What is Illegal DEI? Do I Need to Care if I’m Not a Federal Contractor?
The Skinny:
DEI stands for diversity, equity and inclusion – three laudable goals corporations in recent years have focused on, specifically on the heels of the Black Lives Matter movement.
Notwithstanding these goals, since their passage, long before either Trump administration, federal employment laws have prohibited making employment decisions based upon legally protected classes, including hiring, firing, promotion, etc., even when such decisions were made in an effort to lift up a historically disadvantaged group.
DEI was a target of the first Trump Administration, for example, its issuance of executive orders banning certain DEI trainings. It has once again become a focus point for this second Trump Administration in a more pointed manner. Trump has signed several executive orders related to abolishing “illegal” DEI programs. Examples of such executive orders include those affecting Big Law, colleges and universities, federal contractors and those receiving federal grants under the Department of Labor (“DOL”). The executive orders focus on an entity certifying it is not participating in “illegal” DEI and cancelling contracts and grants of those who are.
Certification of non-participation in “illegal” DEI is complicated for a couple reasons: it is not completely clear what qualifies as “illegal” DEI, and it may trigger a False Claim Act claim if the certifying party is found to be participating in any such “illegal” DEI.
The certification provision of Executive Order 14173 that was supposed to be effective April 21, 2025 was just enjoined nationwide as against the DOL with respect to any grantee or contractor. The rest of the order, described below remains intact for now.
Guidance recently released by the Trump Administration sheds some light on how the government may interpret “illegal” DEI and thus, how it may enforce its certification requirements.
Employers, even those who are not federal contractors or grantees, should take note of the guidance and review their DEI programs accordingly to avoid becoming a target of a discrimination investigation.
Executive Order 14173
The Trump administration’s main executive order (though there are several) related to ending DEI in the private employment space is Executive Order 14173 titled, “Ending Illegal Discrimination and Restoring Merit Based Opportunity”, signed January 21, 2025 (the “EO”). The EO states companies have adopted “dangerous, demeaning, and immoral” race and sex-based preferences under the “guise” of DEI, which violates federal civil rights laws. The EO states its purpose is to “end illegal preferences and discrimination.” There are two main pieces of the EO:
Federal Contractors:
The EO revokes a prior executive order enacted and abided by since President Johnson enacted it in 1965, which required federal contractors to ensure and include language in each federal contracting committing to: no discrimination and to take affirmative action related to the non-discrimination (the “Johnson EO”). Trump’s EO revoked the Johnson EO, effective April 21, 2025.
Trump’s EO also directed the OFCCP to cease promoting DEI and affirmative action requirements and to no longer permit federal contractors to engage in any “workforce balancing” based upon race, color, sex, sexual preference, religion or national origin.
Subject to the preliminary injunction entered by the Illinois court discussed below, effective April 21, 2025 was when the EO’s new contracting certification laws were to go into effect. Trump’s EO would require new language in all federal contracts requiring federal contractors to certify that they are in agreement and compliance with all aspects of the anti-discrimination laws, they do not operate any programs promoting DEI that violate federal anti-discrimination laws and that such provisions are a material term in the contract.
The specific statement that such representations are a material term invokes the False Claims Act (“FCA”), which establishes liability for any person who
“knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”
Any person under the FCA means any person, including the employee who may have signed the certification or provided the information regarding upholding the certification. The penalties include criminal liability, expulsion from future federal contracts, and carry hefty fines, including three times the amount of damages the government may sustain as a result of the false representation. Additionally, the FCA incentivizes individuals to report on potential FCA violations through its whistleblower program, which may lead to employees, disgruntled or otherwise, from claiming that their employer is participating in illegal DEI programs.
Private Employers:
The EO “encourage[s] the private sector to end illegal discrimination and preferences, including DEI,” and directs its administration to compile a report for its review of the “most egregious and discriminatory DEI practitioners.” The EO fully directs each agency to provide up to nine potential civil compliance investigations for publicly traded corporations, large nonprofits and other institutions.
