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President Donald J. Trump has issued an executive order rescinding requirements that federal contractors implement affirmative action programs, and targeting companies that have diversity, equity, and inclusion (DEI) initiatives. This Presidential directive creates real risk of potential civil False Claims Act (FCA) liability for healthcare companies, federal contractors, and federal grant recipients that maintain DEI initiatives and programs. Government contractors and other private sector employers should review their DEI programs and training to ensure compliance with new legal requirements.
Executive Order on Affirmative Action and DEI
On Jan. 21, 2025, the President issued an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (Order). The Order seeks to eliminate DEI initiatives in federal government agencies and within private companies doing business with the government. Among other actions, the President rescinded prior Executive Order 11246, which had previously imposed affirmative action obligations on federal contractors in addition to non-discrimination requirements. First adopted in 1965, this prior executive order was enforced by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP).
Under the Order, federal contractors may continue to comply with Executive Order 11246 for up to 90 days, but directs OFCCP to “immediately cease” “[h]olding Federal contractors and subcontractors responsible for taking “affirmative action.” The Order directs federal government agency heads to submit within 120 days to the White House proposed strategic enforcement plans “containing 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.” Agency heads must include in their submissions “up to nine” large companies or non-profits for “potential civil compliance investigations,” as well as litigation “that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest.” In the Order, the President also directed the Attorney General and Education Secretary to issue joint guidance “regarding the measures and practices required to comply with Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023).”
The Order imposes two new requirements on all federal contracts and grants that could create liability under the FCA for companies that do business with the government. In the Order, the President directs the head of each federal government agency to require federal contractors and grant recipients to agree that their “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions” under the FCA. The Order also requires federal contractors and grant recipients to certify that they do “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
Separate from the Order, the FDA recently removed draft guidance on clinical trial diversity, raising concerns over the regulatory approach to Diversity Action Plans required under the Food and Drug Omnibus Reform Act (FDORA). The removal of this guidance signals a shift in the government’s stance on the collection and evaluation of demographic data in clinical research.
Heightened Scrutiny Under False Claims Act (FCA)
The FCA is a powerful tool in combating fraud, waste, and abuse in federal government programs. Federal authorities reported more than $2.9 billion in FCA settlements and judgments in fiscal year 2024. Companies and individuals that knowingly submit false claims for payment to the government or cause such claims to be submitted can be subject to treble damages and civil monetary penalties under the FCA. FCA penalties currently range from $13,946 to $27,894 per false claim, which creates the risk of enormous financial exposure for companies doing business with the government, even where actual damages are low. In addition, FCA liability can be premised on a federal contractor’s alleged misrepresentation of its compliance with rules imposed by statute, regulation, or contract, often referred to as “false certification” or “legal falsity” FCA liability.
The Department of Justice (DOJ) has reiterated its commitment to aggressive FCA enforcement, particularly in the healthcare sector. Under the Order, companies receiving federal funds must now certify that their DEI initiatives comply with anti-discrimination laws, with non-compliance potentially leading to whistleblower lawsuits and FCA liability. The new certification requirements under the Order appear to be aimed at enhancing the ability of government investigators and individual whistleblowers (called “relators”) to use the FCA to enforce the Trump Administration’s anti-DEI policies. The Order does not state whether OFCCP will have a role in enforcing the new certification requirements.
Implications and Next Steps for Companies Doing Business with the Government
The intersection of executive orders, FCA enforcement, and new anti-DEI policies presents a shifting legal terrain for organizations engaged with federal contracts. The Order is just one part of a sweeping number of executive actions rescinding Biden-era DEI initiatives throughout federal agencies. For healthcare entities and other companies working with federal contracts and subcontracts, these policy changes present both compliance challenges and litigation risks. Moreover, while employers who do business with the government will need to re-evaluate their DEI initiatives in order to comply with the Order, California-based employers are still subject to State laws prohibiting discrimination and retaliation, which may create separate risks to employers as they review, reorganize, and/or dismantle their DEI programs and initiatives.
Key concerns include:
- Regulatory Uncertainty: New executive orders and the removal of FDA diversity guidance leaves healthcare companies uncertain about the expectations for clinical trial demographic representation, potentially impacting drug and device approvals.
- Increased FCA Risk: Companies must carefully assess their DEI programs and affirmative action policies to avoid FCA-related enforcement actions. Failure to comply with new certification requirements could lead to whistleblower suits or DOJ scrutiny.
- Employment and Contracting Adjustments: Healthcare providers, research institutions, and contractors will need to reassess employment practices, grant applications, and compliance protocols to ensure they align with the latest executive orders and anti-discrimination policies.
As these changes unfold, companies doing business with the federal government should be proactive in striving to maintain regulatory alignment and avoid costly penalties in this evolving environment. Indeed, some publicly traded companies already are taking note of DEI-related business risk factors. Bloomberg Law recently reported that United States Steel Corp. told shareholders its Jan. 31, 2025, 10-K annual report that the President’s scrutiny of corporate diversity programs is a possible risk to its business. Companies should engage with their compliance and legal advisors in these key areas:
- Regulatory Compliance Audits: Review DEI programs, affirmative action policies, and employment practices to ensure compliance with new federal mandates.
- Risk Assessment and Mitigation: Identify potential FCA vulnerabilities, whistleblower risks, and litigation exposure, and develop proactive compliance strategies.
- Defense Against Government Investigations: Be Prepared for OFCCP audits, DOJ investigations, or FCA claims.
- Employment Policy Adjustments: Review and where necessary modify employee training programs, hiring practices, and internal policies to align with the latest legal requirements.
- Contractual and Certification Compliance: Ensure corporate contracting officers understand and adhere to new contract certification clauses related to anti-discrimination compliance.
Authors:
Vince Farhat, Partner, Chair of the White Collar Defense & Investigations Group
Marta Fernandez, Partner, Chair of the Labor and Employment Group
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