronger legal grounds to continue offering care. In states with restrictive policies, exploring out-of-state partnerships or telehealth models may provide alternative pathways for patient access.
As this issue continues to develop, healthcare institutions and professionals that provide gender affirming care must remain agile and prepared for further policy changes. The next several months are likely to bring additional legal challenges, agency directives, and potential legislative responses that could further shape the landscape. Hospitals and health care professionals providing gender-affirming care should actively assess their institutional risk, consult legal and policy experts, and remain engaged in broader policy discussions to ensure they can continue to deliver these services while staying compliant with applicable laws.

President Trump’s Recent Executive Orders and Their Potential Impact on Social Initiatives

President Trump started his second term by signing executive orders that covered a number of environmental, social, and governance (ESG)-related issues, such as eliminating diversity, equity, and inclusion (DEI) programs in departments and agencies in the executive branch, repealing DEI directives from the Biden administration, requiring enhanced vetting and screening processes for individuals seeking U.S. citizenship, limiting the enforcement of federal civil rights law and labor law, among others. The effects of President Trump’s executive orders have already begun as an United States Office of Personnel Management (OPM) memo placed DEI officers on immediate leave and set a January 31, 2025, deadline for agencies to submit plans to dismiss the employees that were put on leave.
This article focuses on executive order Ending Illegal Discrimination and Restoring Merit-Based Opportunity, as it is the order most likely to have a significant impact on the private sector’s human capital management initiatives. That executive order noted that major companies, as well as other entities, are engaging in “race- and sex-based preferences under the guise of” DEI programs that may be in violation of federal civil rights laws. The order further encouraged federal agencies and the Attorney General to take the necessary steps to promote “individual initiative, excellence, and hard work.” The order also tasked the Attorney General and Director of the Office of Management and Budget to prepare a report that outlines (a) ways to leverage federal laws and “other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI,” (b) key areas of concern, (c) “[t]he most egregious and discriminatory DEI practitioners in each” area of concern, (d) plans and strategies “to deter DEI programs or principles . . . that constitute illegal discrimination or preferences,” and (e) litigation and potential regulatory action that can be taken. Of note, the order instructs executive departments and agencies to identify at least nine civil investigations that may be taken of public companies, “large non-profit corporations, . . . foundations with” more than 500 million in assets, medication associations, and other entities.
With respect to the federal government, the order, among other things, requires “executive departments and agencies” to cease “discriminatory and illegal” initiatives and enforcement proceedings and mandates that these departments and agencies “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” There were also a host of items in the order directed to federal contractors or grant recipients, including a requirement to certify that they do not have DEI programs in violation of federal law.
Impact on the Private Sector
Before the recent executive orders, several Fortune 500 companies ended or reduced their DEI initiatives. The recent executive orders, particularly the order on Ending Illegal Discrimination and Restoring Merit-Based Opportunity, will likely drive more companies to pare back their DEI programming (or expedite their prior plans to reduce those initiatives). That said, as was the case before the executive orders, there will continue to be some companies that maintain their DEI initiatives until a court decision or law compels a different approach. Further clarity on the scope of what may be considered illegal discrimination beyond existing case law may be elucidated by the Attorney General’s report, which need not be submitted until May 21st. During the time that the report is being prepared, government officials will be identifying candidates for potential investigations. Further, we expect litigation to test the bounds of what constitutes illegal discrimination.
Adding to the complexity of the situation, on the state level, attorney generals are taking action in the DEI arena. For example, after Costco rejected a shareholder proposal to analyze the risks of its DEI policies, 19 Republican attorney generals demanded that within 30 days the company announce that it has repealed its DEI policies or explain why not. Conversely, a group of 13 attorneys general publicly noted their concerns with attempts to paint DEI initiatives as illegal. That group of attorneys general cited to a statement from the Equal Employment Opportunity Commission that confirmed that DEI programs remain legal. Put simply, companies may find themselves pulled in opposite directions by federal and state regulators while simultaneously confronting litigation in this area from private actors. Public companies may also see increased shareholder action with respect to DEI initiatives. 
Next Steps
The DEI-related executive orders are poised to have a significant impact on the private sector at this time (and in the foreseeable future) as companies grapple with identifying the contours of what is permitted and safe from legal challenge (or at least defensible in the event of a lawsuit or governmental inquiry). In this rapidly evolving DEI landscape (which will almost certainly evolve yet again once the Attorney General’s report is issued), it is important that companies evaluate their contracts, internal and external policies and procedures, and messaging. Companies should also train their personnel on any changes to their DEI initiatives. Because this area is rapidly developing, it will also be crucial for companies to ensure they have reliable methods to track developments in the sector.

