backFollowing a series of signals throughout 2025 that investigations into corporate diversity, equity, and inclusion (“DEI”) initiatives were coming, recent reporting has confirmed the U.S. Department of Justice (“DOJ”) has launched civil investigations into DEI-driven hiring and promotion practices at major U.S. companies and institutions. This is the latest development in a string of efforts by the Trump Administration seeking to roll back DEI initiatives. These investigations give teeth to DOJ’s Civil Rights Fraud Initiative announced in May 2025 and signal that meaningful enforcement activity could be on the horizon across industries, including for the nation’s largest recipients of federal funding. Many companies have already received extensive document and information requests concerning their DEI practices, and companies across a broad array of industry sectors ranging from tech, defense, education, banking, pharma, and beyond, should prepare for similar investigative tactics.
DOJ is reportedly investigating companies for DEI policies that may violate federal law following the Trump Administration’s January 21, 2025 Executive Order 14173 (“Executive Order” or “EO 14173”) targeting DEI.1Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (Jan. 21, 2025), available at https://www.whitehouse.gov/presidential-actions/2025/01/ending-illegal-discrimination-and-restoring-merit-based-opportunity/ Specifically, DOJ is probing whether a variety of DEI initiatives—such as “diverse slate” requirements, hiring and/or promotion goals based on protected characteristics such as race and gender, compensation or other incentives or penalties used to achieve DEI goals, and employee programs providing benefits to certain groups based on protected characteristics—render companies’ claims of compliance with federal merit-based standards “false” pursuant to the False Claims Act (“FCA”). As explained further below, this would be a novel application of the FCA, a statute traditionally geared towards targeting businesses that defraud the government.
2025: Developments in DEI
The current enforcement initiative follows a series of developments in 2025 dictated by the new Trump Administration’s policy priorities. President Trump’s EO 14173 directed all agencies to terminate discriminatory preferences and enforce civil rights laws “to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” It also required federal contractors and grant recipients to certify compliance as a material condition of payment. The Executive Order states, “[T]oday, roughly 60 years after the passage of the Civil Rights Act of 1964, critical and influential institutions of American society, including the Federal Government, major corporations, financial institutions, the medical industry, large commercial airlines, law enforcement agencies, and institutions of higher education have adopted and actively use dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ or [] or ‘diversity, equity, inclusion, and accessibility’ [] that can violate the civil-rights laws of this Nation.”
Following the Executive Order, Deputy Attorney General Todd Blanche issued a memorandum to all DOJ attorneys in May 2025 explaining the applicability of the FCA to DEI initiatives and launching a Civil Rights Fraud Initiative to investigate recipients of federal funds who knowingly engage in race- or ethnicity-based preferences, calling FCA the “weapon” for pursuing corporations.2 U.S. Dep’t of Just., Memorandum from Deputy Attorney General Todd Blanche on Civil Rights Fraud Initiative (May 2025), available at https://www.justice.gov/dag/media/1400826/dl?inline. Momentum accelerated in July when Assistant Attorney General for Civil Rights Harmeet Dhillon testified before the Senate Judiciary Committee, pledging “numerous investigations and lawsuits against institutions that continue to offend our federal civil rights laws,” adding: “Either DEI will end on its own, or we will kill it.”3 Testimony of Harmeet Dhillon, Assistant Attorney General for Civil Rights, before the Senate Judiciary Committee (July 2025), as reported in USA TODAY, “DEI Fraud: Trump Investigations,” (Dec. 29, 2025), available at https://www.usatoday.com/story/money/2025/12/29/dei-fraud-trump-investigations/87947879007/. Shortly thereafter, on July 29, 2025 Attorney General Pam Bondi issued a Memorandum for All Federal Agencies titled, “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination” to clarify the application of federal antidiscrimination laws to programs or initiatives that may involve discriminatory practices, including those labeled as DEI programs.4Office of the Attorney General, Memorandum from Attorney General Pam Bondi on Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination, (July 2025), available at https://www.justice.gov/ag/media/1409486/dlinline=&utm_medium=email&utm_source=govdelivery.
