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.
Florida HR Considerations: Marijuana in the Workplace
Florida employers should take note of new developments regarding marijuana use.
First, a recent circuit court decision (which is now on appeal) held that the Florida Civil Rights Act (FCRA) requires employers to consider reasonable accommodations for off-duty medical marijuana use. In Giambrone v. Hillsborough County (Fla. 13th Cir. Ct. Dec. 10, 2024), the employee who worked for Hillsborough County as an Emergency Medical Technician (EMT) tested positive for marijuana following a random drug test. In accordance with an applicable collective bargaining agreement and the County’s Drug Free Workplace policy, the employee presented his employer and the testing doctor with a valid medical marijuana card. The County nevertheless placed the employee on administrative leave without pay. It admitted in court proceedings, however, that there had been no allegations that the employee used marijuana during work hours or that his job performance was impacted by his off-duty marijuana use.
The employee sued the County, alleging a failure to accommodate in violation of the FCRA as well as wrongful termination and breach of contract for failure to accept his state-issued medical marijuana card. Analyzing the relevant provisions of the Florida Constitution and Florida statutes legalizing medical marijuana, the court found that while the plain language of the law does not require accommodation for on-siteuse, it does require employers to accommodate the qualified patient’s off-site use of medical marijuana. Here, there was no factual dispute as to whether the employee met the definition of a qualified patient, as he suffers from anxiety, PTSD, and insomnia which “substantially limits one or more of his major life activities on a daily basis when he is not properly medicated”. Therefore, the court concluded that the employee was protected under the FCRA and the County violated the law by failing to make a reasonable accommodation. The court was unpersuaded by the County’s argument that marijuana remains illegal under federal law, specifically finding it significant that the employee’s EMT license was supervised by Florida state law and that, under the collective bargaining agreement, the employee was entitled to report the use of prescription medications authorized under federal or state law to explain positive drug test results.
As noted above, the County has appealed this decision to Florida’s Second District Court of Appeal; however, employers should proceed with caution in assessing adverse action against a medical marijuana user.
Second, on the heels of this decision, a bill was introduced in the Florida Legislature that would require public employers to consider reasonable accommodations for medical marijuana users, and there is a renewed effort to approve a 2026 voter initiative to legalize recreational marijuana for adults. While a similar measure failed to garner sufficient support in the November 2024 general election, the new initiative includes several updates to address prior criticisms, including making clear that smoking and vaping in any public place would be prohibited.
In light of these marijuana related developments, including employee marijuana use protections, Florida employers should consider reviewing their drug-free workplace policies and procedures.
Resetting the EEOC: President Trump Removes Two EEOC Commissioners
President Donald Trump removed Democratic U.S. Equal Employment Opportunity (EEOC) commissioners Charlotte A. Burrows and Jocelyn Samuels, upending the Democratic voting majority on the EEOC. This development could potentially lead to the rescission of more of the EEOC guidance pertaining to gender identity, including portions of the EEOC’s Enforcement Guidance on Harassment in the Workplace, issued in April 2024.
Quick Hits
President Trump removed two of the three Democratic commissioners on the EEOC.
The removals leave the EEOC with two remaining commissioners and likely will lead to a Republican majority that will push the president’s agenda, including recent executive orders.
The unprecedented action is likely to lead to legal challenges regarding the grounds for removing the EEOC commissioners.
According to media reports, on January 28, 2025, Commissioners Burrows and Samuels said that the White House had informed them on the evening of January 27 that they were being removed from their positions. Their removals now shift the political majority on the five-member board, as Democrats would have retained a majority through Commissioner Samuels’s term, which was to have ended in 2026.
Commissioner Burrows, who previously served as commission chair from January 2021 through the end of the Biden administration on January 19, 2025, had served as a commissioner since 2015, most recently being confirmed in November 2023 to a third term that was set to expire on July 1, 2028.
Commissioner Samuels was first appointed by President Trump in 2020 during his first term and later nominated by then–President Joe Biden for a second five-year term that was not set to end until July 1, 2026.
Two EEOC commissioners remain: Commissioner Andrea R. Lucas, whom President Trump designated as acting chair shortly after taking office, and Commissioner Kalpana Kotagal, a President Biden–appointee whose term expires in July 2027.
The removal of an EEOC commissioner without identified cause is historically unprecedented and will likely be challenged in court. Commissioners for the independent, bipartisan agency are appointed by the president and confirmed by the U.S. Senate for staggered five-year terms. According to Title VII of the Civil Rights Act of 1964, “not more than three [commissioners] shall be members of the same political party.”