Beltway Buzz, February 14, 2025

The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.

Congress: Big Picture Legislative Update. The 119th Congress is revving up, and the Buzz is monitoring two major legislative issues:

Government funding expires on March 14, 2025—one month from today. Clearly, there is plenty of political acrimony between the parties, along with consternation among Democrats concerning how the administration has operated during its first several weeks. There are no clear signs yet about whether we are heading for a government shutdown, and anything can happen, as we saw during the final week of 2024.
This week, the U.S. Congress officially started the budget reconciliation process that it will use to pass Republican legislative priorities, such as tax cuts, border security, defense spending, and energy promotion. As the Buzz has previously discussed, this complicated process will allow the Republicans to avoid the legislative filibuster in the U.S. Senate and pass legislation on a party-line basis. The process is likely to take up much of Congress’s time in the coming weeks and months.

AG Issues Memos on Private-Sector DEI. On February 5, 2025, Pam Bondi, the newly confirmed attorney general, issued two memoranda to U.S. Department of Justice (DOJ) employees instructing them on steps that they must take to implement Executive Order (EO) 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” The memos are as follows:

“Ending Illegal DEI and DEIA Discrimination and Preferences.” This memo instructs the DOJ’s Civil Rights Division and Office of Legal Policy to jointly draft and submit a report containing recommendations “to encourage the private sector to end illegal discrimination and preferences, including policies relating to [diversity, equity, and inclusion (DEI) and [diversity, equity, inclusion, accessibility (DEIA)].”
This report must contain “specific steps or measures to deter the use of DEI and DEIA programs or principles that constitute illegal discrimination or preferences, including proposals for criminal investigations and for up to nine potential civil compliance investigations of [private-sector] entities.” (Emphasis added.) This likely refers to provisions of EO 14173 that invoke the False Claims Act, which allows for criminal penalties, treble damages, attorneys’ fees, and private citizen “whistleblower” actions. Lauren B. Hicks, T. Scott Kelly, and Zachary V. Zagger provide an analysis of the implications of EO 14173 for organizations doing business with the federal government that will be subject to potential liability under the False Claims Act.
“Eliminating Internal Discriminatory Practices.” This memo primarily instructs DOJ officials to terminate internal discriminatory programs and policies relating to DEI and DEIA. This includes the elimination of positions, programs, grants, contracts with vendors, etc., relating to DEI. It also directs DOJ officials to make recommendations on how to align the agency’s enforcement activities, litigation positions, consent decrees, regulations, and policies with the EO.
The memo further instructs DOJ officials to develop new guidance that “narrow[s] the use of ‘disparate impact’ theories” and emphasizes that “statistical disparities alone do not automatically constitute unlawful discrimination.”

DOL Nominees Announced. The Senate has already confirmed sixteen of President Trump’s agency nominees, but the employment-related agencies (i.e., the U.S. Department of Labor (DOL), the U.S. Equal Employment Opportunity Commission, and the National Labor Relations Board (NLRB)) are a bit behind. There was some news this week, however, relating to DOL nominees:

Secretary of Labor Hearing. The Senate Committee on Health, Education, Labor and Pensions was scheduled to hold a hearing this week on the nomination of former U.S. Representative Lori Chavez-DeRemer of Oregon to be secretary of labor. But due to a snowstorm in the Washington, D.C., area, the hearing has been rescheduled for February 19, 2025.
DOL Subagency Nominees. Potentially filling in the leadership positions of the DOL’s subagencies, are the following nominees who were announced this week:
David Keeling has been nominated to be the assistant secretary of labor for occupational safety and health. Keeling has held several positions overseeing private-sector employers’ workplace safety programs.

Wayne Palmer has been nominated to be the assistant secretary of labor for mine safety and health. Palmer held the same position during the first Trump administration.
Daniel Aronowitz, an insurance industry executive, has been nominated to lead the Employee Benefits Security Administration.
Henry Mack III has been nominated to lead the Employment and Training Administration. Mack previously served in the Florida Department of Education.

