UPDATE: US DOL Order Directing Departments to Cease Enforcement of Affirmative Action Requirements of EO 11246
Following President Trump’s Executive Order “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” on January 24, acting U.S. Department of Labor (DOL) Secretary Vincent Micone issued an agency Order instructing DOL employees to cease and desist “all investigative and enforcement activity” under Executive Order 11246 (Equal Employment Opportunity) as the Secretary said the DOL “no longer has any authority” under the rescinded order. The Secretary further stated that the order applies to “all DOL employees, including the OFCCP, OALJ, and ARB.”
Specifically, the order instructed all DOL employees to:
Cease and desist all investigative and enforcement activity under the rescinded Executive Order 11246 and the regulations promulgated under it. This includes all pending cases, conciliation agreements, investigations, complaints, and any other enforcement-related or investigative activity.
And to:
Notify all regulated parties with impacted open reviews or investigations by January 31, 2025, that the EO 11246 component of the review or investigation has been closed and the Section 503 and VEVRAA components of the review or investigation are being held in abeyance pending further guidance.
The Secretary’s Order follows an official statement issued on January 23 by the Office of Federal Compliance Programs (OFCCP) reiterating President Trump’s revocation of EO 11246 and adding that Federal contractors may continue to comply with the regulatory scheme in effect on January 20, 2025 for 90 days from the date of Trump’s Order. OFCCP also emphasized that that a federal contractor’s obligations under Section 503 of the Rehabilitation Act, 29 U.S.C. 793 (Individuals with a Disability), and the Vietnam Era Veterans’ Readjustment Assistance Act, or VEVRAA (Veterans), 38 U.S.C. 4212, which are separate statutes, “remain in effect,” noting that both laws are “enforced by OFCCP.”
While contractors’ affirmative action obligations related to women and minorities are no longer required, the Secretary’s Order indicates that compliance reviews under Section 503 and VEVRAA (Protected Veterans) are on hold until further notice. Acting Secretary Micone appears to be examining the application of President Trump’s Order with respect to VEVRAA and Section 503. While any interpretation of EO 11246 that broadly expands the Order to VEVRAA and Section 503 almost certainly is an overreach, the use of OFCCP’s authority to investigate and enforce a contractor’s obligations under each law is within the Secretary’s purview. This suggests – but remains to be confirmed – that OFCCP will not require contractors to continue with an open VEVRAA or Section 503 compliance review or check. We think this does not mean a contractor’s obligation to comply with VEVRAA and Section 503 is no longer required, or that OFCCP will necessarily be prohibited from enforcing these and other anti-discrimination laws (more is likely to come). As noted in the General Services Administration’s (“GSA”) January 22 memorandum, Federal contractors must still comply with all nondiscrimination requirements under existing federal laws, which includes VEVRAA, the Rehabilitation Act, Title VII of the Civil Rights Act, the ADEA, the ADA and others.
Questions remain about how OFCCP will manage contractor’s employee data it has collected to date (including affirmative action analyses and EEO-1 data) as well as what effect the Secretary’s ‘cease and desist’ order will have on OFCCP’s response to cases involving EEO-1 freedom of information requests, for example, by the Center for Investigative Reporting (see related court orders in this case here). While we can safely say EO 11246 is no longer in effect, it may be best to wait for additional guidance from the DOL before drawing any final conclusions regarding the procedural and practical implementation of the Order’s revocation as well as further action by the GSA, Department of Defense (DoD) and/or NASA to issue directives and ultimately modify the Federal Acquisition Regulation (FAR) labor standards under FAR Subpart 22.8. GSA has already indicated in its memorandum that “it intends to take immediate action to begin forbearing enforcement of all contract clauses, provisions, terms, and conditions, related to ‘diversity, equity, and inclusion (DEI)”.
SECURE 2.0: Guidance on Roth Catch-Up Contributions
The long-awaited guidance on the provisions of the SECURE 2.0 Act of 2022 (SECURE 2.0) impacting catch-up contributions has been issued and answers questions plan practitioners have been asking. SECURE 2.0 added a requirement that employees who made $145,000 or more in the previous year must designate any catch-up contributions as Roth (after-tax) deferrals.
Plans That Do Not Currently Permit Roth Contributions
The guidance does not require a plan to allow Roth deferrals. However, if the plan does not allow Roth deferrals, the limit on catch-up contributions for those who made $145,000 in the prior year is $0. To pass testing, a highly compensated employee (HCE) who is not subject to Roth catch-up contributions may need to be precluded from making catch-up contributions. This could happen if the top-paid group election is made for the definition of HCE or if a participant is an HCE because the employee is a 5% owner.
Compensation Limit
The guidance specifies that the $145,000 compensation limit is determined based on Federal Insurance Contributions Act wages (FICA wages) for the previous year. This excludes self-employment income, which is not FICA wages. The compensation limit is determined without prorating wages for employees hired midyear. Only wages paid by the common law employer responsible for the employee’s compensation are considered, regardless of whether employers are aggregated under the controlled group rules.
Deemed Roth Elections
After a participant is required to make Roth catch-up contributions, the plan may deem the participant’s pre-tax deferral election to be a Roth deferral election; the plan is not required to obtain a new deferral election. The participant must still be provided the opportunity to change the participant’s deferral election if the participant no longer wants to defer. If a participant makes Roth deferrals during the year equal to the catch-up limit, but before the participant’s deferrals have reached the catch-up limit, the plan may count the amount of the Roth deferrals toward the required amount of Roth catch-up contributions.
Roth Elections for All Participants
If Roth elections are permitted for some participants, they must be permitted for all participants. A plan may not require all catch-up contributions to be Roth contributions. Participants must have a choice between designating deferrals as pre-tax or Roth.
Correction Methods
The guidance provides correction methods for failure to follow the Roth catch-up contribution rules accurately. To follow the correction methods, the plan must have practices and procedures in place to prevent failures, including providing for deemed Roth election at the time catch-up contributions start for affected participants or when deferrals exceed the Code §415(c) limit. The methods and deadlines for correction vary depending on the failure.
Effective Date
For plans that are not collectively bargained, the rules apply for contributions in taxable years that begin more than 6 months after the final regulations are issued. If final regulations are issued before the end of 2025, the rules would apply beginning January 1, 2027. However, plans are permitted to apply these rules to taxable years beginning after December 31, 2023.
For collectively bargained plans, the deadline is extended to the first taxable year beginning more than 6 months after the final regulations are issued or, if later, the first taxable year beginning after the termination of the last collective bargaining agreement related to the plan that is in effect on December 31, 2025, excluding any extensions.
