Deregulation of the Administrative State: Opportunities and Risks Presented by Recent Executive Order
Amidst the flurry of Executive Orders (“EOs”) that tends to accompany any new administration, one EO may have flown under the radar. But for the regulated community—which, these days, includes most businesses in some form or another—this EO could be both a source of opportunity and of angst.[1]
The EO, titled “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative” (the “Deregulation EO”), was issued on February 19.[2] Consistent with the president’s long-stated goal to streamline and minimize federal agency regulation, the Deregulation EO sets forth a series of directives to federal agencies aimed at reducing regulations and minimizing the administrative state. This client alert summarizes the Deregulation EO and opines on the opportunities for the regulated community to seek reform or deregulation, on the one hand, or to prioritize existing or new regulations, on the other.
The Deregulation EO
The Deregulation EO directs all agency heads to review their existing regulations within 60 days for consistency with law and the administration’s policy aims, in conjunction with the Department of Government Efficiency (“DOGE”) and the Office of Management and Budget (“OMB”), and, as necessary, the Attorney General. The agencies are required to identify for deregulation their regulations that fit within any of seven categories:
Those that are unconstitutional or those that raise serious constitutional questions, such as the scope of power vested in the federal government by the Constitution:
This category is aimed at regulations that exceed the power of the federal government;
Regulations that are based on unlawful delegations of legislative power:
This category stems from the constitutional Nondelegation Doctrine, which has seen renewed interest in recent years by courts and commentators.[3] The Nondelegation Doctrine is the principle that Congress cannot delegate its legislative or lawmaking powers to other entities—including Executive Branch agencies. Historically, to pass constitutional muster, when Congress did delegate to an agency, it was required to do so by providing “intelligible principles” to the agency to guide it in its rulemaking—a relatively lax standard. But in recent years, the Nondelegation Doctrine seems poised to grow some teeth;
Regulations that are based on anything other than the best reading of the underlying statute:
This category aligns with the Supreme Court’s decision last term in Loper Bright that overruled the Chevron doctrine—the principle that if an agency’s interpretation of an ambiguous statute was reasonable, even if not the best reading, the reviewing court should defer to the agency. In Loper Bright, the Court held that reviewing courts should not defer to an agency’s interpretation of an ambiguous statute, but may only view such interpretations as persuasive[4];
Those that implicate matters of “societal, political, or economic significance that are not authorized by clear statutory language”:
This principle appears aimed at the “major questions doctrine,” announced in 2022 by the Supreme Court’s decision in West Virginia v. EPA, 597 U.S. 697. There, the Court held that an agency may not resolve through regulation a question of “vast economic and political significance” without a clear statutory authorization;
Regulations that impose significant costs on private parties that are not outweighed by public benefits;
Those that harm the national interest by “significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives”; and
Regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.
These last three categories appear to be aimed at the business interests this administration has expressed an intention to prioritize. (And as such, provide significant opportunities to clients, as addressed below.)
The Effect of the Deregulation EO
Upon the expiration of the 60-day review period, the Office of Information and Regulatory Affairs (“OIRA”) is directed to consult with the agency heads to develop a “Unified Regulatory Agenda” to rescind or modify any of the regulations the agency has identified as fitting within the seven categories. In other words, the agencies are directed to deregulate, to the extent their existing regulations fall within any of these seven classes.
Further, the Deregulation EO stresses that agency heads should deprioritize regulatory enforcement of any regulations that “are based on anything other than the best reading of the statute” or those that go beyond the powers of the federal government (classes (1) and (3) above). Agency heads, in consultation with OMB, also are directed to review ongoing enforcement proceedings on a case-by-case basis and to terminate those that “do not comply with the Constitution, laws, or administration policy.”
Finally, the Deregulation EO directs agencies to promulgate new regulations, consistent with the process set forth in a separate EO 12866 for submitting new regulations to OIRA for review, and to consult with DOGE about such new regulations. OIRA is directed to consider the factors set forth in EO 12866 as well as the seven principles set forth in the Deregulation EO. The Deregulation EO also directs the OMB to issue implementation guidance as appropriate.
Takeaways for the Regulated Community
Many businesses are subject to federal regulation, in some capacity. On the one hand, the Deregulation EO affords significant opportunities for the regulated community to take aim at regulations that have proven to be problematic to their business, whether because of costs, technical compliance difficulties, or policy differences. With the Deregulation EO, however, clients now have the opportunity to identify such regulations for rescission and submit them to the relevant agency or to OIRA, along with an explanation as to why the regulation fits within one of the seven categories outlined in the Deregulation EO.
Furthermore, if a client is subject to an ongoing enforcement proceeding (or the threat of one), the administration directive to agencies to terminate such proceedings on a case-by-case basis provides a similar opportunity for clients to reach out to the relevant agency to engage on the ongoing lawfulness and/or priority goals of that proceeding.[5]
On the other hand, if there are regulations that are particularly beneficial to a given industry, or in which significant time or capital has been invested to further compliance, the industry may want to ensure these regulatory schemes are preserved. For these regulatory schemes, clients may also want to reach out to the relevant agency proactively to explain why such regulations are consistent with the Deregulation EO, in an attempt to avoid the uncertainty or costs that could accompany any roll back.
As I wrote when Loper Bright, Corner Post, Jarkesy, and Ohio v. EPA were handed down last term, the changing administrative state brings both opportunities and risks.[6] Staying proactive in addressing the regulatory regime applicable to a client’s industry is the best way to “take the bull by the horns”—whether that is in an effort to jettison existing, burdensome regulations, or to retain efficient, functional regulations.
[1] See, e.g., Estimating the Impact of Regulation on Business | The Regulatory Review.
[2] Available at Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Regulatory Initiative – The White House
[3] E.g., Move Over Loper Bright — Nondelegation Doctrine Is Administrative State’s New Battleground | Carlton Fields
[4] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[5] Nb. There presently are various legal challenges to many of the administration’s EOs, so any client action should be carefully considered (perhaps in conjunction with the relevant agency) to withstand an Administrative Procedure Act or other legal challenge.
[6] Legal Experts to Lay Out Recent SCOTUS Decisions’ Impact on Business – PA Chamber
Statute and Precedent Support Special Counsel’s Challenge to Termination
Late on February 7, President Donald Trump fired Special Counsel Hampton Dellinger, the head of the Office of Special Counsel (OSC). Dellinger quickly challenged his termination in court, arguing that the White House did comply with the for-cause removal protections afforded to the Special Counsel.
On February 12, the U.S. District Court for the District of Columbia issued a temporary restraining order (TRO) in favor of Dellinger preventing the White House from removing him from his position as Special Counsel. While the Trump administration appealed this order to both the D.C. Circuit and the Supreme Court, both courts chose not to weigh in on the issue before the TRO expires on February 26.
The termination of Special Counsel Dellinger is a dangerous decision which undermines the whistleblower system for federal employees, whistleblowers who are critical to rooting out waste, fraud and abuse in the federal government.
However, the statutory language is clear in protecting the Special Counsel from removal without-cause, and the constitutionality of that protection is in line with Supreme Court decisions on related protections.
The District Court ruling found that a TRO was suitable in this case because “there is a substantial likelihood that plaintiff will succeed on the merits,” pointing to the clear statutory language and the Supreme Court’s positioning on the constitutionality of the statute.
A hearing is scheduled for February 26, where the District Court Judge may issue a ruling on Dellinger’s motion for a preliminary injunction requesting the court to permit him to stay in his job and complete his 5-year term of office.
The Office of Special Counsel’s Statutory Background
The OSC, headed by the Special Counsel, was first established as part of the Merit Systems Protection Board (MSPB) with the passage of the Civil Service Reform Act of 1978. The Whistleblower Protection Act of 1989 expanded the powers of the OSC and removed it from within the MSPB, establishing the OSC as an independent agency.
The OSC increases transparency and accountability within the federal government by protecting federal employees from whistleblower retaliation and providing a secure channel for federal employee whistleblowers to report wrongdoing.
Under federal statute (5 U.S. Code § 1211) the Special Counsel “shall be appointed by the President, by and with the advice and consent of the Senate, for a term of 5 years.”
And the statute clearly states that “The Special Counsel may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.”
In its brief notice to Dellinger alerting him of his termination, the White House did not point to any issues with his performance as Special Counsel and has not raised any cause for doing so subsequently.
In its ruling, the District Court notes that “the effort by the White House to terminate the Special Counsel without identifying any cause plainly contravenes the statute. It further states that the statute’s language “expresses Congress’s clear intent to ensure the independence of the Special Counsel and insulate his work from being buffeted by the winds of political change.”
