On July 29, 2025, the U.S. Department of Justice issued a memorandum to federal agencies titled “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination”. The Guidance is intended to clarify how federal antidiscrimination laws apply to “programs or initiatives that may involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (“DEI”) programs.”
Although the Guidance’s title suggests that it applies only to entities receiving federal funding, the Guidance advises entities that are “otherwise subject to federal antidiscrimination laws, including educational institutions, state and local governments, and public and private employers” to “review this guidance carefully to ensure all programs comply with their legal obligations.”
This Guidance builds on Executive Order 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity), dated January 21, 2025, which condemns “illegal DEI discrimination and preferences” and a February 5, 2025 DOJ memorandum (Ending Illegal DEI and DEIA Discrimination and Preferences), which vows to “investigate, eliminate, and penalize illegal DEI programs. . . .” The Guidance “emphasizes the significant legal risks of initiatives that involve discrimination based on protected characteristics and provides non-binding best practices to help entities avoid the risk of violations.”
Policies and Practices Deemed Unlawful
The Guidance provides extensive examples of DEI initiatives it describes as unlawful, and which could result in revocation of federal funding or in a finding of discrimination if they knowingly fund the unlawful practices of third parties. These initiatives are as follows:
- Granting Preferential Treatment Based on Protected Characteristics. Any program or policy that gives advantages or imposes a disadvantage based on a protected characteristic is presumptively impermissible, with very narrow exceptions. These unlawful programs include scholarships or advancement programs that are only open or available to those in a particular protected category. Preferential hiring or promotion practices are also considered unlawful, as is limiting access to facilities or resources based on race or ethnicity.
- Prohibited Use of Proxies for Protected Characteristics. Seemingly neutral requirements are considered unlawful if they are intentionally used as substitutes for consideration of protected characteristics. The Guidance specifically flags cultural competence requirements, geographic or institutional targeting, and “overcoming obstacles” narratives or “diversity statements” as unlawful proxies for protected characteristics, if used in a manner that is intrinsically tied to protected characteristics in order to advantage that protected characteristic. Notably, the DOJ’s position on unlawful proxy discrimination will have potentially far-reaching impact if it is adopted by courts.
- Segregation based on protected characteristics. Any program, event, or resource that segregates participants by race, gender, or other protected characteristic is unlawful, with very narrow exceptions, except that failing to maintain sex-separated athletic competitions and intimate spaces, such as restrooms or locker rooms, violates federal law. Segregation based on protected characteristics include diverse slate policies in hiring, program participation that is limited to those who share a particular protected characteristic, quotas, and benchmarks.
- Training programs that promote discrimination or hostile environments. Unlawful DEI training programs are those that, “through their content, structure, or implementation,” stereotype, exclude or disadvantage people based on protected characteristics or that create a hostile environment. To this point, the Equal Employment Opportunity Commission has published guidance concerning “unlawful DEI programs,” titled “What to Do if You Experience Discrimination Related to DEI at Work.”
Policies and Practices Deemed “Best Practices”
The Guidance identifies best practices, which it defines as “non-binding suggestions” to help organizations comply with federal antidiscrimination laws and avoid legal pitfalls. As described by the DOJ, these best practices are to be read as “practical recommendations to minimize the risk of violations.” The best practices are as follows:
- Ensure Inclusive Access. Provide equal access to programs and resources for all qualified individuals, without discrimination based on race, sex, or other protected characteristics.
- Focus on Skills and Qualifications. Base hiring, promotions, and admissions on specific and measurable qualifications related to performance and role requirements.
- Prohibit Demographic-Driven Criteria. Discontinue any program or policy designed to achieve discriminatory outcomes, even those using facially neutral means. Importantly, this “best practice” specifically references targeting “underserved geographical areas” and “first-generation students” if the criteria is chosen to increase representation by specific racial- or sex-based groups.
- Document Legitimate Rationale. Document clear rationales for decisions that are demonstrably based on legitimate, nondiscriminatory institutional objectives.
- Scrutinize Neutral Criteria for Proxy Effects. Review facially neutral criteria to ensure that they are not proxies for any protected characteristic. Importantly, this “best practice” specifically references programs targeting “low-income” individuals, which must be applied in a manner that does not target areas of populations to achieve racial or sex-based outcomes.
- Eliminate Diversity Quotas. Focus solely on nondiscriminatory performance metrics, without reference to any protected characteristics.
- Avoid Exclusionary Training Programs. Ensure that all training programs are open to all qualified participants, and avoid grouping participants into groups based on any protected characteristics.
- Include Nondiscrimination Clauses in Contracts to Third Parties and Monitor Compliance. Incorporate explicit nondiscrimination clauses in agreements, monitor compliance, and terminate for noncompliance.
- Establish Clear Anti-Retaliation Procedures and Create Safe Reporting Mechanisms. Provide confidential and accessible processes for individuals to report concerns about “unlawful DEI,” and publish policies related to these processes.
What Does This Mean for Recipients of Federal Funding and Private Employers?
First, the Guidance does not change existing law; preferential and/or exclusionary access to benefits such as employment, internship, mentoring, and professional development programs violates federal antidiscrimination laws, albeit rarely challenged, standard practice in some organizations. Importantly, however, the Guidance signals a shift in how the government plans to enforce federal antidiscrimination laws and creates new risks for all organizations that are subject to these laws.
The Guidance’s focus on “unlawful proxy discrimination” may have the most practical impact. Facially neutral criteria may be found to be “unlawful proxies” when an organization’s use of these proxies correlate with protected characteristics. For example, neutral criteria may be considered unlawful when they are “selected because they correlate with, replicate, or are used as substitutes for protected characteristics,” or “are implemented with the intent to advantage or disadvantage individuals based on protected characteristics.” The Guidance specifically calls out “cultural competence” requirements, geographical or institutional targeting, and “overcoming obstacles” narratives or “diversity statements” as constituting potential unlawful proxies.
Finally, the Guidance does not address the scenario in which the DOJ’s interpretation of the law conflicts with applicable state or local laws, such as those that prohibit discrimination on the basis of gender identity or expression, as well as those that mandate supplier diversity for state contractors and grantees.
What Should Employers Do?
All entities subject to federal antidiscrimination laws should review their current DEI-related programs, policies, and obligations, to ensure that they comply with existing federal antidiscrimination laws and whether they would withstand scrutiny under the DOJ’s interpretation of these laws. Entities should consider whether to conduct this review under the guidance of counsel, so as to maintain the attorney-client privilege with respect to any findings. Organizations should then decide how to proceed to navigate the current landscape, to minimize their risk of costly government investigations and litigation while maintaining their commitment to the organization’s goals and objectives.
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