Cross-Border Catch-Up: Tips for Implementing Probationary Periods in APAC [Podcast]
In this episode of our Cross-Border Catch-Up podcast series, Diana Nehro (New York, Boston), chair of the firm’s Cross-Border Practice Group, and Skye Hao (Atlanta) discuss the use of probationary periods for new employees in the Asia-Pacific (APAC) region. Skye and Diana cover the ins and outs of probationary periods, including how probationary periods enable employers to evaluate a new hire’s performance. They also address common misconceptions about probationary periods, including who is eligible, employer documentation requirements, limitations on maximum duration, and employees’ entitlements to benefits.
Trump DOL Signals a Back-off from Defending Independent Contractor Rule
The Trump Administration has asked the U.S. Court of Appeals for the Fifth Circuit to postpone oral argument in a lawsuit challenging President Joe Biden’s 2024 independent contractor rule.
The U.S. Department of Justice filed a motion to pause oral argument in a legal challenge brought by trucking companies in order to give the incoming leadership at the U.S. Department of Labor (DOL) a chance to review the case and determine its next steps in the litigation. The appeals court granted the motion, tabling oral argument which had been scheduled for Feb. 5, 2025. (Frisard’s Transp., LLC v. United States DOL, No. 24-30223, Jan. 24, 2025).
The 2024 independent contractor rule, issued in January 2024, revised the DOL standard for determining whether a worker is an employee or independent contractor under the FLSA. The rule, which took effect March 11, 2024, formally adopted the six-factor “economic realities” test to determine whether a worker is an employee or independent contractor. The 2024 rule also formally rescinded a 2021 independent contractor rule issued during the waning days of the first Trump Administration, which was generally considered to be more favorable to businesses seeking to utilize an independent contractor model. (See Labor Department Releases Independent Contractor Final Rule, Revising Standard.)
The case now on hold at the Fifth Circuit is one of five lawsuits challenging the 2024 independent contractor rule. (See Independent Contractor Rule Takes Effect, But Legal Challenges Mount.) So far, the DOL has been successful in defending its rule, whether based on arguments that the plaintiffs lacked standing to sue or on the merits.
In the Frisard’s case, currently on interlocutory appeal, and the leading case, a federal court in Louisiana refused to issue a temporary restraining order or preliminary injunction barring the DOL from enforcing the rule while the court considered the merits of the legal challenge. The federal court in New Mexico recently upheld the 2024 rule on the merits in another case, finding it was not arbitrary or capricious under the Administrative Procedures Act. Colt & Joe Trucking v. United States DOL, D.N.M., 2025 U.S. Dist. LEXIS 4657, Jan. 9, 2025.
In two other suits, freelance writers and editors have filed complaints contending the 2024 rule jeopardizes their preferred legal status as independent contractors. A federal court in one case held the independent contractors lack standing to challenge the rule because they are not a party subject to the regulation. Warren v. United States DOL, N.D. Ga., No. 2:24-cv-7, Oct. 7, 2024. An appeal of that dismissal is pending in the Eleventh Circuit. In the other suit, a federal magistrate recommended dismissal for the same reason. The plaintiffs in that case have filed an objection to the magistrate judge’s recommendation. Littman v. United States DOL, M.D. Tenn., No. 3:24-cv-00194, Nov. 13, 2024.
Litigation is ongoing in a Texas federal court in a case brought by business groups. Coalition for Workforce Innovation v. Walsh, E.D. Tex., No. 1:21-cv-130. That lawsuit began as a challenge to President Biden’s decision to withdraw the 2021 independent contractor rule. The plaintiffs are now challenging the 2024 independent contractor rule as well. A motion to dismiss is pending.
The Fifth Circuit has asked the parties in the Frisard’s case to report on the status of the litigation by March 25, or earlier, if possible. The Eleventh Circuit in Warren has granted the DOL’s informal request to extend the deadline to respond to the freelancers’ appeal.
It is unlikely the DOL will continue to defend the underlying merits of the rule. The new administration will likely seek a stay of any further litigation in anticipation of further rulemaking rescinding the 2024 rule. The Trump Administration may then undertake new rulemaking to restore the 2021 rule or simply allow the courts to address the issue without agency regulations.
EPA Releases Compliance Guidance for Workplace Chemical Protection Requirements in TSCA Risk Management Rules
On January 16, 2025, the U.S. Environmental Protection Agency (EPA) released a compliance guide to assist the regulated community in complying with Workplace Chemical Protection Program (WCPP) requirements for chemicals regulated under Section 6 of the Toxic Substances Control Act (TSCA). EPA states that a WCPP “is a chemical protection program designed to address unreasonable risk posed by chemical exposure to persons in occupational settings.” The compliance guide provides an overview of typical WCPP requirements that the regulated community may be subject to as part of a TSCA Section 6(a) rulemaking. As reported in our previous memoranda, in 2024, EPA issued final risk management rules with WCPP requirements for methylene chloride, perchloroethylene, trichloroethylene, and carbon tetrachloride.
According to EPA, the compliance guide is intended for owners and operators of businesses that manufacture (including import) or process, distribute in commerce, use, or dispose of a chemical regulated under TSCA Section 6 that is subject to the WCPP in EPA rules. EPA notes that the guide will also be of interest to people who may be exposed to these regulated chemicals in the workplace. The guide broadly addresses the requirements of a typical WCPP, including:
EPA TSCA occupational exposure limits (Existing Chemical Exposure Limits (ECEL) or EPA Short-Term Exposure Limits (EPA STEL)) designated under TSCA;
ECEL action levels;
Occupational exposure monitoring;
Regulated areas;
Direct dermal contact controls (DDCC);
Respirators;
Personal protective equipment (PPE);
Exposure control plans;
Recordkeeping; and
Downstream notifications.
EPA states that while the compliance guide “provides useful information to consider when implementing a WCPP, the regulated community should also consult the WCPP provisions within the applicable risk management rule.” Individual compliance guides for rules may also provide additional chemical-specific guidance. EPA has issued guides for methylene chloride, trichloroethylene, and for the use of perchloroethylene in dry cleaning (also available in Korean and Spanish) and energized electrical cleaning.
EPA’s diligence in preparing the compliance guide is commendable given all of the other demands on EPA’s time. Stakeholders are urged to review the guide as its contents could be of use to regulated entities.
Trump Executive Order Takes on DEI in the Workplace: Practical Considerations for Private Employers
President Trump has issued a flurry of wide-ranging executive orders intended to shake up the employment landscape. One of those orders, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Executive Order”), takes aim at non-compliant DEI programs and policies. It also creates a momentous change in the federal contractor landscape by revoking Executive Order 11246, which has, for the past sixty years, served as the foundation for non-discrimination and affirmative action requirements in the federal contracting space. Although the Executive Order’s mandates are vague in many places and raise more questions than they answer, at bottom, the Executive Order appears designed to attempt to effectively stamp out DEI programs and policies in the federal workforce, while putting private sector employers on notice and pushing them to proactively modify, narrow or even end their DEI initiatives. But as we’ll discuss more below, these developments do not compel private employers to rescind their DEI programs and policies entirely; instead, employers should use the Executive Order as an opportunity to review their existing programs and policies to ensure that they (i) continue to align with their mission and organizational goals, (ii) are legally compliant in light of the change in administration, and (iii) whether subsequently modified or not, thereafter are effectively communicated to stakeholders.