The White House’s firing of Special Counsel without cause is thus a clear violation of the law.
Constitutionality of For-Cause Removal Protections
According to the District Court ruling, the White House’s “only response to this inarguable reading of the text is that the statute is unconstitutional.” However, as the ruling elucidates, the Supreme Court has upheld for-cause removal protections for positions similar to the OSC and even recently explicitly carved the OSC out of a pronouncement about the President’s removal authority.
For close to a century, the Supreme Court has repeatedly weighed in on whether statutory protections for federal officials appointed by the President counter the removal powers of the Executive and are therefore unconstitutional. The Court’s rulings are clear that positions at independent agencies which exercise some level “quasi-judicial” powers can be protected through some form of for-cause removal limits.
In 1926, the Supreme Court ruled in Myers v. United States that the President had authority to remove a postmaster without Senate approval and that an 1876 law requiring Senate approval was unconstitutional as it interfered with the President’s constitutional duty of seeing that the laws be faithfully executed.
In subsequent rulings, however, the Supreme Court has clarified and narrowed this precedent by ruling that “the character of the office” at hand determined whether for-cause removal protections were constitutional.
In Humphrey’s Executor v. United States and Wiener v. United States, the Supreme Court held that the Myers precedent only held for executive officers restricted to the performance of executive functions. The Court ruled that for-cause protections are constitutional for officers at independent agencies who carry out quasi-legislative or quasi-judicial duties.
In its ruling, the District Court pointed to recent Supreme Court decisions striking down for-cause removal protections for specific offices and noted the clear distinctions drawn out by the Supreme Court between those posts and the Special Counsel.
For example, in striking down for-cause removal protections for the head of the Consumer Finance Protection Bureau (CFPB) in 2020 in Seila Law LLC v. Consumer Fin. Prot. Bureau, the Court affirmed that the OSC is distinct and not implicated in that ruling because the Special Counsel “exercises only limited jurisdiction to enforce certain rules governing Federal Government employers and employees” and “does not bind private parties at all.”
The District Court also pointed to the Supreme Court’s 2021 ruling in Collins v. Yellin, which found that a statute prohibiting the President’s firing of the Federal Housing Finance Agency (FHFA) director violated the separation of powers. In that ruling, the Supreme Court pointed to the FHFA’s ability to impact ordinary Americans through direct regulation or action. The OSC by contrast, “is not an agency endowed with the power to articulate, implement, or enforce policy that affects a broad swath of the American public or its economy,” according to the District Court ruling.
“In sum, the OSC is an independent agency headed by a single individual, but otherwise, it cannot be compared to those involved when the Supreme Court found the removal for cause requirement to be an unconstitutional intrusion on Presidential power,” the District Court ruled.
Conclusion
The role of the Special Counsel is critical to the functioning of the system of whistleblower protections in place for federal employees. Recognizing the need for his position to be free from Presidential interference, Congress explicitly prohibited the termination of the Special Counsel without cause, a prohibition backed up by Supreme Court precedent.
This dangerous decision to terminate Special Counsel Dellinger should thus be struck down in court. In doing so, the Special Counsel can continue its critical work in protecting federal employee whistleblowers and empowering federal employees to expose corruption, fraud, waste, and abuse and, in turn, save taxpayers billions of dollars.
The District Court’s TRO is an important first step, and future court rulings should follow suit given the clear statutory language and the Supreme Court’s previous rulings on Presidential removal authority.
Geoff Schweller also contributed to this article.
Corporate Transparency Act Reporting Obligations Effective Again With March 21, 2025, Deadline for Most Reporting Companies
On February 17, 2025, the US District Court for the Eastern District of Texas (EDTX) in Smith, et. al. v. US Department of the Treasury, et. al., entered an order staying the nationwide injunction on enforcement of the Corporate Transparency Act (CTA). With this ruling, the beneficial ownership information (BOI) reporting requirements promulgated under the CTA are back in effect.
In light of this court action, the Financial Crimes Enforcement Network (FinCEN) announced that, for most reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025. In its announcement, FinCEN noted that this new filing deadline may be subject to further modification, however, for now, existing reporting companies should begin preparations to file their required BOI reports by March 21, 2025.
Planning for Compliance
FinCEN’s new deadline of March 21, 2025 applies to all non-exempt reporting companies formed on or before February 19, 2025. Going forward, non-exempt reporting companies formed after February 19, 2025 will have 30 days from their formation to file their BOI reports.
Reporting companies should continue to closely follow developments related to the CTA. Specifically, note that Congress is considering a bill to extend the reporting deadline to January 1, 2026, but only for reporting companies in existence before January 1, 2024. Furthermore, in its announcement, FinCEN gave itself leeway to “assess its options to further modify deadlines.”
Recent Events in CTA Litigation
The EDTX’s February 17 order was based on the US Supreme Court’s order in McHenry v. Texas Top Cop Shop, Inc. issued January 23, 2025, which stayed a similar nationwide injunction issued in a different proceeding pending in the EDTX.
Below is a recap of CTA litigation developments leading up to this February 17 order:
On December 3, 2024, in Texas Top Cop Shop, Inc., et al. v. Garland, et al., a judge in the EDTX issued a nationwide preliminary injunction halting enforcement of the CTA and its implementing regulations.
On December 23, 2024, a motions panel of the US Court of Appeals for the Fifth Circuit granted an emergency motion for a temporary stay of that preliminary injunction, effectively reinstating the original filing deadlines for reporting companies under the CTA.
On December 26, 2024, a merits panel of the Fifth Circuit vacated the motions-panel stay that was issued on December 23, resulting in another pause on the CTA’s BOI reporting requirements.
On January 7, 2025, a different judge in the EDTX issued an order in the Smith v. U.S. Department of the Treasury case, imposing a separate nationwide injunction on CTA’s enforcement.
Following the Fifth Circuit’s December 26 order pausing the CTA’s BOI reporting requirements, the US Department of Justice (DOJ) filed with the Supreme Court seeking a stay of the nationwide injunction against the enforcement of the CTA issued in the Texas Top Cop Shop case, which the Supreme Court granted on January 23, 2025. However, the Supreme Court did not address the separate nationwide injunction that was issued in Smith, which meant that, until now, the enforcement of the CTA remained on hold.
On February 5, 2025, the US Department of Justice (DOJ) (on behalf of the US Treasury Department) appealed the EDTX’s January 7 order in the Smith, and concurrently filed a motion to stay the injunction pending the outcome of the appeal to the Fifth Circuit in light of the stay ordered by the Supreme Court on January 23, 2025.
As noted above, on February 17, 2025, the EDTX in Smith stayed its own January 7, 2025 order, pending appeal. Given this decision, FinCEN’s regulations implementing the BOI reporting requirements of the CTA are no longer stayed.
A Preliminary Injunction Does Not a “Prevailing Party” Make, Criminal Conviction Through Knowingly False Evidence Violates Due Process – SCOTUS Today
The U.S. Supreme Court decided two cases today, one of which, Lackey v. Stinnie, involved an action brought pursuant to 42 U. S. C. §1983 and should be of particular interest to the many readers of this blog who practice in the civil rights space.
The second case, Glossip v. Oklahoma, is a homicide case in which the state knowingly adduced false testimony. But does the Supreme Court have jurisdiction to reverse the conviction? The answer is that it does, though an interesting mix of Justices take more than 70 pages to explain their competing views.
Lackey v. Stinnie involved a group of drivers whose licenses were suspended under a Virginia law sanctioning drivers who had failed to pay court fines. They challenged the statute as unconstitutional, and the U.S. District Court for the Western District of Virginia granted a preliminary injunction prohibiting the Virginia Department of Motor Vehicles from enforcing it. Before the case could come to trial, the state legislature repealed the law and, by agreement of the parties, the case was dismissed as moot. 42 U. S. C. §1988(b) allows the award of attorneys’ fees to “prevailing parties” under §1983, and the plaintiffs sought them. Writing for himself and six other Justices (only Justice Jackson, joined by Justice Sotomayor dissented), the Chief Justice applied a strict view of the “American Rule” and held that “the plaintiff drivers, who had gained no more than preliminary injunctive relief before the action became moot—do not qualify as ‘prevailing part[ies]’ eligible for attorney’s fees under §1988(b) because no court conclusively resolved their claims by granting enduring judicial relief.” The Court began with text, recognizing that “prevailing party” is a legal term of art. At the time when §1988(b) became law, “contemporary dictionaries defined a prevailing party as one who successfully maintains its claim when the matter is finally resolved.” A preliminary injunction doesn’t do that, because it does not conclusively decide the case on the merits. Indeed, the preliminary injunction does no more than signal likely success on the merits, “along with factors such as irreparable harm, the balance of equities, and the public interest.” The preliminary injunction’s purpose is to preserve the status quo until a trial resolves the case, and “external events that render a dispute moot do not convert that temporary order into a conclusive adjudication on the merits that materially altered the legal relationship between the parties.”
