On January 21, 2025, President Trump signed an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Order”), rescinding affirmative action under Executive Order 11246 and other anti-discrimination policies applying to federal contractors. We provided an in-depth review of that Order, while noting that much remains to be seen given the Order’s minimal execution details and the current legal challenges to the Order. We focus here on one particular feature of the Order: its threat of proactive—and unprompted—private sector enforcement through the civil False Claims Act (“FCA”).

The FCA imposes civil liability for anyone who knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the U.S. government, or who knowingly makes or uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim to the U.S. government. 31 U.S.C. § 3729(a)(1)(A)-(B). It also imposes liability for conspiring to commit such conduct. Id. § 3729(a)(1)(C). Defendants liable under the FCA may be subject to treble damages as well as civil penalties per false or fraudulent claim. Id. § 3729(a)(1).

President Trump’s Order aims to leverage the FCA to force companies to comply with the Order’s mandate against “illegal” diversity, equity, and inclusion (“DEI”) programs. It not only authorizes but mandates the Attorney General to collect a report for agencies identifying “up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” And the Order requires the head of each agency to include in every contract or grant award: (1) “[a] term requiring the contractual counterparty or grant recipient to agree that 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” [the False Claims Act]; and (2) “[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.”

In other words, President Trump has laid the groundwork for the government to use the FCA to enforce compliance with the administration’s anti-DEI policy objectives. Combined with the likelihood that this Order will empower private individuals to file qui tam actions based on perceived unlawful DEI practices, the threat of government investigation sets the stage for a significant increase in FCA enforcement activity going forward—even above that seen in Fiscal Year 2024.

Below, we discuss the FCA-related implications of this far-reaching Order and what steps companies should consider taking now.

Key Risks

1. Unclear What Constitutes Unlawful DEI: Because the Order does not define “DEI” or provide context on what this administration believes might be an “unlawful” DEI program, we will have to wait and see if the administration provides more guidance. This administration, however, will likely take a broad view of what DEI programs it believes are illegal. What this administration has done at federal agencies to eliminate essentially all DEI programs may offer a prelude to some of the DEI programs that it might target in the private sector. The Order, however, does not change the law on DEI programs. Even before the Order, preferences, quotas, or set-aside programs based on race, gender, or other protected characteristics were unlawful under federal anti-discrimination law except in very limited contexts, such as remedial programs created in accordance with U.S. Supreme Court precedent. Many DEI programs remain lawful under existing federal antidiscrimination laws, including mentorship/fellowship/internship programs and employee resource groups that are not limited to certain races, genders, or other protected demographic groups. Companies also must continue to comply with antidiscrimination laws at the federal and state levels, so they should continue to review their practices for bias or discriminatory barriers, such as conducting pay equity reviews.
2. Increased Whistleblower Activity: At any company, there is always the risk that an employee, former employee, or competitor with knowledge of corporate practices could identify wrongdoing or contractual noncompliance and become a qui tam relator. Companies can mitigate this risk by establishing robust ethics and compliance programs and investigating employee concerns proactively. President Trump’s Order takes this long‑standing and well‑understood risk and elevates it significantly by sweeping certain undefined DEI practices within the FCA’s purview. The Order will almost certainly result in increased politicization of employment decisions—such as hiring, firing, and promotions—and will give disappointed or disgruntled employees a basis to claim that any adverse employment decision was a result of illegal diversity-related considerations. Indeed, in the last few years, companies have experienced a growing number of employee claims that their DEI programs are unlawful or violate their sincerely held religious beliefs. Depending on the nature of these objections, employees may have FCA whistleblower protections that will require employers to proceed cautiously, especially before taking disciplinary or other adverse actions. This Order effectively deputizes corporate employees to police corporate DEI programs or anything that might look like a DEI program. It is not hard to envision a drastic uptick in whistleblower complaints as a result, and it appears quite likely that the government will be more prone to intervene in such suits than has historically been the case.
3. Unprompted Government Investigations: Typically, the Department of Justice does not investigate a company for potential FCA violations without some indication of wrongdoing, such as a whistleblower complaint or concerns raised by a federal agency. The Order, however, calls for “civil compliance investigations” of publicly traded corporations, large nonprofit corporations or associations, foundations with assets of $500 million or more, state and local bar and medical associations, and institutions of higher education with endowments over $1 billion. This suggests the administration could use its investigative authority not only to investigate suspected unlawful activity, but also simply to determine whether certain large organizations might have an “illegal” DEI program. Depending on the outcome of any such investigation, the costs a federal contractor would likely incur cooperating with the government or independently investigating government concerns could be unallowable.

