16 Jan Preparing for Compliance with New Executive Orders DEI-Related Contract Clause for Federal Contractors and Subcontractors Compliance and Enforcement

Basing employment decisions on the racial preferences of clients, customers, or coworkers constitutes intentional race discrimination. Employers violate Title VII if they take an employment action motivated—in whole or in part—by race, sex, or another protected characteristic. For there to be unlawful discrimination, race or sex (or any other protected characteristic under Title VII) does not have to be the exclusive (sole) reason for an employer’s employment action or the “but-for” (deciding) factor for the action.

Amid expanded Executive Orders and heightened EEOC and state attorneys general scrutiny of DEI programs, companies are making notable changes to their diversity-related disclosures. The Nike investigation has involved rescinding a previous settlement agreement and requesting information as far back as 2018, signaling a more expansive review of company practices. Recent enforcement actions include a $500,000 settlement with Planned Parenthood of Illinois, which was the first resolution involving DEI-related practices under the current administration. The Equal Employment Opportunity Commission (EEOC) has increased its focus on both traditional and reverse discrimination claims tied to DEI programs. Courts therefore may still scrutinize whether the certification was in fact material to the government’s payment decision in any given case.

• Can an employer justify taking an employment action based on race, sex, or another protected characteristic because the employer has a business necessity or interest in “diversity,” including preferences or requests by the employer’s clients or customers?
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• The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency;
• The Supreme Court in June 2023 upended equal protection law with its decision in Students for Fair Admissions v. Harvard, eliminating the use of affirmative action in college admissions, but did not directly affect employers.
• Title VII prohibits workplace harassment, which may occur when an employee is subjected to unwelcome remarks or conduct based on race, sex, or other protected characteristics.

Many African countries focus on workplace inequality arising from the intersectionality of gender, ethnicity, and socio-economic backgrounds. Critics have argued that many organizations’ DEI initiatives fail to promote the fair treatment and inclusion of Jewish people, or to take allegations of antisemitism within their organization as seriously as they would allegations of other kinds of bigotry. As a result, MIT empaneled a committee to investigate the state of academic freedom at the university. In 2024, MIT announced that diversity statements “will no longer be part of applications for any faculty positions” at the university, becoming the first major university to abandon the practice. The use of mandatory “diversity statements” within academia, wherein an applicant or faculty member outlines their “past contributions”, and plans “for advancing diversity, equity and inclusion” if hired, has become controversial and sparked criticism.

The Administration’s Stated Rationale

Now more than ever in this rapidly evolving legal landscape fraught with risk, all employers should strive to ensure their DEI strategies and programs fully comply with all applicable federal, state and local law, closely tethering all programs to meet employers’ business needs and deliverables. This includes global and multi-national companies with unique footprints and needs serviced by Ogletree’s Cross-Border Practice Group and deep bench of international employment attorneys. Ogletree has long partnered with employers across all industries on their inclusion practices, including private companies, federal contractors, federal grant/money recipients, non-profit organizations and higher education institutions. According to a 2022 survey conducted by the American Association of University Professors, one in five American colleges and universities include DEI criteria in tenure standards, including 45.6% of institutions with more than 5000 students.

Different treatment based on race, sex, or another protected characteristic can be unlawful discrimination, no matter which employees or applicants are harmed. Ogletree’s DEI Compliance attorneys stand with the employers we serve, ready to advise on the lawful approaches to the full spectrum of legally compliant DEI strategies and programs within an organization’s specific risk tolerance and needs. Ogletree’s DEI Compliance team provides cutting edge legal advice and content to help organizations design and assess their unique, lawful inclusion practices while preparing for potential legal challenges. The phrase “diversity, equity and inclusion” (DEI) is a conceptual framework promoting the fair treatment and full participation of all people in the workplace.

• Many African countries focus on workplace inequality arising from the intersectionality of gender, ethnicity, and socio-economic backgrounds.
• Equality and affirmative action professionals employed by US firms along with equality consultants, engaged in establishing the argument that a diverse workforce should be seen as a competitive advantage rather than just as a legal constraint.
• There is meaningful variation within organizations’ employees in the attitude they hold toward DEI policies and to what extent it influences their actions.
• (c) Within 120 days of the date of this order, each agency head shall review the agency’s implementation of section 3 of this order and report to the Assistant to the President for Domestic Policy regarding its compliance with that section.
• In 2023, the Supreme Court explicitly rejected affirmative action regarding race in college admissions in Students for Fair Admissions v. Harvard.

Notably, EO also seeks to make it easier for the government to establish liability under the FCA by building into the contract an explicit representation that the contractor or subcontractor’s certification was material to the government’s payment decision—a key element required for FCA liability. Additionally, contractors are required to suspend any subcontractors who fail to comply with the EO, and noncompliance can result in cancellation, termination, or suspension of the contract, as well as suspension or debarment—making an entity ineligible for future government https://starruby.info/what-i-can-teach-you-about-4/ contracts. We also examine how disclosure practices are changing across the S&P 500, with a focus on the financial sector and the new terminology companies are now adopting in place of DEI.

