Overview
If there was any doubt about the administration's proclaimed focus in 2025 on using the False Claims Act as a vehicle of enforcement against "illegal DEI" (diversity, equity, and inclusion), two recent pronouncements by the administration should dispel any such doubt. The first occurred during a panel discussion at the Federal Bar Association's Qui Tam Conference in February 2026, DOJ Deputy Assistant Attorney General Brenna Jenny (DAAG Jenny) explained DOJ's new approach to enforcement of DEI corporate programs under the False Claims Act (FCA). The second occurred on March 26, 2026, when the administration issued Executive Order (EO) 14398, which turns federal policy goals into enforceable contractual obligations. Both DAAG Jenny's February comments and Executive Order 14398 confirm that enforcement against illegal DEI, at least when it comes to federal contractors and grant recipients, will continue to be an FCA enforcement priority. Both also make clear that FCA enforcement will focus on all programs—regardless of whether they are termed as DEI—that discriminate by race, gender or other protected class. Although these pronouncements bring some clarity to the ambiguities created by the administration's pronouncements in early 2025, there remains some uncertainty regarding the parameters of the administration's DEI enforcement, and federal contractors and grantees should continue to tread carefully in this area through close assessments and monitoring of their DEI practices, and the implementation of a robust internal reporting and investigation process.
Background
On the first day of his second term, President Trump issued Executive Order 14173, restricting federal agencies, contractors, and grant recipients from promoting "illegal" corporate DEI policies deemed to violate anti-discrimination laws. Steptoe's alert detailing the executive order is available here. The EO also directed agencies to require their contractors and grantees to certify that they have not engaged in any "illegal DEI" practices, that they do not operate any DEI programs that violate "federal anti-discrimination laws," and that such certification is material to the agency's payments under the contract. After former Attorney General Pam Bondi was sworn in in February 2025, she issued a memorandum on February 5, 2025, entitled "Ending Illegal DEI and DEIA Discrimination and Preferences" (February Bondi Memo). That memorandum contained recommendations to "encourage the private sector to end illegal discrimination and preferences, including DEI." However, neither EO 14173 nor the February Bondi Memo defined what the administration considers to be "illegal DEI". What constitutes "illegal DEI" continues to be unclear, though the administration has since provided some examples.
In its announcement of the "Civil Rights Initiative" in May 2025, DOJ emphasized that entities receiving federal funds must ensure compliance with federal law and avoid discrimination based on protected characteristics. The DOJ announcement also provided a non-exhaustive list of unlawful DEI-related practices, including race-based scholarships or programs, preferential hiring or promotional practices, and access to facilities or resources based on race or ethnicity. The announcement also flagged that "[t]he use of terms such as ‘DEI,' ‘Equity,' or other euphemistic terms does not excuse unlawful discrimination or absolve parties from scrutiny regarding potential violations."
After the May DOJ Memorandum that created the Civil Rights Initiative and responded to the February Bondi Memo, AG Bondi issued guidance for all recipients of federal funding that sought to emphasize legal risks of initiatives that involve listed unlawful practices on July 29, 2025 (July Bondi Memo). The non-exhaustive list includes preferential treatment, race-based scholarship or programs, use of proxies, and segregation based on race, while maintaining segregation based on gender. Steptoe's alert detailing the July Bondi Memo is available here. The July Bondi Memo follows similar language from prior EEOC guidance, which rejected entities that receive federal funds from "discriminat[ing]" based on race, color, national origin, sex, religion, or other protected characteristic. Although federal guidance from AG Bondi, the DOJ, and the EEOC have emphasized a prohibition against antidiscrimination practices involving protected characteristics, ambiguities regarding what specifically constitutes "illegal DEI" subject to FCA enforcement remain.
Similarly, the EEOC issued guidance in December 2025 on what Americans should know about discrimination at work but expressly acknowledged that the term "DEI" is a broad term that is not defined in Title VII of the Civil Rights Act of 1964. The guidance advised that under Title VII, the EEOC prohibits disparate treatment and certain practices may be unlawful if they involve an employer or other covered entity taking an employment action motivated by an employee's or applicant's race, sex, or another protected characteristic. Steptoe's alert detailing the guidance is available here.
