Federal contractors, grant recipients, and anyone covered by Titles VI and VII of the Civil Rights Act are keen to figure out what President Donald Trump’s executive order on diversity, equity, and inclusion means for them. This article summarizes the order and its implications, considering not only the order’s text, but its likely interpretation by Trump Administration officials, and past and pending cases at the Supreme Court.
The short takeaway is that, under this order, federal contractors and grant recipients face the risk of civil liability under the Civil Rights Act and the False Claims Act, and potentially of criminal liability for fraud. Other entities subject to the Civil Rights Act of 1964, meanwhile, face much more aggressive civil rights enforcement than they have grown accustomed to in prior administrations.
What follows is an explanation of those risks, starting with entities covered by the Civil Rights Act and ending with the unique risks faced by federal contractors and grant recipients.
Aggressive Civil Rights Act Enforcement
Trump’s order, entitled Ending Illegal Discrimination and Restoring Merit-Based Opportunity reiterates his commitment to the nation’s civil rights laws. It then laments that many DEI practices violate those laws by granting race- and sex-based preferences.
To end such practices among entities subject to the Civil Rights Act, the order directs every agency to draft enforcement plans and to identify up to nine worst offenders in every sector of the economy from corporations to universities, from non-profits to professional associations.
The order will apply via Title VII to any entity that meets the Act’s definition of “employer” and via Title VI to any entity that accepts federal funds.
The obvious first question is: “What counts as illegal discrimination?” For a long time, the federal government has encouraged or, at least, turned a blind eye to various label-based preferences. During that time, many entities have used DEI practices like race-based employee resource groups, sex-based mentoring and promotion programs, and color-segregated DEI trainings. Some covered entities have given benefits to employment applicants who participate in race-based fellowships run by third parties.
Lawyers will spend a lot of time in the next few months predicting whether these programs will be upheld by a judge after an investigation and trial. But what a judge might eventually do is not particularly useful to covered entities now. A judge will act only after the Trump Administration does—possibly only after several years of investigation and litigation. What the Trump Administration will do now is therefore of more practical import.
As to that question, one can reasonably expect the Trump Administration to take very aggressive positions against the practices listed above and anything similar. For years, many people now staffing the Administration’s policy and civil rights offices have targeted these practices with lawsuits and public-relations campaigns. Stephen Miller, for example, who is now White House deputy chief of staff for policy, co-founded America First Legal in part to fight against “woke corporations” for “illegally engaging in discriminatory employment practices that penalize Americans based on race and sex.” The practices that America First Legal and allied organizations target include many practices that companies likely assume are legal.
There is good reason to conclude that after years of investigation and litigation, the courts will also tend to uphold the administration’s aggressive positions. The Supreme Court’s recent decision in Students for Fair Admissions v. Harvard signaled a dramatic change in how the Court thinks about identity-based preferences. It signaled a general hostility to preferences, reiterated that the focus of equal protection (and by extension the Civil Rights Act) is on individuals, not groups, and expressed skepticism that the labels often used in DEI practices could ever be non-arbitrary. Although Students for Fair Admissions arose only in the context of college admissions, lower courts have relied on its logic to strike down race-based preferences in other contexts. That trend is accelerating and will gain strength if the Supreme Court hands the petitioner a victory in the pending case, Ames v. Ohio Department of Youth Services.
Ames involves the pleading standard for what are sometimes called “reverse discrimination” cases. Marlean Ames, a member of a majority group, alleged that her employer discriminated against her in favor of several members of a minority group. Because Ames was in a majority group, the rules of her circuit court required her to meet a higher pleading standard than if she was a minority group. She alleged that this pleading standard was contrary to the text of Title VII, which makes no distinctions based on majority or minority group membership. The Supreme Court is likely to decide the case in Ames’s favor and underscore the equal and individual-focused view of civil rights law.
Some covered entities might believe that they can escape civil rights enforcement if their DEI practices are formally open to everyone, even if certain groups are specifically targeted. For example, a company might think that its “Black Employee Resource Group” passes civil rights muster if it is technically open to anyone. But that is not necessarily true. Civil rights cases often turn on questions of intent. A federal agency could launch an investigation or lawsuit to determine whether the employee resource group is truly open to everyone. A company and its agents’ past practices and statements about DEI would be relevant. The absence of resource groups for other people, statements in favor of “racial equity,” invitations to noted defenders of “anti-racist discrimination” (like Ibram X. Kendi or Robin DiAngelo), and anti-bias trainings that make assumptions about employees based on their race or sex labels could be treated as evidence of discriminatory intent.
