EEO Compliance Dispatch

On March 26, President Trump issued an Executive Order entitled “Addressing DEI Discrimination by Federal Contractors.” This executive order prohibits contractors from engaging in racially discriminatory diversity, equity, and inclusion activities and requires contractors to report subcontractors who are engaging in such activities.

Before delving into the details of this new executive order, here is a quick summary of some of the Trump Administration’s prior actions involving federal contractors and DEI:

• Rescinded Executive Order 11246, which required federal contractors to engage in affirmative efforts to recruit females and minorities.
• Required contractors to certify that they do not operate any programs that promote DEI in violation of federal anti-discrimination laws.
• Created Civil Rights Fraud Initiative to identify contractors violating civil rights laws and to pursue False Claims Act claims against them.
• Provided guidance regarding the activities that the administration considers to be “illegal DEI.”

In sum, the administration has instituted policies to eliminate contractors’ programs that provide an advantage to individuals based on protected characteristics, such as race or sex.

What is the purpose of the new executive order?

The purpose of this new executive order is to eliminate race-based DEI practices that treat individuals differently based on race or ethnicity rather than merit, and to prevent entities from continuing or concealing such conduct.

The executive order asserts that DEI practices are unlawful and undermine efficiency in government contracting by increasing costs, distorting hiring and promotion decisions, and weakening workforce performance and collaboration. The executive order therefore seeks to promote economy and efficiency in federal contracting by prohibiting such practices by contractors.

The White House issued a Fact Sheet with the executive order to further explain its rationale.

What new requirements are created by the executive order?

The executive order requires governmental entities to use a new contract clause and ensure that the clause is included in subcontracts.

The new contract clause

• Prohibits contractors from engaging in any racially discriminatory DEI activities.
• Requires contractors to furnish documents and provide government access to records for purposes of determining compliance.
• Requires contractors to report a subcontractor’s “known or reasonably knowable conduct that may violate this clause” and to “take any appropriate remedial actions directed by” the government.
• Requires contractors to inform the government if a subcontractor challenges the validity of the contract clause in litigation.

The executive order defines “racially discriminatory DEI activities” as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.”

“Program participation” is defined as “membership or participation in, or access or admission to training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.”

When do these new requirements become effective?

The government must begin inserting the clause in new contracts, subcontracts, and contract-like instruments no later than April 25.

What are penalties for non-compliance?

If a contractor does not comply with the contract clause, the government may cancel, terminate, or suspend its contracts in whole or in part. In addition, the contractor may be declared ineligible for future government contracts.

The contract clause also specifically provides that compliance is material to the government’s payment decisions. Therefore, violations could result in enforcement under the False Claims Act. To that end, the executive order directs the Attorney General to prioritize potential claims under the False Claims Act against contractors engaging in racially discriminatory DEI activities and to ensure prompt review of qui tam actions brought by individuals.

What should contractors do?

The administration continues to focus on eradicating illegal DEI and is using its procurement powers to mandate action by contractors.

Six key points for contractors are as follows:

No. 1: Compliance is a contractual obligation and will be required when entering into new or amended contracts that include the contract clause.

No. 2: Subcontractors and lower-tier contractors are covered by the new contract clause.

No. 3: DEI compliance is a core responsibility tied to contract eligibility like other material contract obligations.

No. 4: The Attorney General will prioritize enforcement and seek out violators for litigation under the False Claims Act.

No. 5: The executive order focuses solely on “race-based” DEI initiatives, but contractors should avoid employment practices that treat individuals differently based on any protected characteristic, as other laws could be implicated.

No. 6: Contractors should proactively audit their hiring, promotion, training, supplier diversity programs, and other employment practices for potential risk. The executive order authorizes each government agency to investigate contractor compliance, so contractors should prepare for potential investigations.

And although the executive order does not mention the Office of Federal Contract Compliance Programs, the OFCCP could eventually be empowered to investigate contractors’ DEI programs to ensure compliance and enforce the executive order. We will keep you informed of any developments on that front.

Please contact any member of Constangy’s EEO/Contractor Compliance, Reporting & Analytics Practice Group with questions or for assistance in complying with the executive order.