What Contractors Facing Terminations, Stop-Work Orders, and Suspension of Work Orders Directed by the Trump Administration Need to Know
The Trump administration’s directives to “pause” grant funding and to terminate certain grants and contracts sent shock waves through the government contracts and non-profit sectors. Although the “pause” in grant funding has been temporarily halted by a federal court (as of January 28), other terminations and suspensions have not been blocked. We summarize below the steps entities can take to preserve their rights as they navigate these emerging directives.
But First: What Happened?
Immediately after his inauguration on January 20, President Trump began ordering federal agencies to pause funding for certain projects or initiatives. A January 20 Executive Order (“EO”) titled “Unleashing American Energy” encouraged energy exploration and production and eliminated electric vehicle mandates. It directed agencies to “immediately pause” all disbursements under the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act.
Another EO titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” directed the Office of Management and Budget to terminate DEI programs (see our prior analysis of this EO here). Consequently, the new Department of Government Efficiency announced on January 24 that approximately $420 million in current or impending contracts, most of which related to DEI programs, were cancelled.
Consistent with these orders, the Office of Management and Budget (“OMB”) on January 27 directed federal agencies to pause, as of January 28 at 5:00 PM ET, all payments and obligations to disburse any federal financial assistance, including financial assistance for nongovernmental organizations. The two-page OMB policy memo stated that the paused programs will be assessed to determine whether they are consistent with the administration’s new policy objectives. This directive has led to widespread chaos, prompting the administration to issue additional guidance on January 28 regarding the scope and purpose of the January 27 funding freeze. The freeze on grant funding was then temporarily halted by a federal district court later in the day.
Federal contractors performing contracts or projects subject to these EOs or OMB instructions have or likely will soon receive stop work orders or, in some cases, notices that the government is terminating for convenience. A “suspension of work” or “stop-work” order pauses performance for a period of time, after which the government may decide either to resume performance or terminate the contract. A notice of termination for convenience, as its name suggests, is the mechanism by which the government unilaterally terminates the contract as of right.
Is This Legal?
The breadth and speed of the administration’s directives are unprecedented and raise novel questions regarding both the breadth of the president’s power and whether these actions pass the “arbitrary and capricious” test against which many governmental actions are judged. The U.S. District Court for the District of Columbia has already issued an administrative stay blocking the OMB directive to freeze funding for federal grant programs. If the EOs during the COVID-19 pandemic serve as any guide, we can expect these issues to ultimately make their way to the Supreme Court for resolution.
Beyond the constitutional and administrative law challenges to the Trump administration’s authority to unilaterally halt federal programs, contractors, and non-profits are wondering whether they have any rights under their agreements to challenge a termination. Several bedrock government contracts principles are relevant to this analysis:
With respect to agreements that are terminated, it is important to understand the distinction between the regulations and contract provisions that govern most federal contracts, and the guidance that applies to grants. Federal contracts are governed by the Federal Acquisition Regulation (“FAR”), which recognizes the government’s authority to terminate a contract for convenience (and describes the procedures that follow). As a general rule, the federal government may terminate a contract for any reason, so long as it does not act in bad faith. The authority to terminate a contract for convenience is a nod to the government’s unique position as sovereign. For contractors, challenging a termination for “bad faith” presents a high bar, especially since the law presumes that government officials operate in good faith. In the present circumstances, however, contractors may have success in challenging these directed terminations as based on bad faith, on the theory that the terminations were politically motivated and/or contrary to statutory mandates.
Grants, on the other hand, typically are subject to Uniform Guidance published by OMB and any agency supplements to that guidance. The Uniform Guidance provides that a grant may be terminated “to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.” 2 C.F.R. § 200.340(a)(4) (emphasis added). In light of the far-reaching impacts on contractors, non-profits, and their workforces and suppliers, Courts may find the “extent authorized by law” caveat a basis to reject arguments that a new Administration has carte blanche to suspend or terminate programs authorized by Congress.
With regard to stop work orders, these orders are generally legal and not uncommon. Here, the focus will be on the breadth of the administration’s stop work orders and their far-reaching impact on companies and their workforces, the policies that the programs were designed to support, and the economy more broadly. We expect to see more litigation with respect to both stop work orders and terminations in the coming weeks, particularly for programs that are mandated by statute.
Will the “Sovereign Acts Defense” Bar Contractors and Grantees from Recovering the Costs Incurred From These Sudden Stop-Work and Termination Notices?
We do not anticipate that the “sovereign acts defense” will prevent contractors and grantees from recovering added costs incurred because of suspensions and terminations we have been seeing this week. The sovereign acts defense is where the government claims that its “general and public” acts as a sovereign made it impossible for the government to perform its obligations as a contractor. The government used this argument successfully to deny many additional costs that contractors bore in response to the COVID-19 crisis, when government lockdowns and health directives impacted contract performance and price. Here, though, the suspensions and terminations directly target federal contracts and grant agreements, and thus, are unlikely to be viewed as “general and public” sovereign acts. The government is also unlikely to be able to assert that its own performance (continued payment of funds previously committed) is impossible.
What Can Contractors and Non-Profits Do Now to Preserve Their Rights?
Monitor court actions blocking terminations or stop-work orders. Contractors should not agree to a termination or stop-work order if it is blocked by a court.
Do not agree to waiver or release language without consulting counsel. Contractors should review stop-work orders, termination notices, and contract modification documents and avoid signing any documents containing waiver or release language that might preclude recovery of costs in the future. Consult legal counsel regarding alternative options. For more on the topic of waivers, please see our prior post here.
Consider whether to bring a legal challenge to the suspension or termination. We recommend consulting legal counsel regarding whether to challenge a suspension or termination based upon the specific impact to the contractor or non-profit.
Provide prompt notice to the government to preserve rights. Pursuant to FAR 52.242-14(c)(1), contractors are not technically required to provide notice of increased costs stemming from a formal suspension order. However, a best practice for FAR-based contracts would be to submit prompt notice (i.e., within 20 days) regardless. This will ensure maximum flexibility in shaping future claims.