While Title VII does not explicitly outline the grounds or process for removing EEOC commissioners, it has generally been understood that commissioner removal would require cause, such as neglect of duty or malfeasance. Historically, after changeovers in presidential administrations, commissioners have remained in position until their terms have ended.
In her statement posted on social media, Commissioner Samuels said that the “White House critiqued [her] views on [diversity, equity, inclusion, and accessibility (DEIA)] and sex discrimination.”
Burrows’s and Samuels’s removals coincide with President Trump’s removal of National Labor Relations Board (NLRB) member Gwynne Wilcox and the discharge of NLRB general counsel Jennifer Abruzzo.
Next Steps
Without the EEOC removals, the Democrats would have retained a majority on the Commission through the end of Commissioner Samuels’s term in 2026. However, with the removals, Acting Chair Lucas will potentially gain the votes needed to revoke more of the EEOC’s guidance regarding gender identity. The EEOC reportedly has already pulled down from its website some information and employers on LGBTQ+ worker protections.
In recent years, the EEOC has interpreted the Supreme Court of the United States’ 2020 holding in Bostock v. Clayton County, Georgia that Title VII’s protection against discrimination on the basis of sex includes discrimination on the basis of sexual orientation and gender identity. Specifically, in April 2024, the EEOC issued new workplace harassment guidance for employers, titled, “Enforcement Guidance on Harassment in the Workplace.” The guidance, which was approved by the EEOC by a 3–2 vote, recognized that the Bostock holding applied to unlawful harassment based on sexual orientation and gender identity.
More broadly, the removals come as part of President Trump’s shake-up of the federal government, including the leadership of independent federal agencies, and align with efforts to roll back many of former President Biden’s initiatives. The removals of the EEOC commissioners without identified cause, along with the removal of NLRB member Wilcox, will likely result in lengthy court battles that could reach the Supreme Court and have significant implications for the powers of the president and independent federal agencies.
Court Halts Trump Administration Order Pausing Government Grants (For Now)
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 US 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 23 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.
Elizabeth L. Horner, Alexandra M. Romero, Brian D. Schneider, J. Michael Showalter, Michael L. Stevens, and David Tafuri contributed to this article.
Happy Privacy Day: Emerging Issues in Privacy, Cybersecurity, and AI in the Workplace
As the integration of technology in the workplace accelerates, so do the challenges related to privacy, cybersecurity, and the ethical use of artificial intelligence (AI). Human resource professionals and in-house counsel must navigate a rapidly evolving landscape of legal and regulatory requirements. This National Privacy Day, it’s crucial to spotlight emerging issues in workplace technology and the associated implications for data privacy, cybersecurity, and compliance.
We explore here practical use cases raising these issues, highlight key risks, and provide actionable insights for HR professionals and in-house counsel to manage these concerns effectively.
1. Wearables and the Intersection of Privacy, Security, and Disability Law
Wearable devices have a wide range of use cases including interactive training, performance monitoring, and navigation tracking. Wearables such as fitness trackers and smartwatches became more popular in HR and employee benefits departments when they were deployed in wellness programs to monitor employees’ health metrics, promote fitness, and provide a basis for doling out insurance premium incentives. While these tools offer benefits, they also collect sensitive health and other personal data, raising significant privacy and cybersecurity concerns under the Health Insurance Portability and Accountability Act (HIPAA), the Americans with Disabilities Act (ADA), and state privacy laws.
Earlier this year, the Equal Employment Opportunity Commission (EEOC) issued guidance emphasizing that data collected through wearables must align with ADA rules. More recently, the EEOC withdrew that guidance in response to an Executive Order issued by President Trump. Still, employers should evaluate their use of wearables and whether they raise ADA issues, such as voluntary use of such devices when collecting confidential medical information, making disability-related inquiries, and using aggregated or anonymized data to prevent discrimination claims.
Beyond ADA compliance, cybersecurity is critical. Wearables often collect sensitive data and transmit same to third-party vendors. Employers must assess these vendors’ data protection practices, including encryption protocols and incident response measures, to mitigate the risk of breaches or unauthorized access.
Practical Tip: Implement robust contracts with third-party vendors, requiring adherence to privacy laws, breach notification, and security standards. Also, ensure clear communication with employees about how their data will be collected, used, and stored.
2. Performance Management Platforms and Employee Monitoring
Platforms like Insightful and similar performance management tools are increasingly being used to monitor employee productivity and/or compliance with appliable law and company policies. These platforms can capture a vast array of data, including screen activity, keystrokes, and time spent on tasks, raising significant privacy concerns.