An important caveat is found in a footnote pointing out that the question of who is a “prevailing party” is different for defendants and plaintiffs. Thus, the Court’s decision today “should not be read to affect our previous holding that a defendant need not obtain a favorable judgment on the merits to prevail, nor to address the question we left open of whether a defendant must obtain a preclusive judgment in order to prevail. See CRST Van Expedited, Inc. v. EEOC, 578 U. S. 419, 431−434 (2016). “As we have explained, ‘[p]laintiffs and defendants come to court with different objectives.’” Here, the Court rejects the claim accepted by the dissenters that the drivers “prevailed” because they ultimately succeeded in having the law repealed. However, they didn’t succeed in prosecuting an actual claim in a legal action. And taking that road “made all the difference.” Frost, R., “The Road Not Taken.”
Glossip v. Oklahoma is one of those cases that, if nothing else, defies common notions about how the Justices will align. Here is a case in which Justice Sotomayor delivered the majority opinion of the Court, having been joined by the Chief Justice and Justices Kagan, Kavanaugh, and Jackson. Justice Barrett concurred in part and dissented in part, and Justice Thomas, joined by Justice Alito, dissented. Justice Gorsuch recused because he had sat on an earlier version of the case while on the U.S. Court of Appeals for the Tenth Circuit. As noted, the Justices spared no ink in dealing with this murder case. Years after Glossip was convicted of murdering his boss and sentenced to death, and after he’d filed several habeas petitions, substantial doubt about his guilt emerged through an independent law firm investigation and the state discovering documents suggesting that the main witness against Glossip had testified falsely. Indeed, “[t]he attorney general determined that Smothermon [the prosecutor] had knowingly elicited false testimony from [the witness] Sneed and failed to correct it, violating Napue v. Illinois, 360 U. S. 264, which held that prosecutors have a constitutional obligation to correct false testimony.” However, the Oklahoma Court of Criminal Appeals denied an unopposed petition for a new trial, holding that the petition was barred by Oklahoma law and that the concession was “[n]ot based on law or fact” and did not constitute a Napue error because the defense likely knew that Sneed had testified falsely about his mental condition, and this condition somehow could be tolerated because Sneed was in denial about it. The Court’s majority was plainly unimpressed with this argument because, instead of remanding the case to state court to decide whether a new trial should be granted, the Court held that “[b]ecause ample evidence supports the attorney general’s confession of error in this Court, there also is no need to remand for further evidentiary proceedings.”
Two main aspects of the Court’s ruling should be noted. First, while the independent and adequate state ground doctrine precludes the Court from considering a federal question if the state court’s decision rests on an independent and adequate state law ground, the state court’s application of its procedural rule was not such a ground because it was premised on the rejection of the attorney general’s confession of error under Napue, which was based solely on federal law. However, Oklahoma precedent confirms that rejection of an attorney general’s confession generally has been made only after finding that it was unsupported by law and the record. “By making the application of the [the state’s procedural law] contingent on its determination that the attorney general’s confession of federal constitutional error was baseless, the [state court] made the procedural bar dependent on an antecedent ruling on federal law.”
Second, and more succinctly, the Court simply reversed the conviction and held that “[u]nder Napue, a conviction obtained through the knowing use of false evidence violates the Fourteenth Amendment’s Due Process Clause.”
Justice Barrett, who agreed generally with the majority, would have remanded the case for a determination as to whether a new trial was warranted. Justice Thomas, in dissent, wrote that the state court’s denial of a new trial “should have marked the end of the road for Glossip. Instead, the Court stretches the law at every turn to rule in his favor.”
Two decisions and two bright-line tests. The Court is busy—stay tuned next week.
Decoding the Independent Agency Executive Order: Implications for the Activities of Federal Agencies and Business Interests
The Ensuring Accountability for All Agencies Executive Order (the “Independent Agency EO”), signed by President Trump on February 18, extends unprecedented direct Administration control over independent regulatory agencies, such as the Federal Communications Commission, the Securities and Exchange Commission, the Federal Trade Commission, and the Federal Energy Regulatory Commission, among others.1 The Independent Agency EO requires, inter alia, the submission of “major regulatory actions” of independent agencies to the Office of Management and Budget’s (OMB), Office of Information and Regulatory Affairs (OIRA) in the White House, imposing OIRA review and approval requirements on these agencies regulatory actions. Such review, to this point, has been limited to actions of cabinet-level executive branch departments (and their respective components and agencies), such as the Departments of Justice, Commerce, Agriculture, Homeland Security, Energy, and Transportation, over which the President has plenary authority, including with respect to their regulatory activities and actions, and the hiring and firing of political appointees, who serve at the President’s pleasure.
In addition, on February 19, the President signed a follow-on Executive Order to implement its Department of Government Efficiency (DOGE) deregulatory initiative (the “Deregulation EO”), directing all Agency heads, including those of independent agencies, to initiate a process to review all regulations under their jurisdiction for consistency with law and the Administration’s policy objectives. Agency heads were also directed, within 60 days (by April 20) to identify and submit to OIRA, regulations that are within one of seven classes that meet the Administration’s criteria for inconsistency with law and its policy objectives.
Key Takeaways:
The Independent Agency EO purports to exert unprecedented direct presidential control over independent agencies, which were created by Congress as governmental agencies outside the President’s Administration in order to insulate them from direct political influence and control.
The order requires White House review of agency action, likely to slow the regulatory process and create uncertainty for business, though also providing business with a second “bite at the apple” to pare back or outright block particular agency regulatory initiatives through the OIRA process.
The Independent Agency EO, together with the Deregulation EO, are additional elements of efforts by the Trump Administration to limit the so-called “Administrative State”, and are simultaneously coupled with the assertion by the Administration of the President’s authority to remove independent agency heads and other political appointees at will, rather than for cause or under other criteria specified in the agency’s enabling statute. Challenges to two such removals are pending in federal court, and the acting U.S. Solicitor General has indicated in a letter to Senator Dick Durbin, ranking member of the Senate Judiciary Committee, that “certain for-cause removal provisions that apply to members of multi-member regulatory commissions are unconstitutional and that the Department [of Justice] will no longer defend their constitutionality.”
Together, these initiatives could provide the Administration with the ability to exert more direct control and influence over independent agencies, including to advance various Administration priorities, most obviously surrounding DEI, green energy, political speech, and others that will come into focus over time. In addition, the Deregulation EO’s call for an accelerated review for consistency with the Administration’s deregulatory and other policy objectives could potentially prompt some unexpected initiatives from the independent agencies.
Background
Independent regulatory agencies are quasi-legislative bodies created by Congress, that are outside the Administration yet technically are considered within the executive branch of the federal government. Independent agencies have historically acted independently from oversight and direction from the President’s administration in their rulemaking and other activities, with their power delegated by Congress through the agency’s enabling statute. The extent of the President’s authority over independent agencies has generally been thought to be limited by the provisions of an agency’s enabling statute, which typically does not extend beyond the President’s authority to appoint agency heads and senior governing officials (such as commissioners and board members), with the advice and consent of the Senate.
The Supreme Court has long held that independent agency political appointees cannot be removed without cause or in accordance with an agency’s enabling statute, which is in contrast with executive department heads serving in the President’s cabinet and other executive department political appointees, who serve at the pleasure of the President and may be removed at will. The President is now asserting the authority to fire independent agency political appointees at will, an issue which is currently pending in two federal court cases, as discussed further below.
OIRA is an office within OMB tasked with, under the 1993 Regulatory Planning and Review EO 12866 (as supplemented by 2011 EO 13563), reviewing and approving executive agency regulatory actions, ensuring compliance with executive orders, and coordinating the Administration’s policies among the cabinet-level executive departments and their component agencies. Prior to the Independent Agency EO, under EO 12866, only the regulatory actions and activities of executive departments, their agencies and components have been subject to OIRA review, which excludes “independent regulatory agency” from the definition of “agency” for purposes of EO 12866 compliance.2
The Executive Order
The Independent Agency EO declares that “[i]t shall be the policy of the executive branch to ensure Presidential supervision and control of the entire executive branch,” which President Trump says includes “the so-called ‘independent regulatory agencies.’” In accordance with this policy, all proposed and final “significant regulatory actions” must be submitted to OIRA for review and approval before the action is published in the Federal Register, removing a major element of these agencies’ independence. The OIRA submission requirement kicks in April 19, 2025 (or sooner if OMB releases new guidance before that date).