CFPB Halts Activity. Activity at the Consumer Financial Protection Bureau (CFPB) was effectively stopped this week while the Department of Government Efficiency reviews the agency’s internal operations. The CFPB, which “enforces Federal consumer financial law and ensures that markets for consumer financial products are transparent, fair, and competitive” stretched its reach over the last several years as part of former President Joe Biden’s “whole of government” approach to promoting unionization. For example, in 2023, the CFPB entered into an information sharing agreement with the NLRB “to address practices that harm workers in the ‘gig economy’ and other labor markets.” Pursuant to that agreement, the CFPB also focused on “employer-driven debt” that allegedly results from employee expenses related to “employer-mandated training or equipment.” Created by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, CFPB has long been criticized by Republicans.
H-1B Registration Period Announced. U.S. Citizenship and Immigration Services has announced that the fiscal year 2026 H-1B cap registration period will open at noon ET on Friday, March 7, 2025, and close at noon ET on Monday, March 24, 2025. Nicole Fink and Philip K. Sholts have the details on the increased fees, the second go-round of the beneficiary-centric selection process, and other need-to-know aspects of the process.
Remembering Justice Scalia. Supreme Court of the United States Justice Antonin Scalia passed away this week in 2016 at the age of seventy-nine. While an incredible amount has been written about Justice Scalia and his legal philosophy, at the Buzz, we remember his jurisprudence related to labor and employment law. For example, Justice Scalia took part in decisions holding that union “salts” were employees under the National Labor Relations Act (NLRA) and that the NLRB was precluded by the Immigration Reform and Control Act of 1986 from awarding backpay to undocumented workers—even if their employment termination was otherwise unlawful under the NLRA. With the opportunity to write for the Court, Justice Scalia authored opinions emphasizing the need for sufficient commonality between potential members of a class action, particularly in employment law cases, as well as an opinion holding that the Federal Arbitration Act preempted state laws prohibiting class action waivers in arbitration. Finally, in Oncale v. Sundowner Offshore Services, Inc., Justice Scalia wrote that Title VII of the Civil Rights Act of 1964’s prohibition of discrimination “because of … sex” applied to same-sex sexual harassment claims.

McDermott+ Check-Up: February 14, 2025

THIS WEEK’S DOSE

Senate Confirms RFK Jr. as HHS Secretary. He was approved by a vote of 52 – 48. Sen. McConnell (R-KY) joined all Democrats in voting no.
House, Senate Budget Committees Hold Budget Resolution Markups. The House and Senate must pass a unified budget resolution for reconciliation to move forward.
Sen. Tina Smith (D-MN) Announces She Won’t Run for Reelection. This announcement comes on the heels of Sen. Gary Peters’ (D-MI) announcement that he also will not run for reelection.
House Ways & Means Health Subcommittee Holds Hearing on Modernizing Healthcare. Members and witnesses expressed concerns regarding the healthcare system.
House Oversight Healthcare Subcommittee Examines Welfare Programs. Members expressed differing views on the state of US welfare programs, including Medicaid.
House Oversight DOGE Subcommittee Holds First Hearing. The hearing discussed improper payments and fraud, with healthcare mentions focused on Medicaid.
Senate Aging Committee Examines How to Optimize Longevity. The hearing focused on how Americans can live longer, healthier lives.
Trump Nominates Additional Healthcare Personnel. The Trump administration’s US Department of Health and Human Services (HHS) and healthcare personnel continue to fill out, including a nomination for US Drug Enforcement Administration administrator.
NIH Issues Guidance Capping Indirect Costs. A federal court subsequently granted a temporary restraining order.
President Trump Issues EO to Reduce Federal Workforce. The executive order (EO) aims to drastically cut the federal workforce, including at HHS.
Legal Challenges Continue Against Trump Administration Actions. Lawsuits have been filed over health agency webpages, the federal funding freeze, and federal employee buyouts.

