Understanding DOJ’s New Guidance on Unlawful Discriminatory Practices

On July 29, 2025, the U.S. Department of Justice (“DOJ”) issued a memorandum titled “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination” (the “Memo”), providing guidance on what diversity, equity, and inclusion (“DEI”) programs and policies DOJ believes may violate federal antidiscrimination laws. The Memo:

• Discusses various federal antidiscrimination laws that apply to federal fund recipients;
• Provides a “non-exhaustive list of unlawful practices” that could result in liability or “revocation of grant funding”; and
• Identifies a “non-binding” list of “best practices” to provide “practical recommendations to minimize risk of” violating federal antidiscrimination law.

The Memo is aimed at federal fund recipients, such as federal contractors, grantees, and participants in federal loan and assistance programs. DOJ states, however, that all entities subject to federal antidiscrimination laws, including all “private employers,” “should review this guidance carefully to ensure all programs comply with their legal obligations.” Following on the heels of DOJ recently launching the Civil Rights Fraud Initiative (the “Initiative”), the Memo is another step toward this administration’s pursuit of aggressive enforcement against DEI programs. The DOJ “emphasizes the significant legal risks” that federal fund recipients face for discriminatory practices that violate the guidance. The guidance, while not binding, provides a good roadmap for federal fund recipients and other organizations to review their current DEI policies and practices to mitigate potential risks.

Background

As we previously reported here and here, on January 21, 2025, President Trump signed various executive orders addressing unlawful discrimination, including an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (“EO 14173”). EO 14173 required, among other things, that federal agencies include in every federal contract and grant a term requiring the contractor or grantee to certify that it: (1) does not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws”; and (2) is in “compliance in all respects with all applicable Federal anti-discrimination laws” and is “material” to the government’s payment decision for purpose of the False Claims Act (“FCA”). To date, most federal agencies have not required contractors or grantees to provide this certification. The federal government is currently considering an interim final rule to implement EO 14173, including this certification requirement, but the rule has yet to be released.

In furtherance of EO 14173, on May 19, 2025, the DOJ announced that it was creating the Initiative to pursue FCA enforcement against “any recipient of federal funds that knowingly violates federal civil rights laws.” The Initiative established an internal DOJ team to coordinate with other federal and state agencies “to aggressively pursue” FCA enforcement actions for any entities who falsely “certify compliance with civil rights laws” under EO 14173 and encouraged FCA qui tam whistleblowers to report suspected violations of civil rights laws by federal fund recipients.

Beyond the March 19, 2025, joint guidance issued by the DOJ and the Equal Employment Opportunity Commission (“EEOC”), the administration had provided little guidance on what DEI programs it considers unlawful prior to the issuance of the Memo.

The Memo

The Memo provides the most comprehensive guidance so far on the practices that this administrative believes violate federal antidiscrimination laws. The Memo identifies the following non-exhaustive list of DEI practices that might be unlawful.

• Preferential Treatment Based on Protected Characteristics: The Memo says that granting “opportunities, benefits, and advantages” based on protected characteristics (e.g., race and gender) is unlawful except in various narrow exceptions. The Memo provides several examples of preferential treatment that would be unlawful, including:
  • “Race-based scholarships or programs,” such as internships, mentorship programs, or leadership initiatives that reserve spots for specific racial groups;
  • Preferential hiring or promotion practices, such as “prioritizing candidates from ‘underrepresented group’ for admission, hiring, or promotion” based on race or other protected characteristics; and
  • Access to facilities or resources based on race or ethnicity, such as lounges.
• Using Proxies Based on Protected Characteristics: The Memo warns that intentionally using “ostensibly neutral criteria that function as substitutes for explicit consideration of race, sex, or other protected characteristics” become “legally problematic” where they advantage or disadvantage individuals based on protected characteristics. Examples of such proxies as described in the Memo include:
  • “‘Cultural competence,’ ‘lived experience,’ or ‘cross-cultural skills’” that “evaluate candidates’ racial or ethnic backgrounds rather than objective qualifications”;
  • Recruitment strategies that “target specific geographic areas, institutions, or organizations” because of their racial or ethnic composition; and
  • Requiring applicants to describe “‘obstacles they have overcome’ or to submit a ‘diversity statement’” that discusses experiences tied to race or other protected characteristics that are used to advantage certain individuals based on their protected characteristics.
• Segregation Based on Protected Characteristics: The Memo states that providing “programs, activities, or resources” that “separates or restricts access based on race, sex, or other protected characteristics” is unlawful unless it meets narrow exceptions, such as remedial remedies for past discrimination. The Memo, however, provides that “failing to maintain sex-separated athletic competitions and intimate spaces” may violate federal law, such as allowing men to access women bathrooms could create a hostile work environment under Title VII or violate Title IX by denying women access to sex-based protections in education. Examples of unlawful segregation practices described in the Memo include:
  • Training sessions that require participants to separate into race-based groups, such as “White Ally Group”;
  • Segregated facilities and resources based on protected characteristics (other than sex-segregated private spaces), such as a “BIPOC-only study lounge,” even if access is open to all, the name could create a “perception of segregation and may foster a hostile environment”; and
  • Program eligibility based on protected characteristics, such as “DEI-focused workshop series” for “underrepresented minorities only.”
• Use of Protected Characteristics for Selections: The Memo states that using protected characteristics to select individuals for employment, contracts, or other programs is unlawful. The Memo provides the following examples of these practices:
  • Diverse slate policies, requiring a certain “minimum number of candidates be from specific racial groups”;
  • “Racial benchmarks” that mandate demographic representation in candidate pools, such as requiring a “certain percentage of finalists to be from ‘diverse backgrounds’”;
  • Awarding contracts based to “women-owned businesses” or “automatically advancing female vendors or minority-owned businesses over equally or more qualified businesses without preferred group status”; and
  • Internship, scholarship, fellowships, or leadership initiatives that use protected characteristics as a selection criterion, such as an “internship program requir[ing] that 50% of selected participants be from ‘underrepresented racial groups’” or “female students.”
• Training Programs Based on Protected Characteristics: The Memo states that “DEI training programs” are unlawful where they “exclude or penalize individuals based on protected characteristics” or create a “hostile environment through severe or pervasive use of . . . workplace training materials that single out, demean, or stereotype individuals based on protected characteristics.” The Memo notes that an example of this type of program is a “DEI training that includes statements stereotyping individuals,” such as “‘all white people are inherently privileged,’ ‘toxic masculinity,’ etc.”