Outside of DOJ, on June 2025, the Department of Labor’s (“DOL”) Office of Federal Contract Compliance Programs (“OFCCP”) also issued requests to all federal contractors for voluntary reports about how they have implemented Executive Order 14173.5 Letter from Catherine Eschbach, Director, Office of Federal Contract Compliance Programs, U.S. Department of Labor (June 27, 2025), available at https://www.dol.gov/sites/dolgov/files/OFCCP/Letter-OFCCP-Director-Catherine-Eschbach-6.27.25-508c.pdf OFCCP Director Catherine Eschbach suggested that contractors should examine their affirmative action practices and disclose whether they believe modifications to their practices are necessary, and, if so, what steps they have taken to modify those practices. These voluntary reports, in addition to the certifications required by Executive Order 14173, would provide additional documentation to the federal government to support DOL inquiries, DOJ probes, State AG investigations, and other potential actions.
Leveraging the FCA for DEI-Related Enforcement
Historically, FCA actions have resulted in significant monetary payments; DOJ reported that in the fiscal year ending September 30, 2024 it obtained more than $2.9 billion in settlements and judgments from civil cases involving false claims or fraud against the government, and preliminary projections for fiscal year 2025 indicate a substantial increase in total FCA recoveries compared to 2024.6Press Release, Dep’t of Just., False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024 (Jan. 15, 2025), https://www.justice.gov/archives/opa/pr/false-claims-act-settlements-and-judgments-exceed-29b-fiscal-year-2024. FCA cases can begin with whistleblower claims and have most often arisen in the context of healthcare or defense contracting. DOJ’s recent investigatory steps with regard to DEI policy represent a novel application of the FCA to civil rights compliance. This framework centers on a “false certification” theory under the FCA, which posits that federal funding recipients commit fraud by certifying compliance with federal anti-discrimination laws while maintaining DEI programs which assign benefits or burdens based on protected characteristics.
Under Executive Order 14173, such compliance is now explicitly deemed “material” to the government’s payment decisions, satisfying a critical element of FCA liability.7 Note that FCA defendants may dispute materiality even if the contract expressly labels a term “material.” In his concurrence in Kousisis v. United States, Justice Thomas identified four indicia that a requirement, notwithstanding a “material” label, may be “minor or insubstantial” for FCA purposes. 145 S. Ct. 1382 (2025). These factors could pose an obstacle to establishing FCA liability for certain alleged DEI violations and provide a roadmap for disputing FCA claims by reinforcing that materiality requires a substantive link to a contract’s central objectives. This theory could extend to both “express” certifications found in new contract language and “implied” certifications made whenever a company or institution submits an invoice to the government.8 Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016). In Escobar, the Supreme Court confirmed that the “implied certification” theory of the False Claims Act applies when the defendant submits a claim for payment to the government but fails to comply with all relevant statutes, regulations, or contract requirements. Therefore, under this theory, a contractor or grant recipient could face liability if DOJ alleged company policies and/or DEI initiatives violated anti-discrimination laws and the company accepted federal funds, even in the absence of an explicit statement of compliance with those laws. At least one court appeared to take a relatively narrow view of this theory in the civil rights context: on November 7, 2025, the District Court for the District of Columbia dismissed both a whistleblower’s retaliation claim and the underlying FCA claim in Thornton v. National Academy of Sciences, concluding that the employee’s allegations about discriminatory conduct, standing alone, did not sufficiently support a funding claim based on false certifications.9 Thornton v. Nat'l Acad. of Scis., No. 25-CV-2155, 2025 WL 3123732 (D.D.C. Nov. 7, 2025). In Thornton, the plaintiff alleged that their employer, a federal contractor, administered a federally funded study in a racially discriminatory manner, purportedly violating the FCA. The court dismissed the claim, noting that “the complaint must include some evidence of false certifications of compliance . . . in connection with funding claims.” This decision suggests that a complaint regarding a specific instance of discrimination, without more, may be insufficient to establish a false certification claim under the FCA. While Thornton provides an early indication of how the courts might view this theory, it does not bar the government from advancing claims under it.
