A new approach: Targeting “illegal DEI” with the FCA

The FCA as an anti-DEI enforcement tool

On January 21, 2025, President Trump issued EO 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity. EO 14173 states that the government will take steps to cause the private sector to end DEI program­s that the Administration views as inconsistent with federal civil rights laws. A defining feature of EO 14173 is its directive to leverage the FCA as a means of enforcing compliance with federal anti-discrimination laws in the context of DEI initiatives.

EO 14173 does this in two key ways. First, the EO directs agency heads to include terms in every federal contract and grant award, requiring contractors and grantees to:

• Agree that compliance with “all applicable Federal anti-discrimination laws is material to the government’s payment decisions” for FCA purposes; and
• Certify that they do not operate any programs promoting DEI that violate federal anti-discrimination laws.

Second, EO 14173 directs the Attorney General to create a strategic enforcement plan “to encourage the private sector to end illegal discrimination and preferences, including DEI.” The EO instructs agencies to identify potential targets for DEI-related civil compliance investigations and requests that the Attorney General identify DEI-related litigation appropriate for federal involvement.

Building on EO 14173, Attorney General Pam Bondi has issued a series of memoranda, including Ending Illegal DEI and DEIA [Diversity, Equity, Inclusion, and Accessibility] Discrimination and Preferences (February 5, 2025), which instructs the DOJ’s Civil Rights Division to “investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities” in both the private sector and in educational institutions receiving federal funds. The memorandum also raises the specter of criminal prosecutions for entities allegedly engaged in “illegal DEI” activities.

In recent months, the federal government has taken action on these pronouncements. The DOJ is now invoking the FCA to pursue investigations of entities that, in the government’s view, may have falsely certified compliance with federal anti-discrimination laws in connection with their DEI programs. Significantly, the government is not only requiring DEI-related certifications for contracts and grants issued in 2025 and beyond, but also is asserting that prior certifications may give rise to liability under the FCA. This means that organizations may potentially face enforcement actions for representations made years ago, if those certifications are now deemed inaccurate in light of the government’s current interpretation of federal anti-discrimination laws.

The FCA is a potentially potent tool for effectuating the government’s policy aims. Under the FCA, a federal contractor or grantee who knowingly presents, or causes to be presented, false claims or statements material to the government’s payment decision may be liable for three times the government’s damages, plus penalties and costs. The FCA’s qui tam provisions also expose recipients of federal funds to whistleblower suits, which the whistleblower may litigate even where the government chooses not to pursue enforcement. Targets of such FCA actions often incur significant expense and have to endure considerable institutional strain even if they ultimately prevail.

If subject to an FCA investigation, however, a grantee or federal contractor would have several defenses potentially available to them. Because the EO is forward-looking, it instructs heads of agencies to include certain terms in federal contracts and grant awards. Absent the inclusion of such terms (or some preexisting term), the EO on its own should not materially increase FCA risk. Further, even after new terms are included in any contract or award, any FCA suits premised on those terms must still prove falsity, scienter, and materiality – each of which may provide grounds for a defense.

First, regarding falsity, a court must conclude an entity’s DEI programs actually violate a federal anti-discrimination law. Notably, the EO does not attempt to redefine what violates federal anti-discrimination law, and the Executive Branch’s ability to change anti-discrimination laws may be limited due to the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), which reduces judicial deference given to agency interpretations of law. Second, the government or a relator also would have to show scienter, which could be challenging if an entity concluded in good faith, particularly in connection with a review by competent legal counsel, that its DEI initiatives were entirely legal. Finally, Universal Health Servs. v. United States ex rel. Escobar, 579 U.S. 176, 194-195 (2016), stands firmly for the proposition that a payment condition requiring compliance with federal requirements does not inherently make that condition material; rather, it is one of many factors a court should consider when determining whether the materiality threshold has been met. Experienced FCA counsel can assist in evaluating the viability of such potential defenses.

What constitutes “illegal DEI”?

