Ensuring Adequate Compliance Mechanisms in the Wake of President Trump’s DEI-Related Initiatives

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On January 21, 2025, President Donald Trump issued an Executive Order targeting diversity, equity, and inclusion (“DEI”) and diversity, equity, inclusion, and accessibility (“DEIA”) initiatives. On February 5, 2025, Attorney General Pam Bondi released a memorandum furthering the policy initiatives behind Trump’s Executive Order. Companies are now assessing their potential risk given the new administration’s clear policy to eliminate what it is referring to as “anti-discrimination” initiatives both within the federal government and private sector. Companies are likewise determining what they can do proactively to avoid becoming targets. This article explains why having an adequate compliance program, specifically a strong internal reporting mechanism is a key piece of that puzzle.

Under his January 21, 2025 Ending Illegal Discrimination and Restoring Merit-Based Opportunity Order, Trump:

• orders all executive departments and agencies to end illegal private-sector DEI preferences, mandates, policies, programs, and activities;
• revokes several Executive Orders dating back nearly 60 years that prohibited discrimination or promoted diversity and inclusion in federal contracting;
• requires federal contractors and grant recipients to now certify compliance with all applicable federal anti-discrimination laws and agree that compliance is “material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31”; and
• charges the head of all agencies to take appropriate action to end illegal DEI initiatives in the private sector, and requires the Attorney General to submit a report containing a proposed strategic enforcement plan.

In Bondi’s February 5, 2025, Memorandum to all Department of Justice employees, Bondi states that:

• “[T]he Department of Justice's Civil Rights Division will investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds;”
• By March 1, 2025, the Civil Rights Division will be submitting a report with proposals to address this issue that will include “proposals for criminal investigations and for up to nine potential civil compliance investigations of entities that meet the criteria outlined in section 4(b)(iii) of Executive Order 14173”; and
• “[T]he Department of Justice will work with the Department of Education to issue directions, and the Civil Rights Division will pursue actions, regarding the measures and practices required to ensure colleges and universities do not "treat some students worse than others in part because of race.”

Legal Risk for All Employers

Although not directly applicable to employers in the private sector, Trump’s Executive Order and Bondi’s Memorandum create long-term legal risks for all employers in the sense that they indicate a federal policy change that presumes that DEI programs and activities are illegal under existing federal civil rights laws. While employers must continue to comply with existing laws with respect to minority employees, this Executive Order may encourage an influx of “reverse discrimination” lawsuits by employees of dominant and majority groups. It may also encourage civil rights or other investigations not tied to federal funding.

Legal Risk for Employers Receiving Federal Funds

Nevertheless, Trump’s Executive Order and Bondi’s Memorandum create the most immediate risk for employers seeking payment from the federal government, either as government contractors, grant recipients, or payees under government programs such as Medicare.

By directly citing 31 U.S.C. § 3729, also known as the False Claims Act (“FCA”), Trump has signaled to government agencies that they can and should initiate FCA-related investigations or actions against companies that participate in government programs and are believed to be: (1) violating federal anti-discrimination laws; or (2) falsely certifying compliance. The FCA imposes civil or criminal liability on individuals or companies that knowingly submit or cause to be submitted a false claim for payment to the federal government. A claim may still be considered “false” in circumstances where the company is providing the underlying goods or contractual services but fails to follow all the rules and conditions of the government program, which now includes an end to DEI programs. The FCA provides for mandatory treble damages, or three times the value of “false” claims at issue, and civil penalties that range in the tens of thousands of dollars for each false claim, meaning violations can result in significant consequences for companies. FCA violations can also result in companies being barred from further government contracting or payment. Although the Executive Order makes clear enforcement is a priority for government agencies, the qui tam provision of the FCA increases the risk that the government may become aware of violations in the first place.

Under the FCA’s qui tam provision, private citizens known as Relators may alert the government to potential FCA violations and then step in and file an action on behalf of the government if the government declines to intervene. Although Relators are often “whistleblowers” who are either employees or former employees, they can also be completely unaffiliated with the violating company. The FCA incentivizes individuals to bring qui tam actions by awarding successful Relators up to 30% of any amount recovered by the government, plus attorney’s fees. Employers are prohibited from retaliating against employees who bring such actions.

Proactively Assessing Risk and Preparing Affirmative Defenses Through Compliance

As the saying goes “an ounce of prevention is worth a pound of cure.”  When companies have strong compliance programs, particularly robust internal reporting systems, this allows them to identify and remedy potential problems before the government becomes involved and forces them to do so. Identifying problems early allows employers to reduce the cost or even prevent investigations or litigation from occurring. Effective compliance programs can also help reduce penalties if they must occur. In light of this Executive Order and this administration’s clear intention to utilize the FCA as an enforcement tool, all companies, but particularly those companies seeking payment from the government, should:

1. Stay abreast of changing rules and expected additional guidance. The Executive Order provides a 120-day window for the Attorney General to submit a report for further strategic enforcement initiatives. More immediately, the Civil Rights Division will submit its report for proposed civil and criminal investigations in less than a month. Whether through additional express policy initiatives or increased enforcement actions, companies will likely have additional guidance to consider within the next several months.
2. Take steps to identify potential DEI or DEIA policies and practices that might be implicated by this Executive Order. Companies should not only be aware of these policies, but also ensure that general counsel, human resources officials, members of its compliance team, and board members are familiar with these policies and the risks the policies might create. For any policies that are found to be non-compliant with this Executive Order, companies should take corrective action promptly while ensuring they remain compliant with applicable local and state laws that may have different requirements.
3. Confirm that the company has adequate internal reporting mechanisms that encourage employees to initially report any concerns to company leadership. To encourage internal reporting, companies should: (1) ensure there is a reporting mechanism including an anonymous reporting option; (2) train employees on this mechanism; and (3) test that the reporting mechanism properly functions. More internal reports mean fewer external whistleblower complaints.
4. Adequately investigate and document all reports and take appropriate action. Companies should investigate all reports or document why they have not done so (e.g., the report lacked sufficient information). Companies should take remedial action if necessary, including modifying or terminating problematic programs or initiatives or engaging in employee training and education.
5. Be cautious when taking employment action against reporters. Companies should consult internal or external counsel before taking an adverse employment action (e.g., demotion, termination, reassignment) against an employee who has reported a compliance concern within the prior year. If the company takes a negative employment action it should clearly document in an employee’s file why the employee is being terminated, disciplined, or reassigned.

Maynard Nexsen regularly works with employers to ensure compliance with the FCA, employment discrimination statutes, and other applicable state and federal laws. With questions about the FCA or state and federal discrimination statutes, contact any member of our Government Investigations and Employment & Labor Law Practice Groups for advice.