The Independent Agency EO also:
Details new protocols that OMB may coordinate and review with the agencies to ensure alignment with the Administration’s policies and agenda, including a provision directing OMB to establish performance standards for each independent agency head and requiring the periodic submission of reports to the president on each agency head’s “performance and efficiency.”
Requires each independent agency to create a White House liaison position within their agency and coordinate its policies and priorities with the White House.
Asserts that the President and Attorney General (subject to the President’s supervision), shall provide authoritative interpretations of law for the executive branch, and provides that no employee of the executive branch (which presumably includes employees of independent agencies) “may advance an interpretation of law as the position of the United States that contravenes the President’s and Attorney General’s opinion on the matter.”
Additional Considerations and Observations
As noted, the related question of whether the President may remove political appointees of an independent regulatory agency, which likewise implicates the authority of the President over these agencies, is simultaneously making its way through the courts, with the acting Solicitor General asserting in Congressional correspondence that the Department of Justice will no longer defend the constitutionality of for-cause removal provisions in independent agency enabling statutes. In one case pending before the U.S. District Court for the District of Columbia, the court temporarily stayed the President’s removal of the head of the Office of Special Counsel, with the Administration’s Application to the Supreme Court to vacate the stay held in abeyance pending further proceedings before the District Court on issuance of a preliminary injunction. In a second case, a challenge to the President’s firing of a member of the National Labor Relations Board is pending before a U.S. District Court in D.C., with an expedited briefing schedule and hearing set on the removed official’s motion for summary judgment.
It is not uncommon for independent agencies, whose head and majority (following appointments to vacancies) are typically of the President’s party, to align with the President on major policy initiatives. This can be seen, for example, from the on-again, off-again history of net neutrality’s treatment by the FCC, which has been directly connected to which party holds the presidency and the Chair and majority at the FCC. In recent comments to the press, FERC Chairman Mark Christie noted this typical pattern of alignment between the Administration in power and independent agencies on major initiatives and suggested that the majority of the consultation-related provisions of the Independent Agency EO appeared consistent with current practices, in some cases going back decades.
That said, what will be different under the Independent Agency EO, together with the authority of the President to fire independent agency heads at will if sanctioned by the Supreme Court, is that these agencies can be expected to become more of a direct instrument of the Administration in advancing its policy agenda. This can be seen most immediately from the FCC’s reported investigation into the DEI practices of an FCC-regulated entity, and the recent announcement by the FTC of an inquiry into policies of social media platforms affecting political speech. In addition, the Deregulation EO direction that all agencies, including independent agencies, identify regulations that are inconsistent with the Administration’s deregulatory and other policy objectives and develop a plan for rescinding or modifying those regulations, could potentially prompt some unexpected initiatives from the independent agencies but also could provide opportunities for regulated entities.
In terms of OIRA review, the executive order will likely slow the regulatory process and agency action, as publication in the Federal Register is to be delayed pending OIRA review for both proposed and final actions. This may be a “good news, bad news story” for businesses with issues before independent regulatory agencies. For those advocating for a particular position adopted by the agency, final action will likely be delayed and could be changed in the OIRA process. For those opposing particular agency action, the OIRA process, which includes consultation with other White House and Cabinet-level departments, as well as the ability of interested parties to comment and meet with OIRA on agency action under review, provides an additional opportunity to influence, and perhaps pare back or block, an agency proposal or final rule.
This order is likely to be subject to a court challenge, like other Trump Administration Executive Orders. Nevertheless, if your business is subject to the regulatory actions of these independent agencies, be prepared for an environment with some higher risks and uncertainty, but also for additional opportunity to engage with political actors in Congress and the Executive Branch, as well as the independent agencies themselves, to check agency action that may be adverse to your company’s interests.
1 The term “independent regulatory agency” is defined by statute in 44 U.S.C. § 3502(5) as the listed federal agencies in that section and “any other similar agency designated by statute as a Federal independent regulatory agency or commission.” In addition to the FCC, FTC, SEC, and FERC, independent agencies identified in that provision include the Federal Housing Finance Agency, the Federal Maritime Commission, the Interstate Commerce Commission (which was abolished in 1995, with the newly created Surface Transportation Board succeeding to its rail industry regulatory functions), the National Labor Relations Board, the Nuclear Regulatory Commission, and the Occupational Safety and Health Review Commission. The Independent Agency EO explicitly includes the Federal Election Commission, but excludes the Federal Reserve and its Federal Open Market Committee, though applies to Fed activities directly related to its supervision and regulation of financial institutions.2 Separately, in a process that companies with business before independent agencies may be familiar with, OIRA has explicit statutory authority under the Paperwork Reduction Act, 44 U.S.C. 3501, et seq., to review actions of any executive department or other entity in the executive branch, as well as of independent regulatory agencies, that require the submission of information to the government, so-called “information collections”. OIRA review of agency information collections under the Paperwork Reduction Act, which is a statutory requirement, is separate and distinct from reviews of executive agency regulatory actions and activities under EO 12866, which has now been extended to independent regulatory agencies by the Independent Agency EO.
Trump Administration Asserts Control Over Independent Agencies
The Trump administration has taken two actions that will dramatically increase White House control over federal commissions, boards, and officials that were previously considered independent. These actions are likely to impact a wide range of industries and sectors of the American economy, including energy, financial services, transportation, healthcare, and many others.
First, President Trump issued an Executive Order (EO) to increase presidential supervision over the “so-called independent agencies.” The EO, entitled “Ensuring Accountability for all Agencies,” is a fundamental change to historical practice where independent agencies like the Securities and Exchange Commission, National Labor Relations Board, and Federal Energy Regulatory Commission fell outside the White House’s regulatory oversight. This EO sets forth new requirements that would formally subject the actions taken by these and other independent agencies to White House control for the first time. The new requirements include:
Regulatory Review
Section 1 of the EO extends to “independent regulatory agencies” the pre-existing requirement that Executive Departments and agencies submit for review all proposed and final significant regulatory actions to the Office of Information and Regulatory Affairs in the Executive Office of the President, before publication in the Federal Register.
Agency Performance
Section 4 of the EO requires the Director of the Office of Management and Budget (OMB) to establish “performance standards and management objectives” for independent agency heads, and to periodically report to the president on these agencies’ progress in meeting the standards.
Funding
Section 5 of the EO requires the OMB director to “adjust” the independent regulatory agencies’ “apportionments” as necessary to advance the president’s policies and priorities. The EO contemplates that OMB may prohibit spending on particular activities.
Regular Consultation With the White House
Section 6 of the EO requires independent regulatory agencies to establish a White House liaison within each agency, who will regularly consult and coordinate with the Executive Office of the President on policies and priorities.
Singular Legal Interpretations
Section 7 provides that the president and the attorney general shall set forth the authoritative and binding interpretations of the law for the entire executive branch.
These requirements are largely aimed at “independent regulatory agencies” as defined by 44 U.S.C. 3502(5), which identifies nineteen independent agencies and includes a catchall clause for “any other similar agency designated by statute.”1 A 2019 opinion from the Justice Department’s Office of Legal Counsel notes that there are potentially several other agencies (beyond those listed) that would fall into the catchall clause, including the United States International Trade Commission.
In a related move, the administration also asserted greater authority to fire certain federal commissioners and other officials “at will” who could previously only be terminated by the president “for cause.” For nearly a century, the prevailing view was that although the president enjoys absolute authority to remove the singular head of an executive agency, Congress could condition the removal of multimember heads of “independent” boards or commissions that Congress designed to be balanced along partisan lines and in which it vested quasi-judicial and quasi-legislative power. That view dates back to the 1935 Supreme Court case of Humphrey’s Executor v. United States; however, many believe that this view may no longer be favored by the current Supreme Court.
The Solicitor General of the United States recently informed Congress that the federal government will “no longer defend the[] constitutionality” of “certain for-cause removal provisions that apply to members of multimember regulatory commissions”—specifically the Federal Trade Commission, National Labor Relations Board, and the Consumer Product Safety Commission—that were permitted under Humphrey’s Executor. Instead, the Department of Justice “intends to urge the Supreme Court to overrule [Humphrey’s Executor], which prevents the President from adequately supervising principal officers in the Executive Branch who execute the laws on the President’s behalf, and which has already been severely eroded by recent Supreme Court decisions.”