What The Executive Order Says
The Executive Order explicitly orders “all executive departments and agencies . . . to terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements.” In a nod to the private sector, it further orders “all agencies to enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” The Executive Order (and other associated actions taken in the first days of this new administration) takes aim at “illegal discrimination” from several different angles.
First, it revokes executive orders and other actions from previous presidential administrations specifically intended to bolster diversity, equity and inclusion efforts (and/or affirmative action programs) in the federal workforce. Although President Trump’s directives in the federal sector are the most far-reaching and impactful (including that certain federal departments/offices will be dismantled and the employees of those departments ultimately terminated), this post remains focused on the Executive Order’s implications for private employers.
Next, the Executive Order attempts to “streamline” the federal contracting process to “comply with our civil-rights laws.” As part of this, the Executive Order revokes longstanding Executive Order 11246, issued by President Johnson in 1965, which: (i) prohibited discrimination by federal contractors against employees or applicants on the basis of race, color, religion, sex, or national origin; and (ii) created affirmative action obligations with respect to race and sex for such contractors. As a result:
The Office of Federal Contract Compliance Programs within the Department of Labor (“OFCCP”) cannot promote “diversity” (which the Executive Order does not further define), hold federal contractors and subcontractors responsible for taking “affirmative action,” or allow or encourage federal contractors and subcontracts to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.
Federal agency contracts and grants must include language requiring the contractor or grant recipient to certify as a material term for payment purposes that it is in compliance with all applicable federal anti-discrimination laws and that it does not operate any programs “promoting DEI that violate any applicable federal anti-discrimination laws.”
Executive Order 13279 of December 12, 2002 (Equal Protection of the Laws for Faith-Based and Community Organizations) is expanded to include race, color, sex, sexual preference, and national origin (in addition to religion), meaning federal contractors and subcontractors may not consider these characteristics in their employment, procurement, and contracting practices.
Federal contractors will have 90 days (until April 21, 2025) to phase out compliance with prior OFCCP affirmative action obligations.
The Office of Management and Budget (the “OMB”) is tasked with excising references to DEI principles (notably “under whatever name they may appear”) from federal acquisition, contracting, grants, and financial assistance procedures, with the stated purpose of “streamlin[ing] those procedures, improv[ing] speed and efficiency, lower[ing] costs, and comply[ing] with civil rights laws.” Under the Executive Order, the OMB must also terminate all mandates, requirements, programs, and activities surrounding “diversity,” “equity,” “equitable decision-making,” “equitable deployment of financial and technical assistance,” “advancing equity,” and the like.
Third, the Executive Order directs the Attorney General, in partnership with agencies and the Director of the OMB, to submit a report to the Trump Administration by May 21, 2025 with recommendations on measures to “encourage the private sector to end illegal discrimination and preferences, including DEI.” This report is expected to have the following features:
Identifying the key private sectors of “concern” for each agency (and within each sector, identifying the most “egregious” and “discriminatory” DEI practitioners);
Stating specific steps and measurements to “deter” private sector DEI programs and principles (whether specifically denominated as DEI or otherwise);
Charging each agency with identifying up to nine potential civil compliance investigations of corporations (both publicly traded and non-profit), higher education institutions (with endowments over $1 billion), foundations (with assets over $500 million), and bar and medical associations;
Identifying other strategies to encourage the private sector to end “discriminatory” DEI practices and preferences;
Identifying litigation appropriate for federal government involvement (e.g., by way of filing lawsuits, statements of interest, etc.); and
Suggesting other potential regulatory action and sub-regulatory guidance.
Lastly, the Attorney General and Secretary of State will issue guidance by May 21, 2025 to local and state educational agencies that receive federal funds, along with higher education institutions that receive federal grants or participate in the student loan assistance program under Title IV of the Higher Education Act, as to steps “required” to comply with the Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023) (“Students for Fair Admissions”) decision. That Supreme Court decision rejected the use of racial quotas in affirmative action programs used in some higher education contexts.
What Should Private Employers Do Now?
Consider a Measured Response: The Executive Order does not mandate that private employers shut down all diversity efforts, including ending diversity programs, policies and practices; it does not order the termination of staff that focus on DEI programming, or do anything remotely similar. Rather, while there is certainly a component that aims to pressure employers to do just that (or to otherwise limit their DEI programs substantially), the Executive Order more generally is aimed at ending illegal DEI practices – in other words, DEI practices that are already not legally compliant. Employers must, therefore, be even more deliberate in their compliance efforts and how they communicate about DEI in the workplace in light of this Executive Order (and the continued evolving legal and political landscape). As part of this response, employers should consider implementing regular evaluation of their DEI programs to ensure that they are thoughtful, meaningful, meet organizational objectives, and, of course, legally compliant.
Pay Close Attention To Continued Legal and Political Developments: The portion of the Executive Order aimed at providing “encouragement” to private sector employers to end discriminatory DEI practices immediately led to raised eyebrows, particularly among the wide array of private sector employers in varied industries that have long promoted programs and initiatives aimed at supporting various underrepresented groups in legally permissible ways. Applicable government guidance and judicial case law up until this point has indicated that – while there are very real limitations to employer efforts that might operate in a way that violates anti-discrimination laws (e.g., by having diversity hiring or promotion quotas) – common corporate approaches to “DEI” efforts (such as the maintenance of inclusive employee affinity groups and recruitment efforts to create candidate opportunities in underrepresented communities, etc.) have been found legally permissible where those efforts are motivated by legitimate, non-discriminatory business priorities. Employers who decided to continue to make space for DEI in their workplace will need to monitor these developments and understand: (i) how far the Trump Administration intends to go in curbing private sector DEI practices; (ii) the possibility that this Administration could seek enforcement activity (including investigations or even litigation) against employers that espouse DEI values despite longstanding legal precedent allowing for lawful initiatives; and (iii) the legal limitations on targeting private companies that are subject to federal anti-discrimination laws (such as Title VII) but which are not explicitly covered by federal government-focused executive actions (like the Executive Order). Given the lack of specific definitions and practices that the Executive Order considers prohibited, employers will need to be prepared to continue to adjust their programs and practices as the Executive Order (and any future orders and directives) is implemented by agencies and interpreted by the courts after expected legal challenges.
