Earlier this year, we addressed a growing sense of confusion and unease among federal contractors relating to shifting diversity, equity, and inclusion (DEI) standards. Specifically, awardees had to take stock of the Department of Justice’s (DOJ) newly launched Civil Rights Fraud Initiative. DOJ explained that it intended to pursue False Claims Act (FCA) cases against “any recipient of federal funds that knowingly violates federal civil rights law,” with an emphasis on unlawful DEI workplace programs. But given this year’s abrupt shift regarding DEI standards, contractors were left to guess which conduct could put them in DOJ’s crosshairs. On July 29, DOJ elaborated on what it considers “unlawful discrimination,” issuing Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination (“Guidance”) to all federal agencies. The Guidance outlines what DOJ deems “best practices” so that any organization that receives federal financial assistance—e.g., universities, local governments, and nonprofit organizations—can take practical steps “to minimize the risk of violations.”
The Guidance, which DOJ terms “non-binding suggestions,” emphasizes that recipients should refocus antidiscrimination efforts in their operations so that they “do not discriminate on the basis of race, color, national origin, sex, religion, or other protected characteristics.” The Guidance provides several examples of what it considers to be unlawful discrimination and provides attendant best practices:
- Preferential Treatment Based on Protected Characteristics. The Guidance advises organizations to avoid practices that involve “preferential treatment,” defined as providing “opportunities, benefits, or advantages to individuals or groups based on protected characteristics.” Such programs or practices would include race-based scholarships, preferential hiring or promotion practices, and restricting access to facilities based on race, such as designating a “‘safe space’ or lounge exclusively for students of a specific racial or ethnic group.”
- Use of Proxies. The Guidance recommends against the use of “unlawful proxies,” defined as “ostensibly neutral criteria that function as substitutes for explicit consideration of race, sex, or other protected characteristics.” The Guidance lists using cultural competence, geographic targeting, and diversity statements as approaches that may be viewed as “unlawful proxies.”
- Segregation Based on Protected Characteristics. The Guidance explains that organizations should not use, for example, “race-based training sessions” or programming that requires participants to be a specific race. Notably, the Guidance carves out an exception for facilities that “are single-sex based on biological sex,” such as “restrooms, showers, locker rooms, or lodging” (i.e., dormitories). The Guidance also addresses segregation through selection processes, recommending against the use of “diverse slate” hiring policies (generating a list of candidates to interview by including specific racial groups) and “sex-based selection for contracts” (e.g., automatically advancing female vendors over equally or more qualified businesses without preferred status).
- Training Programs That Promote Discrimination or Hostile Environments. The Guidance recommends that organizations not use trainings that stereotype, exclude, or disadvantage individuals based on protected characteristics. Although not particularly prescriptive, the Guidance identifies such trainings as including statements such as “‘all white people are inherently privileged,’ ‘toxic masculinity,’ etc.”
- Best Practices. The Guidance provides several suggestions for managing legal risk, including ensuring that all workplace programs, activities, and resources are open to “all qualified individuals,” focusing on measurable skills and qualifications, prohibiting “demographic-driven criteria,” eliminating diversity quotas, and creating mechanisms so that individuals can report suspected unlawful practices.
While recipients of federal financial assistance should take note of the Guidance (and what it identifies as “unlawful discrimination”), the Guidance is also notable for what it does not address. For instance, in support of its recommendations, the Guidance points to Titles VI and VII of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, and the Equal Protection Clause of the Fourteenth Amendment. No doubt these authorities are important. But the Guidance omits reference to other applicable statutes, such as the Americans with Disabilities Act, which can apply to grantees. Moreover, the Guidance focuses on sex-based and race-based protected characteristics, and does not reference other categories that have been recognized by federal statute or judicial decision as conferring some level of protection, such as age, gender identity, and veteran status.
The shifting standards and lack of uniformity across protected classes have the potential to create uncertainty for organizations as they seek to remain compliant with their federal obligations. For example, the Department of Health and Human Services (HHS) recently updated its Grants Policy Statement to include a “Civil Rights Assurance,” which includes the following statement:
Byapplying for or accepting federal funds from HHS, recipients certify compliance with all federal antidiscrimination laws and these requirements and that complying with those laws is a material condition of receiving federal funding streams. Recipients are responsible for ensuring subrecipients, contractors, and partners also comply.
Similarly, DOJ promulgated a “Federal Civil Rights and Nondiscrimination” certification in its General Conditions for awards that explicitly references the FCA:
The recipient agrees that its compliance with all applicable Federal civil rights and nondiscrimination laws is material to the government’s decision to make this award and any payment thereunder, including for purposes of the False Claims Act (31 U.S.C. 3729-3730 and 3801-3812), and, by accepting this award, certifies that it does not operate any programs (including any such programs having components relating to diversity, equity, and inclusion) that violate any applicable Federal civil rights or nondiscrimination laws.
Certifications such as these expose noncompliant organizations to potential FCA liability. Given this clear risk, the overwhelming majority of federal contractors and grantees should tailor their operations and adhere to unobjectionable practices. But given the level of scrutiny and abrupt shift in policy in 2025, some awardees may get caught up in controversies where employees nonetheless allege discrimination. To avoid such cases, recipients should focus their efforts by carefully parsing their award terms and framing their operations in line with the expectations underpinning the Guidance. Any organization doing business with the federal government should develop compliance protocols now—not just to mitigate such risk but also to manage their operations effectively and avoid downstream bumps in the road.
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