By: Eddie Suarez (with a note of thanks to Federal Bar Association’s Qui Tam Section for their informative webinar: Targeting Corporate DEI via the False claims Act)
Introduction
The recent executive order, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (90 FR 8633, Jan. 21, 2025), signals a significant shift in federal enforcement priorities regarding corporate Diversity, Equity, and Inclusion (DEI) programs. With the potential for increased scrutiny under the False Claims Act (FCA), corporate leaders and compliance professionals must carefully assess their DEI initiatives to mitigate legal exposure.
This article examines the executive order’s key provisions, explores its implications for FCA liability, and outlines compliance considerations for businesses and government contractors.
Key Provisions of the Executive Order
The executive order focuses on eliminating what it characterizes as unlawful DEI-based discrimination. Its key provisions include:
- Prohibition of Preferences: It bars the use of race, gender, or other protected-class preferences in hiring, contracting, and other employment decisions.
- Merit-Based Hiring Mandate: Federal contractors and grant recipients must certify that their employment and contracting policies comply with anti-discrimination laws and emphasize merit-based hiring.
- Enforcement Mechanisms: The order directs the Department of Justice (DOJ) and the Office of Federal Contract Compliance Programs (OFCCP) to review federal contractor compliance and pursue violations.
- Impact on Grants and Federal Contracts: Agencies must ensure that funding recipients adhere strictly to race- and gender-neutral policies.
The Bondi Memo (Ending Illegal DEI and DEIA Discrimination and Preferences, Feb. 5, 2025) reinforces this stance, instructing federal agencies to scrutinize DEI policies for potential violations of civil rights laws and conditions of federal funding.
False Claims Act Liability and DEI Programs
The FCA (31 U.S.C. § 3729 et seq.) imposes liability on any entity that knowingly submits false claims to the government. FCA liability may arise in the DEI context in several ways:
False Certifications in Federal Contracting
The executive order requires government contractors and grantees to certify compliance with anti-discrimination and merit-based hiring principles. A contractor that continues race- or gender-based DEI practices while certifying compliance could be subject to FCA liability. Under United States ex rel. Escobar v. Universal Health Servs., 136 S. Ct. 1989 (2016), courts evaluate materiality holistically—if noncompliance would likely affect government payment decisions, liability may attach.
Misrepresentations in DEI Reporting
Companies that receive federal funding may be required to submit diversity data or affirmative action plans. If such reports are found to contain misleading or inaccurate information regarding hiring, promotion, or contracting practices, they could trigger FCA claims.
Potential Whistleblower Actions
The executive order and the Bondi Memo provide a legal framework that could empower whistleblowers to bring qui tam actions against entities they believe are noncompliant. Employees or competitors could allege that a company’s DEI policies violate federal rules, resulting in false certifications.
Increased DOJ Scrutiny and Enforcement
The DOJ’s 2025 report on FCA settlements highlights the agency’s aggressive stance on fraud enforcement. The new executive order suggests that federal agencies will prioritize investigating whether DEI programs unlawfully influence hiring, contracting, or funding decisions, increasing the likelihood of FCA investigations.
Legal and Compliance Considerations
To mitigate risk, businesses and contractors should take proactive steps, including:
- Reviewing DEI Policies: Ensure that all diversity initiatives comply with the executive order’s restrictions.
- Auditing Compliance Certifications: Validate that certifications submitted to federal agencies accurately reflect hiring and contracting practices.
- Strengthening Internal Reporting Mechanisms: Encourage employees to report compliance concerns internally to prevent external whistleblower actions.
- Consulting Legal Counsel: Companies should assess the evolving FCA enforcement landscape and adjust compliance programs accordingly.
Conclusion
The Ending Illegal Discrimination and Restoring Merit-Based Opportunity executive order introduces new compliance risks for DEI programs. With the potential for heightened FCA enforcement, organizations must carefully navigate the intersection of DEI initiatives and federal contract obligations. By proactively assessing policies, ensuring accurate reporting, and seeking legal guidance, businesses can minimize exposure while advancing lawful diversity efforts.
