In Part 1 of our blog series, we outlined the Trump Administration’s new Executive Orders (“EOs”) on Diversity, Equity, Inclusion (“DEI”) and Diversity, Equity, Inclusion, and Accessibility (“DEIA”) programs, and the current legal status of those EOs. In this second part, we provide several observations on what actions federal contractors and grant recipients might want to consider taking in response to these EOs to ensure compliance and mitigate risks.
- Review and catalog your various DEI and DEI‐related programs and initiatives. The EO directs agencies to terminate all federal DEI programs, and further directs the Office of Personnel Management (“OPM”), Office of Management and Budget (“OMB”), and the Department of Justice (“DOJ”) to work together to ensure this happens. The forthcoming FAR clause will require contractors to certify to the same. The EO also emphasizes that the Government will be looking for agencies and contractors disguising their DEI programs under other names, and directs the termination of such programs “under whatever name they appear.” Having identified all such programs will prepare you to be ready to take action quickly.
- Catalog and re‐assess your diversity‐based alliance initiatives. To be clear, we are not recommending at this point terminating all vendor diversity initiatives. We think it highly likely, however, the Government will view such programs as contrary to the spirit, if not the letter, of the EOs. While the EOs do not explicitly refer to corporate programs designed to promote disadvantaged businesses by giving them a preferential path to becoming a subcontractor or supplier, it may be hard to identify a meaningful distinction between internal DEI programs and subcontractor preference programs.
- Review your Code of Conduct, your Environmental, Social, and Governance (“ESG”) reports, your hiring materials, and your website to identify and remove language (and programs) contrary to the EOs. The EOs are very clear that they are intended to end “dangerous, demeaning, and immoral race‐ and sex‐ based preferences under the guise of so‐called ‘diversity, equity, and inclusion’ (DEI).” The Government will be looking for companies continuing to promote DEI, and especially for companies that appear to have changed the names of their programs in an effort to, in the words of the OPM, “obscure their connection to DEIA programs.” But remember, you must ensure your programs that focus on Title VII of the Civil Rights Act (which prohibits discrimination, harassment, and retaliation), the Equal Pay Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act are not identified for termination because the EOs do not eliminate the equal opportunity requirements of those laws.
- Consider terminating DEI programs that run afoul of the law, and rethinking DEI-related affiliations, sponsorships, speaking engagements, and marketing materials that are arguably covered by the EOs. You probably remember the urge to slow-roll the internal implementation of prior EOs (e.g., the COVID 14042 EO), but the recent DEI EOs are different in light of their specificity, the clear intent to unleash the DOJ to take action against contractors dragging their feet, and the near-term introduction of a new certification. Again, as noted above, this does not mean contractors must cease their legal efforts to make holistic hiring and promotion decisions. Just keep in mind, this is a fine line to walk and one that may come under intense Government scrutiny.
- Be careful not to over‐correct in a manner that creates collateral risks - retain programs focused on non‐discrimination. Although the EOs are clear and authoritative in many ways, they do not override existing federal nondiscrimination, non‐harassment, and anti‐retaliation obligations of Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, or the Americans with Disabilities Act (as amended). These laws protect employees from discrimination, harassment, and retaliation on the basis of race, color, gender, sexual orientation, sexual preference, pregnancy, religion, national origin, age, and disability. Similarly, while inconsistent state laws likely will fall prey to the Preemption Doctrine (the general rule that federal laws trump inconsistent state laws), state laws that are not inconsistent with the EOs likely remain operative, and contractors will be held accountable for compliance with those laws.
- Review and catalog contracts and grants that incorporate DEI performance requirements. The EOs contemplate the termination of all DEI (actually, DEIA) performance requirements “for employees, contractors, and grantees” within 60 days. To facilitate implementation of this directive, the EOs instruct agencies to recommend actions to align programs, including contracts and set‐aside contracts, with the EO. Additionally, the White House’s Fact Sheet describes the EOs as expanding “individual opportunity by terminating radical DEI preferencing in federal contracting and directing federal agencies to relentlessly combat private sector discrimination.” Finally, the EOs instructs agencies to inform the White House of programs that may have been “mislabeled” to conceal their true purpose.
- If you have a contract that could be suspended or terminated (e.g., providing DEI training to federal agencies, supporting foreign aid programs, etc.), take immediate steps to record and track all costs incurred relating to the stop work, suspension, or termination. The Government already has begun taking steps to pause contracts, primarily in the foreign aid space. Such pauses, whether effected pursuant to the Changes Clause, the Suspension of Work Clause, the Stop Work Order Clause, or the Terminations Clause, will create significant risks to contractors. Beyond obvious cost risks, such Government actions could create risks of disputes between primes and impacted subcontractors and suppliers.
- Prepare for the elimination of EO 11246‐based Affirmative Action obligations. The new EOs revoke EO 11246 to, among other things, ensure “the employment, procurement, and contracting practices of Federal contractors and subcontractors shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.” As EO 11246 also is an EO, the deletion is self‐executing. In other words, EO 11246 is terminated. The EOs also direct OFCCP from taking any enforcement action and to stop promoting diversity, holding contractors accountable for affirmative action, and workplace balancing.