Redouble Focus on the Legal Viability of DEI Programs: As noted above, the Supreme Court’s 2023 Students for Fair Admissions decision squarely rejected the use of racial quotas in some education-based affirmative action programs. But racial quotas have long been held to be discriminatory in the workplace under laws like Title VII. Expecting that the Students for Fair Admissions decision would one day extend into the private sector workplace, many employers revisited their DEI programs to reconfirm and further enhance legal viability. For example, some employers have considered how to better expand recruitment efforts, including how to broaden the recruiting of previously underrepresented community members, while others looked to non-traditional approaches that focus on socioeconomic factors instead of protected categories. Some employers have also rebranded their efforts – “Access and Opportunity” instead of “Diversity, Equity, and Inclusion” for instance. The Executive Order insinuates that these rebranding efforts alone will not insulate employers from scrutiny under the order. But, regardless of the path an organization takes, there will likely be continued government and stakeholder scrutiny, and these programs, whatever their name, must be tailored appropriately to meet organizational objectives while ensuring legal compliance. For now, even under the Executive Order, efforts to increase and retain diverse representation that are appropriately focused are permissible provided they do not “violate any federal anti-discrimination laws,” which has been a legal requirement since the passage of Title VII. Employers should continue to monitor how federal law interpretation evolves, especially as President Trump appoints Commissioners to the U.S. Equal Employment Opportunity Commission (“EEOC”), the federal agency that interprets and enforces anti-discrimination laws. Notably, the Executive Order does contain a carve out that defers to the authority of executive departments and agencies, and the heads thereof, which leaves an open question as to how agencies (such as the EEOC) will go about interpreting and implementing these changes.
Review (and Reconsider) Contracts with the Federal Government: To the extent that an employer contracts with the federal government, the Executive Order indicates that programs which otherwise promote “DEI in violation of federal anti-discrimination law” will be under increased scrutiny. Though enforcement and implementation of this stated goal is yet to be seen, employers should review future contracts and grants to determine the extent of the certifications that may be required and what sort of DEI efforts employers can engage in while accurately attesting to such certifications.
Allow for the Wind Down of Federal Contractors’ Race and Sex-Based Affirmative Action Programs While Maintaining Disability and Veteran Affirmative Action Programs: Absent a successful legal challenge or some intervening guidance from OFCCP to the contrary, federal contractors with affirmative action programs that have existed under Executive Order 11246 (related to race or sex affirmative action) will need to disband those programs by April 21st. This is a seismic shift for federal contractor compliance, particularly as the Executive Order 11246 framework (and associated OFCCP regulations) have existed for decades and President Trump’s first administration left these programs untouched. Further, while the Executive Order has the effect of eliminating affirmative action programs based on race and sex, it is silent as to whether there will be any impact on affirmative action programs on the basis of disability, and the Executive Order explicitly exempts veterans from its reach. Neither is surprising given that contracting preferences based on disability and veteran status are governed by statutes, not executive orders. (The Rehabilitation Act of 1973 governs disability affirmative action and the Veterans’ Readjustment Assistance Act of 1974 governs veteran affirmative action.) Accordingly, affirmative action programs on the basis of disability or veteran status (both of which are addressed by statutes outside the scope of Executive Order 11246) may remain intact, although there are some questions around this issue given directives to federal agencies against the promotion of “diversity,” workforce balancing, or responsibility for taking “affirmative action.” Federal contractors should look to potential OFCCP guidance as to winddown efforts but also as to continued affirmative action efforts to ensure compliance.
Continue to Account for Existing Federal Anti-Discrimination Laws: While this may be obvious, we believe it worth mentioning, given some of the early market reactions to the Executive Order: federal anti-discrimination laws that apply to private employers, including Title VII, the ADA, the ADEA, and other measures, are still the law of the land and employers should make sure to reinforce their existing anti-discrimination policies and programs. Similarly, but importantly, certain employers (at present) are still required to comply with employee demographic data reporting via the federal EEO-1 process (which large employers submit in the second quarter of each year) – this compliance obligations remains unaffected by the Executive Order.
Continue to Account for State and Local Anti-Discrimination Laws: Likewise, the Executive Order does not purport to preempt state/local law obligations employers may have related to non-discrimination in the workplace. Just by way of example, although some federal contractor compensation disclosure requirements will fall away in the absence of Executive Order 11246, many states and localities have salary disclosure and wage transparency laws, some of which require employee demographic data reporting, and employers will need to continue to comply with these requirements.
Consider an Appropriate Communications Strategy: Employers continue to increasingly find themselves on the front lines of many social issues, and the issuance of the Executive Order is no exception. Employers will need to decide quickly whether and how they might address this latest development (and similar Trump-related workforce developments), both internally and externally, as public reaction has been, and is likely to remain, strong across the political spectrum. Employees, board members, investors, clients, vendors and other important business relationships may advocate for companies to take (or not take) a visible position on this issue. Employees may also wish to speak up themselves, including on employer platforms. Whether to speak and if so, what to say, should be evaluated in light of variables such as reputational risk, talent acquisition and employee retention priorities, investor sentiments, community focus, and other business interests. Of course, not speaking at all remains an option – some organizations have decided that no message is their best message in response to divisive or politically challenging issues – particularly given the blitz of these issues over the past several years and the fatigue associated with current events. But many others will speak out and due consideration should be given, and important stakeholder feedback sought, on how best to communicate on this latest development, including in a manner that adheres to the law while optimizing stakeholder relationships.
Consider the Executive Order in the Context of Corporate Disclosures: The Executive Order does not explicitly provide any direction to private employers regarding DEI practices through corporate disclosure statements. For years, many public companies that file corporate disclosure statements have voluntarily shared information about the companies’ diversity efforts, demographic statistics, and other similar information to provide investors information about the company’s human capital risks, planning and oversight. As part of the overall communication strategy, employers should work with employment and corporate disclosure counsel to ensure that the latest upcoming and future rounds of disclosures reference (or do not reference) company DEI programs appropriately and otherwise signal ongoing compliance with applicable law, particularly given the Executive Order’s directive to target publicly traded corporations for potential civil compliance investigations.
Use Legal Counsel and other Key Stakeholders as an Important Asset During This Process: Legal compliance, while of course necessary and critical, alone will not drive this process. While employers should consult legal counsel to better understand the (evolving) legal framework applicable to DEI and to ensure legally complaint DEI program design and implementation, it’s just as important that employers partner with all stakeholders, including human resources professionals, key business stakeholders (such as the C-suite and senior management, as well as the board) who can provide critical advice about what is needed to achieve the employer’s corporate mission and goals, while accounting for the current political environment around this issue.
Transferring Employee Data From Canada to the United States: Key Considerations for Employers
As of September 22, 2024, the final provision of Law 25, An Act to modernize legislative provisions as regards the protection of personal information, will take effect, establishing a new right to data portability for individuals in both the private and public sectors. This right, integrated into the Act Respecting the Protection of Personal Information in the Private Sector (Quebec Privacy Act) and the Act Respecting Access to Documents Held by Public Bodies and the Protection of Personal Information, allows individuals to request that their personal information be communicated to them in a technological format.