CONGRESS

RFK Jr. Confirmed as HHS Secretary. In a 52 – 48 Senate vote, Robert F. Kennedy (RFK) Jr. was confirmed as the next HHS secretary. All Democrats voted no, and Sen. McConnell (R-KY) was the only Republican to join them. He issued a statement explaining that he believed RFK Jr. spreads conspiracy theories and is unfit to lead HHS. Sen. McConnell also voted no on the confirmation of Tulsi Gabbard as the director of national intelligence, and on Pete Hegseth as secretary of the US Department of Defense. With RFK Jr. now officially leading HHS, we are especially attuned to the likelihood of new healthcare EOs and other administrative actions. On the same day as RFK Jr.’s confirmation, President Trump signed an EO establishing a Make America Healthy Again Commission.
The Senate will now move forward on the confirmation process for Mehmet Oz, MD, to be administrator of the Centers for Medicare and Medicaid Services (CMS). The Senate Finance Committee confirmation hearing could be scheduled as soon as early March.
House, Senate Budget Committees Hold Budget Resolution Markups. As a first step toward reconciliation, the House and Senate must pass a unified budget resolution. That process began in earnest this week when the Senate Budget Committee passed a budget resolution on a party-line vote that would bring forth a smaller reconciliation package to include immigration, defense, and energy policies. This approach is of interest to those in healthcare, because health programs could become part of the policies that help pay for this package if it moves forward. Senate Finance Chairman Crapo (R-ID) has said that the Finance Committee would likely rescind the Biden administration’s nursing home staffing regulation, which the Congressional Budget Office has scored as saving $22 billion, as his committee’s contribution to the effort.
The House Budget Committee is taking a very different approach. On February 13, it held a markup of its budget resolution, with the goal of passing one large reconciliation bill this year to address all priorities, including immigration, energy, defense, and tax cut extensions. This differs from the Senate’s intention to pass two separate reconciliation bills. The House budget resolution includes directions to the House Energy and Commerce Committee to find at least $880 billion in savings, which would likely include Medicaid reforms. The resolution passed by a party-line vote and included two Republican-led amendments. Notably, one amendment, intended to secure votes from members of the Freedom Caucus, would decrease the amount of tax cuts that could be included if $2 trillion in spending is not cut.
Senator Tina Smith (D-MN) Announces She Won’t Run for Reelection. Sen. Smith sits on the Senate Finance and HELP Committees and is active on healthcare issues. This announcement comes on the heels of Sen. Peters’ (D-MI) recent announcement that he also won’t run for reelection. These two key Democratic seats will be open for the 2026 midterm elections. Democrats and Republicans will both work to recruit top-tier candidates to enter these races.
House Ways & Means Health Subcommittee Holds Hearing on Modernizing Healthcare. The hearing included a panel of experts who discussed ways to promote healthy living, including wellness programs, early screenings, and flexible healthcare options (such as health savings accounts and individual coverage health reimbursement arrangements for small business owners). Democrats focused their questions on the recent National Institutes of Health (NIH) guidance capping indirect costs and the impact it would have on future treatments and cures, while Republicans focused on the cost of chronic conditions and their impact on the US healthcare system.
House Oversight Healthcare Subcommittee Examines Welfare Programs. During the hearing, witnesses discussed their views on safety net and welfare programs, including Medicaid, housing benefits, and nutrition programs. Republicans expressed concerns about the growth of these programs. They specifically discussed fraud, waste, and abuse in Medicaid, citing concerns over continuous enrollment and spending on illegal immigrants. They raised policies such as Medicaid block grants and work requirements as potential solutions. Democrats expressed their views that more barriers to accessing benefits should not be added, and some shared their personal experiences with welfare programs.
House Oversight DOGE Subcommittee Holds First Hearing. The newly formed subcommittee is chaired by Rep. Green (R-GA), and Rep. Stansbury (D-NM) is the ranking member. The first hearing included a panel of witnesses who discussed improper payments and fraud in federal programs. Republicans emphasized tackling waste and improper payments in federal programs, particularly Medicaid and Medicare, while Democrats highlighted the negative impact of proposed cuts on low-income and working-class people.
Senate Aging Committee Examines How to Optimize Longevity. Witnesses at the hearing discussed their concerns regarding the rise in chronic conditions and how a focus on healthy lifestyles – including eating a good diet, exercising regularly, and taking preventive efforts – could increase lifespans and improve health outcomes among older Americans. Democrats emphasized the importance of addressing social determinants of health, such as access to affordable healthcare, stable housing, financial security, and walkable communities. Republicans focused on the inefficiency of the current healthcare system, which they believe is reactive rather than preventive, and the need for more longevity-focused care.
ADMINISTRATION