Maintain professional communications with government counterparts. Although it may be tempting to commiserate with or seek relief from government counterparts, companies should ensure their communications remain professional as they navigate these transitions. Companies should also consider requesting clarification from their contracting officers in writing (with delivery receipts and read receipts) when ambiguities arise.
Evaluate legal obligations to employees. Employers considering layoffs should evaluate any potentially applicable notice requirements to employees, including under the federal Worker Adjustment and Retraining Notification Act (“WARN Act”), state or local laws, host nation laws for overseas work, or collective bargaining agreements.
Assess the allowability of any new or ongoing costs stemming from the termination. For grant recipients, the Uniform Guidance provides that costs incurred during a suspension or after a termination are not allowable unless expressly authorized in the notice of suspension or termination (or are subject to a limited exception for certain costs that have already been incurred). See 2 C.F.R. § 200.343. This is in contrast to the FAR, which provides that costs “which cannot be discontinued immediately after the effective date of termination are generally allowable” so long as the contractor exercises “reasonable efforts” to discontinue such costs. FAR 31.205-42. Companies should carefully evaluate the applicability of these and other provisions.
Document additional incurred costs and all cost-mitigation efforts. Contractors should carefully document their costs, and all cost-mitigation efforts associated with a stop-work order or termination, including for costs such as idle labor, facilities, and equipment. The analysis will vary depending upon whether the agreement was terminated versus suspended and whether the idle labor, facilities, and equipment are expected to be absorbed by other portions of the business. Contractors should consider engaging legal counsel to conduct a privileged review of the potential recoverability of any such continuing costs based upon the unique facts and circumstances faced by the contractor.
Determine whether inventory can be used elsewhere. While common inventory can sometimes be absorbed by other projects, this may not be the case for entities that are highly reliant upon federally funded work that has been suspended or terminated.
Document compliance costs (g., employee return travel) and prepare to submit a termination settlement proposal, request for equitable adjustment, or claim as applicable. Contractors should maintain detailed records for any new costs they incur as a result of the suspension or termination notice – for example, travel costs to return workers to their country of origin for overseas work, costs of securing idle facilities and equipment, cost of legal and accounting services to ensure compliance with government directives, etc. For agreements that are terminated, the contractor has the right to submit a termination settlement proposal. For agreements that are temporarily suspended, the contractor should plan to submit a request for equitable adjustment and/or claim pursuant to the changes clause and Contract Disputes Act. Note that there is no centralized “board of contract appeals” for grant disputes, so legal options should be evaluated on a case-by-case (and agency-by-agency) basis.
Employment Law This Week: Employment Law Changes Under President Trump [Video] [Podcast]
As featured in #WorkforceWednesday: This week, we are focused on the immediate impact employers face from the rush of Trump administration executive orders, memos, and proclamations.
On January 20, 2025, President Trump began his second term. On his first day back, he signed a record-breaking number of executive orders, many of which have a direct impact on both public- and private-sector employers.
In this week’s episode, we turn to Epstein Becker Green attorney Paul DeCamp to help clients make sense of this flurry of activity. Tune in as Paul outlines what employers can anticipate from Trump 2.0 in the months ahead.
Funding Freeze for Health Care Providers – What You Need to Know
Last night, the Office of Management and Budget (“OMB”) released a memo directing federal agencies to take several actions impacting federal grant programs (outlined in greater detail below) that are resulting in real money consequences for health care providers today. Providers need to be aware of these issues and the challenges ahead. We are already working with several providers to mitigate damages and develop strategies to respond to these updates in real time. Each provider is unique, and every provider will respond to and be impacted by these changes differently.
What Happened?
Late on January 27, 2025, the Trump Administration’s Office of Management and Budget (“OMB”) released a memorandum placing a moratorium on payments for almost all federal grants (the “OMB Memo”).1 OMB explained the justification for this pause as follows:
“Financial assistance should be dedicated to advancing Administration priorities, focusing taxpayer dollars to advance a stronger and safer America, eliminating the financial burden of inflation for citizens, unleashing American energy and manufacturing, ending “wokeness” and the weaponization of government, promoting efficiency in government and Making America Healthy Again. The use of Federal resources to advance Marxist equity, transgenderism and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”
The OMB Memo directs federal agencies to undertake the following tasks:
Complete a comprehensive analysis of all existing Federal financial assistance programs to determine their alignment with Presidential orders;
During the course of this review, pause (a) the issuance of new awards and (b) the disbursement of federal funds under existing awards. Agencies must also take all other relevant agency actions to comply with this direction and Trump’s executive orders until directed by OMB to do otherwise; and
Every federal financial assistance program must be assigned to a senior political appointee who will evaluate, modify or cancel existing awards that conflict with Administration policies, and ensure adequate oversight over award distribution.
Timeline
January 27, 2025 – OMB Memo issued
January 28, 2025 (5:00 PM) – Funding freeze implemented (on hold)
February 3, 2025 (5:00 PM) – Order halting funding freeze expires
February 7, 2025 – OMB guidance deadline for agency submission of information regarding identified programs with funding or activities planned through March 15, 2025
February 10, 2025 – OMB Memo deadline for agencies to provide detailed information on review of programs
Why Does This Matter for Health Care Providers?
Providers of every type depend on federal grant funds as a key component of their operating and service budgets. Both the Medicaid and CHIP Programs are structured as “grant” programs to the states and are specifically identified by OMB on the list of grant programs to be reviewed.2 Guidance issued today by OMB suggests that Medicaid is a mandatory program that will not be paused, but we have also seen reports from several states, including Illinois, that they are unable to access federal Medicaid funding.3 Regardless of the ultimate outcome, providers can expect temporary uncertainty related to Medicaid funding status.