These two steps—the “Ensuring Accountability for all Agencies” EO and the Justice Department’s rejection of Humphrey’s Executor—would dramatically increase White House control over federal commissions, boards, and officials which were previously considered independent and insulated from such control.
Article II of the U.S. Constitution vests the president with somewhat opaque “executive” powers. These powers include ensuring that the laws of Congress are “faithfully executed,” which requires some degree of oversight of the officers who actually execute them. The Constitution also permits the president to “require the Opinion” of executive department heads on any subject relating to their duties. While other presidents have not required this level of consultation by independent agency heads, some view the more hands-off approach to regulatory review to be a matter of executive discretion rather than a lack of legal authority. Together, these recent steps by the Trump administration highlight the likely hallmarks of the new legal frontier—one that will test the limits of the president’s constitutional powers.
Key Takeaways
Possible Regulatory Delays While Independent Agencies Adjust to the New Normal
The increased coordination and consultation that is now expected from the White House could result—at least initially—in some delays to the normal decision-making processes of independent regulatory agencies. These agencies will now need to build in an additional layer of review to ensure that certain policy decisions are aligned with those of the administration.
Fewer Open Interagency Disputes
President Trump intends to interact with independent agency heads in the same way as other federal agency heads. Subject to congressional or judicial intervention, it is expected that independent agencies will follow the White House’s lead, particularly given that President Trump has asserted authority to terminate board and commission members without cause. This will likely result in fewer—if any—open interagency disputes, like that which arose in the Bostock case, where the Justice Department and Equal Employment Opportunity Commission took conflicting legal positions on the scope of Title VII. The White House will aim to resolve more policy disputes in the interagency process, perhaps without the regulated community even learning of such disputes.
The Likely Rise of Executive Deference Arguments
Look for the White House to argue that this EO is entitled to deference from the courts, as it relates to the president’s core constitutional powers. While the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo put an end to Chevron deference for agency interpretations of the law, it did not address a different strain of deference where core presidential power is concerned. That form of deference—traditionally invoked to support the executive branch’s preferred national security policies—may well be increasingly invoked by the president and attorney general. President Trump may also assert that the EO should take precedence over existing regulations to the contrary, as the administration has maintained in other contexts.
Increased Opportunities for Engagement
In making these changes, the White House’s stated goal is to increase the public accountability of agencies that have historically exercised significant regulatory control over the American people. By requiring these agencies to coordinate with the White House at an unprecedented level, there may now also be an increased opportunity for regulated parties to be heard on important policy matters.
Footnotes
1 Notwithstanding that definition, the EO explicitly does not apply to the Board of Governors of the Federal Reserve System or to the Federal Open Market Committee in its conduct of monetary policy; it does apply to the Board of Governors’ supervision and regulation of financial institutions.
Anti-DEI Executive Orders Enjoined: Implications for Federal Funding Recipients and Private Employers
On Friday, February 21, 2025, a federal judge issued a Preliminary Injunction in National Association of Diversity Officers in Higher Education, et al. v. Trump, blocking significant portions of two Executive Orders (EOs) issued by President Donald Trump.
The decision, which will be appealed, creates more uncertainty for employers with programs that may fall under the broad umbrella of “Diversity, Equity, and Inclusion” (DEI) or “Diversity, Equity, Inclusion, and Accessibility” (DEIA) in light of the Trump administration’s efforts to eliminate DEI programs within federal agencies and impose restrictions on private sector DEI initiatives. For now, the court’s order blocks most – but not all – of the provisions in the two EOs.
Background
The U.S. District Court for the District of Maryland addressed a motion seeking relief from EO 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing,” which the court labeled “J20 Order”) and EO 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” referred to by the court as the “J21 Order”). Epstein Becker Green has published several advisories explaining these EOs and how they may affect federal contractors and other federal funding recipients (see here and here) as well as other public and private employers (see here).
Both EOs were challenged by a group of plaintiffs that includes the City of Baltimore, the American Association of University Professors, and National Association of Diversity Officers in Higher Education. In brief, the plaintiffs argued that:
The EOs use vague terminology, creating compliance difficulties and violating the Fifth Amendment.
Failure to comply with the EOs’ unclear directives could, in some circumstances, even lead to criminal liability under the False Claims Act, creating untenable risk for those affected.
The EOs’ requirements that organizations certify that they do not engage in vaguely defined “illegal DEI” and threats of investigations of private organizations with DEI programs or enforcement action against entities create an unlawful chilling effect on speech protected by the First Amendment.
The EOs exceed the President’s constitutional authority because they violate the separation of powers and due process provisions of the Constitution.
Implementation of the EOs would cause irreparable harm to the plaintiffs and similarly situated federal contractors, grantees, and entities identified as targets for investigations and other compliance initiatives.
Highlights of the Court’s Analysis
In a 63-page Memorandum Opinion, Judge Adam B. Abelson found that the challenged provisions were unconstitutionally vague, and that the plaintiffs are likely to succeed on their claims under the First Amendment and the Fifth Amendment’s Due Process Clause. Noting that, despite duties of unrivaled gravity and breadth, a president is not exempt from the general provisions of the Constitution, the court found sufficient grounds to halt enforcement of two EO provisions in full, and a portion of a third provision.
Unlawful Viewpoint Discrimination Violates the First Amendment
Reviewing the First Amendment claims, the court considered the potential effects of both EOs. Section 3 of EO 14173 (referred to as the “Certification Provision”) requires every federal contract or grant award recipient to certify, among other things, that “it does not operate any programs promoting DEI that violate any applicable Federal antidiscrimination laws.” Section 4 of the same EO (referred to as the “Enforcement Threat Provision”) calls for civil compliance investigations and even actions under the False Claims Act (FCA) against entities engaging in protected speech, as we previously explained. Additionally, as we wrote here, the Enforcement Threat Provision, along with ensuing agency activity, has broad implications for the private sector. Finally, a “Termination Provision” contained in EO 14151 (in its Section 2) requires the federal government to terminate all “equity-related” grants or contracts (read more here).
The court found that such threats of “enforcement against perceived violators of undefined standards” place an unlawful viewpoint-based restriction on protected speech. The opinion describes the private-sector-oriented Enforcement Threat Provision, with its stated purpose of eliminating one type of principle (DEI) without a similar restriction on anti-DEI principles that may also violate anti-discrimination laws, as “textbook viewpoint-based discrimination.”
Impermissibly Vague Language Violates the Fifth Amendment
The court also found merit in arguments that certain terms in both EOs violate the Fifth Amendment’s Due Process clause by being so vague as to invite “arbitrary and discriminatory enforcement” and failing to sufficiently inform current contractors or grantees what they must do to avoid termination of their agreements with the government.
Specifically, the court agreed that the term “equity-related” in the Termination Clause’s discussion of grants or contracts that could be cancelled was ill-defined. The court also found that the Certification Provision could be interpreted very broadly, so that even DEI-related activities unrelated to any federally funded programs could be foreclosed. Describing a colloquy at the hearing in which “the government refused to even attempt to clarify what the Certification Provision means,” the court found that “even the government does not know what constitutes DEI-related speech that violates federal anti-discrimination laws,” which in turn leads to the conclusion that such an overbroad term is highly likely to cause self-censorship by contractors to mitigate risk.
The court also found that both EOs fail to explain what, exactly, constitutes “illegal DEI” or “illegal DEI and DEIA policies.” The absence of clear definitions for such terms grants excessive discretion to federal agencies and potentially leads to arbitrary enforcement.
A Broadly Applicable Nationwide Injunction – But Not A Blanket
The court, noting “prudential and separation-of-powers issues,” declined to halt the EOs with respect to any language directing the U.S. Attorney General to prepare a report or engage in investigations. The Preliminary Injunction also expressly excludes the President, but otherwise prohibits enforcement of the three provisions nationwide based on the finding that other employers would be affected in the same way as the plaintiffs. Specific prohibitions for each are as follows:
Termination Provision (EO 14151): may not be invoked to “pause, freeze, impede, block, cancel, or terminate … or change the terms of any [awards, contracts or obligations].”
Certification Provision (EO 14173): may not be enforced, eliminating (at least for now) requirements for federal contractors and grantees to certify they do not operate DEI programs that violate federal anti-discrimination laws.
