This article, written by attorneys Amy Crafts and Jennifer Moeckel, was originally published by the NH Bar News and can be found here (p28).
The January 21, 2025, Executive Order 14173 entitled, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,”[1] indicates the federal government’s intent to utilize the False Claims Act (“FCA”)[2] to investigate and penalize federal contractors or grantees that maintain unlawful diversity, equity, and inclusion (“DEI”) programs. Federal contactors and grantees should understand this aspect of the Executive Order, including consequences for violating the FCA and expected enforcement efforts, and should consider immediate steps for compliance.
Terms to be Included in Federal Contracts and Grants to Facilitate FCA Enforcement
The Executive Order seeks to eliminate “illegal preferences and discrimination” in DEI programs without identifying what is considered “illegal DEI.” To accomplish its objective, the Executive Order requires that federal agencies add two terms to every contract or grant to facilitate FCA enforcement.
The first term requires federal contractors and grantees to acknowledge that compliance with federal anti-discrimination laws is “material to the government’s payment decisions.” This is an end run around the government’s burden in FCA cases to prove that an alleged false claim is significant enough to have influenced its decision to pay for goods or services. Materiality is typically proven by analysis of factors set forth in Universal Health Servs, Inc. v. U.S. ex rel. Escobar, 579 U.S. 176 (2016), including whether the alleged false claim is considered minor or insignificant (meaning it is not material), or if it goes to the “very essence of the bargain” (meaning it is material). Requiring contractors and grantees to acknowledge materiality is a concession that eliminates a common and effective defense to FCA liability and significantly eases the government’s burden in proving a violation.
The second term requires a contractor or grantee to certify that “it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Certifications are an important tool utilized by the government to prove FCA violations. If a contractor or grantee signs a certification that is not completely accurate – for example, certifying it has no illegal DEI program even if its program includes illegal preferences – the certification could be viewed as a false statement that violates the FCA.
Consequences for Violating the FCA
The U.S. Department of Justice (“DOJ”) is the federal agency responsible for FCA enforcement. If the DOJ succeeds in an FCA lawsuit, the defendant must pay treble damages, penalties for each violation (adjusted for inflation and currently set at $14,308 – $28,619 per false claim)[3], and costs and legal fees incurred by the government while investigating and litigating the allegations. In addition, the FCA financially incentivizes whistleblowers to bring alleged violations to the government’s attention in the form of qui tam lawsuits by awarding them a portion of any recovery. In fiscal year 2024 alone, 979 federal qui tam lawsuits were filed under the FCA, and the DOJ reported settlements and judgments exceeding $2.4 billion in these and earlier-filed qui tam suits.[4]
What does this mean in the DEI context? It means that job applicants, employees, and others have an incentive to report to the government any illegal DEI programs they believe to be in existence.
DOJ Enforcement of the Executive Order
The Executive Order tasks DOJ with preparing a report recommending to the Executive Branch targets for investigation of potentially illegal DEI programs with a focus on “publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” The Attorney General issued a February 5, 2025, memo[5] initiating the report and making clear that DOJ “will investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.” The memo also contemplates using criminal investigations as an additional tool to deter the use of DEI “programs or principles.”
Immediate Steps for Consideration
Multiple lawsuits have been filed challenging the constitutionality of the Executive Order. A preliminary, nationwide injunction was issued in February by a federal judge in Maryland on First (free speech) and Fifth (due process vagueness) Amendment grounds.[6] On March 14, 2025, that injunction was stayed by the Fourth Circuit Court of Appeals pending a decision on the merits,[7] allowing the Executive Order’s requirements to be implemented. There are motions for preliminary injunction pending in at least two other lawsuits as of the submission of this article.
Accordingly, federal contractors or grantees should consider immediately:
- Reviewing DEI policies and programs to ensure they are nondiscriminatory and do not include any illegal preferences. Consider conducting this review under the attorney-client privilege. While the Executive Order does not define illegal DEI, the Equal Employment Opportunity Commission provided insight in a recent publication[8] that might be useful in the review.
- Communicating to employees any changes made to DEI policies or programs, and ensuring communications about DEI policies and programs are carefully worded to avoid potential whistleblowers suspecting a policy or program might be unlawful when it is not. This effort might include changing the name of DEI policies and programs and vocabulary used within them.
- Reviewing any new federal contracts and grants, and any new amendments to existing federal contracts or grants, to identify any materiality acknowledgments or certifications regarding DEI programs. Elevating any contracts, grants, or amendments containing these terms to the appropriate level of management in each relevant department of the organization before signing to ensure the accuracy of the certification.
[1] 90 FR 8633, Document No. 2025-02097 (publication date 01/31/2025)
[2] 31 U.S.C. §§ 3729 – 3733
[3] 15 CFR §6.3(a)(3)
[4] DOJ Press Release: False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024, January 15, 2025
[5] Available at https://www.justice.gov/ag/media/1388501/dl?inline
[6] Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, Case No. 1:25-cv-00333–ABA, Document 44 (D. Md. 2/21/2025)
[7] Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, No. 25-1189 (1:25-cv-00333–ABA) (4th Cir. 3/14/25)
[8] https://www.eeoc.gov/wysk/what-you-should-know-about-dei-related-discrimination-work