On July 30, 2025, the Department of Justice (“DOJ”) issued guidance to recipients of federal funds that reiterates the Trump Administration’s view that federal antidiscrimination laws apply to Diversity, Equity, and Inclusion (“DEI”) programs and initiatives, even in cases where employers have re-labeled the programs to avoid scrutiny. The guidance explains that programs that use “ostensibly neutral criteria” as “unlawful proxies” or “substitutes for explicit consideration of race, sex or other protected characteristics” violate federal law. It also gives a non-exhaustive list of programs and policies that are considered illegal, and offers non-binding best practices to help entities that receive federal funds avoid the risk of legal violations and the revocation of federal funding. The guidance also affirms the federal government’s ongoing scrutiny of this area and the potential for enforcement actions.
Although not legally binding, the guidance constitutes the most comprehensive articulation of the Trump Administration’s views on programs and policies that constitutes “unlawful” DEI. The Administration first placed this issue in the spotlight on January 21, 2025, when President Trump signed Executive Order 14173, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity (“EO 14173”). As we explain in our February 13, 2025 Insight entitled “DEI Executive Order Implies Threat of FCA Litigation,” this new EO 14173 revoked prior Executive Order 11246 (“EO 11246”), which required federal contractors to implement affirmative action programs for women and minorities. EO 14173 also directs federal agencies and government contractors to end “illegal preferences and discrimination,” which may include “illegal DEI,” and directs the head of each government agency to (1) include a term in every contract or grant award stating that compliance with federal anti-discrimination laws is “material” to payment and (2) require contractors to certify that they do not operate any DEI program violating such laws, which appear designed to meet the elements of an action under the federal False Claims Act, 31 U.S.C. § 3729 (the “FCA”).
What’s the Status of EO 14173’s “Strategic Enforcement Plan?”
Notably, EO 14173 previewed that the government would be investigating companies and organizations for potential “illegal” DEI. Specifically, that EO required the Attorney General, within 120 days of the EO, in consultation with the heads of relevant agencies and in coordination with the Director of OMB, to submit a report to the Assistant to the President for Domestic Policy “containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” The report also was required to include “a proposed strategic enforcement plan” identifying “[k]ey sectors of concern,” the “most egregious and discriminatory DEI practitioners in each sector of concern,” and “specific steps or measures to deter DEI programs or principles (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences,” and “[o]ther strategies to encourage the private sector to end illegal DEI discrimination and preferences.” It also required each government agency to identify “up to nine potential civil compliance investigations” of publicly traded companies, large non-profit corporations or foundations, bar or medical associations, or institutions of higher education.
The Attorney General’s report was due to the White House on May 21, 2025. To date no such report has been publicly discussed or released. Accordingly, it remains unknown which entities have been identified by one or more government agencies on a so-called “list of nine” and slated for civil compliance investigations.
Recently, however, the DOJ reportedly has begun issuing Civil Investigative Demands (“CIDs”) to publicly-traded companies inquiring about their DEI programs and practices and raising concerns about potential violations of federal anti-discrimination law and that potential false claims—and violations of the FCA—may have resulted.
Additionally, on May 19, 2025, the DOJ announced a new Civil Rights Fraud Initiative focused on bringing FCA cases to address violation of civil right laws. The announcement highlighted that the FCA may be implicated “whenever federal-funding recipients or contractors certify compliance with civil rights laws while knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through diversity, equity, and inclusion (DEI) programs.” The initiative is co-led by the Civil Fraud Section, a Washington, D.C. based office that enforces the FCA and coordinates these cases, and the U.S. DOJ’s Civil Rights Division, which has responsibility for enforcing civil rights laws.
Why Did OFCCP Invite Contractors to Voluntary Report Efforts to Comply with EO 14173?
In addition to the DOJ developments described above, on June 27, 2025, OFCCP Director Catherine Eschbach issued a letter to federal contractors inviting them to voluntarily submit information detailing the efforts they’ve taken to comply with EO 14173, including efforts to “wind down” their affirmative action programs under EO 11246. The letter explains that although the regulations implementing EO 11246 “expressly prohibited unlawful discrimination” and stated that workforce balancing efforts and “regulatory placement goals” “should not operate as quotas,” in practice, “many federal contractors improperly engaged in such conduct in reaction.” The letter goes on to explain that the now-revoked regulations “may have led contractors to engage in unlawful disparate treatment based on race and sex in hiring and employment decisions.” The letter then invites federal contractors to disclose to OFCCP whether they “reviewed their EO 11246 affirmative action efforts,” “whether they believe any modifications to employment and recruitment practices are necessary,” and “if so, what those changes are and steps the federal contractor has taken to modify those practices.” The letter also gives examples of such practices, including “making trainings, sponsorship programs, leadership development programs, educational funding, or other privileges of employment available only to employees of a certain race or sex” or “using applicants’ or employees’ participation in race- or sex-related (internal or external) groups or organizations as a ‘plus factor’ or proxy for race or sex in employment and hiring decisions.”
Although responding to OFCCP’s letter is voluntary, it explains that contractors have 90 days to submit the requested information. The 90-day window ends on September 25, 2025, which is just a few days before the end of OFCCP’s fiscal year. Additionally, the Department of Labor’s Proposed Budget for FY2026 proposes to eliminate OFCCP. Accordingly, it remains to be seen what OFCCP intends to do with any information submitted, including whether it will be shared with DOJ and the White House in connection with efforts to enforce EO 14173 through the FCA.
How is the FCA Implicated in the Context of EO 14173 and Unlawful DEI?
As explained in our earlier Insight, the FCA is a powerful anti-fraud enforcement mechanism that allows the government to investigate and take action against any party that knowingly submits a false claim seeking a government payment. In the context of EO 14173 and allegedly “unlawful” DEI programs, the knowingly false statement presumably would be a contractor’s certification that it does not operate any program that violate federal anti-discrimination laws, including DEI programs, where it knew, or at least recklessly disregarded, that this statement was false at the time the claim for payment was submitted.
FCA suits can be brought directly by the government or by private parties on behalf of the government, through the statute’s qui tam provision. These private parties (also referred to as “relators” or “whistleblowers”) can receive a significant financial reward if the case is successful, up to 30 percent of the total amount recovered. The FCA can impose significant damages and penalties, which can be based on value of the government contract at issue and can be multiplied by three (i.e. “treble damages”); and/or per claim penalties of up to $28,619.
How Can Companies Mitigate Risk Related to EO 14173?
Given the possible exposure and these recent developments, companies—including federal contractors—should take EO 14173 seriously. Contractors also should be thoughtful about whether and how to respond to OFCCP’s June 27, 2025 letter before the deadline of September 25, 2025, and should consult with counsel on this issue. Additionally, companies should continue to review all DEI and related programs and communications to ensure they are lawful, with a particular focus on whether any practices or programs might be construed as using “proxies” for the unlawful consideration of race, gender or other protected characteristics in employment decision-making. Federal contractors also should be mindful of any certifications made in connection with DEI programs, and all companies are well-advised to ensure they have in place a robust set of non-discrimination policies and trainings, and address the issue in their codes of conduct and other core guidance, and ensure an effective process is in place to allow employee complaints and investigate and address any concerning discrimination and potential whistleblowing.
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