In addition to major sources of health care coverage, there are innumerable smaller grants that providers rely on to help make ends meet and extend services to their communities, including grants for substance use disorder treatment, provider education and training, telehealth expansion and rural health care services. Without the availability of these programs, even on a temporary basis, health care providers face a difficult operational reality resulting in loss of cash flow, failure to meet payment obligations (even payroll) and service disruption for particularly vulnerable patient populations. We are already aware of providers who have been frozen out of grant portals, and who are unable to draw down funds.
Providers who rely on federal funds should inventory each of their grant programs and determine whether they can still lawfully access funds.4 Keep watching this space – there will be rapid developments over the next several days as providers, state governments and other stakeholders respond. There is a wide array of options available to providers to respond to these changes – if you’re unsure of the best path for your organization, we’re here to help.
As of 3:30pm (MST) A D.C. Federal Judge temporarily blocked Trumps administration from freezing federal grants. More details will be available in the webinar tomorrow.
Temporary Reprieve. Late afternoon, D.C. District Court Judge Loren AliKhan temporarily halted the freeze ordered by the OMB Memo to allow additional time for consideration. Judge AliKhan’s order expires February 3 at 5:00 pm, and there will likely be many further developments over the next week.
[1] Executive Office of the President, Office of Management and Budget, M-25-13 Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs (Jan. 27, 2025).
[2] The OMB Memo specifically exempts Social Security and Medicare, these are the only two express exemptions.
[3] Executive Office of the President, Office of Management and Budget, Untitled FAQ (Jan. 28, 2025).
[4] Executive Office of the President, Office of Management and Budget, Instructions for Federal Financial Assistance Analysis in Support of M-25-13 (Jan. 27, 2025).
DEI and Affirmative Action Programs Blitzed, While Executive Order 11246 Is Revoked
In one of his first acts as President in his second term in office, Donald Trump signed an executive order on January 21, 2025, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (“Order”).
Claiming 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),” the Order directs all executive departments and agencies of the federal government to terminate “all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements.” Departments and agencies are also directed to enforce the country’s long-standing civil rights laws and to combat “illegal” private-sector DEI preferences, mandates, policies, programs, and activities. As part of the reset, President Trump revoked Executive Order 11246 (“EO 11246”), which contractually required covered federal government contractors and subcontractors (collectively, “contractors”) to meet certain affirmative action obligations.
Termination of “Illegal” Discrimination in the Federal Government
As part of the Order, President Trump revoked a number of prior executive orders that addressed diversity and equal opportunity in employment.[1] In addition, the Order requires the head of each federal agency to include in every contract or grant award (i) a term requiring all contractual counterparty or grant recipients to agree that their compliance in all respects with all applicable federal anti-discrimination laws is “material” to the government’s payment decisions, and (ii) a term requiring the counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws. This is a highly significant representation to be required of all contractors and grantees.
The Trump administration has repeatedly emphasized a disdain for DEI programs. President Trump signed a second executive order entitled “Ending Radical and Wasteful Government DEI Programs and Preferencing,” which requires the Director of the Office of Management and Budget (OMB), assisted by the Attorney General (AG) and the Director of the Office of Personnel Management, to coordinate the termination of all discriminatory programs, including illegal DEI and DEIA mandates, policies, programs, preferences, and activities in the federal government. This order directs the OMB Director to review and revise, as appropriate, all existing federal employment practices, union contracts, and training policies or programs to comply with this order. The order also requires that federal employment practices, including federal employee performance reviews, will reward individual initiative, skills, performance, and hard work and will not under any circumstances consider DEI or DEIA factors, goals, policies, mandates, or requirements. Further, the order mandates agency, department, and commission heads, within 60 days, to terminate all DEI and DEIA offices and positions; all “equity action plans”; all “equity” actions, initiatives, or programs; all “equity-related” grants or contracts; and all DEI or DEIA performance requirements for employees, contractors, or grantees.
Private Sector Encouraged to End Illegal DEI Discrimination and Preferences
President Trump’s Order aimed at ending illegal discrimination also targets the private sector’s DEI programs by encouraging the private sector to “end illegal discrimination and preferences.” According to the Order, illegal DEI and DEIA policies violate federal civil rights laws, undermining national unity and threatening the safety of Americans “as they deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement in favor of an unlawful, corrosive, and pernicious identity-based spoils system.”
To that end, the Order directs the heads of all agencies “to advance in the private sector the policy of individual initiative, excellence, and hard work.” In addition, the Order directs the AG to consult with agency heads to propose a strategic enforcement plan that identifies (i) “sectors of concern” within each agency’s jurisdiction, (ii) the “most egregious and discriminatory DEI practitioners in each sector of concern,” and (iii) specific measures to “deter DEI programs or principles (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences.” The Order specifically requires that the AG’s report include recommendations from every federal agency that identify up to nine potential civil compliance investigations of publicly traded corporations, large nonprofit corporations or associations, foundations with assets of $500 million or more, state and local bar and medical associations, and institutions of higher education with endowments over $1 billion. It also seeks recommendations for other strategies to encourage the private sector to “end illegal DEI discrimination and preferences and comply with all Federal civil-rights laws,” including litigation that would be “potentially appropriate for Federal lawsuits, intervention, or statements of interest” and potential regulatory action and sub-regulatory guidance.
Revocation of Executive Order 11246
The Order revoked EO 11246, citing a need to ensure that the federal contracting process is “streamlined” to enhance speed and efficiency and reduce costs, and still require contractors to comply with civil rights laws.
Signed into law by President Lyndon B. Johnson on September 24, 1965, nearly 60 years ago, and a year after the passage of the Civil Rights Act of 1964, EO 11246 was intended to complement Title VII and require contractors to take positive steps to ensure that all individuals had an equal opportunity in employment, without regard to race, color, religion, sex, and national origin (the specific characteristics of sexual orientation and gender identity were added by President Barack Obama on July 21, 2014). To accomplish this, EO 11246 required contractors to create affirmative action programs (AAPs) that would serve as a management tool with the central premise that, absent discrimination, over time, a contractor’s workforce would reflect the gender, racial, and ethnic profile of the labor pools from which the contractor recruited and selected its employees.