The EO closes stating that it will be implemented consistent with applicable law. Initially, the EO was enjoined by a Maryland District Court, but the Fourth Circuit found the EO was limited in scope and did not indicate all efforts to advance DEI were illegal, should not be interpreted to do so, and thus, the Circuit Court stayed the preliminary injunction issued by the Maryland District Court. The government argued, and the Court agreed that the certification and enforcement applied only to conduct that would otherwise violate the federal anti-discrimination laws. The government in their papers also appeared to indicate lawful DEI programs could exist. Both the EO and the government’s arguments in support of the order during the court proceedings indicate that the administration is not declaring anything newly illegal, but instead, enforcing the federal anti-discrimination laws that have long existed as against DEI that may have been incorrectly enacted. Of course, as we have seen several times from the Trump administration, interpretations can differ wildly under the law, so what that enforcement looks like in practice still remains to be seen.
Guidance Regarding the EO and Illegal DEI
Since the EO has been issued and initially upheld, the Trump administration has provided some information on how it may interpret and enforce “illegal DEI.”
On February 5, Attorney General Pamela Bondi issued a memo directing the DOJ to investigate, eliminate and penalize illegal DEI in the private sector. The memo described such programs as those that “discriminate, exclude, or divide individuals based on race or sex.” The memo specifically excepted “educational, cultural, or historical observances-such as Black History Month, International Holocaust Remembrance Day, or similar events-that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination.” The memo further directed the Civil Rights Division and Office of Legal Policy to report to the Attorney General the key sectors of concern within each department’s jurisdiction and those who were the most egregious practitioners of illegal DEI.
On the same date, the Office of the Personnel Management directed federal agencies to cease all illegal DEI initiatives, which it classified as those “motivated in whole or in part, by protected characteristics.” Examples provided included, ending unlawful diversity requirements for the composition of hiring panels and hiring pools, and prohibiting employee resource or other affinity groups from restricting membership, attendance, training or any other resource on the basis of a protected class.
On March 19, the EEOC issued two pieces of guidance related to DEI directed at employees – “What You Should Know About DEI-Related Discrimination and Work” and “What to Do if You Experience Discrimination Related to DEI at Work.” The guidance notes that DEI is broad term that is not defined in Title VII of the Civil Rights Act. The guidance further clarifies DEI initiatives, policies, programs or practices may be unlawful if it requires an employer to take any employment action motivated, in whole or in part, by an employee’s legally protected class.
The guidance specifically states that any disparate treatment, including DEI-related disparate treatment that provides “some harm” would be illegal, including with respect to: hiring, firing, promotion, demotion, compensation, fringe benefits, access to or exclusion from training or leadership development programs, access to mentoring, sponsorship or workplace networking, admission to internships/fellowship programs, selection for interviews (including placement or exclusion from a candidate slate or pool), assignment of job duties/work assignments. Limiting, segregating or classifying workers based upon their protected classes would also be violative of the law, including with respect to access to company time, facilities, employer encouragement, clubs or groups, or DEI training (even when those separated groups receive the same training). Specifically, the guidance calls out as improper resource groups or other affinity groups that may limit membership or participation to certain protected classes. The guidance also clarifies that discrimination may occur against all individuals, not just those who are a minority or historically underrepresented, and that the same standard of proof applies to all claims, regardless of the complainant’s race. The guidance further notes:
Employers instead should provide “training and mentoring that provides workers of all backgrounds the opportunity, skill, experience, and information necessary to perform well, and to ascend to upper-level jobs.” Employers also should ensure that “employees of all backgrounds . . . have equal access to workplace networks.”
The guidance clarifies an employer’s clients or customer’s preference related to race or a goal for diversity are not excuses for any otherwise discriminatory actions. This may be applicable, for interest, in assessing a client’s preference for a diverse staff to work on a particular project – assigning individuals to a client based upon their race to fulfill that client’s request for a diverse staff would be discriminatory.
