Significant Changes to Federal Contracting and Potential Scrutiny of Private Sector DEI Programs

Late on January 21, 2025, President Trump signed an Executive Order Ending Illegal Discrimination and Restoring Merit-Based Opportunity. This Order is focused on eliminating "discriminatory" DEI programs, targeting both federal contractors and private sector entities.

Impact on Federal Contractors

This Executive Order revokes Executive Order 11246 (EO 11246) which was originally signed in 1965 and established various Affirmative Action requirements for federal contractors and subcontractors, including written plans and reporting requirements. In revoking EO 11246, Section 3 of Trump’s new Executive Order states:

The Office of Federal Contract Compliance Programs within the Department of Labor shall immediately cease:

1. Promoting “diversity”;
2. Holding Federal contractors and subcontractors responsible for taking “affirmative action”; and
3. Allowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.

It also states that covered contractors may choose to continue complying with the requirements of EO 11246 for up to 90 days from January 20, 2025. Finally, the EO requires that all federal contracts and grants include a term requiring parties to agree that “its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions” and a term requiring parties “to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” 

It is worth nothing that this Executive Order does not change a covered contractor’s tracking and reporting obligations under Section 503 of the Rehabilitation Act of 1973 (protecting the disabled) and the Vietnam Era Veterans’ Readjustment Act of 1974 (VEVRAA) (protecting certain veterans). These are protected by statute.

Impact on Private Sector DEI Programs

Section 4 of the Executive Order requires federal agency heads along with the Attorney General to submit a report within 120 days that contains “recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI."

The report shall contain a proposed strategic enforcement plan identifying:

1. Key sectors of concern within each agency’s jurisdiction;
2. The most egregious and discriminatory DEI practitioners in each sector of concern;
3. A plan of specific steps or measures to deter DEI programs or principles (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences. As a part of this plan, each agency shall identify 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;
4. Other strategies to encourage the private sector to end illegal DEI discrimination and preferences and comply with all Federal civil-rights laws;
5. Litigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest; and
6. Potential regulatory action and sub-regulatory guidance.

It is worth noting that the Order does not prohibit all DEI efforts, but only those that could violate federal anti-discrimination laws. In reality, most DEI efforts do not violate civil rights laws, so this will need to be more clearly defined.  All employers must still comply with applicable state and local anti-discrimination laws such as Title VII of the Civil Rights Act and how these laws have been applied in the court system. For example, this does not change an employer’s obligation to provide a workplace free of discrimination and harassment under Title VII and applicable state and local laws.

Interestingly, the Executive Order does not define many of the terms it uses such as illegal discrimination.  For example, Affirmative Action requirements prohibit the use of quotas or preferences as THAT would be illegal. These regulations, in fact, do not permit employers to make employment decisions based on protected classes such as race and gender. This also, has not changed.

There is still much that is unknown about how this Executive Order will be implemented and its impact on employers. Cascade will continue to monitor this issue and provide updates as we learn more about how to navigate this emerging issue.

If Cascade completes your Affirmative Action Plan, we will be reaching out to discuss the next steps.

CEA NOTE to California Employers

While the Executive Order may change contractor affirmative action obligations, California’s Fair Employment and Housing Act (FEHA)’s prohibitions of discrimination, harassment or retaliation and its requirement for employers of five or more employees to train all employee on harassment prevention every two (2) years remains the same. CEA delivers compliant harassment training in multiple ways in English and Spanish, including private (virtual or live) training at your location, webinars and On-demand Courses.

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This article was originally published by CEA's sister association, Cascade Employers Association on January 22, 2025. Additional notes about how the Executive Orders may affect California businesses have been added by Virginia Young, HR Compliance Director, CEA.