- If you are involved in pending audits or investigations relating to EO 11246 or DEI matters, consider reaching out to the investigating agency to confirm whether they will be terminating their activities. The EOs specifically direct Federal agencies to “terminate all . . . enforcement actions.” Moreover, the Office of Federal Contract Compliance Programs (“OFCCP”) guidance states that the agency shall immediately cease “holding Federal contractors and subcontractors responsible for taking ‘affirmative action.’” Thus, it is likely that all ongoing OFCCP investigations relating to the employment of women or minorities are over.
- Ensure your internal affinity groups are not afforded privileges unavailable to non‐members. There is nothing in the EOs that prelude the existence of affinity groups within an organization. Likewise, there is nothing in the Supreme Court’s decision in Students for Fair Admission v. Harvard that precludes such groups. That said, if certain affinity groups are afforded special treatment unavailable to other groups, it is likely the Government will view them as illegal DEI programs. In early February, OPM issued guidance that helps shed some light on what kind of employee groups violate the EOs. The memorandum states that employee resource groups (“ERGs”) “that . . . advance recruitment, hiring, preferential benefits (including but not limited to training or other career development opportunities), or employee retention agendas based on protected characteristics” are prohibited. Additionally, ERGs that are open only to “certain racial groups but not others, or only for one sex, or only certain religions but not others” and events that limit attendance to only members of an ethnic group, or discourage attendance from those outside the group are prohibited. In contrast, the guidance states the following is not illegal: Affinity/resource group events that allow “employees to come together, engage in mentorship programs, and otherwise gather for social and cultural events.”
- The Memorandum cautions, however, that discretion must be exercised to ensure such events do not cross the line into “illegal DEI.” The Memorandum offers this specific warning to Government officials: “When exercising this discretion, agency heads should consider whether activities under consideration are consistent with the [EOs] . . . and the broader goal of creating a federal workplace focused on individual merit.” The Memorandum warns that, for any activities that are retained, “agencies must ensure that attendance at such events is not restricted (explicitly or functionally) by any protected characteristics, and that attendees are not segregated by any protected characteristics during the events.”
- Keep a close eye on your inbox for CO/GO notices regarding modifications to your contracts and grants. The EOs require the inclusion in every contract of a certification that the contractor does not operate any program promoting DEI that violates any federal anti‐discrimination laws. Only a few weeks after the EO was issued, certain federal agencies began including such certifications in their contracts, even before a FAR deviation was issued. On February 19, GSA issued a class deviation directing all GSA COs to remove DEI and affirmative action related FAR clauses from contracts and solicitations, however, it does not add a new FAR clause or certification requirement (yet). Relatedly, the EOs give the requirements teeth by adding a related clause that acknowledges that compliance with all anti‐discrimination laws is material to the Government’s decision to pay all invoices for purposes of the civil False Claims Act. This clause will make it much easier for the Government and whistleblowers to bring False Claims Act cases against contractors who they believe have not fully implemented the new requirements. The EOs are very clear that OMB and the DOJ must take action to implement the EOs and to excise all DEI elements of process, programs, contracts, grants, etc.
- Once your federal agreements are modified, be sure to modify your subcontracts. Remember, the goal of these EOs is “to encourage the private sector to end illegal discrimination and preferences, including DEI.” By continuing to require your subcontractors to comply with these “illegal” FAR/DFARS/Uniform Guidance (for grants) clauses, you could be viewed as running afoul of the prohibition. When your prime agreement (or higher‐tier subcontract agreement) is modified, it’s important to do the same for your subcontractors.
- Keep your Corporate Governance team in the loop. Companies should review their public disclosures (e.g., statements in the 10-Ks and 10-Qs, proxy statements, etc.) to ensure they reflect any material changes to the company’s DEI programs, including any such changes undertaken in an effort to maintain compliance with the current state of the law. Publicly traded companies are often targets of shareholder litigation related to governance matters. Companies may see a material increase in shareholder litigation as a result of the new EOs. Even where a company thoughtfully maintains legal elements of its DEI program (recall, the EOs talk only about “illegal DEI”), shareholder plaintiffs could still claim decision-makers did not adequately disclose these remaining DEI programs and/or exposed the company to needless litigation and reputational risk and/or failed to disclose such risks to the investing public regardless of the company’s response to the EOs and related caselaw.
- Ensure your internal reporting and investigation plans are up to date. In addition to the direction to the DOJ to be vigilant in pursuing contractors (and non‐contractors) that act in a manner inconsistent with the new rules, employees, competitors, and members of the general public have been incentivized to take advantage of the FCA to bring suits against contractors. We believe the DOJ will pursue contractors that do not comply with the EOs. We likewise well recognize the forthcoming contract modifications that will make it easier for whistleblowers to bring FCA cases. In fact, the Equal Employment Opportunity Commission (“EEOC”) issued two documents designed to inform workers of their rights if they believe they have experienced “discrimination related to DEI at work.” These documents could further motivate potential whistleblowers to raise allegations against their employers. It is against this background that we recommend taking a moment to ensure your hotlines, your internal investigations plans, your Mandatory Disclosure Rule policies, and your related programs and tools are up to date (including those flowing from the DOJ published guidance for corporate compliance programs).
Contractors must navigate a complex legal landscape in response to the DEI Executive Orders. By proactively adjusting DEI programs, preparing for certifications, and staying informed on legal developments, contractors can mitigate risks and ensure compliance with federal mandates.