Trump Nominates Additional Healthcare Personnel. President Trump nominated Gary Andres, former staff director for key House healthcare committees, and Gustav Chiarello III, an antitrust lawyer, as HHS assistant secretaries. President Trump nominated Michael Stuart, a West Virginia state senator, to be the HHS general counsel. Trump nominated Terry Cole, the secretary of public safety and homeland security for the commonwealth of Virginia, to be administrator of the US Drug Enforcement Administration, after his first pick Chad Chronister withdrew in December 2024. These nominees will all need to be confirmed by the Senate. Tom Engels returned to the Health Resources & Services Administration, a role he held for two years in the first Trump administration. Peter Nelson, formerly with the Center for American Experiment, will lead the Center for Consumer Information and Insurance Oversight, which has jurisdiction over the Affordable Care Act. These last two positions do not require Senate confirmation, and the individuals are now working in these roles.
NIH Issues Guidance Capping Indirect Costs. Late on February 7, the NIH issued guidance capping indirect cost rates for NIH award recipients at 15%. Indirect costs support grantees’ overhead and administrative costs. The guidance stated that the policy would apply to any new grants issued and to future expenses for existing grants from February 10 onward. As a justification, the NIH stated that the average indirect cost rate has been around 27% and that many organizations’ rates are higher, reaching 50% or 60%. Stakeholders issued statements opposing the policy, including hospitals, the Association of American Medical Colleges (AAMC), and lawmakers from both parties, including Sen. Collins (R-ME), the chair of the Senate Appropriations Committee.
On February 10, when the policy was supposed to go into effect, a group of 22 Democratic state attorneys general filed a federal lawsuit arguing that the change is illegal since Congress passed legislation in 2018 to prevent changes to indirect cost rates. The court granted a temporary injunction the same day, blocking the policy from going into effect in the 22 states that filed suit. AAMC subsequently joined the suit, and on February 11 the judge broadened the injunction to apply nationwide. The American Council on Education, the Association of American Universities, and the Association of Public and Land-grant Universities filed an additional federal lawsuit on February 10. This is an ongoing issue, but it is worth noting that lawmakers could advance a similar indirect costs cap in future appropriations bills or in reconciliation.
President Trump Issues EO to Reduce Federal Workforce. The EO requires agencies to implement a workforce optimization initiative, stating:

Each agency can hire no more than one employee for every four employees that depart.
Agency heads, in consultation with their DOGE team lead, must develop a hiring plan that meets the following requirements:

New career appointment hiring decisions must be made in consultation with the agency’s DOGE team lead.
If the DOGE team lead determines that a career appointment vacancy should not be filled, that vacancy may not be filled unless the agency head decides otherwise.
DOGE team leads must provide the DOGE service administrator with a monthly hiring report.

Agency heads should prepare for large-scale reductions in force, particularly in offices that perform functions not mandated by statute and include employees working in DEI initiatives.
Agency heads must submit a report identifying statutes that establish the agency, or subcomponents of the agency, as required entities. Of note, the authorization for NIH expired after 2020 and has not been reauthorized by Congress, although appropriations have continued.

COURTS

Legal Challenges Continue Against Trump Administration Actions. Lawsuits continue to be filed against actions taken by the Trump administration, including EOs and other administrative actions. In addition to the lawsuits against the NIH indirect costs guidance noted above, lawsuits have been filed in relation to the following:

Health Agency Webpages. On February 11, a federal judge issued a temporary restraining order directing HHS agencies, such as the Centers for Disease Control and Prevention and the US Food and Drug Administration, to restore certain health data on their websites.
Federal Funding Freeze. In late January, a judge blocked Office of Management and Budget (OMB) guidance ordering agencies to pause federal funding that didn’t comply with certain Trump EOs, and OMB subsequently rescinded the guidance. On February 10, a federal judge who previously ruled on the matter granted an additional motion stating that the Trump administration was violating the previous decisions and ordering agencies to restore funding.
Federal Employee Buyout. In the original deferred resignation offer, federal employees had until February 6 to make a decision. The federal judge who originally issued an order to extend the deadline issued an additional extension but then dissolved the temporary restraining order, putting the buyout back in place.
Gender Affirming Care EO. In response to a lawsuit filed by the PFLAG National, GLMA, and transgender individuals and their families, a federal judge on February 13 entered a 14-day nationwide temporary restraining order that prohibits the defendants from “conditioning or withholding federal funds on the fact that a healthcare entity or health professional provides gender affirming medical care to a patient under the age of nineteen.”

