False Claims Act Exposure in Focus: President Trump Signs Executive Order Targeting DEI Programs 

On January 21, 2025, President Trump issued an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “EO”), which aims to eliminate diversity, equity, and inclusion (DEI) policies and programs across the federal government and within companies that do business with the federal government.

Importantly, the EO revokes Executive Order 11246, which, since 1965, has mandated affirmative action in employment from government contractors and required implementation of affirmative action programs.^[i]

Federal contractors and grant recipients have until April 21, 2025 (90 days from the issuance of the EO) to comply with the EO’s provisions. 

Below, we summarize the False Claims Act (FCA) implications of the EO.^[ii] Briefly stated, federal contractors and grant recipients, including certain health care organizations, should pay close attention to the EO’s required certifications since they directly tie to potential FCA liability premised on false certification of compliance with the federal anti-discrimination laws.

Key Provisions of the EO

• Directs that federal contractors “shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.”
• Instructs the Director of the Office of Management and Budget to (1) review and revise, as appropriate, all governmentwide processes, directives, and guidance; (2) remove references to DEI and diversity, equity, inclusion, and accessibility (DEIA) from federal acquisition, contracting, grants, and financial assistance procedures; and (3) terminate all “diversity,” “equity,” and analogous mandates, requirements, programs, or activities, as appropriate.
• Directs the head of each agency to include “in every contract or grant award” a (1) “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 [the FCA]” and (2) “to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
• Instructs the Attorney General, within 120 days of the EO (by May 21, 2025), in consultation with other agency heads, to submit a report containing a “proposed strategic enforcement plan” that outlines, among other things, “the most egregious and discriminatory DEI practitioners in each sector of concern” and “specific steps or measures to deter DEI programs or principles … that constitute illegal discrimination or preferences.”

Pertinent FCA Background

Unlike other federal laws that are enforceable only by the federal government, the FCA is unique in that it also allows private whistleblowers, known as relators, to file qui tam actions on behalf of the government in exchange for a share of the recovery (ranging between 15 and 30 percent of the recovery). The FCA imposes mandatory per-claim statutory penalties that are adjusted annually (currently ranging from $13,946 to $27,894 for each false claim) as well as treble damages.

There are a variety of actionable theories under the FCA beyond the scenario where a company bills the government for products or services that were never provided. One such theory, known as “false certification,” occurs when a party certifies compliance with a required contractual provision, statute, regulation, or governmental program in connection with the submission of a claim.

In false certification cases, noncompliance with applicable legal requirements must be “material” to the government’s payment decision. Materiality is often a contested, focal issue in FCA cases. The U.S. Supreme Court clarified in Universal Health Services, Inc. v. U.S. ex rel. Escobar that the materiality standard is “rigorous” and “demanding” because the FCA is not “a vehicle for punishing garden-variety breaches of contract or regulatory violations.”^[iii]

FCA Implications

The mandates set forth in the EO will require a clause in all contracts and grant awards with the federal government where the contractor or grant recipient certifies that it does not have any programs promoting DEI that violate any applicable federal anti-discrimination laws and acknowledges that such compliance is material to the government’s payment decision.

With the new certification and materiality requirements, whistleblowers are likely to be further incentivized to bring FCA actions on the belief that it may be easier to prove a violation. It is unclear how that will play out in the courts. For example, while the EO will require that contracts and grant awards contain a clause stating that compliance with the federal anti-discrimination laws is “material” to the government’s payment decision, that does not end the materiality inquiry. The U.S. Supreme Court in Escobar noted how “the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive.”^[iv]  

Additionally, it remains to be seen how uniformly courts will apply the “rigorous” and “demanding” materiality standard in FCA cases predicated on DEI programs while adhering to Escobar’s direction that “the False Claims Act is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations.”^[v] Indeed, federal contractors, particularly certain health care organizations, that submit many claims to the federal government could face billions of dollars in potential exposure—largely due to the FCA’s per-claim penalties—stemming from a particular program that was indisputably lawful prior to the second Trump administration and unrelated to the nature of the contracted items or services.  

While it is not clear precisely which specific DEI/DEIA programs or initiatives would be prohibited, the Trump administration’s position is clear that contractors or grant recipients found to have submitted requests for payment while maintaining unlawful DEI programs could be subject to significant FCA liability.

Best Practices for Mitigating FCA Risk 

• DEI and DEIA initiatives, including policies, programs, and plans, should be promptly and carefully evaluated to determine whether they may violate federal anti-discrimination laws, as federal contractors and grant recipients will need to certify compliance with those laws. Remedial measures should be promptly implemented, as appropriate, to the extent any initiatives are likely to violate federal anti-discrimination laws.
• Companies should monitor agency publications for guidance on which initiatives remain permissible under the EO. Courts are also expected to play an important role in clarifying the reach of the anti-discrimination laws, especially following the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, where it held that “agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference.”^[vi] This is especially true here, where the new EO interpretation of DEI activities as unlawful is a radical shift from the Biden administration’s position as expressed in both guidance and regulations.
• Documentation of compliance with anti-discrimination laws is essential. Records reflecting policy reviews, trainings, and remedial program changes, as appropriate, will be critical in the event of a government investigation or whistleblower claim.
• Because the FCA’s anti-retaliation provisions prohibit adverse employment actions against employees for engaging in protected activity, which could include investigating perceived violations of the FCA stemming from unlawful DEI programs, anti-retaliation compliance protocols and training programs to address this heightened whistleblower risk are recommended.
• While the EO is not binding on private-sector organizations that do not contract or do business with the federal government, the EO is still valuable insofar as it shows the Trump administration’s view that various DEI programs and policies may be considered illegal under the anti-discrimination laws.
• Private-sector organizations should promptly review any DEI/DEIA plans, programs, and policies, as well as their affirmative action programs, to determine whether they contain any aspects that could be deemed unlawful under Title VII of the Civil Rights Act of 1964 or any other federal, state, or local civil rights law, and consider whether to take any action to modify such plans, programs, or policies, including the names of such plans, programs, or policies.

There is certainly more to come on this issue, and we will provide further information as developments unfold.

ENDNOTES

[i] Exec. Order 11246, 3 C.F.R. § 339 (1964–1965).

[ii] Members of our labor and employment team have prepared an employment law-focused analysis of the EO in this blog post.

[iii] See 579 U.S. 176, 194 (2016). More information on materiality and how courts have grappled with Escobar over the years is available in our prior blog post.

[iv] Id. at 178.

[v] Id. at 196.

[vi] See 603 U.S. 369, 392 (2024).