While such tools may improve efficiency and accountability, they also risk crossing boundaries, particularly when employees are unaware of the extent of monitoring and/or where the employer doesn’t have effective data minimization controls in place. State laws like the California Consumer Privacy Act (CCPA) can place limits on these monitoring practices, particularly if employees have a reasonable expectation of privacy. They also can require additional layers of security safeguards and administration of employee rights with respect to data collected and processed using the platform.
Practical Tip: Before deploying such tools, assess the necessity of data collection, ensure transparency by notifying employees, and restrict data collection to what is strictly necessary for business purposes. Implement policies that balance business needs with employee rights to privacy.
3. AI-Powered Dash Cams in Fleet Management
AI-enabled dash cams, often used for fleet management, combine video, audio, GPS, telematics, and/or biometrics to monitor driver behavior and vehicle performance, among other things. While these tools enhance safety and efficiency, they also present significant privacy and legal risks.
State biometric privacy laws, such as Illinois’s Biometric Information Privacy Act (BIPA) and similar laws in California, Colorado, and Texas, impose stringent requirements on biometric data collection, including obtaining employee consent and implementing robust data security measures. Employers must also assess the cybersecurity vulnerabilities of dash cam providers, given the volume of biometric, location, and other data they may collect.
Practical Tip: Conduct a legal review of biometric data collection practices, train employees on the use of dash cams, and audit vendor security practices to ensure compliance and minimize risk.
4. Assessing Vendor Cybersecurity for Employee Benefits Plans
Third-party vendors play a crucial role in processing data for retirement plans, such as 401(k) plan, as well as health and welfare plans. The Department of Labor (DOL) emphasized in recent guidance the importance of ERISA plan fiduciaries’ role to assess the cybersecurity practices of such service providers.
The DOL’s guidance underscores the need to evaluate vendors’ security measures, incident response plans, and data breach notification practices. Given the sensitive nature of data processed as part of plan administration—such as Social Security numbers, health records, and financial information—failure to vet vendors properly can lead to breaches, lawsuits, and regulatory penalties, including claims for breach of fiduciary duty.
Practical Tip: Conduct regular risk assessments of vendors, incorporate cybersecurity provisions into contracts, and document the due diligence process to demonstrate compliance with fiduciary obligations.
5. Biometrics for Access, Time Management, and Identity Verification
Biometric technology, such as fingerprint or facial recognition systems, is widely used for identity verification, physical access, and timekeeping. While convenient, the collection of biometric data carries significant privacy and cybersecurity risks.
BIPA and similar state laws require employers to obtain written consent, provide clear notices about data usage, and adhere to stringent security protocols. Additionally, biometrics are uniquely sensitive because they cannot be changed if compromised in a breach.
Practical Tip: Minimize reliance on biometric data where possible, ensure compliance with consent and notification requirements, and invest in encryption and secure storage systems for biometric information. Check out our Biometrics White Paper.
6. HIPAA Updates Affecting Group Health Plan Compliance
Recent changes to the HIPAA Privacy Rule, including provisions related to reproductive healthcare, significantly impact group health plans. The proposed HIPAA Security Rule amendments also signal stricter requirements for risk assessments, access controls, and data breach responses.
Employers sponsoring group health plans must stay ahead of these changes by updating their HIPAA policies and Notice of Privacy Practices, training staff, and ensuring that business associate agreements (BAAs) reflect the new requirements.
Practical Tip: Regularly review HIPAA compliance practices and monitor upcoming changes to ensure your group health plan aligns with evolving regulations.
7. Data Breach Notification Laws and Incident Response Plans
Many states have updated their data breach notification laws, lowering notification thresholds, shortening notification timelines, and expanding the definition of personal information. Employers should revise their incident response plans (IRPs) to align with these changes.
Practical Tip: Ensure IRPs reflect updated laws, test them through simulated breach scenarios, and coordinate with legal counsel to prepare for reporting obligations in case of an incident.
8. AI Deployment in Recruiting and Retention
AI tools are transforming HR functions, from recruiting to performance management and retention strategies. However, these tools require vast amounts of personal data to function effectively, increasing privacy and cybersecurity risks.
The EEOC and other regulatory bodies have cautioned against discriminatory impacts of AI, particularly regarding protected characteristics like disability, race, or gender. (As noted above, the EEOC recently withdrew its AI guidance under the ADA and Title VII following an Executive Order by the Trump Administration.) For example, the use of AI in hiring or promotions may trigger compliance obligations under the ADA, Title VII, and state laws.