Enforcement Threat Provision (EO 14173): may not be implemented to bring any anti-DEI enforcement action, including actions under the FCA, against private entities or government contractors and grantees.
Note that other portions of the EOs, including those directing agencies to take internal actions, remain in place. EO 11246, which required federal contractors to maintain affirmative action programs (AAPs) since 1965, remains revoked, and contractors are still required to wind down AAPs by April 21, 2025.
Employers should also note that this case has no effect on enforcement priorities or actions by other federal agencies such as the Equal Employment Opportunity Commission, whose Acting Chair, Andrea Lucas, has expressed a commitment to “rooting out unlawful DEI-motivated race and sex discrimination,” “[c]onsistent with the President’s Executive Order.”
The Battle Will Continue
On Monday, February 24, the Trump administration filed a Notice of Appeal, signaling that the case will proceed to the United States Court of Appeals for the Fourth Circuit. It is entirely plausible that the matter will proceed from there to the Supreme Court.
Meanwhile, there is no statement about or mention of the court’s preliminary injunction anywhere on the official White House website, including the pages listing the EOs. Other lawsuits challenging these (and other) EOs are pending. We will keep you apprised.
Staff Attorney Elizabeth A. Ledkovsky contributed to the preparation of this article.
Federal Court Blocks Key Provisions of President Trump’s DEI Executive Orders (US)
On Friday, February 21, a Maryland federal court judge in Maryland issued a nationwide injunction temporarily preventing enforcement of three key provisions of President Trump’s Executive Orders 14151 and 14173 targeting DEI programs (links below). The court found the following provisions of the Orders were unconstitutional under the First and Fifth Amendments of the U.S. Constitution.
The requirement that federal contractors and grantees certify that they do not operate “illegal” DEI programs and comply with federal discrimination laws for purposes of False Claims Act (the “Certification” provision in EO14173 Section 3(b));
The provision directing the Attorney General to deter “illegal” DEI programs or principles in the private sector by, in part, submitting a report identifying up to nine civil enforcement investigations of certain private sector companies, associations, and educational institutions (the “Enforcement Threat” provision in EO14173 Section 4); and
The requirement that federal agencies terminate federal equity-related grants or contracts (the “Termination” provision in EO 14151 Section 2(b)(i)).
The challenged provisions in President Trump’s DEI Executive Orders are Executive Order 14151 (Jan. 20, 2025) and Executive Order 14173 (Jan. 21, 2025).
The Certification Provision:
Section 3(b) of EO 14173 requires the head of each agency to include in every contract or grant award:
A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code; and
A term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.
The Enforcement Threat Provision:
Section 4 of the same order, entitled “Encouraging the Private Sector to End Illegal DEI Discrimination and Preferences,” directs the heads of all federal agencies, with the assistance of the Attorney General, to:
take “all appropriate action with respect to the operations of their agencies to advance in the private sector the policy of individual initiative, excellence, and hard work identified in section 2 of this order”; and
to further inform and advise the President so that the Administration may formulate appropriate and effective civil-rights policy, the Attorney General, within 120 days of this order, in consultation with the heads of relevant agencies and in coordination with the Director of OMB, shall submit a report to the Assistant to the President for Domestic Policy containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.
In addition, the report must contain a proposed strategic enforcement plan identifying:
Key sectors of concern within each agency’s jurisdiction;
The most egregious and discriminatory DEI practitioners in each sector of concern;
A plan of specific steps or measures to deter DEI programs or principles (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences. As a part of this plan, each agency shall identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars;
Other strategies to encourage the private sector to end illegal DEI discrimination and preferences and comply with all Federal civil-rights laws;
Litigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest; and
Potential regulatory action and sub-regulatory guidance.
The Termination Provision:
Section 2(b)(i) of Executive Order 14151 requires each federal agency, department or commission head, in consultation with the Attorney General, the Director of OMB and the Director of OPM, as appropriate, to “terminate, to the maximum extent allowed by law, all DEI, DEIA, and “environmental justice” offices and positions (including but not limited to “Chief Diversity Officer” positions); all “equity action plans,” “equity” actions, initiatives, or programs, “equity-related” grants or contracts; and all DEI or DEIA performance requirements for employees, contractors, or grantees.”
The Court’s Ruling:
In National Association Of Diversity Officers In Higher Education, et al., v. Donald J. Trump et al., Case No. 1:25-cv-00333-ABA (D. Md. 2025), the plaintiffs challenged each of these provisions as unconstitutional on several grounds, including a violation of the spending clause, the separation of powers and the First and Fifth Amendments of the U.S. Constitution.
In his 63-page memorandum opinion, Judge Adam B. Abelson found the plaintiffs were likely to prevail in their challenge to these provisions as a violation of their First Amendment rights to free speech and their Fifth Amendment rights to due process.
Specifically, the court found the language used in the Certification requirement, as well as phrases used throughout the challenged provisions, such as “illegal DEI,” “DEI programs or principles,” and “equity-related grants and contracts” were unconstitutionally vague in violation of the Fifth Amendment and restricting DEI programs and principles infringed upon protected free speech under the First Amendment. The court highlighted the fact that the government would not – and at times, could not – fully explain the meaning of unlawful DEI or define what constitutes unlawful DEI programs, noting in its opinion that “even the government does not know what constitutes DEI-related speech that violates federal anti-discrimination laws.” Op. at 47.
The court also found the Trump Administration impermissibly sought to use the threat of investigations and enforcement, as well as government funding, to regulate free speech in violation of the First Amendment. Quoting the U.S. Supreme Court decision in Sorrell v. IMS Health Inc., 564 U.S. 552 (2011), Judge Abelson wrote, “The State may not burden the speech of others in order to tilt public debate in a preferred direction.” Op. at p. 32, quoting Sorrell, 564 U.S. at 578-79.
However, the court also said the plaintiffs did not challenge the EOs in their entirety and that the EOs permitted provisions found unlawful to be severable. Thus, while the challenged provisions are now blocked from being implemented, we can assume the Trump Administration will continue to enforce the remaining provisions, even if they are mainly administrative in nature.
Next Steps:
The Trump Administration likely will appeal the court’s temporary injunction, so this may not be settled for some time to come. For now, it’s important to know that the anti-DEI certification that the Trump Administration wanted inserted into federal contracts should be halted at this point, and that the termination of “equity-related” grants and contracts should be suspended at least, all of which potentially may become permanent or reversed depending on the final outcome of the case.
Note, too, that other White House directives, such as the revocation of EO 11246, remain unaffected by the court’s decision. Thus, before taking definitive action, federal contractors as well as private sector employers should continue to review their personnel policies and programs with legal counsel to help them navigate what is becoming an increasingly gray area of the law.
Key Court Ruling on DEIA Programs – What You Should Know
On February 21, 2025, the United States District Court for the District of Maryland enjoined the Trump administration from implementing two recently issued executive orders targeting diversity, equity, inclusion, and accessibility (“DEI” or “DEIA”) programs. These executive orders, Ending Radical and Wasteful Government DEI Programs and Preferencing and Ending Illegal Discrimination and Restoring Merit-Based Opportunity, sought to eliminate DEIA activities and programs within the federal government, recipients of federal contracts and grants, the private sector, and educational institutions.
Published on January 20 and 21, 2025, among other things, these executive orders (1) directed executive agencies to terminate “equity-related” grants and contracts; (2) directed all executive agencies to include within every federal contract or grant award a certification, enforceable through the False Claims Act, that the recipient of federal funding does not operate any programs promoting DEIA in violation of federal anti-discrimination laws; (3) directing the Attorney General to encourage the private sector to end illegal discrimination and preferences, including DEIA, and to identify potential civil compliance investigation targets (the “Challenged Provisions”).
On February 3, 2025, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore, Maryland (collectively, the “Plaintiffs”), filed suit seeking a preliminary and permanent injunction enjoining the government from enforcing the Orders. The Plaintiffs also sought a declaration that the Challenged Provisions are unlawful and unconstitutional.
Scope and Implications of the Preliminary Injunction
In its February 21st memorandum opinion granting Plaintiffs’ request for a preliminary injunction (with a single, narrow exception), the Court found the Challenged Provisions violate the First and Fifth Amendments to the United States Constitution in that they: are unconstitutional content-based and viewpoint-discriminatory restrictions on protected speech (First Amendment); and (2) deny Plaintiffs protection under the Fifth Amendment right to Due Process. Key to the Court’s decision was its finding that the Orders fail to define key terms, including “DEI,” “DEIA,” “equity,” “equity-related,” “promoting DEI,” “illegal DEI,” “illegal DEI and DEIA policies,” and “illegal discrimination or preferences,” or to identify the types of programs or policies the administration considers “illegal.”