Quick Hits
Provincial laws apply: Certain provinces in Canada and federally regulated businesses have specific laws governing data transfers abroad.
Transparency is key: Employers may want to inform employees about how and where their data is transferred to comply with applicable legislation.
Security safeguards: Data transfers may require agreements to ensure compliance with applicable legislation and security standards in Canada.
In Canada, several privacy laws govern the handling of personal information, including the Act Respecting the Protection of Personal Information in the Private Sector in Quebec, the Personal Information Protection Act (PIPA) in British Columbia, and Alberta’s Personal Information Protection Act (PIPA). Federally regulated organizations are subject to the Personal Information Protection and Electronic Documents Act (PIPEDA). These laws emphasize key principles, such as transparency and security, which are relevant when transferring employee data outside of Canada.
Transferring personal information internationally is permissible within the framework of these laws. Organizations may implement measures to ensure compliance with these principles and mitigate the risks associated with such transfers.
In Quebec, Section 17 of the Act Respecting the Protection of Personal Information in the Private Sector (Quebec Privacy Act) addresses data transfers outside the province. Employers transferring personal information out of Quebec may be subject to this law. The law requires that organizations transferring data out of Quebec evaluate the sensitivity of the information, the jurisdiction receiving the data, and the measures in place to protect it. This evaluation may include conducting a Privacy Impact Assessment (PIA) and a Transfer Impact Assessment (TIA). The assessments provide an opportunity to analyze how personal information will be used, identify potential risks, and confirm whether the legal protections of the receiving jurisdiction align with Quebec’s privacy standards.
British Columbia’s and Alberta’s privacy laws, through their respective PIPA statutes, encourage transparency in data transfers. Employers can notify employees about the purpose of a transfer, the destination of the data, and how the data will be protected. For example, Section 34 of British Columbia’s PIPA, as well as Section 34 of Alberta’s PIPA, outlines the requirement to ensure reasonable safeguards are in place to protect personal information.
PIPEDA, which applies to federally regulated employers, also includes obligations related to transparency and accountability. Employers transferring data outside Canada must inform employees about the purpose of the transfer, the risks involved, and the measures in place to ensure data security.
Practical Steps for Employers
When transferring data out of Quebec, Alberta, British Columbia, or a federally regulated business, employers may want to take these steps into consideration:
Developing a Comprehensive Privacy Policy:Employers can think about outlining how data is collected, stored, and transferred. Employers may want to include specific references to cross-border transfers, the jurisdictions involved, and the safeguards in place in their privacy policies.
Conducting Privacy Impact and Transfer Impact Assessments:Particularly in Quebec, these assessments are mandatory under Section 17 of the Quebec Privacy Act. Employers may want to evaluate the risks, the sensitivity of the data, and the protections offered by the receiving jurisdiction.
Securing Robust Data Processing Agreements (DPAs) With Service Providers:Employers may want to enter into contracts with service providers that include clauses requiring compliance with Canadian privacy standards, breach notification protocols, and equivalent security measures.
Understanding the Jurisdiction:Employers may want to research the legal framework of the receiving country and mitigate risks accordingly. For instance, if transferring data to the United States, consider the impact of federal laws on data access.
Training Employees:Employers can work to equip employees with the knowledge to identify potential privacy risks. It is helpful if employees understand when to involve the data privacy officer and when to initiate a PIA or TIA.
While transferring data to jurisdictions such as the United States is possible, employers will want to consider implementing safeguards to comply with provincial and federal privacy laws in Canada. By prioritizing transparency, conducting thorough assessments, and securing robust agreements with service providers, employers can work toward ensuring that data transfers respect employee privacy and maintain compliance.
Updated: Court Halts Trump Administration Order Pausing Government Grants; Trump Administration Rescinds OMB Memo
Today the US Office of Management and Budget (OMB) issued a brief statement rescinding OMB Memorandum M-25-13, after a federal judge in Washington, DC, temporarily ordered the freeze on current awards to be lifted pending a hearing on Monday February 3, to consider a coalition of nonprofits’ request for a temporary restraining order. See our previous alert below.
We expect federal agencies to continue to review federal funding assistance programs for potential conflicts with President Trump’s Executive Orders, and we will update this Alert as developments warrant.
Many parties are rightly concerned about the impact of yesterday’s announcement that nearly all federal funds will be frozen for an indeterminate period. Minutes before it was intended to go into effect today, a federal judge in Washington, DC, temporarily ordered the freeze to be lifted until at least Monday February 3, when a full hearing will occur as to whether the freeze is permissible under federal administrative procedure laws and the First Amendment.
The court’s action pauses the Office of Management and Budget’s (OMB) instruction of the heads of all federal executive departments and agencies to temporarily pause all obligation and disbursement activity related to federal financial assistance. The pause was to go into effect at 5pm EST, January 28, but this is now temporarily on hold.
The OMB Memo M-25-13 entitled “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs” (OMB Memo) requires federal agencies to identify and review all federal financial assistance programs and activities to ensure consistency with President Trump’s policies, stating that “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.”
OMB Memo
Purposes
The OMB Memo, issued by Matthew J. Vaeth, acting director of OMB, states that federal financial assistance should be dedicated to advancing the Trump Administration’s priorities, strengthening national security, taming inflation, increasing domestic manufacturing and energy production, ending “wokeness,” promoting efficiency, and improving Americans’ health. The OMB Memo specifically references seven of the executive orders signed by President Trump on January 20[i] as examples of the Trump Administration’s intent to safeguard taxpayer funds. See our previous alerts on Trump’s Executive Orders here and here.
Requisite Agency Comprehensive Program Analyses
The OMB Memo directs each federal agency to complete a comprehensive analysis of all federal financial assistance programs, identify programs and activities potentially implicated by the Executive Orders, including, but not limited to, “financial assistance for foreign aid, nongovernmental organizations, diversity, equity, and inclusion (DEI), woke gender ideology, and the green new deal,” and submit to OMB detailed information on such programs and activities no later than February 10. OMB also released a set of instructions for programs with funding or activities planned before March 15, which requires that answers to 14 specific questions regarding the programs listed on the accompanying spreadsheet be submitted to OMB by February 7, 2025.
Interim Guidance
In the interim, the OMB Memo requires each federal agency to pause issuance of new awards, disbursement of federal funds under all open awards, and any other relevant agency actions potentially implicated by the Executive Orders until OMB reviews and responds to the agency’s analysis. In a subsequent guidance FAQ issued on January 28, OMB clarified that “the pause does not apply across-the-board” and is instead “expressly limited to programs, projects, and activities implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” The OMB Memo states that the purpose of the pause is to provide the Trump Administration with time to review federal programs and determine use of federal funds consistent with the Administration’s priorities.
The OMB Memo also requires all agencies to promptly identify legally mandated actions or deadlines for federal assistance programs that arise during the federal funding pause and report this information to OMB with an analysis of the applicable legal requirement.