Federal law, under Title VII, continues to require that all qualified candidates have equal opportunities for employment. However, by revoking EO 11246, the Trump administration has eliminated contractors’ affirmative action obligations. Contractors have until April 21, 2025 (90 days from the Order’s date of issuance) to wind down their AAPs. In addition, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), which enforced EO 11246, must immediately cease promoting “diversity,” holding contractors responsible for taking “affirmative action,” and permitting contractors to engage in “workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”
While a Fact Sheet addressing the Order “directs all [federal] departments and agencies to take strong action to end private sector illegal DEI discrimination, including civil compliance investigations,” it remains to be seen how the OFCCP will operate moving forward. This includes its enforcement of the affirmative action provisions of the Rehabilitation Act of 1973 (the “Rehabilitation Act”) and the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA), neither of which are addressed in the Order and, as a result, presumptively remain in effect.
What Employers Should Do Now
Private-sector employers should expect the Trump administration’s efforts to eliminate DEI programs to fuel legal challenges to DEI efforts, including via “reverse discrimination” lawsuits.
Private-sector employers should promptly review any DEI/DEIA plans, programs, and policies, as well as their AAPs, to determine whether they contain any aspects that could be deemed unlawful under Title VII or any other federal, state, or local civil rights law, and consider whether to take any action to modify such plans, programs, or policies, including the names of such plans, programs, or policies, in consultation with employment counsel.
Employers that include affirmative action and/or DEI/DEIA goals as a rating factor in employees’ (and particularly managers’ or supervisors’) performance or salary reviews should consider removing any such factors.
Contractors should take steps to ensure that they are able to wind down their EO 11246-required AAPs and seek direction from counsel as we await clarification about the OFCCP’s authority, how the Rehabilitation Act and VEVRAA AAPs will be monitored and enforced, the status of pending compliance reviews, and how reporting obligations will be addressed. This could include EEO-1 reports, which are required pursuant to Title VII but are shared with and used by the OFCCP.
Employers that are state and municipal contractors should keep in mind that they may have some remaining obligations around affirmative action under their government contracts.
Although affirmative action as we knew it pursuant to EO 11246 may no longer exist, Title VII remains the law of the land and all employment decisions should continue to be made without consideration of race, color, religion, sex, or national origin, as well as other factors protected by federal, state, and local law. Employers should continue to ensure that management and staff are providing equal opportunity in employment and are being trained accordingly.
Employers should be advised that nothing in President Trump’s executive orders bars employers from taking race- and gender-neutral steps in connection with recruiting, such as casting a broad applicant net considering applicants’ varied experiences, perspectives, and viewpoints, or offering scholarships or work/study programs based on financial need, so long as any such strategies and programs do not promote preferences to applicants based on factors such as race or sex.
There is clearly more to come, including the possible elimination of the OFCCP. Stay tuned—we will update you as further developments unfold and outstanding questions are addressed.
****
Staff Attorney Elizabeth A. Ledkovsky contributed to the preparation of this Insight.
ENDNOTE
[1] The Order revoked the following executive orders: (i) Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, February 11, 1994); (ii) Executive Order 13583 (Establishing a Coordinated Government-wide Initiative to Promote Diversity and Inclusion in the Federal Workforce, August 18, 2011); (iii) Executive Order 13672 (Further Amendments to Executive Order 11478, Equal Employment Opportunity in the Federal Government, and Executive Order 11246, Equal Employment Opportunity, July 21, 2014); and (iv) The Presidential Memorandum (Promoting Diversity and Inclusion in the National Security Workforce, October 5, 2016).
Breaking: In a Novel Move, President Trump Fires National Labor Relations Board Member and, following Biden precedent, the NLRB General Counsel
On January 27, 2025, President Trump fired National Labor Relations Board (“NLRB” or “Board”) Member Gwynne A. Wilcox, marking the first time that a president has ever attempted to remove a Board member prior to the end of their five-year term. The move – if it withstands court scrutiny – leaves the Board with only two (2) remaining members: Chair Marvin E. Kaplan and Member David M. Prouty and without a quorum to rule on matters, as covered here. See New Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010). Chair Kaplan’s term lasts through August 27, 2025, and Member Prouty’s term lasts through August 27, 2026.
This came soon after President Trump fired NLRB General Counsel Jennifer A. Abruzzo. As reported here, the firing of GC Abruzzo was expected and has been held to be lawful in various Circuit Courts. However, the firing of Board Member Wilcox sets up a constitutional fight regarding President Trump’s removal power.
Section 3(a) of the NLRA states that “[a]ny member of the Board may be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause,” which has led prior presidents to refrain from firing sitting Board members. It is expected that the administration will argue that this removal requirement is unconstitutional under Article II, which requires that the president “shall take Care that the Laws be faithfully executed,” meaning the president cannot be prohibited from hiring and firing certain administrative officials, such as Board members, at will. Employers have made similar arguments as to the alleged unconstitutional nature of the NLRA’s removal requirements, as previously reported here, here, and here.
President Trump will likely appoint an Acting General Counsel in the near future and nominate a new General Counsel soon after, subject to Senate approval. It is less certain what President Trump will do concerning the three (3) vacant seats on the Board, who also would need to be nominated subject to Senate approval. Historically, the administration’s party has had three (3) of the five (5) seats. If President Trump does choose to appoint new members, there is an obvious question of whether he will continue this precedent or rather appoint only Republican members to the seats.
While in the short term, some parties with matters pending before the Board may have some relief, the longer term implications of a complete standstill at the Board and the resulting uncertainty can actually be very difficult for organizations looking to move forward and make decisions on both day-to-day employment matters and large scale initiatives.