Likewise, the guidance clarifies that certain DEI training may be discriminatory depending upon its content, application or context, and that employees who oppose DEI training or policies could be protected under the law from retaliation where the employee provides a clear basis for their belief that the training violated the law.
One More Shot in Court at the Executive Order
On April 14, 2025, the District Court for the Northern District of Illinois entered a nationwide preliminary injunction against the DOL from requiring any grantee or contractor from having to certify it does not engage in any illegal DEI pursuant to the EO finding the language in the EO was too vague to require a certification without any definition of what illegal DEI was and violated the plaintiff’s free speech “outside the contours of the federal grants”. The court also enjoined the DOL from terminating the plaintiff’s contract pursuant to the EO, but limited that finding only to the plaintiff, rather than extending it nationwide.
What Does This Mean for Employers Who Still Value the Tenets of DEI?
Based on the Illinois District Court ruling, the implementation for the certification portion of the EO, which was set for Monday, is now enjoined as against the DOL until further notice. However, note that this injunction enjoins only one federal agency, so if an employer is contracting with, for instance, the Department of Defense, the injunction does not apply. Additionally, the government is free to otherwise enforce its order to root out what it views as illegal DEI both with federal contractors and non-contractors alike, which the government has indicated they plan to do, and aggressively. As such, all employers should still take action to ensure their policies are in alignment with the law.
Based upon the representations and the guidance the government has provided thus far, employers need not wholesale eliminate their DEI programs and policies. However, they should be specifically cautious with how the diversity piece is being interpreted and implemented, ensure that no employment decisions are being made in any way related to a protected class and focus on ensuring all employees are included. Employers should immediately review their policies and practices to ensure they are in line with the law and this guidance. Employers will also want to review their communications both internally and externally – things like SEC filings, their websites, recruiting materials and messages to employees to see what, if anything, those documents reference regarding DEI and whether they are in line with this new guidance. Each policy or practice should be reviewed for potential risk.
Even prior to this administration, actions like quotas or directives to a hiring team to hire more of a particular protected class were prohibited under federal law. Certainly, any such actions or any effort to rebalance the workplace based upon certain protected classes, such as requiring a certain number of women to be interviewed for a position or requiring only people of color to be considered for a position will be a focus for this administration. Whether generalized aspirational goals (e.g., we hope to have increased the number of women in management by 30% in the next five years), which previously were permitted under the law will be permitted under this new guidance is unclear but seems very unlikely and likely puts an employer at risk for an argument that such goal is a quota or illegal workforce rebalancing, particularly if a federal contractor.
Human resources and managers and anyone involved in the hiring process should be trained extensively on these issues to ensure they fully understand your company’s definition and implementation of DEI, to the extent you decide to keep your program. It is essential to ensure they do not promote a message that is inconsistent with the law. Much of what is listed in the guidance has been illegal since the passage of the federal employment laws, but in practice, the message of proper DEI may have been lost, and in some cases devolved into something like, “we only need to hire women for this position”, which is discriminatory. This improper messaging, in part, has caused the backlash against DEI we’re seeing now, and it is critical to ensure that everyone understands employment decisions should never be based upon a protected class, even when well intentioned. To that end, it will be crucial for decisionmakers to clearly document their reasons for hiring, firing, promotions, etc. to avoid claims of discrimination in the decision making process.
Additionally, employee groups or affinity groups and their communications should be reviewed and monitored to ensure that such groups are consistent with the guidance inasmuch as they are not segregating individuals or conditioning attendance, participation or any benefit upon individuals’ protected classes.
Finally, with the fever pitch surrounding DEI right now, it will be imperative for employers to promptly investigate all claims of discrimination and harassment. The federal government, and particularly for those employers that are federal contractors, has invited employees to report their grievances to the government. In addition to potentially collecting typical damages such as back pay and emotional distress, in the case of a federal contractor, far more damages may result, if it can be proven the contractor engaged in illegal DEI practices.