Executive Order on DEI targets federal contractors

An Executive Order (EO) titled “Addressing DEI Discrimination by Federal Contractors” was issued by President Trump on March 26. It’s the latest in a series of actions taken by the administration targeting what it views as unlawful Diversity, Equity, and Inclusion (DEI) practices.

This EO focuses on what it describes as “racially discriminatory” DEI practices and includes these components:

1. Definitions: The EO defines “racially discriminatory DEI activities” as those that lead to “disparate treatment” based on race or ethnicity in recruitment, employment (including hiring and promotions), contracting, program participation, or the allocation or deployment of resources. “Program participation” includes worker access to training, mentoring, leadership development programs, associations, or other similar opportunities.

2. A new contract clause: The EO requires that, within 30 days, all federal departments and agencies make sure that contracts, subcontracts, and lower-tier agreements contain a new clause, which was spelled out in the EO. The clause requires contractors to agree that they will:

• Not undertake any “racially discriminatory DEI activities;”
• Provide “information and reports” that may be required for the government to assess compliance with the clause;
• Report any “known or reasonably knowable conduct” of any subcontractor that might violate the clause, and take corresponding remedial actions as directed; and
• Notify the government if the contractor is sued by a subcontractor in a manner that “puts at issue, in any way,” the new clause’s validity.

The clause provides for full or partial cancellation, termination, or suspension of the contract in the event of noncompliance by either the contractor or any subcontractor.

3. Penalties: The EO directs the Office of Management and Budget to create guidance requiring federal agencies to ensure that contracts are cancelled, terminated, or suspended for noncompliance; and “take appropriate action” to debar or suspend contractors and subcontractors for noncompliance.

4. Enforcement: Federal agency leaders must, within 120 days, review their agency’s implementation of the new clause and report on compliance. Agency heads must then continue to conduct regular reviews and undertake “appropriate measures to ensure such compliance.”

Legal challenges are anticipated, but in the meantime, employers should:

• Anticipate that future contract solicitations and awards will incorporate the new clause.
• Watch out for attempts from federal agencies to modify existing contracts by adding the clause.
• Assess what actions will be necessary to comply with the EO.
• Work with counsel to review any DEI programs and initiatives to ensure that they align with federal courts’ interpretations of anti-discrimination law and other executive actions.

Key to remember: President Trump issued an EO titled “Addressing DEI Discrimination by Federal Contractors” that attaches consequences to some DEI practices.