State of Play: Temporary Pause of Agency Grants, Cooperative Agreements, Loans, and Other Financial Assistance Programs
UPDATE: As of 5:00 PM EST on January 28, a federal judge has temporarily blocked the Trump administration from enforcing the freeze detailed below. This situation is ongoing and clients should still prepare accordingly.
On Monday evening, the Office of Management and Budget (OMB) ordered all federal agencies to temporarily suspend grants, cooperative agreements, and loan payments, with the exception of Social Security, Medicare, and “assistance provided directly to individuals.” In the internal memo, OMB’s Acting Director, Matthew Vaeth, calls for each agency to undertake a comprehensive analysis to ensure all financial assistance programs comply with the Administration’s Executive Orders. The pause applies to an estimated 2,600 accounts across the federal government, and details are still being worked out on federal funding that is statutorily obligated.
While intended to be temporary, the duration of the pause may vary by Department and program. Each federal department and agency are likely to interpret its scope and requirements differently and prioritize review of certain programs before others. This pause may have a profound effect on clients who were expecting to receive federal funds within the next two to six weeks. While the pause has the potential to affect any business or entity receiving federal funding, clients receiving such funds as part of programs related to DEI initiatives, foreign aid, or federal clean energy investments, specifically electric vehicles, may be most impacted.
Some of the questions agencies must answer in the report for OMB include whether or not the program supports illegal immigrants, if the program supports abortion, gender ideology or DEI initiatives, or if the program supports activities that impose an undue burden on the identification, development, or use of domestic energy resources. It is important to note that only a handful of President Trump’s cabinet secretaries and agency heads have been confirmed, making this process all the more complicated.
Key Facts
All affected federal assistance will be paused starting today, January 28, at 5:00 pm ET.
This affects ALL federal agencies.
The government-wide freeze is temporary and is intended to allow each agency to conduct a comprehensive analysis of all federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President’s Executive Orders.
Agencies have until February 10, 2025, to submit to OMB detailed information on each program subject to this pause.
The freeze will include:
Issuance of new awards;
Disbursement of Federal funds under all open awards; and
Other relevant agency actions that may be implicated by Trump’s Executive Orders until OMB has reviewed and provided guidance based on what is received.
Could this Affect You?
Yes, if your business receives federal grants, cooperative agreements, or loans, the pause will almost certainly affect you until at least February 10th and potentially beyond. If your company is concerned about the funding pause, or you are impacted by any of the recent Executive Orders, it is critical to determine the risk posed by the pause or Executive Order and to develop a response that evaluates both their legal and political options.
How Risky Are DEI Programs Under Trump 2.0?
President Trump’s January 21, 2025, executive order titled “Ending Discrimination and Restoring Merit-Based Opportunity” (“Executive Order”) directs the termination of federal government practices and policies that protect and promote diversity and inclusion; the Executive Order also addresses diversity and inclusion initiatives in the private sector. Less than a week later, an internal memo from the White House budget office “temporarily paused” grants and loans by the federal government while the government assesses whether the distributions are consistent with certain executive orders and other Trump administration objectives.
The Executive Order specifically targets diversity, equity, and inclusion (DEI) and diversity, equity, inclusion, and accessibility (DEIA) programs, describing them as “dangerous, demeaning, and immoral,” which “violate the text and spirit of our longstanding Federal civil-rights laws” and “undermine our national unity, as they deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement in favor of an unlawful, corrosive, and pernicious identity-based spoils system.” The Executive Order uses broad, sweeping language and does not describe the types of DEI or DEIA initiatives that violate existing federal civil rights laws, leaving uncertainty as to which programs the administration will target but leaving no uncertainty about the chilling effect the Executive Order will have.
The Executive Order Targets Large Companies
The Executive Order requires the attorney general to submit a report within 120 days (May 21, 2025) that includes a proposed strategic enforcement plan identifying, among other things, (i) key sectors of concern within each agency’s jurisdiction, (ii) the most egregious and discriminatory DEI practitioners in each sector of concern, and (iii) 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. Moreover, the Executive Order directs, “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.” As such, large or otherwise prominent organizations should be particularly on guard.
The Executive Order has immediately impacted the broader enforcement context. For example, on January 23, 2025, Texas Attorney General Ken Paxton and nine other state attorneys general warned several major financial institutions that DEI and environmental, social, and governance (ESG) commitments could lead to enforcement actions if they are found to violate state or federal laws. Following the release of the attorney general report described above, we may see an uptick in warnings made by other state attorneys general and/or similar warnings issued to organizations in sectors of concern identified in the forthcoming attorney general’s report.
To be sure, existing federal antidiscrimination law controls. That means while the Trump administration may view certain DEI programs as unlawful, it does not mean judges will. Read on for specific takeaways for entities with DEI programs.
The Executive Order Targets Recipients of Government Funding
Recipients of federal government funding already should be familiar with the False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733, which provides that any person who knowingly submits, or causes to submit, false claims to the federal government is liable for three times the government’s damages, plus penalties.
The Executive Order uses the FCA to target DEI initiatives of government funding recipients. First, federal contractors and subcontractors are prohibited from considering race, color, sex, sexual orientation, religion, or national origin in their employment, procurement, and contracting practices. Second, every contract or grant award issued by a federal agency — which will include government contractors as well as health care entities that participate in federal health care programs, and research institutions that receive federal grant money — must include the following provisions:
“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 [the FCA];” 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.”
With these provisions, the Department of Justice or private qui tam relators could pursue an FCA case utilizing a false certification theory, meaning a party could be held liable under the FCA for submitting false or fraudulent claims to the government if the party falsely certifies that it has complied with federal requirements when, in fact, they have not. For a claim to be fraudulent under this theory, the false certification must be material to the government’s decision to pay the claim.