Policy Realignments
Finally, the OMB Memo requires agencies to take the following steps with respect to each federal financial assistance program:
Assign oversight and responsibility to a senior political appointee.
Review pending federal financial assistance to ensure the Administration’s priorities are sufficiently addressed.
Modify unpublished federal financial assistance announcements consistent with the Administration’s priorities and withdraw any announcements already published.
Cancel awards that conflict with the Administration’s priorities.
Ensure adequate oversight of federal assistance programs.
Initiate investigations to identify underperforming recipients and address underperformance issues, including cancelling awards.
Medicare and Social Security Benefits
The OMB Memo states that it does not apply to assistance received directly by individuals or to Medicare or Social Security benefits. OMB’s subsequent follow-up FAQ further made clear that “any program that provides direct benefits to Americans is explicitly excluded from the pause and exempted from this review process” and that “[i]n addition to Social Security and Medicare… mandatory programs like Medicaid and SNAP will continue without pause.” Similarly, the FAQ noted that “[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused.”
Exceptions
The OMB Memo provides that exceptions to the mandatory pause will be considered on a case-by-case basis.
Timing
While the OMB memo itself did not specify how long the pause might continue, OMB’s subsequent FAQ provided that “[a] pause could be as short as day” and that “OMB has worked with agencies and has already approved many programs to continue even before the pause has gone into effect.”
There already have been two lawsuits to stop the Trump Administration’s proposed funding freeze. The first, filed by a coalition of nonprofits and small businesses, led to the judicial pause; that complaint is available here. An additional lawsuit to stop the Trump Administration’s proposed funding freeze was filed by a coalition of 22 states and the District of Columbia in federal district court in Rhode Island. The plaintiff jurisdictions request an emergency temporary restraining order and allege violations of the Administrative Procedure Act (APA), separation of powers, and the Spending, Presentment, Appropriations, and Take Care Clauses of the US Constitution.
What Should You Do If You Are Concerned About An Award or Grant?
Affected Program Assessment
Grant recipients and subrecipients should first assess whether their grant or financial assistance award is covered by the pause. Despite its potentially broad reach, the pause is not intended to cover all grants and awards. The pause is instead limited to funds in support of programs implicated by the Executive Orders. Award recipients should reach out to their federal agency contacts to determine the agency’s view on whether their specific grant program is subject to the pause. If the grant or award is subject to the pause, the grantee may wish to inquire whether the program might receive an exception.
Cash Flow and Cost Concerns
Where implicated, the temporary pause in funding may raise liquidity and cash flow concerns and could lead to additional costs, delays, and other consequences for projects. As a result, many award recipients may have to consider temporarily laying off or permanently furloughing those responsible for administrating awards for an affected program (see ‘Potential Labor Implications’ below).
Rights and Remedies
Award recipients should review the specific terms of their grant award for procedures to take during the pause as the award itself is the most definitive source for the recipient’s rights and remedies during the pause. Grant recipients should review agency grant regulations for the specific agency that granted the award as these regulations may provide additional remedies and/or procedures.
Downstream Impact on Subcontract and Supplier Arrangements
Additionally, unless subcontracts and supplier agreements under grants include in case of government suspension or stop work, downstream contractors and suppliers could seek continued payment from the grant holder notwithstanding the pause in funding. This could lead to claims and disputes with subcontractors and suppliers. Grantees should review such agreements to determine their legal rights to place subcontractor and supplier agreements on hold during the pause.
Potential Reimbursement for Pause/Termination Costs
If the pause is only temporary, recipients may potentially be able to receive a payment adjustment for reasonable costs arising out of the pause.[ii] Grantees should review their grant agreements for potential requirements to notify of additional incurred costs or changes to their budget and push agencies to expressly authorize such additional costs.[iii]
If a grant does fall within the ambit of one of the Executive Orders, however, recipients might remain concerned about longer term implications, including whether the financial assistance award will ultimately be terminated or have its funding withdrawn. Federal regulations require that agencies provide recipients with written notice of termination including the reasons for termination, the effective date, and the portion of the federal award to be terminated, if applicable.[iv] Federal agencies must also maintain written procedures for processing objections, hearings, and appeals.[v] If the termination proceeds forward, a recipient may potentially receive reimbursement for costs properly incurred before the effective date of the termination where the agency authorizes such termination costs.[vi]
Possible Legal Challenges
Receiving reimbursement for termination costs may be cold comfort for aid recipients that rely extensively on federal funding to remain afloat. In such cases, grant recipients may seek to enjoin or halt federal action to terminate the award.
Potential bases to challenge termination might include one or more of the following arguments:
OMB’s action violates the Impoundment Control Act, 2 U.S.C. § 681 et seq., which requires the President to request authority from Congress to rescind funding authorization insofar as awarded grant funds have already been obligated.
The agency’s action constitutes a breach of “contract” sufficient to invoke the Tucker Act where the grant resembles a “contract” through competitive acquisition, offer, acceptance, and consideration.
The agency’s action violates the APA, 5 U.S.C. § 706, to the extent it is in excess of statutory jurisdiction, authority, or limitations, or short of statutory right, or is otherwise arbitrary, capricious and/or contrary to law.
An APA challenge might include arguments that the agency’s action was ultra vires, violative of regulations specifying termination procedures (e.g. under 2 C.F.R. § 200.340), or contrary to constitutional protections (e.g., limits imposed by the Spending Clause, Due Process concerns, Takings Clause issues, and First Amendment concerns).
Potential Employment Implications
WARN Warning Requirements
Recipients of federal financial assistance that have employees whose positions are entirely grant-funded may be faced with the difficult question of whether it is necessary for them to furlough employees or even layoff all or part of their workforce until disbursements resume. Employers who do so may have to comply with the notice requirements of the federal Work Adjustment and Retraining Notification (WARN) Act[RAM5] [TC6] , which requires covered employers to notify employees, unions, and government officials in advance of covered plant closings or mass layoffs. Moreover, a number of states have their own “mini WARN” Acts, some of which have more onerous or expansive notice requirements. Employers who fail to comply with federal or state WARN Act requirements may be subject to government enforcement actions as well as private lawsuits from employees seeking the maximum allowable damages for noncompliance.
Layoffs and Furloughs
Employers considering temporary or permanent layoffs of employees without pay should first consider the type of action that is best suited to their workplace and employees — whether that means temporarily reducing impacted employees’ paid hours, temporarily reducing their pay, or requiring employees to take time off without pay. Employers for whom it is necessary to require employees to take time off without pay should ensure that employees do not perform any work during that time. This is particularly important for employees who are exempt from applicable minimum wage and overtime requirements, as any work they perform in a week would entitle them to pay for the full workweek. Employers should also determine whether a temporary furlough would trigger an obligation to pay out employees for any unused, accrued paid time off under applicable state law.