Practical Tip: Conduct bias audits of AI systems, implement data minimization principles, and ensure compliance with applicable anti-discrimination laws.
9. Employee Use of AI Tools
Moving beyond the HR department, AI tools are fundamentally changing how people work. Tasks that used to require time-intensive manual effort—creating meeting minutes, preparing emails, digesting lengthy documents, creating PowerPoint decks—can now be completed far more efficiently with assistance from AI. The benefits of AI tools are undeniable, but so too are the associated risks. Organizations that rush to implement these tools without thoughtful vetting processes, policies, and training will expose themselves to significant regulatory and litigation risk.
Practical Tip: Not all AI tools are created equal—either in terms of the risks they pose or the utility they provide—so an important first step is developing criteria to assess, and then going through the process of assessing, which AI tools to permit employees to use. Equally important is establishing clear ground rules for how employees can use those tools. For instance, what company information are they permitted to use to prompt the tool; what are the processes for ensuring the tool’s output is accurate and consistent with company policies and objectives; and should employee use of AI tools be limited to internal functions or should they also be permitted to use these tools to generate work product for external audiences.
10. Data Minimization Across the Employee Lifecycle
At the core of many of the above issues is the principle of data minimization. The California Privacy Protection Agency (CPPA) has emphasized that organizations must collect only the data necessary for specific purposes and ensure its secure disposal when no longer needed.
From recruiting to offboarding, HR professionals must assess whether data collection practices align with the principle of data minimization. Overcollection not only heightens privacy risks but also increases exposure in the event of a breach.
Practical Tip: Develop a data inventory mapping employee information from collection to disposal. Regularly review and update policies to limit data retention and enforce secure deletion practices.
Conclusion
The rapid adoption of emerging technologies presents both opportunities and challenges for employers. HR professionals and in-house counsel play a critical role in navigating privacy, cybersecurity, and AI compliance risks while fostering innovation.
By implementing robust policies, conducting regular risk assessments, and prioritizing data minimization, organizations can mitigate legal exposure and build employee trust. This National Privacy Day, take proactive steps to address these issues and position your organization as a leader in privacy and cybersecurity.
Pivotal Labor and Employment Law Issues in 2025: Healthcare
Employers in the healthcare industry will navigate a landscape marked by rapid change and evolving challenges over the course of 2025, including those related to labor organizing, workplace safety, noncompete agreements, pay transparency, and immigration.
Quick Hits
Healthcare employers will have to navigate several labor and employment law issues in 2025, including a potential continued rise in union organizing, new restrictions on the use of noncompete agreements, emerging workplace safety risks, compliance concerns, additional pay transparency laws, and immigration regulatory and enforcement changes.
The issues arise as the new presidential administration seeks to shift federal policy on several of the key issues, including labor relations and immigration.
Healthcare employers may want to monitor these developments and consider steps to adapt to this evolving landscape and remain compliant and competitive.
Here is a close look at critical issues that will shape the current environment and are poised to significantly impact the industry’s future.
Labor Organizing Efforts
Organizing efforts among healthcare professionals, notably including physicians, have been gaining momentum in recent years, in part brought on by COVID-19 pandemic. In addition, several healthcare union contracts are set to expire in 2025, meaning many healthcare employers will be engaged in negotiations that will likely impact the industry for years to come.
The National Labor Relations Board (NLRB) has issued several union-friendly rulings over the past two years, making it more difficult for employers to challenge majority union representation status and express concerns about the impact of unionization on workplace dynamics. However, President Donald Trump, who was sworn into office on January 20, 2025, has taken actions to shift the NLRB’s political leadership and policy priorities.
Restrictions on Noncompete Agreements
The use of noncompete agreements, which restrict doctors, nurses, and other healthcare employees from working for competing healthcare facilities for certain periods of time and in specific geographic areas after leaving their current employers, has faced increased scrutiny in recent years. In April 2024, the Federal Trade Commission (FTC) sought to ban nearly all noncompete agreements in employment, though federal district courts enjoined that effort in Florida and Texas (currently being considered on appeal). However, it is not expected that the new presidential administration will seek to continue with this rule.