The Executive Order essentially requires parties who wish to do business with the government to agree that a violation of a federal antidiscrimination law — e.g., maintaining a DEI program that violates federal antidiscrimination laws — is material to the government’s decision to pay under the FCA. However, it is unclear that “agreeing” a requirement is material makes it so. For “materiality,” compliance with the provision actually must be material to the government’s decision to pay the claim or its decision to award the contract. In 2016, the Supreme Court held that “designating” a “legal requirement an express condition of payment” is not sufficient to establish materiality under the FCA. Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176, 192 (2016). However, the Trump administration will likely argue that its recent halting of federal funding, as the government takes stock of whether the spending complies with its executive orders and policies, is evidence that the antidiscrimination requirement is material to the government’s decision to pay. Crucially, however, the halt of federal funding does not apply to Medicare, nor does it direct that payment be terminated to a contractor for the reason of their DEI program. It does direct the termination of payment as related to DEI actions, initiatives, or programs.
As so often occurs in the FCA arena and elsewhere, many practices targeted by the Department of Justice or relators ultimately will be defensible. In the DEI context, absent a settlement, a court would have to determine the DEI program in question violates current federal antidiscrimination law, and the Department of Justice or relator would have to prove each element of an FCA violation, including materiality and scienter (that the defendant knew or recklessly disregarded or deliberately ignored in its certification that its representation of compliance with federal antidiscrimination laws was false).
As such, it is yet to be seen what kind of teeth the Executive Order will ultimately have. The administration could be counting on a chilling effect, with the potential costs of investigations, enforcement action, and litigation outweighing companies’ willingness to go to battle for their DEI programs in court.
Takeaways for Companies with DEI Programs
We expect more details from the administration, such as regulatory and sub-regulatory actions, in the days and months to come. In the meantime, we recommend companies take action now to mitigate potential risk, even if their programs are ultimately defensible. For example, we recommend the following immediately:
Companies — federal contractors and private sector alike — should consult DEI and labor and employment experts to assess whether their DEI policies and practices may be construed to be out of compliance with existingfederal antidiscrimination laws under a Trump-era lens and what changes (if any) in their policies and practices are necessary to ensure compliance or mitigate risk.
Companies should be cognizant of new developments as they arise under the Trump administration. To assist in this endeavor,
Companies should reach out to legal counsel to discuss how the Executive Order, and likely future orders, may impact their businesses and what specific steps should be taken now to best protect them from any future liability and enforcement actions.
The Trump Administration’s Immigration Enforcement Policy: What Hospitals and Health Care Providers Must Know for Their Patients and Visitors [Video]
It is by now common knowledge that on Inauguration Day, January 20, 2025, President Trump signed numerous executive orders geared toward the implementation of his immigration policy objectives, setting the stage for what he has called “the largest domestic deportation operation in American history.”
Less well known is the directive issued the following day by Acting Department of Homeland Security (DHS) Secretary Benjamine Huffman lifting Biden administration restrictions on Immigration and Customs Enforcement (ICE) agents that prevented the arrest of immigrants without legal status in certain specified sensitive areas, such as hospitals, churches, and schools. Thus, immigration enforcement personnel are now permitted to find individuals without legal status in or near sensitive areas, including hospitals and medical clinics.
Then, on January 26, The Washington Post reported that quotas of between 1,200 and 1,500 arrests per day had been placed on immigration enforcement agencies. As a result, there is a growing concern among health care providers who treat populations likely to contain disproportionate numbers of undocumented individuals that ICE agents will request information from them about their patients, including protected health information (PHI), and may even seek to question or detain patients when they have been admitted to the hospital or come to a clinic to obtain treatment, or about visitors to the facility.
This Insight provides background about immigration enforcement, describes what happens during an ICE raid, and offers information regarding policies that health care providers should have in place to be prepared for a patient- or visitor-focused enforcement action at their facility.[1]
What Could Happen During an ICE Raid?
In light of these recent changes to ICE policies, hospital systems and other medical providers should be prepared for the possibility of increased immigration-related law enforcement activity. Raids conducted by law enforcement agents are not announced in advance, and it has been reported that in recent years, ICE has used increasingly aggressive tactics in connection with federal immigration enforcement. Reports of ICE enforcement since the inauguration show federal agents wearing technical gear, which can be an alarming sight in a patient-centered care environment. One substantial concern is that ICE and other law enforcement agents will arrive at hospitals and health care clinics and insist that they be permitted to enter treatment areas to question patients about their immigration status and detain those not able to demonstrate they are in the United States legally.
Law enforcement agents are free to enter any public areas of a business, such as the lobby or a parking lot. However, to enter non-public business premises, which includes patient evaluation and treatment areas and administrative offices, the agent must have a signed judicial search warrant, i.e., issued by a judge and not merely an administrative warrant from an agency. While the agent can also enter with the consent of the health care provider, the provider must take care to uphold privacy protections, notably, the Health Insurance Portability and Accountability Act (HIPAA) and state privacy laws, even if the provider opts to respond to immigration enforcement requests.
What Can Health Care Providers Do Now to Prepare?
It is imperative that health care providers take the following steps in advance to prepare for a potential onsite ICE enforcement activity:
Assess and review the entity’s policy on responding to law enforcement. Many hospitals and other providers currently maintain policies on federal/local investigations and interactions with law enforcement. These policies should be updated to address the potential for immigration enforcement and to ensure consistent application across differing situations. Many hospitals and other providers have frequent contact with local law enforcement and are used to responding to police inquiries.
Designate a person in advance within the Legal Department (preferred) or senior on-site administrator with access to legal counsel to be the primary point of contact. A backup liaison should also be available during off-hours.
Establish basic protocols for the designated entity representative to follow, including obtaining identification of the law enforcement officers (i.e., name and business card). This should include reviewing with legal counsel the type and scope of documentation presented by the agents to justify their inquiry to determine whether it aligns with the request being made.
Provide a checklist of the basic protocols for the designated entity representative to follow, and keep copies in an easily accessible location, including on the designated representative’s work-related cellular phone.
