The U.S. Department of Justice (DOJ), Civil Division is sending civil investigative demands (CIDs) to federal contractors seeking information on their diversity, equity, and inclusion (DEI) practices under its authority to investigate False Claims Act (FCA) claims.
Flowing from President Trump’s Executive Order 14173, which seeks to limit DEI efforts, the DOJ recently launched the Civil Rights Fraud Initiative, which uses the FCA to investigate and pursue claims against recipients of federal funds (including federal contractors) that their DEI practices violate federal civil rights laws.
The focus of these investigations will likely be:
- Discriminatory preferences/goals: DEI programs that assign benefits or burdens based on race, ethnicity, or national origin.
- Use of proxies to mask discrimination: Practices using criteria like “cultural competence” or “lived experience” as proxies for protected characteristics in hiring or promotion decisions.
- Segregation in the workplace: Limiting membership in affinity groups or separating employees by protected characteristics during training.
- Discriminatory training programs: DEI training that promotes stereotypes, excludes individuals based on protected characteristics, or creates a hostile environment.
- Failure to protect against antisemitism: Institutions accepting federal funds that do not adequately address antisemitism or other civil rights violations.
Organizations found to be in violation of the FCA can face significant penalties, including treble damages (three times the amount of damages incurred by the government), civil penalties for each false claim, and reputational harm.
As a result, all federal contractors and grant recipients should be on high alert for any communication from the DOJ and should immediately notify internal counsel if any such communication is received.
DOJ Issues New Guidance on Unlawful Discrimination
On July 29, 2025, U.S. Attorney General Pam Bondi issued new guidance for “recipients of federal funding regarding unlawful discrimination.” The guidance “clarifies the application of federal antidiscrimination laws to programs or initiatives that may involve discrimination practices, including those labeled as Diversity, Equity and Inclusion (DEI) programs” to entities that receive federal funds. Entities that receive federal funds include educational institutions, state and local governments, and public and private employers. The guidance then provides a list of unlawful discriminatory policies and practices including:
- Granting preferential treatment based on protected characteristics including race-based scholarships or programs, preferential hiring or promotion practices, and access to facilities or resources based on race or ethnicity.
- Prohibited use of proxies for protected characteristics including “cultural competence” requirements, geographic or institutional targeting, and “overcoming obstacles” narratives or “diversity statements.
- Segregation based on protected characteristics including race-based training sessions, segregation in facilities or resources, and implicit segregation through program eligibility.
- Unlawful use of protected characteristics including race-based “diverse slate” policies in hiring, sex-based selection for contracts, and race- or sex-based program participation.
- Training programs that promote discrimination or hostile environments including trainings that promote discrimination based on protected characteristics.
The guidance provides recommendations on best practices such as:
- Ensuring inclusive access to all workplace programs, activities, and resources.
- Focusing on skills and qualifications directly related to job performance or program participation.
- Prohibiting demographic-driven criteria designed to achieve discriminatory outcomes even though using facially neutral means.
- Documenting legitimate rationales and ensuring these are consistently applied and demonstrably related to legitimate, nondiscriminatory institutional objectives.
- Scrutinizing neutral criteria for proxy effects before implementing them.
- Eliminating diversity quotas and focusing solely on nondiscriminatory performance metrics.
- Avoiding exclusionary training programs and refraining from segregating participants based on protected characteristics.
- Including nondiscriminatory clauses in contracts to third parties and monitoring compliance.
- Establishing clear antiretaliation procedures and creating safe reporting mechanisms.
All recipients of federal funds, including federal contractors and subcontractors, should review the guidance carefully and ensure their practices and procedures are compliant because the DOJ is now following up with federal contractors on their compliance.
9th Circuit Orders DOL to Release EEO-1 Reports
On July 30, the U.S. 9th Circuit Court of Appeals ruled the Department of Labor (DOL) must release federal contractors’ consolidated EEO-1 reports to the Center for Investigative Reporting under the Freedom of Information Act (FOIA). The appeals court upheld the lower court’s finding that the data in reports weren’t protected as “commercial data” under Exemption 4 of FOIA and must be disclosed.
Senate Funds OFCCP, OFCCP Staff Recalled
Although the DOL budget for fiscal year (FY) 2026 would eliminate all funding for the Office of Federal Contract Compliance Programs (OFCCP), the Senate Appropriation Committee voted prior to the August recess to provide $105M for the OFCCP, nearly as much as its FY2025 budget.
The DOL has announced that 155 OFCCP employees who had been slated to be laid off will instead be rehired to similar jobs at other DOL agencies or possibly at the OFCCP itself by September 1.
H. Juanita Beecher is an attorney with FortneyScott in Washington, D.C. You can reach her at nbeecher@fortneyscott.com.