New DEI Executive Order Affects Federal Contractors

The administration issued a new, comparatively restrained Executive Order that specifically targets examples of discrimination based on race or ethnicity.

The order defines discrimination as disparate treatment based on race or ethnicity in recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or the allocation or deployment of a federal contractor’s resources. It clarifies that program participation includes access to training, mentoring, leadership development programs, and other educational opportunities; membership in clubs and associations; and similar opportunities sponsored or established by the contractor or subcontractor.  

The new Executive Order echoes themes from DOJ and EEOC's past messages but highlights overt partiality and exclusion. It challenges organizations' efforts to remediate historic discrimination by favoring certain marginalized groups. Its narrower scope aligns with the Supreme Court’s 2023 decision invalidating racial preferences in university admissions.

New Compliance Certification

The new Executive Order directs executive departments and agencies to include a new compliance certification in all federal contracts and subcontracts, covering the following points:

• The contractor will not engage in any racially discriminatory DEI activities as defined by the new Executive Order.

  
  

• For compliance purposes, the contractor will furnish all information and reports, including access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order.

• The contract may be canceled, terminated, or suspended for noncompliance with this clause, and the contractor or subcontractor may be declared ineligible for further federal contracts.

• The contractor will report and address any subcontractor noncompliance.

• The contractor will notify the agency if it is being sued by a subcontractor challenging this clause.

• The contractor recognizes that compliance with the requirements of this clause is material for purposes of the False Claims Act.

The order details agency actions to implement and enforce it. Unlike previous orders targeting specific industries, the new order instructs that “additional guidance on best practices” be prepared for sectors identified as high-risk for noncompliance based on past or current conduct. 

Any federal contractor that has not already evaluated its workplace practices to remove racial preferences should do so immediately.  Employers should:

• Not Use Race or Ethnicity as a Key to Entry - Diversity initiatives that offer special programs, facilities, resources, or opportunities based on someone’s racial or ethnic group are unlawful, regardless of the rationale. Offering internships, scholarships, mentoring, and similar programs that use race or ethnicity as a qualifying consideration risk violating the new compliance certification. 

  
  

• Do Not Consider Race or Ethnicity in Hiring and Promotions - Hiring and selection criteria that prioritize individuals with certain protected characteristics are generally seen as unlawful.  

• Check Training Programs - Training programs that stereotype, diminish, demean, or otherwise exclude certain individuals based on protected characteristics, such as those targeting white individuals, are unlawful.