Provide training to security and “front desk” personnel (and whoever else is likely to be the first person encountered) regarding how to respond to a variety of potential law enforcement scenarios, including raids, targeted enforcement involving those with criminal histories, document requests, and requests for information. This should include obtaining identification of the law enforcement officers, reviewing the materials to determine whether the agents have judicially authorized search warrants (as required to enter non-public business premises) and/or only administrative subpoenas/deportation orders, referring them to the designated entity representative, and requesting they remain in a specified office while the designated representative evaluates the appropriate response.
Notify and train personnel who may encounter ICE agents that they are not authorized to provide information or documentation or permit entry to non-public areas of the provider’s premises without direction from the designated representative and that they should be courteous and fully document all occurrences and actions of the agents.
Notify appropriate staff they must not provide legal advice to patients or employees who may be affected by immigration enforcement measures. Instead, if they wish, they may make available pamphlets or other literature regarding immigrant rights from recognized immigration support organizations and refer them to such organizations for further information.
Connect with legal counsel specializing in health care, privacy, and immigration law to obtain guidance regarding internal policies, procedures, and training and support to the designated entity representative.
Assess whether, and to what extent, information regarding immigration status should be obtained from patients.
What Else Should Health Care Providers Know?
Health care providers are generally not obligated to share the immigration status (if known) of their patients, nor are they obligated to provide immigration officials with access to treatment spaces in their facilities, which are non-public, absent a judicially issued search warrant or a warrant to arrest a specific individual. While HIPAA generally permits the disclosure of PHI to law enforcement in limited circumstances, as described in the regulations, it does not require disclosure of PHI. The definition of PHI is, of course, quite comprehensive and includes information such as name, address, date of birth, immigration status, admission status, and anticipated discharge date. Visitors to a facility will not have the same HIPAA protections as patients.
The staff of health care providers are also generally under no obligation to speak with ICE agents or other immigration enforcement personnel and should be advised they are not authorized to speak or release any documentation or information on behalf of the provider entity. Legal counsel should be consulted to determine what disclosure is permitted under HIPAA based on the documentation presented and what response, if any, is required by such documents.
With all this in mind, health care providers should be careful not to engage in a physical or verbal altercation with any law enforcement officer or otherwise be seen as obstructing or interfering with the government’s actions. Note also it is illegal to intentionally protect from detention a person who is in the United States unlawfully. Balancing this with the ongoing obligation to observe HIPAA and other privacy laws, as well as holding law enforcement to their legal standards for entry and access to patients and visitors, requires some analysis and judgment. This is the basis for recommending the designation (in advance) of a Legal Department or other senior on-site administrator with access to legal counsel to be the primary point of contact for law enforcement personnel, including for after-hours inquiries.
ENDNOTE
[1] As employers, you may also be interested in a companion Insight, “The New Trump Administration’s Immigration Enforcement Policy: What Employers Must Know,” as well as the blog post “Responding to Law Enforcement Demands for HIPAA Protected Information” and the video below.
Additional Authors: Stephen R. Kleinman and Jennifer M. Nelson Carney
New Era of Uncertainty for U.S. Visa Holders
President Trump’s decision to suspend visa services at the U.S. Embassy in Colombia on Sunday, January 26th as part of an effective effort to pressure the government of Colombia to agree to accept flights of Colombian citizens being deported from the United States, makes it more likely that the same tactic will be used with other countries who fail to comply with U.S. immigration directives and policies. This approach could also be deployed to pressure countries that resist other U.S. demands unrelated to immigration. While the dispute with Colombia was resolved, the fallout lingers, and normal visa operations in Bogota have not resumed as of today (Tuesday, January 28, 2025). When they are restored, delays in obtaining appointments will continue and likely worsen.
Presidential authority under section 212(f) of the Immigration and Nationality Act to order the suspension of visa services to individuals and groups, including specific nationalities, is broad and has been upheld by the courts. Should the administration decide to shut down or severely limit visa services to other countries or groups of individuals in the future, there will likely be little notice, and the potential disruption to normal travel for citizens of those countries will be significant. Possession of valid visas will not insulate these individuals, as the President also has the authority to instruct the Department of State to cancel previously issued visas and to instruct immigration officers at the border to deny entry to them.
Although the cancellation of a valid visa does not automatically serve to terminate the lawfully admitted status of persons already in the United States, it would mean that if those persons had to depart the U.S. for any reason they would not be able to return in valid status until such time as the administration determined to rescind the ban against issuing new visas to them.
This new era of uncertainty poses serious challenges for employers and their employees holding valid employment-authorizing nonimmigrant visas, even those from countries closely allied to the United States. With visa operations now subject to sudden interruption, personal and professional travel outside the United States could become problematic. Both groups must now ask themselves — is this trip really necessary?
NLRB Shake-up: President Trump Removes Board Member, Discharges General Counsel
President Donald Trump removed National Labor Relations Board (NLRB) member Gwynne Wilcox in a move that leaves the Board without a quorum to hear cases. The president also, as expected, discharged NLRB general counsel Jennifer Abruzzo.
Quick Hits
President Trump removed NLRB member Gwynne Wilcox and discharged NLRB general counsel Jennifer Abruzzo, marking a significant shift in the Board’s leadership.
Wilcox’s removal leaves the NLRB without a quorum (minimum of three members) to hear cases, raising questions about the legality of the dismissal and potential court challenges.
According to media reports, President Trump removed Wilcox, a President Biden Democratic appointee to the Board, on January 27, 2025. Her term was not set to expire until August 27, 2028. Abruzzo, who commenced a four-year term as general counsel in July 2021, confirmed her discharge in a statement released by the NLRB on January 28, 2025.
President Trump’s removal of Wilcox, whom the Senate confirmed to a second five-year term in September 2023, puts the NLRB at a current standstill. The five-member Board needs at least a quorum of at least three members to decide cases.