QUICK HITS

GAO Publishes Report on Medicaid Enrollment of Individuals Formerly in Foster Care. In response to a request from Senate Finance Committee Ranking Member Wyden (D-OR), the Government Accountability Office (GAO) report summarized efforts by states to enroll children who age out of foster care.
Democratic Healthcare Leaders Urge OIG to Investigate DOGE Access to Sensitive Health Information. House Energy & Commerce Committee Ranking Member Pallone (D-NJ), Senate Finance Committee Ranking Member Wyden, and House Ways & Means Committee Ranking Member Neal (D-MA) requested that the HHS Office of Inspector General (OIG) review actions taken by DOGE when accessing data at CMS and HHS. They also wrote a letter to the acting HHS secretary and acting CMS administrator seeking responses to questions about the DOGE access.
Republicans on Energy & Commerce Committee Announce Data Privacy Working Group. The group includes Vice Chair Joyce (R-PA) and Reps. Griffith (R-VA), Balderson (R-OH), Obernolte (R-CA), Fry (R-SC), Langworthy (R-NY), Kean (R-NJ), Goldman (R-TX), and Fedorchak (R-ND), and aims to explore a legislative framework on data privacy.
CMS Announces Reduction in Marketplace Navigator Funding. For the next four years, navigators will receive $10 million per year, which is a cut from $98 million in 2024. This matches the funding provided in the first Trump Administration. Read the press release here, where CMS notes this will allow the agency to focus on more effective strategies to improve Exchange outcomes and reduce premiums.

NEXT WEEK’S DIAGNOSIS

The House is in recess next week. The Senate will be in session following the President’s Day federal holiday on Monday. The Senate is expected to continue working on confirmations for cabinet secretaries and may also take up the budget resolution reported by the Senate Budget Committee. The Senate Homeland Security & Governmental Affairs Committee will hold a nomination hearing for Deputy Director of OMB nominee Dan Bishop, and the Senate Judiciary Committee will markup the HALT Fentanyl Act, which passed the House in a bipartisan vote earlier this month.

New York City to Require Employers to Physically and Electronically Post Lactation Room Accommodation Policy

New York City employers will be required to physically and electronically post a copy of their written lactation room accommodation policy under recent amendments to New York City’s lactation accommodations law set to take effect on May 11, 2025.

Quick Hits

New York City employers will be required to physically and electronically post a written lactation room accommodation policy to employees.
The recent amendment also aligns New York City law with New York State law requirements to provide paid break time for employees who need to express or pump breast milk.
The changes take effect on May 11, 2025.

The new amendments in Int No. 0892-2024, which became law on November 12, 2024, change existing language under the New York City Human Rights Law requiring employers to “develop and implement a written policy regarding the provision of a lactation room.”
Under the new amendments, employers will be required to “make such written policy readily available to employees, by, at a minimum, conspicuously posting such policy at an employer’s place of business in an area accessible to employees and electronically on such employer’s intranet, if one exists.” This requirement is in addition to an employer’s obligation to distribute a written policy to all employees “at the commencement of employment.”
The new amendment also incorporates recent changes to New York State’s lactation break law that went into effect in June 2024, requiring covered employers to provide paid thirty-minute breaks for employees who need to express breast milk for a nursing child. In addition to providing such paid break time, employers must also provide a statement in their written policy that they will provide “30 minutes of paid break time, and … permit an employee to use existing paid break time or meal time for time in excess of 30 minutes to express breast milk.” (Emphasis added).
New York City Lactation Laws
In 2018, New York City enacted Local Law 185 and Local Law 186, requiring employers to provide lactation accommodations for employees who need to express or pump breast milk at work and establish a written policy for using lactation rooms.
Local Law 185 requires employers to provide a dedicated “lactation room” that is “a sanitary place, other than a restroom, that can be used to express breast milk shielded from view and free from intrusion.” The lactation room must include “an electrical outlet, a chair, a surface on which to place a breast pump and other personal items, and nearby access to running water.” Covered employers must also provide “a refrigerator suitable for breast milk storage in reasonable proximity to such employee’s work area.”
Additionally, Local Law 186 requires covered employers to develop a written lactation room accommodation policy that includes, among other things, an explanation for how employees can submit requests to use the lactation room, a procedure for when two or more employees request to use the room, and a statement that employers will respond to requests within a “reasonable amount of time,” which is not to exceed five business days.
Next Steps
New York City employers may want to carefully review and revise their current break policies and practices to ensure compliance with this amendment. Specifically, New York City employers may want to ensure their lactation room policies are electronically and physically posted and include a statement regarding an employee’s right to an additional thirty minutes of paid break time to express breast milk.

