DOJ Pursues DEI Investigations Of Federal Contractors

Acting on President Donald Trump's January 21, 2025 Executive Order titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," the Department of Justice (DOJ) has reportedly opened civil investigations into multiple companies' diversity, equity, and inclusion (DEI) programs under a novel False Claims Act (FCA) theory, implementing DOJ guidance that we flagged in our May 2025 Legal Update. DOJ is investigating whether contractors that maintain DEI policies while doing business with the federal government may have made, or be making, false certifications regarding compliance with federal requirements—potentially exposing contractors to treble damages and penalties under the FCA.

In May 2025, US Deputy Attorney General Todd Blanche announced the creation of the Civil Rights Fraud Initiative, co-led by the Civil Fraud Section and Civil Rights Division, to "utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws." While FCA matters are often triggered by whistleblowers or inspector general referrals, these DEI-focused matters reportedly originated from DOJ leadership and are a policy-driven initiative. DOJ is reportedly investigating multiple companies across various industries, including automotive, defense, pharmaceuticals, technology, telecommunications, and utilities.

Historically, the FCA has been applied predominantly to healthcare reimbursement schemes and defense contracting cases involving false cost or pricing data, defective pricing, and billing for services not rendered. But, as we discussed in our October 2025 Legal Update, the Trump Administration has signaled intent to expand FCA enforcement to new areas. Consistent with that, and the Administration's efforts to dismantle DEI programs across the private sector (e.g., the January 20, 2025 EO titled "Ending Radical And Wasteful Government DEI Programs And Preferencing"), this new initiative targets companies' DEI-related policies through alleged false certifications of compliance with anti-discrimination requirements. Importantly, the DEI-related policies would not need to have a direct relationship to the government contract or government funds in order to be the subject of an enforcement action, because of common contractual clauses committing contractors to avoid illegal discrimination. To the extent the Administration stakes out a position on what qualifies as "illegal DEI" that goes beyond what the courts have said in interpreting the Constitution and federal statutes, DOJ would face nontrivial hurdles in proving material falsity and scienter in any litigated FCA case premised on DEI-related certifications or representations. Even so, the investigative burden, potential reputational impact, and the FCA's treble damages regime amplify the stakes for contractors.

Federal fund recipients should take several immediate practical steps to mitigate risk. First, recipients should conduct a targeted review of public-facing and government-facing statements, including representations in marketing materials, bids, compliance certifications, and supplier diversity commitments, to confirm accuracy and alignment with current law and agency guidance. Second, as we outlined in our August 2025 Legal Update, evaluate DEI policy language and implementation controls for any practices that could be characterized as conferring benefits or imposing burdens based on protected characteristics, with particular attention to selection, promotion, and compensation processes for covered positions on federal contracts. Third, prepare a document preservation and response protocol for potential DOJ civil investigative demands, recognizing that the initiative has already prompted broad requests and in-person meetings with the Department. Finally, consider counsel-led risk assessments to analyze whether any historical statements could be alleged to be material to payment or eligibility, given DOJ's theory of FCA liability in this context.

Companies should assess compliance, certification, and governance frameworks now to mitigate investigative exposure.

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