One and done, or are there more to come?
The U.S. Department of Justice announced a $17 million settlement with International Business Machines Corporation, resolving allegations that its diversity initiatives violated the False Claims Act. This is the first time the federal government has pursued an FCA claim against a federal contractor based on its diversity policies.
President Trump set the stage for federal contractors to be sued for False Claims Act violations when he signed Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” In addition to rescinding Executive Order 11246, the new executive order required federal contractors “to agree that . . . compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions” and “to certify that [the contractor] does not operate any program promoting DEI that violates any applicable Federal anti-discrimination laws.”
A few months after President Trump signed Executive Order 14173, the Department of Justice announced its Civil Rights Fraud Initiative, warning recipients of federal funds that the government was vigorously enforcing anti-discrimination laws and pursuing FCA claims against violators.
The FCA generally provides that any person who knowingly submits false claims to the government can be liable for three times the government’s damages, plus a penalty tied to inflation. According to the Justice Department, the FCA is implicated when an entity “knowingly violates civil rights laws – including but not limited to Title IV, Title VI, and Title IX, of the Civil Rights Act of 1964 – and falsely certifies compliance with such laws.”
The challenged policies
According to the settlement agreement between the Justice Department and IBM, the government took issue with the following employment practices:
- Developing race and sex demographic goals, and taking race and sex into account when making employment decisions to achieve those goals.
- Tying bonus compensation to employees’ achievement of demographic targets based on race, sex, and other protected characteristics.
- Using diverse interview slates and altering interview eligibility criteria based on race, sex, and other protected characteristics.
- Limiting eligibility to training, mentorship, and leadership development programs based on race, sex, or other protected characteristics.
The settlement agreement notes that IBM was credited with “taking voluntary remedial measures, including the termination and/or modification of various programs, policies, or other [challenged] practices. . . .”
IBM denies that it engaged in the challenged practices.
Given the Trump Administration’s focus on “illegal DEI,” which has not abated, federal contractors should proactively evaluate their employment practices for potential risk.
Please contact any member of Constangy’s EEO/Contractor Compliance, Reporting & Analytics Practice Group with questions or for assistance.
- Partner
Cara co-chairs Constangy’s practice groups relating to EEO/Contractor Compliance, Reporting & Analytics, and DEI Compliance. She advises employers on proactive strategies to help avoid litigation and has defended employers ...
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