WHITE PAPER | The DEI Executive Orders: Considerations for Assessing and Addressing Private Employer and Federal Contractor Programs

By James C. King and Kimberly J. Korando

Following the inauguration, President Trump issued a series of Executive Orders addressing Diversity, Equity and Inclusion ("DEI") and Diversity, Equity, Inclusion and Accessibility ("DEIA") in employment that impact federal contractors, federal grant recipients, private sector employers and federal agencies.[1]  Importantly, these Executive Orders and the subsequent federal agency memoranda they have spawned do not target all DEI/DEIA activities and programs, but rather focus on eliminating "illegal" DEI/DEIA programs and activities as well as federal contractor affirmative action requirements for women and minorities. [2]

The challenge is that there is little guidance regarding what the administration considers "illegal" DEI/DEIA activities and much uncertainty as to what employers should be doing while awaiting more guidance and clarity as new regulations and formal guidance are issued and the administration initiates investigations and enforcement actions. In the meantime, there are steps private employers and federal contractors can take now to best position their organizations for maintaining legal DEI programs and activities. What follows are some considerations for first steps in assessing current programs.

All Non-government Employers (including Federal Contractors)

• Review Existing DEI/DEIA Programs/Activities: Ideally, this review is conducted by legal counsel under privilege with advice obtained on any of the following identified practices:
  • Quotas, preferences, plus factors and set asides for any particular group (e.g., race, sex, protected characteristic).
    • Regardless of how aspirational/quantifiable goals related to DEI/DEIA (e.g., increasing diversity of workforce by X% over time) are framed, they may be misconstrued as examples of illegal "quotas" or race/gender "balancing" programs.
    • Corporate commitments to supplier/vendor diversity participation should be carefully considered and qualification for participation should not be based on protected characteristics.
  • Compensation and incentives tied to achieving diversity hiring metrics or "penalties" for failing to achieve DEI goals.
    • These kinds of metric-connected compensation plans may be misconstrued as evidence of illegal "quotas" or race/gender "balancing" programs.
  • Diverse candidate slate or diverse hiring panel requirements.
    • Diverse slate policies were recently labeled "unlawful diversity requirements" in federal hiring by the Office of Personnel Management.
  • Closed groups/programs (e.g., mentorship or leadership development programs, employee affinity or resource groups) where participants need to identify with/be a member of a protected class or where activities are segregated by a particular characteristic.
    • These programs and activities should be open to all employees.
  • DEI/DEIA training materials (including third-party training materials) should be reviewed to ensure they are compliant with existing guidance with attention to content that could be viewed as equity ideology or otherwise discriminatory.
• Review of Public Materials and Messaging: Organizations challenging DEI programs rely heavily on publicly available information to substantiate their complaints to the EEOC. Company websites, SEC filings, tweets, internal reports, among other communications are reviewed by these organizations. Both internal and external messaging surrounding DEI/DEIA activities has been cited as evidence of allegedly discriminatory hiring and other employment practices.
• Commence Training for HR, DEI Professionals, and Leadership focusing on distinguishing legal and illegal DEI/DEIA activities: There are a variety of DEI/DEIA activities that are neither clearly legal nor illegal. Accordingly, it is important that the relevant stakeholders are aware of the margins so that they can make informed decisions based on the company’s risk tolerance. Consider designating one or more employees who are responsible for tracking updates related to the enforcement of federal anti-discrimination laws.
• Take employee complaints or objections related to DEI/DEIA activities, programs, and trainings seriously: Consideration should be given to allowing employees to opt out, where appropriate.
• Emphasize the Company’s Commitment to EEO: Where possible, emphasize the company’s commitment to equal employment opportunity and non-discrimination. By way of example, references to "equity" have been construed as running afoul of equal opportunity. Company's should also continue to ensure that all employment decisions are based on hiring, promoting and retaining the best, most qualified person for the role without regard to protected characteristics.

Additional Impacts on Federal Contractors

In addition to the impacts described above that apply to all employers, Executive Orders 14151 and 14173 and agency guidance issued in response to these Executive Orders have additional impacts on federal contractors, including:

• Revoking Executive Order 11246 which required federal contractors to establish and maintain affirmative action programs for women and minorities and establishing a 90-day period (ending April 21, 2025) in which to cease operation of such programs.
• Providing notice of General Services Administration’s intent to "take immediate action to begin forbearing enforcement of all contract clauses, provisions, terms, and conditions, related to ‘diversity, equity, and inclusion.’" 
• Directing federal agencies to include new mandatory terms in every contract award, including a term requiring the contractor to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code, and a term requiring the contractor to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.
  • As a result, federal contractors with DEI/DEIA programs that violate federal anti-discrimination laws will potentially face liability under the False Claims Act for new contracts or under contracts that are modified to include the newly mandated language.
• Requesting lists of all federal contractors who provided DEI or DEI training materials to federal agencies or to "advance" DEI/DEIA programs, services or activities.

To best position their organizations for compliance with these additional impacts, federal contractors can consider taking the following actions now:

• Review all existing state and federal contracts to determine what, if any, obligations they have related to DEI/DEIA: This review should identify areas where their contractual obligations (such as those imposed by Federal Acquisition Regulation ("FAR") clauses, collective bargaining agreements or state or local affirmative action laws) contradict the terms of the Executive Order or stated positions of the administration.
• Establish ongoing contact with their contracting officers: Employers should use the 90-day non-enforcement period to understand their evolving FAR and compliance obligations under any existing contracts.
• Review all affirmative action activities, related policies and forms to ensure compliance with EO 14173: Ideally, this review is conducted by legal counsel under privilege. As part of this review, federal contractors should review EEO/AA policy statements and tag-lines, invitations to self-identify, and contracts with EO clause provisions and remove all references to federal affirmative action.
• Modify noncompliant activities, programs, policies, and contracts: Federal contractors are clear targets for future investigations and litigation related to their DEI/DEIA programs and activities. Where possible, modifications to any existing activities, programs, policies, contracts, and grants should be done in coordination with legal counsel.

Key Takeaways

• This is a rapidly developing area of law. Keeping abreast of additional guidance and clarification in the coming months is essential.
• Employers may still provide and support legal DEI/DEIA programs and activities within their organization. Employers need to be mindful of how they develop, operate, and maintain these programs to avoid unwanted regulatory scrutiny.
• Federal contractors must discontinue federal affirmative action programs for women and minorities by no later than April 21, 2025 and coordinate with their federal contracting officers regarding FAR compliance.
• All employers should continue to ensure that all employment decisions and opportunities are merit-based and not based on protected characteristics.

If you have any questions regarding the impact of the DEI Executive Orders and subsequent related actions, please do not hesitate to contact Kim Korando, James King or a member of Smith Anderson’s Workplace Law group. We will continue to monitor these developments and will provide additional updates as necessary.

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[1] Executive Order 14173 "Ending Illegal Discrimination and Restoring Merit-Based Opportunity" Link seeks to "encourage the private sector to end illegal discrimination and preferences, including DEI," and revokes Executive Order 11246 requiring covered federal contractors to establish and maintain affirmative action programs for women and minorities. Affirmative action for veterans and individuals with disabilities remains in place under the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) and the Rehabilitation Act, respectively. Executive Order 14173 and Executive Order 14151 "Ending Radical and Wasteful Government DEI Programs and Preferencing" Link both target DEI/DEIA in federal contracting and federal grants.

[2] Following EO 14173, the Office of Personnel Management issued a memorandum highlighting some practices which it believes constitute unlawful discrimination such as mandatory "diverse slate" policies and employee resource groups that promote basing employment decisions on protected characteristics.