In the 2026 DEI enforcement context, DOJ may argue that companies act with “reckless disregard” if they persist with a variety of DEI initiatives (such as “diverse slate” mandates, hiring and/or promotion goals based on protected characteristics, incentives or penalties used to achieve DEI goals, or employee programs limiting benefits to certain groups) following EO 14173. This risk is heightened where internal records show the organization was aware of a “substantial risk” that its DEI programs were arguably unlawful but certified compliance anyway. In such cases, it is likely the government will argue that the company acted with “reckless disregard” or “deliberate ignorance,” arguably satisfying the False Claims Act’s knowledge requirement according to the government’s theory.10In 2023, the Supreme Court ruled that “scienter” under the False Claims Act is determined by a defendant’s subject knowledge at the time a claim is submitted. United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023). SuperValu rejected application of the objective knowledge standard to the FCA stemming from the Supreme Court’s decision in Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 70 (2007). While Safeco concerned a different statute, the Fair Credit Reporting Act (“FCRA”), multiple Circuit courts subsequently applied its analysis regarding an “objective reasonableness” standard for determination of scienter to the FCA. In SuperValu, the Court clarified that Safeco interpreted the term “willfully” under the FCRA and that, for the FCA, “knowing” fraud depends on what a defendant actually believed at the time they submitted a claim.Notwithstanding legal challenges to this novel application of the false certification theory, by linking DEI practices directly to the integrity of federal contracts and grants, DOJ could seek treble damages and significant civil penalties for programs that were previously governed by federal or state employment law.
Additionally, while unlikely, it is possible that DOJ will interpret affirmative action programs as unlawfully discriminatory. Because federal laws requiring affirmative action have been in effect for decades, a legal theory rooted in the FCA may generate litigation risk for certifications made before the January Executive Order. The FCA routinely allows claims going back six years. Older DEI programs therefore could trigger liability if DOJ chooses to pursue action on the basis that companies and institutions made false certifications at the time they sent invoices when they had certain affirmative action or DEI programs in place. However, because EO 14173 clarified the government’s position as to the legality of DEI programs, it would likely be difficult to prove a knowing violation prior to that date.11Notably, EO 14173 also created a 90-day safe harbor, permitting federal contractors to operate under the previous regulatory framework during that period. Exec. Order No. 14173, Sec. 3 (i) (”Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity), is hereby revoked. For 90 days from the date of this order, Federal contractors may continue to comply with the regulatory scheme in effect on January 20, 2025.”)
If a company finds itself in the Administration’s crosshairs, a successful claim under the FCA could lead not only to a payment of three times the damages the government suffered, along with civil penalties, but also to reputational harm and further scrutiny by DOJ. Critically, in relation to risk mitigation, DOJ has warned that renaming or restyling otherwise unlawful DEI programs does not provide a shield from liability.12 In its July 2025 guidance, DOJ warns that renaming DEI programs or using “facially neutral criteria” that function as proxies for protected characteristics violate federal law if “designed or applied with the intention of advantaging or disadvantaging individuals based on protected characteristics.” Office of the Attorney General, Memorandum from Attorney General Pam Bondi on Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination, (July 2025), available at https://www.justice.gov/ag/media/1409486/dlinline=&utm_medium=email&utm_source=govdeliver To underscore this message, DOJ is likely to focus on examining historical information in addition to current data. Regardless of the scope of the investigation, organizations can expect scrutiny of their DEI efforts, certification language, and public statements about these issues.
Parallel Congressional Oversight Scrutiny
In parallel with DOJ’s enforcement posture, companies should anticipate heightened congressional scrutiny of workplace programs and certifications that touch DEI. In the current Republican-controlled Congress, oversight committees have made clear that dismantling DEI initiatives is a priority. In June 2025, the House Committee on Oversight and Government Reform held a hearing entitled “DEI Promotes Discrimination and Hinders Equality” in which Republicans praised President Trump’s efforts to “curb unlawful discrimination.”13Press Release, House Committee on Oversight and Government Reform, Hearing Wrap Up: DEI Promotes Discrimination and Hinders Equality (June 25, 2025), https://oversight.house.gov/release/hearing-wrap-up-dei-promotes-discrimination-and-hinders-equality/. In November 2025, the House Judiciary Committee investigated George Mason University for the use of racial quotas and racial demographic balancing in faculty hiring.14Press Release, House Judiciary Committee, Report: Illegal Racial Discrimination in Faculty Hiring at George Mason University Under the Direction of President Gregory Washington (Nov. 6, 2025), https://judiciary.house.gov/media/press-releases/report-illegal-racial-discrimination-faculty-hiring-george-mason-university.
