Overview
The Trump administration sent letters to a number of European companies specifying that the Executive Order addressing private-sector diversity, equity, and inclusion (DEI) programs (Executive Order No. 14173) applies to any firm doing business with the US government, including non-US companies. (See our prior coverage of Executive Order No. 14173 here.) The expansion of President Trump's DEI focus beyond US-based companies has been met with opposition from European leaders.
American embassy officials across Europe sent the letters to companies doing business with the US government. The letter states that Executive Order No. 14173 "applies to all suppliers and service providers of the US government, regardless of their nationality or the country in which they operate." Recipients were also asked to certify, within five days, that they "do not operate any programs promoting DEI that violate any applicable anti-discrimination laws and agree that such certification is material for purposes of the government’s payment decision and therefore subject to the False Claims Act." If a company does not agree to sign the certification, it must "provide detailed reasons, which [the Administration] will forward to [its] legal services.”
These letters underscore the reality that non-US companies operating DEI programs that do not comply with US anti-discrimination laws — even those companies outside the jurisdiction of Title VII—could nonetheless face liability under other laws. Specifically, non-US government contractors, including both prime contractors and subcontractors, that falsely certify compliance with US anti-discrimination laws, as these letters require, could give rise to False Claims Act (FCA) liability. This is because claims for payment submitted to the US government could be considered materially false due to such false certifications. Companies found to have violated the FCA can be subject to civil penalties of up to $28,619, plus three times the amount of damages sustained by the government. Under the FCA, each bill or claim submitted to the government constitutes a separate violation, and if it is determined the government would not have entered into the contract if it had known that the company's practices did not comply with US anti-discrimination laws, the damages sustained by the government may be equal to the entire contract amount. Companies may also be held criminally liable under the FCA if they act with the intent to defraud the government.
In addition, although not mentioned in these letters, we anticipate that non-US issuers could also face liability from the Securities and Exchange Commission or other US regulators in connection with their disclosures related to DEI programs under federal securities laws. This could occur if, for instance, statements about DEI successes or compliance with anti-discrimination laws are materially false or misleading.
In light of these risks, foreign companies — particularly those with contracts with the US government— should take steps to evaluate their DEI programs to ensure they are not at risk of losing said contracts or facing additional investigation. Moreover, companies should consider not just federal anti-discrimination law but also the administration’s view on what constitutes an “illegal” DEI program. As the US Equal Employment Opportunity Commission's letters to law firms, as well as recent "technical assistance documents", such as "What To Do If You Experience Discrimination Related to DEI at Work" and "What You Should Know About DEI-Related Discrimination at Work," demonstrate the administration has adopted a broad view of the types of employment-related practices that are prohibited under the federal anti-discriminatory laws, which may extend beyond current Title VII jurisprudence.
All companies, including non-US companies, face a unique challenge of evaluating their DEI programs to ensure not only compliance with controlling federal anti-discrimination law but also the administration's interpretation as to what those laws prohibit. Additionally, non-US companies must consider any affirmative DEI obligations imposed by the laws of their own countries, as well as competing DEI requirements under the various US state laws. Steptoe can assist companies in navigating this complex legal landscape.
We will continue to closely monitor these developments and are available to help companies respond to any government investigations or inquiries, as well as complete risk assessments and provide compliance advice to support organizations in meeting their DEI obligations.