Finally, employers who have no choice but to furlough employees should decide whether and to what extent they are able to support employees in maintaining their benefits during the furlough period. If feasible, many employers may wish to cover both the employer and employee cost of any health insurance premiums during the furlough period, or otherwise make alternative arrangements for employees to pay their premiums directly. Employees whose hours are reduced such that they no longer meet plan eligibility requirements may be entitled to continue their coverage through COBRA. Employers who lay off employees and offer severance pay will have to determine if such pay is an allowable expense.
[i] The Executive Orders subject to the OMB memorandum include: (1) Protecting the American People Against Invasion; (2) Reevaluating and Realigning United States Foreign Aid; (3) Putting America First in International Environmental Agreements; (4) Unleashing American Energy; (5) Ending Radical and Wasteful Government DEI Programs and Preferencing; (6) Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government; (7) and Enforcing the Hyde Amendment.
[ii] See 2 C.F.R. §§ 200.305(b)(7) (“When a Federal award is suspended, payment adjustments must be made in accordance with § 200.343.”); 200.343 (“[C]osts during suspension or after termination are allowable if: (a) The costs result from financial obligations which were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and (b) The costs would be allowable if the Federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect.”).
[iii] See C.F.R. § 200.343 (“Costs to the recipient or subrecipient resulting from financial obligations incurred by the recipient or subrecipient during a suspension or after the termination of a Federal award are not allowable unless the Federal agency or pass-through entity expressly authorizes them in the notice of suspension or termination or subsequently.”).
[iv] See 2 C.F.R. § 200.341(a), Notification of termination requirement.
[v] See 2 C.F.R. § 200.342, Opportunities to object, hearings, and appeal.
[vi] See C.F.R. § 200.343.
Travis L. Mullaney, Alexandra M. Romero, Brian D. Schneider, J. Michael Showalter, Michael L. Stevens, and David Tafuri also contributed to this article.
Trump DEI Order: How Could the Administration’s Plans to Target Private Sector Impact Employers? (US)
In just his first days in office, President Donald Trump has signaled that his Administration’s efforts to curb Diversity, Equity, and Inclusion (DEI) practices will start with the federal government but may soon have sweeping impacts on the private sector. This post details President Trump’s Executive Order that directs the U.S. Department of Justice, and other agencies, to begin preparing to combat the DEI initiatives of private employers, and what’s to be expected in the months ahead.
Executive Order Details Private Sector Enforcement
Through a January 22, 2025 Executive Order, the Trump Administration directed all federal government departments and agencies to end DEI practices internally, and DEI federal employees were placed on leave. Additionally, agencies were directed to eradicate “illegal private-sector DEI preferences, mandates, policies, programs, and activities.”
The Executive Order specifically tasked the Attorney General, in concert with other agency leaders, with crafting a report containing a strategic enforcement plan and “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.” The report must be delivered to the President within four months.
The private sector strategic enforcement plan must identify the following:
• 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;• up to nine potential civil compliance investigations (per each agency) 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 one billion dollars; and• other federal litigation and regulatory opportunities.
The Administration already provided some indication as to which industries it believes are “of concern” when it pointed out in the order, “influential institutions of American society, including the Federal Government, major corporations, financial institutions, the medical industry, large commercial airlines, law enforcement agencies, and institutions of higher education” have adopted and actively use DEI policies. Requirements specific to the education sector, in alignment with Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023), also were highlighted.
What to Expect Moving Forward
A number of Trump appointees already have vowed to make rooting out DEI one of their top priorities. To carry out these promises, President Trump’s Order declares DEI eradication will be achieved through the enforcement of existing federal civil rights laws. Among the most commonly evoked federal civil rights laws, which employers must continue to comply with, are the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA) and the Age Discrimination in Employment Act (ADEA). Title VII of the Civil Rights Act specifically prohibits employment discrimination based upon race, color, religion, sex and national origin.
Although it may be difficult to predict what the Administration’s strategic enforcement plan will look like in four months, several developments may inform the trajectory of federal anti-DEI ambitions in the days ahead including: (1) the U.S. Supreme Court’s decision in Ames v. Ohio Department of Youth Services; (2) the willingness of lower courts to apply federal civil rights laws to current anti-DEI cases; and (3) the priorities of new leadership at the U.S. Equal Employment Opportunity Commission (EEOC).
(a) Ames v. Ohio Department of Youth Services.
This U.S. Supreme Court case, set to be heard in late February, could make it easier for “majority-group plaintiff[s]” to bring some employment discrimination lawsuits, which may be used to resist DEI programs in the private sector. Ames tackles the issue of whether majority groups in “reverse discrimination” cases should be subjected to a higher standard to bring a claim under Title VII of the Civil Rights Act. A handful of federal circuit courts of appeal require such plaintiffs to show “background circumstances to support the suspicion that the defendant is that unusual employer who discriminates against the majority.” While Ames is not applicable to all Federal circuits, if the Court lowers the burden for assessing what constitutes illegal bias, non-minority workers will face fewer hurdles to state a claim in a number of jurisdictions, including in anti-DEI cases which typically involve “majority-group plaintiff[s].”
(b) Currently Litigated Anti-DEI Claims.
A number of challenges to DEI policies already have been lodged in courts across the country, under Title VII of the Civil Rights Act and similar state laws. These claims typically are brought as disparate treatment, hostile-work environment and retaliation actions. The majority of the cases have only been brought within the last two years. So, legal precedent concerning their issues remains undeveloped. Some patterns have emerged though, including the survival of specifically alleged DEI-related discrimination claims challenged by a motion to dismiss for failure to state a claim, and the lack of courts to whole-heartedly apply Students for Fair Admission in the employment discrimination context.
Specific DEI Discrimination Claims Survive Early Dismissal. General opposition to DEI policies typically has been insufficient to support a discrimination claim, but specific acts of discrimination alleged in concert with a DEI policy can help a claim survive a motion to dismiss.
• De Piero v. Pennsylvania State Univ., (E.D. Pa. 2024) – In this case, a hostile work environment claim based on a series of “anti-racism” trainings survived a motion to dismiss for failure to state a claim. The court found the plaintiff properly alleged he was “obligated to attend multiple conferences or trainings that discussed racial issues in essentialist and deterministic terms—ascribing negative traits to white people or white teachers without exception and as flowing inevitably from their race.” Among the instances the court considered were a professional development meeting on multiculturalism that included “supposed examples of ‘racist’ comments” where every hypothetical perpetrator was white, and an event called “Arts and Humanities as Activism,” where the plaintiff alleged the facilitator “condemn[ed] white people for no other reason than they spoke or were simply present while being ‘white.’” The court stated that whether there is any merit to the plaintiff’s claims was an inquiry for another day, based on the specific motion. See also Johnson v. Oregon (D. Or. 2024).