In sum, DEI practices that companies considered routine during the Biden Administration will no longer be treated as routine by the Trump Administration. What is more, predictive analysis of what judges will eventually do with any given DEI practice is of limited relevance given that the federal government can impose investigation and litigation costs on companies long before a judge gets involved. But given the ongoing judicial shift toward disapproving label-based preferences started by the Supreme Court’s Students for Fair Admissions decision, the Trump Administration’s aggressive approach to civil rights stands a good chance of being endorsed by the judiciary.
Federal Contractors and Grant Recipients
Most federal contractors are subject to Titles VI and VII, but all are uniquely exposed to additional sources of risk.
To end discriminatory DEI practices among federal contractors, Trump’s order:
- Rescinds Executive Order 11246, which required “affirmative action” for government contractors;
- Forbids federal contractors from “employment, procurement, and contracting practices” that “consider race, color, sex, sexual preference, religion, or nation origin in ways that violate the Nation’s civil rights laws”;
- Requires all federal contracts and grants to include a material term whereby contractors and grantees agree that they have complied with all federal anti-discrimination laws; and
- Requires all federal contracts and grants to include a term whereby contractors and grantees certify that they do not operate “any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
The first and second of these commands will, over time, end the complex regime of regulations, guidance, and practices by which the federal government has encouraged and, in some cases, even required federal contractors to create various race, sex, and other label-based preferences. The end of this regime will not come immediately, but Trump’s order contends that those preferences—regardless of whether they are required by agencies—violate the Civil Rights Act. Contractors, therefore, should not expect to claim them as defenses against enforcement.
The third and fourth commands are the source of contractors’ and grantees’ unique risks. Federal contracts and grants are subject to the False Claims Act. Under that law, a contractor or grantee “who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim” is liable for treble damages, penalties, and costs. By adding these anti-discrimination terms to federal contracts, the order exposes contractors to False Claims Act liability on top of civil rights liability.
What makes False Claims Act liability so devastating (besides treble damages) is that those claims can be filed by qui tam relators. Those are private parties who sue on behalf of the government and are entitled to a share of the government’s recovery. In other words, the order will let for-profit plaintiffs’ lawyers sue to enforce it.
Qui tam incentives can be huge. If the government chooses to intervene after a qui tam relator sues, the relator can earn between 15% and 25% of the government’s proceeds, plus costs and fees. If the government does not intervene, the relator can earn between 25% and 30% of the government’s proceeds, plus costs and fees.
The import of all this is that contractors and grantees cannot reasonably hope to escape a busy government’s eye. The profit motive will place a target on contractors and grantees with DEI programs for countless private litigants, including internal whistleblowers. Additionally, law firms that do not depend on damages awards for funding, like America First Legal, will be incentivized to use False Claims Act cases to press very aggressive positions because any money they win from qui tam suits is pure windfall.
The final—and perhaps most devastating risk to contractors and grantees—comes from a pending Supreme Court case, Kousisis v. United States. The issue in Kousisis is whether contractors commit criminal mail or wire fraud when they lie to the government about complying with affirmative action mandates. There, government contracts required two contractors to use subcontractors that were “disadvantaged business enterprises.” The contractors lied about complying with that term, and federal prosecutors charged them with wire fraud, conspiracy to commit wire fraud, and causing the submission of false statements. One contractor was sentenced to 70 months in prison; the other was forced to forfeit all profits and pay a $500,000 fine.
The implications for the non-discrimination term in Trump’s order are obvious: if failure to comply with a term requiring preferences is criminal fraud, then failure to comply with a term forbidding them is also criminal fraud.
It is unclear what the Supreme Court will do with the case, but it poses potentially enormous risk to federal contractors and grantees.
Conclusion
Trump’s order taking aim at DEI practices in the private sector exposes federal contractors, grant recipients, and employers to significant legal risks. Those entities will spend a great deal of time trying to determine whether a given DEI practice defies the order and the Civil Rights Act, but they would be wise to remember that abstract judgments about those questions are of little immediate practical use. What matters is what the Trump Administration will think of those practices, and the Trump Administration has made clear that it will take very aggressive positions to combat them. When, after years of investigation and litigation, judicial decisions come, those decisions will likely embrace many of those positions as the Supreme Court further embraces a colorblind and individual-centric approach to civil rights.
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].