Employment / 5 min read
Amidst a series of sweeping executive orders, President Trump ended the requirement that federal contractors maintain affirmative action programs. On January 21, 2025, President Trump signed an Executive Order titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity" (the Executive Order). The Executive Order revokes previous actions designed to promote diversity and inclusion and directs all federal agencies to take action to advance the policy of eliminating "DEI discrimination" throughout the private sector. As a result, the order significantly changes federal policy with regard to diversity, equity, and inclusion (DEI) or diversity, equity, inclusion, and accessibility (DEIA).
The foundation of affirmative action requirements for federal contractors stems from Executive Order 11246 (Equal Employment Opportunity) which was signed into law by President Lyndon Johnson in 1965. Executive Order 11246—later codified in 41 C.F.R. 60-1 and 60-2—mandated nondiscrimination in employment by federal contractors and required federal contractors and subcontractors to take "affirmative action" to recruit and advance qualified minorities and women. This move expanded decades of policy outlawing discrimination in the workplace which had been previously implemented by Presidents Roosevelt and Eisenhower.
However, Affirmative Action requirements have been the subject of scrutiny since before President Trump's re- election. In 2023, the U.S. Supreme Court held that university admission policies relying upon race or diversity criteria as an admission factor violate the Equal Protection Clause of the 14th Amendment of the U.S. Constitution.
Going forward, this Executive Order effectively ends affirmative action requirements for federal contractors. However, the Executive Order expressly shields "lawful Federal or private-sector employment and contracting preferences for veterans of the U.S. armed forces or persons protected by the Randolph-Sheppard Act."
The Executive Order also provides that federal contractors "may continue to comply" with the previous regulatory scheme for 90 days. Said another way, federal contractors have 90 days or until April 21, 2025, to comply with the Executive Order.
The following portion of the Executive Order provided below are of particular relevance to federal contractors:
- The Executive Order directs the Office of Federal Contract Compliance Programs (OFCCP) to immediately cease promoting diversity, enforcing affirmative action requirements, and allowing or encouraging federal contractors or subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.
- It should be noted that the Executive Order does not address what federal contractors should do in the event of pending or scheduled OFCCP audits. Thus, contractors with pending or scheduled OFCCP audits should consult legal counsel to assist in analyzing potential effects and developing strategies to approach such audits.
- The "employment, procurement, and contracting practices of Federal contractors and subcontractors shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation's civil rights laws."
- Each contract or grant award will include a term requiring federal contractors and grant recipients: (A) to agree 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 (B) to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.
These new contractual requirements are one of the most impactful segments of the Executive Order. The requirements expressly create potential liability under the False Claims Act by specifying that compliance with "all applicable Federal anti-discrimination laws" is material to payment decisions under 31 U.S.C. § 3729(b)(4). The cited code provision defines a "material" violation under the False Claims Act as a violation with a natural tendency to influence, or which is capable of influencing, government payment of a claim. Thus, by making anti-discrimination compliance as provided by this Executive Order "material" to the government's payment decisions, federal contractors who are found to make materially false certifications about DEI programs or anti-discrimination compliance will be subject to False Claims Act liability.
• Further, the Executive Order mandates the Director of the Office of Management and Budget (OMB), with the assistance of the Attorney General, to conduct a comprehensive review of all government-wide processes, directives, and guidance. This review includes all federal acquisition, contracting, grants, and financial assistance procedures with the ultimate goal of removing all "references to DEI and DEIA principles, under whatever name they may appear." The OMB is further directed to terminate all programs, mandates, requirements, or activities related to "diversity," "equity," "equitable decision-making," "equitable deployment of financial and technical assistance," "advancing equity."
This mandate could have broad sweeping impacts upon many federal programs and funding sources. Federal contractors should keep a close watch on the effects of this mandate going forward.
Section 4 of the Executive Order directs the heads of all agencies, with the assistance of the Attorney General, to take all appropriate action to advance the policies within the order to the private sector. This section provides:
- The Attorney General must consult with the relevant agency heads and the Director of OMB to prepare a report, within 120 days of the Executive Order, containing recommendations for enforcing Federal civil-rights laws and encouraging the private sector to end illegal discrimination and preferences, including DEI.
- This report must contain a proposed strategic enforcement plan that identifies: (1) "key sectors of concern," (2) "the most egregious and discriminatory DEI practitioners in each sector of concern," and (3) "a plan of specific steps or measures to deter DEI programs or principles … that constitute illegal discrimination or preferences."
- As part of the third category i.e. a "plan …to deter DEI programs," each agency must "identify up to nine potential civil compliance investigations" of organizations meeting certain criteria — such as publicly traded corporations, large non-profit corporations or associations, and foundations with assets of 500 million dollars or more.
As written, this mandate would require each federal agency to hunt for nine noncompliant companies to target for potential compliance investigations. Moreover, such a focus signals that a significant and coordinated effort will be made to enforce the policies within the Executive Order within the private sector.
To conclude, this Executive Order is a stark change from the decades-long policy in support of DEI initiatives and affirmative action. Federal contractors should work closely with their counsel to assess the implications of this Executive Order as applied to their policies and procedures.