Wilcox’s removal leaves the Board with only two sitting members: Republican appointee Marvin Kaplan, whom President Trump named the NLRB Chair on his first day in office, and Democratic appointee David Prouty, whose term is set to end in August 2026.
This is the first time a president has removed a sitting NLRB member, and the move is likely to be challenged in court. While the president’s authority to remove federal officers has been upheld by the Supreme Court of the United States, the removal of a sitting member of the NLRB, an independent federal agency, without an identified cause, is unclear.
Under the National Labor Relations Act, the president has the power to appoint NLRB members “with the advice and consent of the Senate” to five-year terms and may remove “any member … upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.”
On the other hand, President Trump’s discharge of NLRB general counsel Abruzzo, who began serving a four-year term under President Biden in July 2021, was expected. The move follows President Biden’s termination of former NLRB general counsel Peter Robb, the general counsel during President Trump’s first term in office, shortly after taking office in 2021. That discharge was upheld in the courts.
Deputy general counsel Jessica Rutter is now acting general counsel.
Next Steps
The NLRB shake-up is in line with President Trump’s policies in his first week in office, which seek to reshape the federal government and overturn many of his predecessor’s actions. Wilcox’s removal is likely to lead to a lengthy court case that could ultimately land before the Supreme Court and could have lasting effects on the NLRB’s makeup.
While we anticipate changes in federal labor policy to be forthcoming, only some changes in approach under the new administration can likely happen swiftly. For example, the incoming NLRB general counsel will likely take enforcement approaches that are more favorable to management, although the specifics of those approaches remain unclear and will likely be detailed in a forthcoming memorandum from a new general counsel.
On the other hand, without a quorum of Board members, current NLRB rules, such as the recently revised election rules, are likely to remain in effect in the short term. Additionally, without a quorum to decide new cases, recent major changes in NLRB precedent remain the law, such as the recent decisions concerning captive audience meetings and lawful management statements, as well as, the recent decision that changed aspects of the union organizing process.
Trump Transition: Shakeup at National Labor Relations Board Stalls NLRB Action (US)
It’s been a little more than a week since Inauguration Day, but the seismic shifts of presidential change in Washington, D.C. continue, now extending to and impacting the National Labor Relations Board (NLRB or Board). On January 28, President Donald Trump shook up the NLRB with two major personnel decisions: one anticipated, the other unprecedented.
In an expected move, President Trump fired Jennifer Abruzzo, the union-friendly General Counsel of the NLRB appointed under former President Joe Biden. But Trump also fired NLRB member Gwynne Wilcox, a Democrat also appointed by President Biden, leaving the Board with only two members.
In an early morning press release, now former NLRB General Counsel Jennifer Abruzzo announced that Tuesday, January 28, would be her final day on the job. The NLRB General Counsel serves as the agency’s chief prosecutor, selecting the cases to be heard and decided by the Board. Abruzzo’s departure should be welcome news to many employers. During her tenure, among other pro-union moves, she issued a slew of memoranda directing the work of the agency into controversial territory. For example, Abruzzo pursued aggressive enforcement action against employer non-competition and non-solicitation agreements, as guided by a May 2023 memorandum she authored wherein she articulated her view that restrictive covenants like non-competes “generally violate federal labor law.” A new Trump-appointed General Counsel is anticipated to rescind that memorandum and many others in which Abruzzo directed her enforcement efforts in the direction of her overtly pro-union interpretation of the National Labor Relations Act.
Likewise, a Trump-appointee majority NLRB is expected to abandon many of the Biden-era decisions issued by the formerly Democrat-appointee majority Board. However, right now, the Board cannot act, as it does not have a quorum of three members following the ouster of Member Wilcox. The only current Board members are Republican Marvin Kaplan, who President Trump appointed NLRB Chairman shortly after inauguration, and Democrat David Prouty. At least one of the three currently vacant Board positions will have to filled before the Board can resume issuing decisions. When that will happen is unclear.
Trump Alters AI Policy with New Executive Order
On January 23, 2025, President Trump issued an Executive Order entitled “Removing Barriers to American Leadership in Artificial Intelligence.” The Executive Order seeks to maintain US leadership in AI innovation. To that end, the Order “revokes certain existing AI policies and directives that act as barriers to American AI innovation,” but does not identify the impacted policies and directives. Rather, it appears those policies and directives are to be identified by the Assistant to the President for Science and Technology, working with agency heads. The Order also requires the development of a new AI action plan within 180 days. Although the details of the new AI action plan are forthcoming, the Order states that the development of AI systems must be “free from ideological bias or engineered social agendas.”
Earlier in the week, Trump also signed an executive order revoking 78 executive orders signed by President Biden, including Biden’s Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence, issued on October 30, 2023. Biden’s Executive Order sought to regulate the development, deployment, and governance of artificial intelligence within the United States, and the document offered insight into the types of issues that concerned the previous Administration (specifically, AI security, privacy and discrimination). More information on Biden’s Executive Order can be found here.
As relevant to employers and developers of AI tools for employers, the revocation of Biden’s Executive Order is largely symbolic, because it did not directly impose requirements on employers who use AI. Instead, it directed federal agencies to prepare reports or publish non-binding guidance on topics such as:
“the labor-market effects of AI,”
“the abilities of agencies to support workers displaced by the adoptions of AI and other technological advancements,” and
“principles and best practices for employers” to “mitigate AI’s potential harms to employees’ well-being and maximize its potential benefits.”
Biden’s Executive Order had also directed agencies to provide anti-discrimination guidance to federal benefits programs and federal contractors over their use of AI algorithms and to coordinate on best practices for investigating and enforcing civil rights violations related to AI.
While employers may not experience any immediate effects from the two new Executive Orders this week, taken together, they lend support to predictions that the new Administration would take a more hands-off approach to regulating AI. We will continue monitor how the AI legal landscape evolves under the new Administration and continue to report on AI developments that affect employers.