History in the United States

In August 2021, the US Securities and Exchange Commission (SEC) approved Nasdaq’s proposed rules requiring listed companies to ensure women and https://expandsuccess.org/empowering-innovation-through-diversity/ minority directors were on their boards or provide an explanation of why they were not. There is meaningful variation within organizations’ employees in the attitude they hold toward DEI policies and to what extent it influences their actions. Equality and affirmative action professionals employed by US firms along with equality consultants, engaged in establishing the argument that a diverse workforce should be seen as a competitive advantage rather than just as a legal constraint. The stated justification for affirmative action by its proponents is to help compensate for past discrimination, persecution or exploitation by the ruling class of a culture, and to address existing discrimination. It is often implemented in governmental and educational settings to ensure that designated groups within a society can participate in all promotional, educational, and training opportunities.

(a) For the purposes of this order, “racially discriminatory DEI activities” means disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources. Specifically, DEI activities impose artificial costs in hiring, promotion, and operations by precluding implementation of merit-based principles; creating excessive workforce turnover by elevating immutable characteristics over job performance; and jeopardizing the sort of employee collaboration and problem-solving that is essential to fostering efficient and high-quality work. DEI activities are not only unethical and often illegal, but also cause inefficiencies, waste, and abuse within entities that engage in such practices. Despite this progress, some entities continue to engage in DEI activities and often attempt to conceal their efforts to do so. As employers move into this new enforcement landscape, it is helpful to remember that the enforcement focus is not on “DEI” as a concept — it’s on unlawful discrimination, whatever the label. Emphasizing recent Supreme Court rulings, the EEOC rejects any effort to inject a “diversity exception” to law prohibiting discrimination based on race or sex.

Some schools are removing the word “diversity” from titles of offices and jobs; some are closing campus spaces set up for students according to identity; some are ending diversity training; and some have stopped asking all faculty and staff members for written affirmations of their commitment to diversity. Of those who said it did have an impact, a majority in almost all demographics said DEI had “benefited” their job rather than “hindered” it. A 2025 poll by Axios found that more than 50% of Americans across all demographics surveyed said that DEI initiatives had made “no impact” on their jobs. A September 2024 poll by the Human Rights Campaign found that 80% of LGBTQ Americans would boycott a company that repealed its DEI programs and 19% would quit their job if their place of employment did. In January 2025, Donald Trump signed an executive order requiring U.S. military academies to end affirmative action in admissions; the order was implemented the next month. While some believe DEI included in school curriculums are favoring one identity or community over another, there have been arguments that DEI in schools can be beneficial for student development, as shown by research, finding that student participation in DEI practices can improve overall achievement levels.

As the Equal Employment Opportunity Commission (EEOC) sharpens its focus on DEI, the agency is making the rounds to educate and inform employers of the EEOC’s current approach to enforcement. See 42 U.S.C. § 2000e–2(m) (providing for liability “even though other factors also motivated the practice”); EEOC Race Discrimination Guidance (“Title VII is violated if race was all or part of the motivation for an employment decision.”). Id.; see EEOC Race Discrimination Guidance, Part 15-VII(B)(4) (“Informal workplace networks can be just as important to an organization as official job titles and reporting relationships. Thus, an employee’s success may depend not only on his or her job duties, but also on his or her integration into important workplace networks. Employers cannot allow racial bias to affect an employee’s ability to become part of these networks.”); see also id., Example 25 and n. “Pre-employment questions about race can suggest that race will be used as a basis for making selection decisions. Executing “diverse slate” policies also can require employers to ask or otherwise obtain pre-employment information about race, or another protected characteristic.

These three notions (diversity, equity, and inclusion) together represent “three closely linked values”, which organizations seek to institutionalize through DEI frameworks. While new executive orders signal changes in tone and enforcement, the core requirements around nondiscrimination, equal opportunity and harassment prevention remain. Reinforce internal expectations for conduct and the processes for reporting concerns or violations. Emphasize professional conduct, respectful communication and shared workplace values rather than ideological frameworks.

Equal Employment Opportunity Commission (EEOC) has intensified its scrutiny of DEI initiatives leading to litigation and subpoena enforcement efforts, and companies must navigate an increasingly complex patchwork of sometimes conflicting state and federal requirements. Federal contractors and subcontractors, in particular, face new certification requirements and heightened risk of potential False Claims Act (FCA) liability. If you would like to discuss becoming a client, please contact one of our attorneys to arrange for a meeting or telephone conference. For more information about our cookie policy and the information we collect, please review our Privacy Statement.