The preliminary injunction is broad in scope, prohibiting the administration from:
pausing, freezing, impeding, blocking, canceling, or terminating any awards, contracts or obligations, or changing the terms thereof, on the basis of a Challenged Provision;
requiring any grantee or contractor to make any “certification” or other representation pursuant to a Challenged Provision; or
bringing any False Claims Act enforcement action, or other enforcement action, pursuant to any Challenged Provision.
The Court did not enjoin that part of the Challenged Provisions directing the Attorney General to submit a report containing recommendations for enforcing federal civil rights laws, and to identify potential civil compliance investigations.
Notably, as a preliminary injunction, the injunction will be in place during the entirety of the litigation until lifted by the Court. Additionally, the injunction is nationwide in scope and is not limited to the Plaintiff parties. That said, the injunction does not limit enforcement of other executive orders, some of which also threaten termination of federal contracts and grants and require certification.
What’s Next?
The administration will likely appeal the Court’s decision to the United States Court of Appeals for the Fourth Circuit. The party losing that appeal will likely appeal the decision to the United States Supreme Court. This means that, unless the 4th Circuit orders the District Court to lift the injunction while the litigation proceeds (which is not likely), the injunction will remain in place for the time it takes for a final decision to be reached.
Because the injunction does not prohibit this aspect of the Challenged Provisions, the Attorney General is expected to submit a report that includes the identification of potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, state and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars. As per the applicable Executive Order, the Attorney General’s report must be submitted by May 21, 2025.
What Should You Do?
Organizations, including private companies, federal contractors, foundations, associations, and institutions of higher education, should continue to review their existing policies and programs to confirm compliance with current law. In particular, organizations should ensure that all activities and programs:
Are broadly inclusive and open to all;
Do not include targets or goals (even those that are aspirational) based on race, gender, or any other protected characteristic;
Do not tie compensation or other rewards to the achievement of DEIA objectives or goals;
Do not provide benefits or awards (scholarships, mentoring programs, and the like) based on protected characteristics;
Do not require organizations to consider diverse groups of candidates for hiring or promotion; and
Do not require board membership to meet specific diversity goals.
Given the increased legal risk to DEIA programs and activities, organizations should consider conducting this review in concert with their legal counsel, under the umbrella of attorney-client privilege. Following this review and consistent with their risk tolerance, culture, and values, organizations should consider re-framing their DEIA programs and activities as necessary to comply with current statutory, regulatory, and judicial requirements. With this review and re-framing (if necessary or desirable), organizations can help reduce legal risk while remaining consistent with their organizational culture and values.
Court Enjoins Portions of Trump Administration’s DEI Executive Orders
In another regulatory turn for federal contractors and private employers, a federal judge partially enjoined enforcement of provisions of the Trump Administration’s executive orders[1] regarding diversity, equity, inclusion and accessibility (DEI or DEIA) programs on Friday, February 21, 2025.[2] The preliminary injunction applies nationwide, covering both plaintiffs and nonparties.
The Provisions Enjoined
The court’s order restricts enforcement of three provisions across two executive orders:
The Termination Provision (§ 2(a)) of Exec. Order No. 14151 is enjoined. This provision requires each agency, department, or commission head to terminate all “equity-related grants or contracts” within 60 days of the order. This is a subsection of the order’s larger provision directing the Office of Management and Budget director to “coordinate the termination of all discriminatory programs, including illegal DEI and ‘diversity, equity, inclusion, and accessibility’ (DEIA) mandates, policies, programs, preferences, and activities in the Federal Government[.]”
The Certification Provision (§3(b)) of Exec. Order No. 14173 is enjoined. This provision requires the head of each agency to include a requirement in each contract or grant award for the counterparty/recipient to agree that its compliance with federal anti-discrimination laws is material to payment decisions under the False Claims Act. It further requires the counterparty to certify that it does not operate programs promoting DEI that violate federal anti-discrimination laws.
The Enforcement Threat Provision (§ 4) of Exec. Order No. 14173 is enjoined. This provision directs each federal agency to identify up to nine potential civil compliance investigations of publicly traded corporations, nonprofits, foundations, bar or medical associations, or higher education institutions, with the goal of encouraging the private sector to end illegal discrimination and preferences.
The Provisions Are Unconstitutionally Vague
The Termination and Enforcement Threat Provisions are enjoined because they are “unconstitutionally vague as to all contractors and grantees who are subject to them.”
The orders are unconstitutionally vague because they do not define key terms such as “DEI,” “equity-related,” or “illegal DEI.” This leaves federal contractors and their employees with “no idea whether the administration will deem their contracts or grants, or work they are doing, or speech they are engaged in, to be ‘equity-related,’” and the private sector unaware of whether a particular program, discussion, or policy is deemed “illegal.”
The Provisions Violate Free Speech Rights
The Certification and Enforcement Threat Provisions were also enjoined because they are “content- and viewpoint-based restrictions that chill speech as to anyone the government might conceivably choose to accuse of engaging in speech about ‘equity’ or ‘diversity’ or ‘DEI,’ or the other topics the [Executive] Orders cite.”
Reports and Investigations May Continue
Citing prudential and separation-of-powers reasons, the court did not restrict the attorney general’s ability under the orders to prepare reports and pursue investigations. Pursuant to the Administration’s direction to the attorney general’s office and based on press releases from the attorney general’s office, the attorney general has been developing an “enforcement plan” for the provisions of the executive orders as well as a plan for conducting criminal investigations.
What’s Next?
This case is in early stages and is one of numerous challenges proceeding in the courts. We will continue to monitor this case as well as any related decisions impacting DEI policies of both federal contractors and private employers. We recommend employers consult DEI experts and labor and employment counsel to assess their DEI policies and determine if changes are necessary to mitigate risk.
[1] This case involves challenges to Exec. Order No. 14151, Ending Radical and Wasteful Government DEI Programs and Preferencing (Executive Order of January 20, 2025); Exec. Order No. 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, (Executive Order of January 21, 2025).
[2] The case is National Association of Diversity Officers in Higher Education et al v. Trump et al, No. 1:25-cv-00333 (D. Md.).
President Trump Executive Order on Supervision of ‘Independent’ Agencies
Amidst a blitz of executive action, on February 18, President Donald Trump signed an executive order entitled “Ensuring Accountability for all Agencies” (Executive Order) exerting more direct control over “independent regulatory agencies.” President Trump cited the “often-considerable authority” of these independent regulatory agencies as the rationale for needing this additional supervision and control. Furthermore, due to perceived congressional inaction, the Executive Order, coupled with previous ones,[1] forms another part of President Trump’s deregulatory agenda and his efforts to have the executive speak with one voice.
Among other things, the Executive Order requires independent regulatory agencies to submit draft regulations and strategic plans to the president and the Office of Management and Budget (OMB) for review. Additionally, OMB will review independent regulatory agencies’ actions for consistency with the president’s policies and these agencies must establish a White House Liaison to presumably report to the president, although the duties of this position are not defined.
This post sets forth more details on the requirements of the Executive Order, highlights its potential impacts for independent agency regulation and discusses whether the Executive Order could be subject to challenge.
Requirements of the Executive Order
The Executive Order requires all independent regulatory agencies to submit for review all proposed and final significant regulatory actions to the Office of Information and Regulatory Affairs (OIRA) within OMB before publication in the Federal Register. Broadening agencies subjected to regulatory review, the Executive Order references the definition of “independent regulatory agency” from 44 U.S.C. § 3502(5), which includes the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), among 20 total agencies and a catchall provision to include any other similar agency designated by statute as a federal independent agency or commission.[2] There is a carveout for the Board of Governors of the Federal Reserve System and the Federal Open Market Committee regarding actions related to monetary policy. OIRA currently engages in a limited review of proposed and final rules by independent regulatory agencies. The Executive Order expands the scope of OIRA’s review.
OMB Establishment of Performance Standards and Management Objectives
The Executive Order empowers the director of OMB to provide guidance on the Executive Order’s implementation and how independent regulatory agencies should structure their submissions. The deadline for these agencies to submit their regulatory actions is either 60 days from the Executive Order or upon completion of the OMB guidance.