Risk Mitigation

1. Audit DEI Programs Under Privilege: Although President Trump’s Order rescinded prior executive orders and policies aimed at promoting “illegal” DEI, it did not nullify existing anti-discrimination laws. If a DEI program was lawful before the Order, it remains lawful after the Order. That said, given this administration will likely take a broad view of what DEI programs are “illegal,” it is critical now to inventory and audit existing and proposed DEI initiatives through experienced counsel and under attorney-client privilege. The scope of these audits can vary, but, at a minimum, should include: (1) assessing DEI initiatives to ensure they do not create unlawful preferences, quotas, or set-asides based on race, gender, or other protected characteristics; (2) ranking currently lawful DEI programs by risk level (i.e., high, medium, low) based on DEI programs that may be more prone to challenge in the current environment (e.g., aspirational targets and goals that are perceived as quotas); and (3) documenting the business and legal value of these initiatives to the company and risks for curtailing or ending those programs. The outcome of this audit can be used to inform companies’ DEI strategies moving forward based on risk tolerances and preferences. This audit is even more critical for federal contractors so they can certify the lawfulness of their DEI programs to the government when the new contractual certification requirements are added to their federal contracts. These audits should be done under attorney-client privilege to minimize risk of having to disclose the audit findings in response to litigation, government investigations, or shareholder proposals.
2. Review Communications About DEI and EEO Plans for Risk: Companies should review all public-facing DEI communications and disclosures (e.g., SEC filings, websites, recruiting materials, and messaging to employees) to ensure that they are vetted appropriately based on the company’s risk tolerances and preferences. In particular, companies should consider derisking communications based on terminology that might be more prone to challenge in the current landscape (e.g., DEI, equity, diversity, etc.) or could be used as circumstantial evidence that the company is operating an “illegal” DEI program. Companies also should consider how to message changes to DEI terminology and communications. Such changes could be viewed negatively by certain employees, customers, or other stakeholders as giving up on DEI and might create reputational and business risks. Also, changing terminology, without more, may not eliminate or substantially reduce risk. Indeed, public statements by administration officials suggest that they are looking for DEI programs that have been “disguise[d]” using “coded or imprecise language.”
3. Train Human Resources and Managers on Handling Employee DEI Opposition: Companies should arm managers and human resources with guidance on how to address employee complaints about DEI programs. Companies should also review their policies and practices for accommodating sincerely held religious beliefs to ensure that they are adequately prepared to address employees seeking accommodations from certain DEI practices, such as EEO/diversity trainings, LGBTQ celebrations, use of preferred pronouns, and others.
4. Document Employment Decisions Carefully: As noted above, the Order effectively deputizes corporate employees to scrutinize DEI programs and increases the risk of claims that certain employment decisions—e.g., hiring, firing, promotions, etc.—were due to allegedly “illegal” DEI programs or related to employee complaints about “unlawful” DEI programs. This means employment decisions are likely to be the subject and focus of increased scrutiny and litigation, including FCA qui tam actions. Companies therefore should review their procedures for documenting and justifying employment decisions to ensure they are sufficient to document the legitimate business reasons for those decisions, with extra emphasis on demonstrating that particular employment decisions were based on merit—not unlawful consideration of race or other protected characteristics.
5. Develop an Investigation Protocol: Companies should also review their practices for investigating discrimination complaints and concerns about their DEI programs. Although many companies investigate discrimination complaints under their current policies and practices, the need to conduct and document proper investigations is even more important given potential liabilities related to the Order. It is prudent for companies to review their current procedures (or proactively develop them) to use in the event of any allegation, rather than to develop ad hoc procedures that may, themselves, be subject to scrutiny.
6. Don’t Overcorrect: Companies should avoid rolling back DEI programs too far, as such rollback could create other legal and business risks. For example, removing certain DEI programs, such as those targeted at eliminating bias, could increase risk of traditional discrimination claims or hinder recruitment and retention efforts. Moreover, the Order itself carves out 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, 20 U.S.C. § 107 et seq., meaning this administration still views at least some affirmative action as appropriate. Federal contractors also must continue to comply with the affirmative action and nondiscrimination protections for individuals with disabilities under Section 503 of the Rehabilitation Act and for protected veterans under the Vietnam Era Veterans’ Readjustment Assistance Act.

This post comes to us from Morrison & Foerster LLP. It is based on the firm’s memorandum, “President Trump’s DEI Certification for Federal Contractors Creates Significant FCA Risk,” dated February 6, 2025, and available here.