Overview
The new Trump administration believes that diversity, equity, and inclusion (DEI) programs are being used as a guise to commit "dangerous, demeaning, and immoral" civil rights violations. As one of his first actions back in office, President Trump signed an executive order titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity." It instructs the Department of Justice (DOJ) and other agencies to institute investigations and promulgate regulations aimed at ending those DEI initiatives that the administration perceives to be illegal throughout the United States. The order asserts that certain DEI practices constitute race- and sex-based preferences in violation of civil rights law and calls for their termination across various institutions, including federal agencies, private companies, and higher education. In a related fact sheet, the administration also identified a goal of moving toward a "colorblind" workplace, and indicated at least for the federal workforce that no hiring, promotions, or performance reviews will consider DEI-related factors, goals, or policies under any circumstances. Companies with DEI programs should evaluate their exposure and consider adjustments or other defensive measures in the event they are targeted.
Section 4(b) of the order specifically covers private sector companies and organizations. It requires the DOJ to recommend measures 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 order directs the DOJ to identify:
- key sectors of concern;
- the most egregious and discriminatory DEI practitioners in each sector of concern;
- specific deterrent measures for perceived illegal discrimination or preferences;
- potential federal litigation against private sector organizations;
- and potential regulatory action.
The order then specifies that, as part of these efforts, the agencies must each identify up to nine potential civil compliance investigations of:
- publicly traded corporations;
- large nonprofit corporations or associations;
- foundations with assets of at least $500 million dollars;
- state and local bar and medical associations; and
- institutions of higher education with endowments over $1 billion.
Based on the order's directives, the DOJ and other federal agencies are expected to soon initiate compliance investigations into and litigation against private sector DEI programs. This introduces greater risk of companies with DEI programs being targeted by federal and state civil rights enforcement actions, including Title VI and VII litigation for employment and beneficiary discrimination. Additionally, the order's view of DEI programs as tools of "illegal discrimination" could give rise to class action litigation and state attorneys general investigations, as well as False Claims Act liability for companies doing business with the federal government or working under federal grants, particularly where the receipt of federal funds is tied to certifications of general compliance with federal law or Title VI or VII of the Civil Rights Act of 1964. Following in the footsteps of recent Republican state attorneys general and House Judiciary Committee Environmental, Social and Governance investigations, these new requirements may also increase risk of antitrust investigations and litigation if DEI initiatives are construed as arising from pledges to trade groups, agreements among competitors, or information or best practices shared among companies.
Additional challenges may arise for companies where state laws or regulatory bodies require or encourage DEI programs, creating potential conflicting requirements.
Moreover, federal contractors, grant recipients, and their subawardees face new obligations under the order and a sudden change to a long-standing regulatory regime. The order requires contractors and grant recipients to certify they do not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws. The order also revokes prior executive orders imposing Equal Employment Opportunity requirements on federal contractors, per Section 3(a). Companies that do business with the federal government (either as prime contractors or subcontractors as opposed to grant recipients) will have questions about the impact of the order on currently awarded contracts that, by their terms and under existing regulations, mandate implementation of affirmative action programs, nondiscrimination policies, demographic reporting, and employment notices. For example, prime contractors and subcontractors will need to evaluate whether an executive order can rescind contract terms or federal regulations without notice-and-comment rulemaking, and they may have to balance compliance with both the order and overlapping state DEI requirements. As a result, with only 90 days to come into compliance, federal contractors will have to navigate the impact of the order in a gray zone if and until there is further guidance or rulemaking – all under the threat of government investigation and litigation.
Other companies with DEI programs must also take steps to protect themselves from potential federal and state investigations and litigation. Steptoe – a firm specializing in government-facing problems and litigation – can assist in navigating the new and complex legal landscape created by the executive order, helping our clients mitigate risks, defend themselves against potential investigations and lawsuits, and preserve insurance coverage. Our team, comprised of former Department of Justice Civil Rights Division and Antitrust Division officials, state AG officials, and others adept in compliance and internal investigation, government contracting, federal financial assistance, and a host of other relevant experience can offer independent audits of DEI programs, policies, or initiatives and their implementation to strengthen compliance with relevant federal and state laws. We can also make recommendations to reduce legal risks associated with maintaining diversity initiatives, and provide defense in government litigation and investigations into DEI programs. For federal contractors, grant recipients, and subawardees, we can help clients balance the risks of competing requirements and develop contingency plans based on the current uncertainty, including how best to preserve or limit DEI programs when faced with conflicting regulations, contract terms, and state requirements.
Each company must make its own decision about DEI initiatives, weighing the benefits to its business against the new investigation and litigation risks. But with this new threat present, these reevaluations should happen now. Steptoe stands ready to help companies make that assessment.
