Companies previously known for championing DEI efforts have backtracked in an industry-wide reversal as workforce equity policies are axed, diversity quotas are reduced, and diversity officer roles are eliminated.
And Target, a retailer that made headlines for its multi-billion-dollar commitments to DEI efforts, has abruptly reversed course following Trump’s inauguration.
That marks a capstone to the recent trend of companies caving under social pressure campaigns and legal decisions that upended decades of consensus surrounding affirmative action and minority representation. Now, a day-one Trump executive order will likely expose federal contractors and subcontractors to tough fines if they continue to pursue DEI policies.
The same order also directs the Attorney General to work with agencies to investigate high-profile private companies that engage in “illegal DEI discrimination,” although it is currently unclear what further actions might be taken against them.
Federal contractors targeted
The President’s long-expected January 21 order, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, will add new pressures on DEI efforts for companies that contract with the federal government, including the threat of possible fines brought under the False Claims Act (FCA) for noncompliance.
The order reverses a series of pro-diversity executive orders, including Equal Employment Opportunity (EO 11246), the landmark 1965 order issued by Lyndon B Johnson that established affirmative action requirements for federal contractors.
The order directs the Department of Labor, which oversees federal contracts, to cease:
- “(1) Promoting ‘diversity’;
- (2) Holding Federal contractors and subcontractors responsible for taking ‘affirmative action’; and
- (3) Allowing or encouraging federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”
The order also mandates the inclusion of two new terms in federal contracts that will require contractors to certify their lack of DEI policies and compliance with Federal anti-discrimination laws. The latter term specifies that the certification is “material to the government’s payment decisions,” possibly creating exposure to the FCA.
According to the language of the order, these changes will prohibit federal contractors and subcontractors from considering “race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.”
New contractual requirements
The order will require that federal contracts include material provisions that affirm contractors’ compliance with federal civil rights law, and certifications that it does not operate programs that promote DEI.
That will likely require conformity with recent conservative judicial reversals of previous interpretations of civil rights law, including the banning of affirmative action in Students for Fair Admissions, Inc v President and Fellows of Harvard College.
While companies will have to look for future agency guidance and court decisions to determine the exact scope of the executive order, it will certainly splash cold water on current and future corporate DEI initiatives.
Liability under the False Claims Act
Under the False Claims Act, false claims are defined as material misrepresentations made to the federal government in contract. Those misrepresentations do not necessarily have to require knowledge of falsity, which creates enforcement avenues for even good-faith attempts at interpretative compliance.
That means false assurances of compliance with DEI-unfriendly civil rights law interpretations could create huge liability for federal contractors if courts side with agencies.
The FCA can penalize federal contractors more than $27,000 per false claim. Additionally, FCA lawsuits can be initiated by private citizens as qui tam actions, putting companies at risk from DEI-averse employees.