While EO 14173 does not define what constitutes “illegal DEI,” recent guidance from the DOJ and the Equal Employment Opportunity Commission (EEOC) outlines practices that that the current Administration believes may violate federal anti-discrimination laws. On March 19, 2025, the DOJ and EEOC jointly released a one-page technical assistance document, What To Do If You Experience Discrimination Related to DEI at Work, and the EEOC released a question-and-answer technical assistance document, What You Should Know About DEI-Related Discrimination at Work. Together, the DOJ and EEOC guidance documents assert that DEI practices may violate civil rights laws (specifically, Title VII of the Civil Rights Act of 1964 (Title VII)) when employment decisions are influenced – whether wholly or partially – by race, sex, or other protected characteristics.

The guidance also stakes out the Administration’s position that Title VII’s prohibition against discrimination applies to all terms, conditions, or privileges of employment, including not only hiring, promotion, compensation, and termination decisions, but also fringe benefits; access to (or exclusion from) training; access to mentorship, sponsorship, and workplace networks; internships and fellowships; interview selection (including placement or exclusion from a candidate “slate” or pool); and job duties or work assignments. Notably, the Administration, through this guidance, also advances its position that, depending on the facts, DEI training programs “may give rise to a colorable hostile work environment claim.”

Critically for federal contractors and educational institutions, Attorney General Pam Bondi more recently issued Guidance for Recipients of Federal Funds Regarding Compliance with Anti-Discrimination Laws in DEI Programs (July 29, 2025) (July DOJ Memorandum), which outlines more detailed compliance expectations for entities receiving federal funds. The memorandum emphasizes the Administration’s position that allocating employment opportunities, program access, resources, or benefits based on race, sex, or other protected characteristics is generally prohibited under federal law, except in narrowly defined circumstances that meet the applicable level of judicial scrutiny.

Key areas of government scrutiny in DEI programs

Given the government’s active use of the FCA to enforce compliance with federal anti-discrimination laws, organizations – particularly government contractors and federally-funded institutions – should be vigilant in reviewing any DEI programs they maintain and should consider making any necessary changes to ensure that decisions are not being made unlawfully on the basis of race, sex, or other protected characteristics. Quotas, set-asides, and preferences based on race, sex, or other protected characteristics are among the key targets of government scrutiny. The following practices are particularly likely to attract government attention: 

Preferential treatment based on protected characteristics

The federal government may scrutinize any DEI program that it believes provides preferential treatment based on race, sex, or other protected characteristics. Based on governmental guidance issued to date, this includes:

• Scholarship, internship, mentorship, and other employment programs that are restricted by race or sex;
• Policies that prioritize candidates from underrepresented groups for admission, hiring, or promotion; and
• Hiring practices that require a “diverse slate” of candidates, mandating the inclusion of individuals from protected groups in interview pools or selection processes.

Use of facially neutral criteria as proxies

The July DOJ Memorandum devotes significant attention to the use of facially neutral criteria – such as “cultural competence,” “lived experience,” or geographic targeting – that may function as proxies for protected characteristics. It asserts that the use of such criteria in admissions or employment decisions may violate federal law if designed or applied to advantage or disadvantage individuals based on race, sex, or other protected characteristics.

Examples of what the Attorney General views as potentially unlawful proxies include:

• Requiring applicants to demonstrate “cultural competence,” “lived experience,” or “cross-cultural skills” as a means of evaluating their racial or ethnic backgrounds rather than merit;
• Using recruitment strategies that concentrate on specific geographic regions or organizations selected due to their racial or ethnic demographics; and
• Requiring applicants to submit diversity statements in a way that favors individuals who highlight experiences closely linked to protected characteristics.

Segregation and access to facilities

Programs that segregate individuals or provide access to facilities or resources based on protected characteristics may also be challenged by the current administration. Examples include:

• Designating spaces for members of a specific racial or ethnic group; and
• Limiting membership in workplace groups (such as employee resource groups or similar networks) to certain protected groups.

DEI training programs

DEI training programs that the government concludes are promoting discrimination or creating a hostile environment based on protected status may also be scrutinized. For example, requiring teachers or employees to complete training that includes statements stereotyping individuals based on protected characteristics may be questioned. Additionally, DEI training programs that separate participants based on protected characteristics (e.g., different training for men and women) are also likely to be targeted.

Other initiatives

The following additional programs are also likely to be closely reviewed by the government:

• Supplier diversity programs; and
• Diversity goals or targets for hiring or board membership.