In the meantime, states have increasingly sought to regulate noncompete agreements and restrictive covenants in employment in recent years in ways that will impact healthcare employers. Notably, Pennsylvania Governor Josh Shapiro, in July 2024, signed a law to prohibit certain noncompete agreements with doctors. The law, which went into effect on January 1, 2025, prohibits “noncompete covenant[s]” with time periods of more than one year entered into by healthcare practitioners and employers, as well as imposes certain notification requirements on healthcare employers. Notably, Pennsylvania was previously one of a dozen states with no laws restricting noncompete agreements.
Emerging Workplace Safety Challenges
Workplace safety has always been a paramount concern in the healthcare industry, given the inherent risks associated with patient care. However, recent developments in the wake of the COVID-19 pandemic have brought new challenges and heightened awareness of the importance of comprehensive safety protocols.
The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) and a growing number of states have made protecting doctors, nurses, and other healthcare workers who have direct patient interaction from workplace violence a priority. OSHA has been preparing a proposed standard on workplace violence prevention in healthcare settings, which had been slated to be released in December 2024.
Healthcare employers may want to review their workplace safety practices and ensure they address emerging risks. Updates can include additional physical safety measures, such as improved personal protective equipment (PPE) and infection control protocols, initiatives that support the mental health and well-being of healthcare workers, new technologies for risk mitigation, and continued safety training and planning.
Pay Transparency Compliance Obligations
Pay transparency compliance is also becoming an increasingly important issue in the healthcare industry as healthcare organizations strive to attract and retain top talent. A growing list of more than a dozen states and the District of Columbia have enacted pay transparency laws, requiring employers to disclose in postings for new jobs and internal promotions details such as pay ranges, benefits, bonus structures, and other compensation information. New laws in Illinois and Minnesota already took effect on January 1, 2025, with laws in New Jersey, Vermont, and Massachusetts set to take effect later in the year.
New Immigration Regulations and Enforcement
Immigration is a critical issue for the healthcare industry, which relies heavily on international talent to fill various roles, from physicians and nurses to researchers and support staff. Potential changes to U.S. immigration laws and regulations—including changes to visa requirements, work authorization processes, and other programs—in 2025 may significantly impact the ability of healthcare employers to recruit and retain skilled professionals from abroad.
Notably, the U.S. Department of Homeland Security (DHS) revamped the process for H-1B “specialty occupation” visas with a new rule that took effect on January 17, 2025. Further, in his first days in office, President Trump signed several executive orders (EO) seeking to implement more restrictive U.S. immigration policies.
Cal/OSHA Provides Guidance for Managing Post-Fire Cleanup Efforts
In light of the ongoing and devastating fires in Los Angeles County, Cal/OSHA released new guidance to ensure the safety and health of workers involved in fire damage cleanup.
Of note, Cal/OSHA’s standards may apply to some household domestic service workers. Historically, domestic service workers have not been subject to Cal/OSHA’s standards while cooking, cleaning, and providing childcare for a family. Cal/OSHA reminded employers that household domestic service workers are governed by Cal/OSHA’s standard if the workers are engaged in fire cleanup work, such as removing ash and debris and cleaning fire-damaged structures. As such, it is important for those employers who have employees performing post-fire cleaning to take note of the Cal/OSHA guidance.
As a reminder and unrelated to this recent guidance, effective July 1, 2025, Cal/OSHA will gain control over workplace safety for some household domestic services.
Key Points to Note:
Employers are required to identify and evaluate potential hazards in fire-damaged areas. This includes assessing risks such as unstable structures, hazardous materials, and environmental dangers like ash and soot.
Proper training and instruction must be provided to employees before they begin cleanup work. This training should cover the specific hazards they may encounter and the safety measures they need to take.
Employers must ensure that workers have access to and use appropriate PPE. This includes NIOSH-certified respirators, gloves, eye protection, and other necessary gear to protect against inhalation of harmful substances and physical injuries.
Cal/OSHA emphasizes the importance of adhering to existing health and safety standards. This includes regulations on heat illness prevention, confined space entry, and handling of hazardous materials.
Employers must establish and communicate clear emergency procedures. This includes protocols for evacuations, first aid, and reporting unsafe conditions.
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.
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.
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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).
The AI Workplace: Understanding the EU Platform Work Directive [Podcast]
In this episode of our new podcast series, The AI Workplace, Patty Shapiro (shareholder, San Diego) and Sam Sedaei (associate, Chicago) discuss the European Union’s (EU) Platform Work Directive, which aims to regulate gig work and the use of artificial intelligence (AI). Patty outlines the directive’s goals, including the classification of gig workers and the establishment of AI transparency requirements. In addition, Sam and Patty address the directive’s overlap with the EU AI Act and the potential consequences of non-compliance.