DOJ’s Recommended “Best Practices”

The DOJ provides the following “non-binding” list of best practices to avoid “legal pitfalls”:

• Ensure inclusive access to all workplace programs, activities, and resources regardless of protected characteristics, and avoid organizing groups or sessions that exclude participants based on protected traits, except that “some sex separation is necessary where biological differences implicate privacy, safety, or athletic opportunity”;
• Focus on measurable skills and qualifications in hiring, promotion, and contract selection;
• Prohibit demographic-driven criteria, even ones using “facially neutral” means, if those means “are chosen to increase participation by specific racial or sex-based groups”;
• Document legitimate, nondiscriminatory institutional objectives when hiring, promoting, or selecting contracts;
• Scrutinize neutral criteria for “proxy effects” and ensure that they do not advantage or disadvantage based on protected characteristics;
• Eliminate diversity quotas and focus solely on performance metrics;
• Ensure that all trainings are open to all qualified participants and avoid trainings that “require participants to affirm specific ideological positions or ‘confess’ to personal biases or privileges based on protected characteristics”;
• Include nondiscrimination clauses in third-party contracts and monitor compliance; and
• Establish anti-retaliation procedures and create safe reporting mechanisms.

Practical Implications and Action Steps

The Memo signals that the DOJ will take a broad and expansive view of what constitutes illegal discrimination. Despite providing guidance and best practices for compliance with federal antidiscrimination laws, the Memo leaves many unanswered questions. For example:

• How can the federal government comply with federal programs to provide opportunities to women-owned businesses and historically disadvantaged small businesses (i.e., the Small Business Administration’s 8(a) program), which, in some cases, require consideration of protected characteristics?
• How can federal fund recipients meet current federal and state contractual obligations that include requirements to issue subcontracts to certain categories of businesses?
• How can companies prohibit transgender individuals from using restrooms that correspond to their gender identity given that Title VII currently prohibits discrimination based on gender identity and various state laws require employers to grant such access?
• How does the Memo’s guidance on proxies comport with the U.S. Supreme Court’s decision in the Students for Fair Admissions, Inc. case against Harvard and the University of North Carolina, in which the majority seemingly found that universities can consider an applicant’s “discussion of how race affects the applicant’s life”?

It is important to note that the Memo is not legally binding on any organization and does not change the law. Courts will ultimately decide what practices and policies violate federal antidiscrimination laws.

Nonetheless, the Memo provides key examples and insights into the types of DEI programs and policies that this administration believes violate federal antidiscrimination, and signals what types of activities may be targeted for enforcement. As such, failing to comply with the guidance could result in government enforcement actions or FCA qui tam lawsuits. The Memo might also be used by federal agencies when making decisions relating to federal contractors and grantees, including whether to terminate existing contracts or grants. Similarly, anti-DEI activists and plaintiff attorneys will likely use the guidance when pursuing discrimination claims.

Accordingly, all companies and organizations should consider taking the following actions in light of the Memo:

• Audit Current DEI Programs Under Privilege: Although many organizations have already reviewed their DEI policies and programs for risk, the Memo provides new insights into this administration’s views on potentially unlawful DEI practices. Companies should consider working with counsel to take a closer look at their policies and practices through the lens of the Memo.
• Review Neutral Criteria for Potential Risks: Given that the DOJ has signaled that it may pursue enforcement actions for facially neutral criteria that function as proxies for protected characteristics, companies should consider closely reviewing their criteria for their DEI programs, including criteria based on geography or income. Companies that have these criteria should document the legitimate, nondiscriminatory rationales for those criteria and define how and when they are used.
• Assess DEI Requirements with Third Parties: Despite the lack of any current requirement in federal law, including under the Federal Acquisition Regulations clauses incorporated into federal contracts or the Office of Management and Budget grant regulations, the Memo recommends that prime contractors and grantees include nondiscrimination clauses in contracts with subcontractors and monitor their compliance. It is unclear how this guidance would operate in practice or what type of monitoring DOJ expects prime contractors and grantees to perform. Federal contractors and grantees should consult with counsel on how best to navigate this guidance for their specific direct contracts and grants. Subcontractors being asked to sign such certifications by prime or upper-tier contractors should also consult with counsel on the best course of action.
• Review and Update Internal Controls: The Memo emphasizes that the DOJ expects companies to have clear anti-retaliation procedures and protocols in place. Accordingly, companies should review internal compliance and investigation protocols to ensure that there are effective measures for identifying and addressing potential discrimination and retaliation risks and claims. This includes ensuring implementation of procedures for timely and properly investigating discrimination complaints to mitigate risk and provide potential defenses to whistleblower claims related to EO 14173.

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