Guidance on DEI for Federal Contractors and Grant Recipients

By Angel Taveras on March 19, 2025

Many federal contractors and grant recipients are seeking guidance regarding Diversity, Equity and Inclusion (“DEI”) in the wake of the Fourth Circuit Court of Appeals upholding President Trump’s Executive Orders on DEI (“DEI Executive Orders”) while the case proceeds on appeal.  The Fourth Circuit Court of Appeals stayed a District Court preliminary injunction which would have prevented enforcement of the DEI Executive Orders.  The most immediate impact of the Fourth Circuit stay of the District Court preliminary injunction is that federal contractors and grant recipients, when asked by an agency, will either need to challenge the request or will need to:

The reference to the False Claims Act is not accidental but punitive.  Civil violations of the False Claims Act result carry with it severe statutory penalties, including up to $27,984 per individual violation and 3 times the amount the contractor or grant recipient was paid by the Government.  Before signing and making any of these representations it would be prudent for the federal contractor or grant recipient to conduct a legal review of any DEI related activities to make sure that those activities do not violate federal law.  Being able to show that a review was conducted and found no violations, will be helpful in defending against any potential claim under the False Claims Act.  Because, in order to establish False Claims Act liability, the Government must prove that the person acted “knowingly” which the statute defines as having “actual knowledge of the information”, or acting “in deliberate ignorance of the truth or falsity of the information; or act[ing] in reckless disregard of the truth or falsity of the information”.   31 U.S.C. § 3729(b)(1)(A). 

Trump DEI Executive Orders and District Court Injunction

In his first two days in office President Trump targeted DEI and issued Exec. Order No. 14151, Ending Radical and Wasteful Government DEI Programs and Preferencing, Executive Order of January 20, 2025, 90 Fed. Reg. 8339, 8339 (Jan. 29,2025) ; and Exec. Order No. 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, Executive Order of January 21, 2025, 90 Fed. Reg. 8633, 8634-35 (Jan. 31, 2025) (referred to herein as the “DEI Executive Orders”).  As explained by the District Court, the DEI Executive Orders:

Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, 2025 WL 573764 at *1, — F. Supp. 3d — (D. Md. Feb. 21, 2025)(emphasis in original).

The National Association of Diversity Officers in Higher Education, joined by other plaintiffs, brought suit against President Trump and his administration arguing that the DEI Executive Orders’ Challenged Provisions were unconstitutional in violation of the First Amendment’s Free Speech Clause and the Fifth Amendment’s Due Process Clause. 

The District Court, in a 63 page decision, agreed with plaintiffs and concluded that the Challenged Provisions violated the First Amendment Free Speech Clause because they restrict speech based on its content.  Furthermore, the District Court concluded that the Challenged Provisions violated the Fifth Amendment Due Process Clause because they are unduly vague and do not give contractors or grant recipients any idea of what is deemed to be “equity-related” or “illegal”.  Consequently, the District Court issued a preliminary injunction which stopped the Government from enforcing the DEI Executive Orders’ Challenged Provisions.

Fourth Circuit Court of Appeals

On March 14, 2025, the Fourth Circuit, in a 10 page Order, allowed the DEI Executive Orders to go into effect based on a simple analysis.  The three judge panel of the Fourth Circuit Court of Appeals reasoned that the DEI Executive Orders “on their face” only apply to DEI initiatives that violate federal anti-discrimination law, and consequently the Government is likely to succeed in showing that the DEI Executive Orders are constitutional. In other words, notwithstanding directives in the Executive Orders to eliminate “DEI,” “DEIA,” and “environmental justice” from the federal government, in fact the Administration is only directing the enforcement of existing anti-discrimination law.

Judge Harris, concurring in the Court of Appeals Order issuing a stay of the District Court’s preliminary injunction, wrote:

Ironically, just before the Court of Appeals issued its stay, the federal Office of Head Start sent an email to federal contractors and grant recipients saying the Office of Head Start would not fund “any training and technical assistance (TTA) or other program expenditures that promote or take part in diversity, equity, and inclusion (DEI) initiatives.”  The Office of Head Start email goes on to equate DEI initiatives with a violation of the nondiscrimination provision of Section 654 of the Head Start Act. This makes clear that in the Trump Administration’s eyes, DEI equals discrimination.  Expect more litigation on this issue because the Office of Head Start email supports plaintiffs’ claims that the DEI Executive Orders are impermissibly vague and violate the First and Fifth Amendments. 

However, while we wait for the Fourth Circuit Court of Appeals to issue a final decision on the appeal of the District Court’s preliminary injunction, federal contractors and grant recipients will need to decide whether to file their own challenge to requests from agencies or to sign the certifications listed in the opening paragraph.  Before making any certifications on DEI, federal contractors and grant recipients should conduct a legal review of any activity which may be considered DEI, to help defend against any potential lawsuit under the False Claims Act.   To the extent that the Office of Head Start attempts to enforce its far sweeping restriction on funding for “any … diversity, equity, and inclusion (DEI) initiatives”, more litigation should be forthcoming.