Senate committees have been similarly active on DEI-related oversight. In July 2025, Senator Eric Schmitt (R-MO), Chair of the Senate Judiciary Subcommittee on the Constitution, held a hearing on “ending radical and discriminatory DEI programs,” arguing that such initiatives conflict with civil rights laws and merit-based principles.15Press Release, Sen. Eric Schmitt, Senator Schmitt Chairs Judiciary Subcommittee Hearing on Ending DEI Discrimination (July 23, 2025), https://www.schmitt.senate.gov/media/press-releases/senator-schmitt-chairs-judiciary-subcommittee-hearing-on-ending-dei-discrimination/. In his remarks, Sen. Schmitt criticized corporate hiring practices, federal contracting preferences, and pandemic-era relief programs that he claimed excluded businesses based on race or gender. Witnesses at the hearing included DOJ Civil Rights leadership and advocacy groups, signaling alignment between congressional inquiries and DOJ and its litigation strategies. In a December 19 X post referencing the hearing and EEOC’s work in “fighting illegal discrimination,” Sen. Schmitt stated, “I will hold more hearings on this in the New Year.”16@SenEricSchmitt. “When @AAGDhillon testified before my subcommittee, we discussed how Corporate America and Big Law are discriminating via DEI. She and @andrealucasEEOC are fighting illegal discrimination. I will hold more hearings on this in the New Year.” X, (Dec. 19, 2025), https://x.com/eric_schmitt/status/2002069018497462283.
At the same time, Democratic lawmakers are pressing in the opposite direction, challenging anti-DEI measures for potential statutory violations. A December 2025 letter from Senate Appropriations Committee Ranking Member Patty Murray (D-WA), Appropriations Labor-HHS Subcommittee Ranking Member Tammy Baldwin (D-WI), and Health, Education, Labor, and Pensions Committee Ranking Member Bernard Sanders (I-VT) to Department of Health and Human Services Secretary Robert F. Kennedy Jr. condemned the Office of Head Start’s notification to all Head Start programs that “’the use of federal funding for any training and technical assistance or other program expenditures that promote or take part in diversity, equity, and inclusion [] initiatives’ will not be approved” and banning nearly 200 words including “women,” “disability,” “Tribal,” and “mental health” in descriptions of expenditures for its early childhood development program.17 Letter from Sens. Patty Murray, Bernard Sanders, and Tammy Baldwin to HHS Secretary Robert F. Kennedy, Jr. (Dec. 19, 2025), https://www.murray.senate.gov/wp-content/uploads/2025/12/251218-Letter-to-Sec.-Kennedy-Jr.-RE-Head-Start-Banned-Words.pdf
Looking ahead, companies can expect congressional scrutiny from both parties to continue and likely intensify in 2026, with oversight efforts creating a complex compliance landscape and remaining highly visible.
Conclusion
Recent actions by DOJ signal the potential for a broader, cross-sector enforcement wave to come in 2026. Companies operating within industries that involve federal procurement or grant funding, such as defense, pharma, tech, automotive, and utilities can anticipate heightened scrutiny of their workforce policies. Likewise, educational entities and financial institutions also may face elevated risk given reliance on federal grants and lending programs. Given recent directives and warnings, coupled with increasing agency action, including from DOJ, organizations receiving federal funds should prepare for potential scrutiny.
To mitigate the risk of legal and reputational exposure stemming from an FCA investigation, companies may want to consider the following:
- Adopt a Dual-Audit Strategy: Engage counsel to conduct a privileged audit of DEI-related efforts, including review of policies, training materials, employee programs, and recruiting/promotion/pay practices, for compliance with anti-discrimination laws, followed by a non-privileged business assessment to establish a documented “good faith” basis for future federal certifications.
- Review Public Facing Statements: Review any public facing statements about DEI-related efforts, including in public filings, other disclosures or reports, company websites, and/or on social media, and engage counsel to assess whether any changes should be made.
- Strengthen Contractual Controls: Assess DEI compliance and verify all certifications for accuracy prior to submission.
- Enhance Compliance Frameworks: Evaluate company systems for identifying and addressing internal discrimination concerns. Reinforce whistleblower protections to resolve complaints internally before they escalate into potential federal qui tam actions. Ensure human resources and internal legal counsel are aware of new areas of risk concerning complaints about any DEI-related efforts from employees.
- Build Investigative Readiness: Work with counsel to develop a formal response plan for potential civil or criminal investigations. Given regulators’ aggressive posture, generating a pre-established “playbook” for responding to CIDs or subpoenas is a sound practice.
We will continue to monitor these developments closely. Feel free to reach out to any listed authors if you have questions or would like assistance implementing any of the steps described above.