Management Alert: Trump Executive Order Eliminates Federal Contractor Affirmative Action Requirements and Creates New DEI Enforcement Framework

Seyfarth Synopsis: On January 21, 2025, President Trump issued an Executive Order entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”  The Order revokes several Executive Orders, including EO 11246, the foundational Executive Order from 1965 which imposed affirmative action obligations on federal government contractors and subcontractors. President Trump’s Order expressly prohibits OFCCP from promoting “diversity,” requiring affirmative action, and encouraging or allowing contractors to engage in “workforce balancing” with regard to certain characteristics. It also requires that federal contract and grant recipients certify that they do not operate DEI programs that violate federal anti-discrimination laws. By making these certifications “material” for False Claims Act purposes, the Order opens the door to both government enforcement and private whistleblower suits with treble damages.

In addition to ending federal contractor affirmative action requirements, President Trump’s Order directs all federal agencies, with assistance from the Attorney General, to “take all appropriate action” to advance the policy of eliminating “DEI discrimination”  or “unlawful DEI” throughout the private sector.  The Order also mandates sweeping changes to federal policy with regard to diversity, equity, and inclusion (DEI) or diversity, equity, inclusion and accessibility (DEIA) initiatives, directing all federal agencies to eliminate DEI-related references to certain federal activities, including federal acquisitions, contracting, grants, and financial assistance. 

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President Trump’s Rescission of EO 11246 Ends Federal Contractor Affirmative Action Obligations and Mandates Changes at the OFCCP

On January 21, 2025, President Trump signed an Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”  Perhaps most significantly for federal contractors, President Trump’s Executive Order revokes Executive Order 11246, the foundational executive order governing federal contractor obligations regarding equal employment opportunity and affirmative action that has been in place since 1965. President Trump’s repeal of Executive Order 11246 effectively eliminates affirmative action obligations for federal contractors, although President Trump’s Order specifies that contractors “may” continue to comply with the existing regulatory framework for up to 90 days, or until April 21, 2025. 

President Trump’s Order directs the Office of Federal Contract Compliance Programs (OFCCP) to immediately cease promoting diversity, or requiring affirmative action from federal contractors and subcontractors. It also explicitly prohibits workforce balancing based on race, color, sex, “sexual preference,” religion, or national origin.

While the Order dramatically curtails OFCCP’s role in promoting diversity and enforcing affirmative action requirements under EO 11246, the Agency appears to retain its statutory authority to enforce federal contractors’ Section 503 and VEVRAA obligations. The Order explicitly states that it does not apply to “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.”

Contractors with pending or scheduled OFCCP audits should work closely with legal counsel to evaluate and assess the implications and develop strategies for responding to the Agency. 

Termination of Previous Federal DEI Policies

In addition to formally rescinding EO 11246, President Trump’s Executive Order also repeals other orders relating to DEI and environmental justice.[1]

Significantly, the Order mandates a comprehensive review by the Office of Management and Budget (OMB), with assistance from the Attorney General, of all government-wide processes, directives, and guidance. This review extends to federal acquisition, contracting, grants, and financial assistance procedures, with the explicit goal of removing references to DEI and DEIA principles “under whatever name they may appear.” Additionally, the Order specifically requires OMB to terminate all programs and activities throughout the federal government related to “diversity,” “equity,” “equitable decision-making,” “equitable deployment of financial and technical assistance,” and “advancing equity.” This broad mandate could affect numerous federal programs, potentially disrupting existing federal funding streams across multiple sectors.

Enforcement

President Trump’s January 21, 2025 Executive Order reaches far beyond federal contractors and internal federal programs. Section 4 of the Order directs all federal agencies, with the Attorney General’s assistance, to take “all appropriate action” to advance the policies articulated in the Order. Critically, this directive is not limited to enforcement actions against federal contractors. It extends to potential action against all private employers and federal grant recipients.

Section 4(b) of the Order requires the Attorney General to prepare a report within 120 days, containing recommendations for enforcing federal civil rights laws and encouraging the private sector to end what the Order terms “illegal discrimination and preferences, including DEI.” The Attorney General’s report must contain a strategic enforcement plan that identifies “key sectors of concern” as well as “the most egregious and discriminatory DEI practitioners in each sector of concern” and specify enforcement steps to deter DEI programs “that constitute illegal discrimination or preferences.” As part of the strategic enforcement plan, each federal agency is being ordered to identify up to nine potential civil compliance investigations of major organizations meeting specific thresholds – i.e. publicly traded corporations, large nonprofits, foundations with assets over $500 million, state and local bar and medical associations, and universities with endowments over $1 billion. With multiple agencies each identifying up to nine targets, this could result in a substantial number of potential enforcement actions.