DAAG Jenny's February 2026 Speech
Deputy Assistant Attorney General Brenna Jenny attempted to resolve some of these ambiguities in a speech she delivered at the FBA conference. In that speech, DAAG Jenny made clear that DOJ's False Claims Act enforcement will focus on alleged violations of federal anti-discrimination laws, rather than the mere existence of corporate DEI programs.
DAAG Jenny explained that the administration's ongoing investigations are targeting allegedly discriminatory employment "programs and practices," regardless of whether they exist under formal DEI programs. Therefore, the labeling and stated intent of a program does not matter; companies may maintain current DEI initiatives that are labeled as such and still be perfectly compliant with federal law; or, alternatively, a company may violate the administration's outlined anti-discrimination rules even without labeling a practice as DEI‑related.
DAAG Jenny provided several examples of corporate practices that would constitute violations:
- Creating and tracking demographic goals that have no connection to remedying underutilization within the Office of Federal Contract Compliance Programs framework;
- Tying employee compensation to the achievement of corporate demographic goals;
- Requiring employees to develop their own DEI goals that affect their compensation and promotion;
- Executive training and mentoring programs where participation is restricted based on race or sex; or
- Maintaining "diverse slate" policies, i.e., ensuring that candidates from underrepresented groups are included in a pool of candidates during the hiring process.
DAAG Jenny also emphasized that legal risk arises when participation in such programs or practices has a nexus to hiring or promotional outcomes, which would render the practice impermissibly discriminatory.
Executive Order 14398
More recently, the administration continued expanding its efforts to limit DEI practices in federal procurement. On March 26, 2026, President Trump issued a new executive order EO 14398 titled "Addressing DEI Discrimination by Federal Contractors." EO 14398 directs executive departments and agencies to ensure that "contract-like instruments" include a clause requiring contractors to refrain from "racially discriminatory DEI activities." A copy of the EO can be found here. Unlike the term "illegal DEI" used in EO 14173, in EO 14398, "racially discriminatory DEI activities" was defined as "disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity's resources." The clause requirement also mandates that contractors furnish all information and reports for purposes of "ascertaining compliance" with the clause requirement and report any violations of the clause requirement to the contracting department or agency. The clause must also include an acknowledgement that compliance with the clause is material to the "Government's payment decisions" under the False Claims Act.
Practical Impact
The DOJ's clarified FCA enforcement approach creates a heightened-risk environment for entities whose talent development, leadership training, or performance‑management systems include practices that could be interpreted as directly using race or sex as a factor in employment decisions—even such practices that were viewed as permissible under prior administrations. Organizations should expect:
- Increased investigative scrutiny of the relationship between demographic data collection activity, demographic goals, and employment outcomes.
- Closer examination of mentoring, leadership, and executive‑pipeline programs, both in design and in operation, particularly where eligibility is restricted to certain demographic groups.
- Increased whistleblower activity that may form the basis of FCA investigations. In practice, companies should anticipate heightened scrutiny of internal complaints alleging reverse discrimination or inconsistencies between stated policies and actual practices. Companies at risk should therefore have in place policies and procedures that encourage internal whistleblowing and protect whistleblowers from retaliation, as well as robust and agile internal investigation protocols that permit the thorough and expedient disposition of credible allegations.
Companies would be well-advised to undertake the daunting task of setting an institutional culture that values demographic diversity and seeks to protect employees from both outright and implicit bias, but doing so while not running afoul of federal antidiscrimination law. Given the administration's proclaimed priority of enforcing federal civil rights laws, and in particular "illegal DEI" programs, federal contractors and other recipients of federal funds should reassess their internal hiring, promotional, and other Human Resources practices to ensure alignment with federal expectations while maintaining permissible inclusion goals. Steptoe continues to monitor developments in this area across practice industries and remains ready to advise how these developments may affect your organization. Please see Steptoe's DEI-focused news alerts from our DEI Enforcement Response Team, to be found here.