OMB Review of Independent Regulatory Agencies’ Activities and Spending
Pursuant to the Executive Order, OMB will continually review independent regulatory agencies’ obligations for consistency with the president’s policies and priorities. The review process will enable the president to make possible adjustments to agency operations and regulatory actions. For example, OMB review could be used to steer independent regulatory agencies to prohibit or limit spending on particular activities, functions, or projects to the extent that such prohibition or limitation is consistent with US law.
Additional Coordination and Consultation With the Executive Office of the President
The Executive Order requires independent regulatory agency chairpersons to regularly consult with and coordinate policies and priorities with OMB directors, the White House Domestic Policy Council and the White House National Economic Council. There is no further detail on how often these meetings are expected to occur. Additionally, the Executive Order requires each agency to have a White House Liaison, who will presumably shepherd the communications between the agency and the president.
This requirement is a divergence from precedent as no longer can chairpersons set their own strategic plans; they must submit their agency strategic plans developed pursuant to the Government Performance and Results Act of 1993 to the director of OMB for clearance prior to finalization.
Centralizing All Executive Branch Interpretations of the Law
Under Section 7 of the Executive Order, the president and attorney general will set forth all official executive branch interpretations of the law. Executive branch employees including agency general counsel, when acting in their official capacity, are prohibited from presenting any legal interpretation as the official position of the United States if it conflicts with the legal opinions of the president or the attorney general. This restriction applies to all actions, including issuing regulations, providing guidance and advocating positions in litigation.
This level of coordination and determination already occurs when, for example, a case is pending before the Supreme Court and the Department of Justice seeks the views of independent regulatory agencies in determining the government’s litigation position before the court. The Executive Order suggests that such coordination will potentially expand to include agency positions taken before district and appellate courts, as well as legal positions taken as part of an agency’s rulemaking. It may also slow the pace of regulatory and enforcement action of independent regulatory agencies to account for the additional time to engage with other parts of the executive.
Possible Court Challenge?
Congressional statutes grant the president authority to issue executive orders to help them implement federal laws. Article II of the Constitution prohibits the president from making laws; the president has authority only to enforce and implement laws. When an executive order is written too broadly, it can be found, in certain situations, to be seen as the president exercising legislative powers that are strictly reserved for Congress.
Federal courts have the authority to strike down presidential executive orders for two reasons: (1) where the president lacks authority to issue the order; and (2) the order is prima facie unconstitutional in substance. In the past, executive orders have been challenged via statutory and constitutional grounds.[3] However, federal courts have been cautious to overstep into the powers of another branch.
The Executive Order’s directive regarding independent regulatory agencies is unprecedented because past presidents have explicitly excluded these agencies from similar oversight. For example, President Reagan’s Executive Order 12291 and President Clinton’s Executive Order 12866 both required regulatory review for certain agencies but notably exempted independent regulatory agencies from most of these mandates.[4]
Impact on Independent Regulatory Agencies
Historically, even though the president appoints the commissioners, the CFTC and SEC have operated with some degree of autonomy from the president. This aligns with how independent regulatory agencies were conceived by Congress; to have some protection from direct presidential control. The Executive Order seeks to more directly influence the regulatory agenda of independent agencies.
Indeed, President Trump is asserting broad powers to remove Senate-confirmed members of multimember boards. President Trump has removed members of the National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission (EEOC). The Supreme Court has recently found that other limitations on the president’s removal power violate the Constitution. In a 2020 case, Seila Law LLC v. CFPB, the Court found that the limitations on the president’s ability to remove the director of the Consumer Financial Protection Bureau (CFPB) violated the Constitution’s separation of powers. In that case, the Court did not explicitly address removal protections for multimember commissions like the CFTC and SEC. Although last year the Supreme Court denied certiorari on a case regarding the Consumer Product Safety Commission (CPSC) that raised these issues, it may get another opportunity based on President Trump’s recent actions. The outcome of such a case could have a significant impact on the president’s ability to directly control independent regulatory agencies.
In the meantime, the Executive Order and the president’s agenda may increase the president’s influence on enforcement actions and investigations, as independent regulatory agencies could give additional weight to broader presidential policies in their decisions to prosecute civil wrongdoing or pursue investigations. This new dynamic may prompt registrants to closely monitor new executive orders to anticipate shifts in enforcement priorities.
As independent regulatory agencies oversee self-regulatory organizations (SROs), such as the SEC and Financial Industry Regulatory Authority (FINRA), changes in agency priorities could affect SRO operations. Although SROs typically focus on technical and operational matters, an independent regulatory agency’s shift to align its policies with the president’s agenda may introduce political considerations into market regulations that were previously apolitical.
An independent regulatory agency’s programs and initiatives that are misaligned with the president’s policies face additional risk under the Executive Order for reduced funding or elimination. As these activities become more visible to the Trump administration, they may face increased scrutiny, potentially impacting budgeting and long-term planning.
Conclusion
The Executive Order’s purpose of expanding presidential oversight over independent regulatory agencies raises several legal questions. The Executive Order contemplates additional interaction between independent regulatory agencies and OMB, with an increased emphasis on implementing the president’s priorities. The Executive Order, along with the anticipated litigation over the president’s removal power, may serve to reshape the relationship between independent regulatory agencies and the president.
Footnotes
[1] UNLEASHING PROSPERITY THROUGH DEREGULATION, The White House (Jan. 31, 2025), https://www.whitehouse.gov/fact-sheets/2025/01/fact-sheet-president-donald-j-trump-launches-massive-10-to-1-deregulation-initiative/.
[2] “Independent regulatory agency” includes the following: the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Consumer Product Safety Commission, the Federal Communications Commission, the Federal Deposit Insurance Corporation, the Federal Energy Regulatory Commission, the Federal Housing Finance Agency, the Federal Maritime Commission, the Federal Trade Commission, the Interstate Commerce Commission, the Mine Enforcement Safety and Health Review Commission, the National Labor Relations Board, the Nuclear Regulatory Commission, the Occupational Safety and Health Review Commission, the Postal Regulatory Commission, the Securities and Exchange Commission, the Bureau of Consumer Financial Protection, the Office of Financial Research, Office of the Comptroller of the Currency, and any other similar agency designated by statute as a Federal independent regulatory agency or commission. 44 U.S.C. § 3502(5).
[3] Federal Judicial Center, Judicial Review of Executive Orders, Fed. Jud. Ctr., https://www.fjc.gov/history/administration/judicial-review-executive-orders (last visited Feb. 23, 2025).
[4] President Reagan’s Executive Order 12291 authorized OIRA to review regulatory actions of Cabinet departments and independent agencies, excluding independent regulatory agencies, requiring cost-benefit analyses for major rules. President Clinton’s Executive Order 12866, replacing it in 1993, maintained the exclusion of independent regulatory agencies and narrowed OIRA’s review to specific rule types. See Exec. Order No. 12,291, 3 C.F.R. 127 (1981), reprinted as amended in 5 U.S.C. § 601 app. at 431 (1982) and Exec. Order No. 12,866, 3 C.F.R. 638 (1994), reprinted as amended in 5 U.S.C. § 601 app. at 557 (1994).
District Court Blocks Enforcement of SCOPE Act Requirements
On February 7, 2025, the U.S. District Court for the Western District of Texas granted a preliminary injunction further blocking enforcement of Texas’ Securing Children Online through Parental Empowerment Act (“SCOPE Act”). The SCOPE Act, which was enacted in 2023, imposes obligations on digital service providers to protect minors.
In a separate lawsuit regarding the SCOPE Act (Computer & Communications Industry Association v. Paxton), the District Court enjoined certain provisions of the law before it went into effect. In August 2024, plaintiffs, including a student-run civic engagement organization, a “social-good” advertising company, a mental health content creator and an unidentified high school student, sued Texas Attorney General Ken Paxton to block enforcement of the SCOPE Act on the basis that the law is an unconstitutional restriction of free speech.
In Students Engaged in Advancing Texas v. Paxton, the District Court ruled that the law is a content-based statute subject to strict scrutiny. The District Court further held that with respect to certain of the SCOPE Act’s monitoring-and-filtering requirements (§ 509.053 and § 509.056(1)), targeted advertising requirements (§ 509.052(2)(D) and § 509.055), and content monitoring and age-verification requirements (§ 509.057), the plaintiffs had carried their burden in showing that the law’s restrictions on speech fail strict scrutiny and should be facially invalidated. The District Court also ruled that § 509.053 and § 509.055 were unconstitutionally vague. Accordingly, the District Court issued a preliminary injunction enjoining Paxton from enforcing those provisions pending final judgment in the case. The remaining provisions of the law remain in effect.