• Sharpe v. Primex Garden Ctr., (E.D. Pa. 2024) – Allegations that a new company policy, which a plaintiff claimed was based on “woke” principles, viewed in concert with a manager’s decision to soften the blow of his firing by acknowledging that he “underst[ood] that white people [the plaintiff’s] age grew up in a different time” were satisfactory to survive a motion to dismiss based on disparate impact theory.
• Diemert v. City of Seattle, (W.D. Wash. 2023) – A plaintiff stated a plausible claim of retaliation based on incidents he alleged occurred as part of the city’s Race and Social Justice Initiative, when he claimed he was treated adversely following his filing of a related EEOC complaint.
• Weaver v. Ohio Farmers Ins. Co., (9th Dist. Ct. Ohio 2022) – The mere fact that an employer had a DEI policy that included a goal of increasing the number of women and minorities in leadership positions did not alone support a discrimination claim. See also Young v. Colorado Dep’t of Corr., (10th Cir. 2024) (A hostile work environment claim failed because the plaintiff did not allege specific harassment other than being “offended by the [diversity] training,” and “upset by the Department’s response when he complained about the [diversity] training.”
Limited Applicability of Students for Fair Admission. In Students for Fair Admission, Inc. v. President & Fellows of Harvard College, the U.S. Supreme Court held race-based college admissions programs violated the Equal Protection Clause of the Fourteenth Amendment of the U.S. Constitution. Following the 2023 case, courts have yet to fully endorse the holding of Students for Fair Admissions as applicable to DEI-related discrimination claims.
For example, the court in Dzibela v. BlackRock Inc., a 2024 District of New Jersey case, stated that Students for Fair Admissions did not consider the DEI policies of private employers, much less rule that such efforts were unlawful. So, an argument that Students for Fair Admission is a “precursor to much more sweeping elimination of all racial discrimination …, including DEI hiring practices by private employers under Title VII” was not considered persuasive. Despite this, applicability of Students for Fair Admission to the employment discrimination context has been discussed by courts in concurring opinions, such as the Sixth Circuits’ decision in Smyer v. Kroger Ltd. P’ship I.
(c) New Leadership at the EEOC
Tasked with guiding enforcement of federal employment antidiscrimination laws, the new Acting Chair of the EEOC may become one of the most influential people in Washington D.C. when it comes to the Trump Administration’s crackdown on “illegal private-sector DEI.” Andrea Lucas was appointed to that role on January 21, 2025. In a press release, the EEOC outlined Lucas’ day one priorities including, “rooting out unlawful DEI-motivated race and sex discrimination[.]”
Exactly how Lucas will institute private sector enforcement is unknown, but the Acting Chair has discussed her thoughts related to the topic, including diversity initiatives like voluntary affirmative action programs. In a May 2024 speech, Lucas acknowledged voluntary affirmative action programs were lawful, but further described such policies as an “extremely narrow exception to the rule.”
While the lawfulness of voluntary affirmative action programs ultimately rests with the courts, Lucas’ stated DEI priorities and a narrow reading of the law may equate to stricter enforcement related to voluntary affirmative action programs compared to prior presidential administrations.
The Squeeze is the Juice – Utilization of The False Claims Act in the DEI/Government Contracting Executive Order
On January 21, 2025, President Trump signed an Executive Order (“EO”) purporting to “End[ ] Illegal Discrimination and Restoring Merit-Based Opportunity.” This wide ranging EO contains several provisions directly affecting government contractors—one of which appears to open up government contractors to False Claims Act (“FCA”) liability relating to DEI activities.
The “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” Executive Order generally requires Federal departments and agencies to terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements. Among the EO’s many provisions it:
rescinds executive orders and Presidential memoranda related to federal actions and initiatives to promote diversity and inclusion, including Executive Order 11246 (Equal Employment Opportunity, September 24, 1965), which required government contractors to adhere to equal employment and affirmative action requirements;
directs the Office of Federal Contract Compliance Programs to immediately cease promoting diversity and holding federal contractors and subcontractors responsible for taking affirmative action; and
requires each agency head to include in every contract or grant award a term/provision that makes compliance with all applicable Federal anti-discrimination laws material to the government’s payment decisions, which includes a certification that the contractor/recipient does not operate any DEI programs that violate any applicable Federal anti-discrimination laws.
Under this last provision, each Federal contractor will be required to certify “that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Thus, the EO appears to create a cause of action under the FCA against companies that operate DEI programs.[1]
Although the EO will make proving a FCA violation easier, the Government will still face hurdles, especially due to the heightened knowledge (scienter), materiality, and causation requirements in the event a case is litigated. For example, “DEI” is in the EO, but the term is not defined, which could lead to challenges to the scope of prohibited DEI activities (as well as the EOs more broadly).
The Government’s assertion, moreover, that a statement is “material” does not, in fact, make it so. As the Supreme Court held in a unanimous opinion authored by Justice Thomas, materiality is a “demanding” standard that is not necessarily satisfied even where a contractor violates an express condition of payment or the Government could have declined to pay the claim had it known of a contractor’s violation of a legal requirement. Universal Health Servs. v. United States ex rel. Escobar, 579 U.S. 176, 194 (2016). The Escobar decision identified some facts that would be relevant to, albeit not necessarily dispositive of, materiality, such as whether the Government “regularly pays a particular type of claim in full despite actual knowledge” of violations. Although materiality is a fact-specific issue subject to considerable litigation and a Court should not grant undue weight to the Government’s own self-serving and unsupported declaration, some Courts are, alas, likely to do so.
Despite potential liability hurdles, the risk of FCA liability is real: a Federal contractor’s false certification that it does not operate any DEI programs now creates the potential for lawsuits, investigations, treble damages—potentially of all dollars received under Federal awards after certifying—and penalties of $28,619 per false claim. The financial consequences of non-compliance get very real, very fast. Even an investigation, as anyone on the receiving end of a FCA Civil Investigative Demand (“CID”) knows, is costly and distracting; litigation is more so.
The EO’s FCA provisions may serve to incentivize an entire class of whistleblowers to file suits under seal against companies with DEI programs. Whistleblower complaints identifying such companies may also be useful to implementing the EO’s provision requiring every Government agency to “identify up to nine potential civil compliance investigations of publicly traded corporations” and other entities, as well as to further anti-DEI actions likely to be taken by the current administration.
Government contractors should be aware that, as a result of the EO, the risk of potential whistleblowers is high and take action accordingly. And, even if the Government still faces challenges in successfully proving at trial FCA violation relating to a DEI certification, a “compliance” investigation under this EO—or other EOs and regulations likely to follow—and/or a CID pursuant to the FCA and resulting Government investigation is likely to be disruptive, costly, and the subject of media and public attention.
FOOTNOTES
[1] The FCA was originally designed to combat, waste fraud, and abuse of Government dollars spent from the federal fisc.
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.