States Take Action Against DEI – Missouri v. Starbucks

On Tuesday, February 11, the State of Missouri sued Starbucks for violations of federal and state laws prohibiting race discrimination. In a statement regarding the lawsuit, Attorney General Andrew Bailey said, “[r]acism has no place in Missouri. [The State] fil[ed] suit to halt [a] blatant violation of the Missouri Human Rights Act in its tracks.” This lawsuit comes just weeks after President Trump issued several executive orders targeting Diversity, Equity, and Inclusion (“DEI”) programs. The lawsuit was filed in the United States District Court for the Eastern District of Missouri.
Missouri asserts that the Supreme Court’s holding in Students for Fair Admissions v. Harvard, where university affirmative action programs were deemed to violate anti-discrimination laws, should be applied to “not only to college admissions, but also…to employment decisions.” The complaint alleges that Starbucks’s DEI programs are mere pretexts for unlawful discrimination.
Specifically, it alleges that Starbucks makes hiring and promotion decisions based on its reported numerical targets, which include having Black, Indigenous, or people of color (“BIPOC”) in 40% of all retail jobs and 30% of all corporate positions. The complaint also alleges that Starbucks ties its executive compensation to its achievement of desired diversity goals. Finally, it alleges that Starbucks targeted preferred groups for additional training and job advancement opportunities.
Most of Missouri’s causes of actions arise under Title VII and Mo. Rev. Stat. § 213.055, both of which protect against employment discrimination. Missouri also asserted a cause of action under 42 U.S.C. § 1981, alleging that Starbucks’s discriminatory practices illegally interfere with the rights of white or non-BIPOC individuals from “making and enforc[ing]” employment contracts with Starbucks.
Missouri seeks many forms of relief, including a declaration that Starbucks’s employment practices are unlawful, an injunction preventing Starbucks from engaging in its alleged discriminatory practices, monetary damages, an order instructing Starbucks to change its written policies, and an order mandating that Starbucks issue a statement to all employees regarding the unlawfulness of its practices.
Federal contractors should pay close attention to this case as it starts to unfold. Missouri alleges that Starbucks is a federal contractor, so this case will provide an informative first look as to how courts will treat challenges to DEI programs following President Trump’s anti-DEI executive orders.

Does The Stock Market Believe That California’s Board Diversity Mandates Enhance Firm Value?

In 2018 and 2020, California enacted laws mandating that publicly held corporations (as defined) having their principal executive offices in California have specified minimum numbers of directors who are female and from “underrepresented communities”. Supporters of these mandates contended that these mandates would improve firm value, but what did the stock market think?
University of Pennsylvania School of Law Professor Jonathan Klick tackled this question in a recent paper. He focused on the dates when these laws were found to be unconstitutional by the courts – April 1 2022 (underrepresented communities mandate) and May 13, 2022 (female mandate). Professor Klick’s conclusion?
When California judges found AB 979 and SB 826 to be in conflict with the equal protection clause of the state’s constitution, firms headquartered in California appreciated in value, with non-compliant firms gaining more than compliant firms. Because the court decisions arguably had no repercussions for other changes in corporate law and regulation in the state, which cannot be said with as much confidence for the original adoption of these mandates, these results improve confidence in the conclusion that board diversity mandates do not improve firm value and, perhaps, they even lead investors to lower their valuations.

While Professor Klick’s study tells us how the market reacted, he is careful to note that the study does why the market reacted in the way that it did.

Stonewall Inn’s Stacy Lentz Criticizes Trump Admin’s Erasure

Stonewall Inn’s Stacy Lentz Criticizes Trump Administration’s Removal of LGBTQ+ Symbols. Stacy Lentz, the co-owner of the historic Stonewall Inn, has voiced her deep concerns over the recent actions of the Trump Administration, particularly its move to erase LGBTQ+ symbols from the Stonewall Inn National Monument website. The monument, which became the first national park […]