Notably, this report is to be submitted to the Assistant to the President for Domestic Policy, one of the most senior White House policy positions responsible for coordinating domestic policy across the federal government. The involvement of such a senior White House official, rather than leaving enforcement solely up to agency discretion, signals that the administration intends to maintain direct oversight of enforcement efforts against major private sector organizations’ DEI programs. This high-level attention from the White House suggests we can expect aggressive and coordinated enforcement actions once targets are identified.

New Federal Contract and Grant Certification Requirements and False Claims Act Exposure

One of the most significant provisions of President Trump’s January 21, 2025 Executive Order is its requirement that all contracts and grants must include “a term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” The Order says that agencies shall include this certification provision “in every contract or grant award,” indicating this requirement applies to new contracts and grants moving forward from the Order’s effective date. The Order does not explicitly address whether or how this certification requirement might apply to existing contracts and grants. This raises significant questions about whether agencies might seek to modify existing agreements to include these certification requirements, or whether organizations with existing multi-year grants or contracts might face new certification requirements upon renewal or modification of those agreements.

Because it seeks to cover all federal contracts and grant recipients, the sweep of the Order is breathtaking. For healthcare organizations, the category of “grant recipients” includes any entity receiving research grants, demonstration project grants, capacity-building grants, or other direct federal grant funding (but does not include organizations that only receive Medicare or Medicaid reimbursements). Similar requirements extend to any organization receiving federal grants across sectors such as scientific research, social services, housing, and community development. The OMB is directed to revise all government-wide processes for grants and financial assistance to remove DEI principles. This broad scope means that healthcare providers, research institutions, social service organizations, and other entities receiving grants will need to review any DEI initiatives, even if they are not federal contractors.

These new contractual requirements intentionally create a new avenue for False Claims Act exposure by requiring agencies to include in every contract and grant award a term 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 provision defines when a violation is “material” under the False Claims Act – specifically, when the violation has a natural tendency to influence, or is capable of influencing, whether the government pays a claim. By explicitly making anti-discrimination compliance material to the government’s payment decisions, the Order establishes that any certifications about DEI programs or anti-discrimination compliance that are found to be materially false will provide a basis for False Claims Act liability.

The False Claims Act includes qui tam provisions allowing private whistleblowers to bring suits on behalf of the government, and receive a percentage of any recovery. Thus, President Trump’s Executive Order creates potential exposure not just to government enforcement, but also to private whistleblower suits targeting DEI programs alleged to violate federal anti-discrimination laws. Qui tam lawsuits brought under the False Claims Act can be accompanied by awards of treble damages as well as civil penalties.

Educational Institutions

Educational institutions face multiple compliance obligations under the Order as recipients of federal funding. For example, higher education institutions participating in federal student loan programs under Title IV of the Higher Education Act may be characterized as a federal “grant recipient.” Moreover, with respect to educational institutions, the Order requires that within 120 days, the Attorney General and Secretary of Education must issue guidance to all state and local educational agencies receiving federal funds and higher education institutions participating in federal student loan programs regarding compliance with the Supreme Court's 2023 decision in the Students for Fair Admissions cases. This guidance is to focus on ensuring that federally funded institutions comply with federal anti-discrimination laws and merit-based principles.

Conclusion

President Trump's Executive Order represents a sweeping change in federal policy as it uses multiple strategies to target DEI initiatives the new Administration deems unlawful and to shift federal programs to focus on what it calls merit-based systems. Employers, contractors, grant recipients and educational institutions should deeply assess the implications of this Order as applied to their own organizations and practices.  As further guidance emerges from the White House, federal agencies, and the courts, stakeholders must carefully evaluate their DEI and DEIA initiatives. This rapidly evolving area will require ongoing vigilance to assess and adapt to changing requirements and circumstances.

Seyfarth will continue to monitor these developments and provide updates as developments occur. For more information on how these changes may affect your workplace policies and compliance obligations, please contact any of the authors, a member of Seyfarth’s People Analytics team, or any Seyfarth attorney with whom you regularly work.

 

[1] These other revoked orders include Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations), Executive Order 13583 (Establishing a Coordinated Government-Wide Initiative to Promote Diversity and Inclusion in the Federal Workforce), Executive Order 13672 (Amendments to Equal Employment Opportunity in Federal Government and Contracting), and The Presidential Memorandum of October 5, 2016 (Promoting Diversity and Inclusion in the National Security Workforce).