Following President Trump's executive orders on diversity, equity, and inclusion ("DEI") programs, recent statements from State Attorneys General ("State AGs") highlight that employers should prepare for increased scrutiny not only from the federal government but also state governments as well.
President Trump Signs Two Executive Orders Calling for
the End of "Illegal DEI."
In the first two days of his second term, President Trump signed
two DEI-related executive orders, representing a distinct shift
from prior administrations. On day 1, January 20, 2025, President
Trump signed Executive Order 14151 ("Ending Radical Government
DEI Programs and Preferencing"). The order calls for the
termination of "all DEI, DEIA [diversity, equity, inclusion,
and accessibility], and 'environmental justice' offices and
positions" within the federal government. On the following
day, President Trump signed Executive Order 14173 ("Ending
Illegal Discrimination and Restoring Merit-Based
Opportunity"). This second order targets what is described as
"illegal DEI and DEIA" policies and programs by the
federal government, federal contractors and subcontractors, and
private employers.
The impact of this latter DEI order cannot be overstated. Section 3
of Executive Order 14173, revokes several civil rights executive
orders, including Executive Order 11246 of September 24, 1965
("Equal Employment Opportunity"), which was originally
signed by President Lyndon B. Johnson and required affirmative
action plans for certain federal contractors and subcontractors.
And Section 4 of Executive Order 14173, which is titled,
"Encouraging the Private Sector to End Illegal DEI
Discrimination and Preferences," asks the U.S. Attorney
General and relevant federal agency heads to develop a
"strategic enforcement plan," within 120 days of the
order. This plan will identify the "most egregious and
discriminatory DEI practitioners" amongst employers and
propose federal enforcement efforts to rid workplaces of
"illegal discrimination and preferences, including DEI,"
by initiating civil compliance investigations, litigation, and
other regulatory actions.
On February 3, 2025, a multi-plaintiff lawsuit was filed in a
Maryland federal court challenging the constitutionality of
President Trump's DEI-related executive orders. The court has
not yet taken action to stop enforcement of the orders.
The Government Is Watching: 19 State AGs "Urge"
Costco to "Repeal" Its DEI Programs.
In response to these DEI-related executive orders and potential
action by the federal government, some companies have notably
modified their DEI policies and programs, while others, like
wholesale retail giant Costco have reaffirmed their DEI
commitments. Last month, Costco's shareholders voted down a
proposal to assess potential risks of the company's DEI
efforts. Costco's President and Chief Executive Officer Ron
Vachris has been recently quoted by The Wall Street Journal as
saying, regarding Costco's commitment to DEI, "If these
are the policies you see as offensive, I must tell you I am not
prepared to change."
The CEO's comments have garnered the attention of 19 State AGs,
who have signed a letter to Costco urging the national retailer to
"end all unlawful discrimination imposed by the company
through [DEI] policies." The letter gives Costco 30 days to
respond by "either notifying [the State AGs] that Costco has
repealed its DEI policies or explain why Costco has failed to do
so." Citing Executive Order 14173, the 19 State AGs call on
Costco to "do the right thing" (a reference to
Costco's motto) by "repealing its DEI
policies."
The letter, which outlines State AG efforts nationally in
challenging DEI polices through lawsuits and investigations, was
signed by State AGs of Alabama, Arkansas, Georgia, Idaho, Iowa,
Kansas, Kentucky, Louisiana, Missouri, Montana, Nebraska, North
Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee,
Texas, and Virginia. It represents an additional source of legal
challenge employers may face, at the state level, as they evaluate
their current DEI efforts.
Responding to the Moment: Employers Must Prepare to
Navigate Multijurisdictional Challenges to DEI
Programs.
The Costco letter highlights that employers face
multijurisdictional scrutiny of their DEI efforts, increasing the
regulatory and political risks associated with maintaining certain
DEI policies, whether they were recently adopted or longstanding
commitments.
Regardless of size or industry, here are some practical steps
employers should consider, along with labor and employment counsel,
as they evaluate their DEI efforts:
- Compile a comprehensive list of your company's DEI
policies, programs, and communications. Companies should
review their DEI policies and related disclosures to ensure they
match with their intended commitments and core values, as well as
with the requirements of existing law. At this time of year, many
companies are already reviewing their employee compensation plans
and scholarship programs; hiring policies, budget and priorities;
employment agreements, labor agreements and policies; proxy
statements and sustainability reports; supply chain questionnaires
and guidelines; subcontractor agreements; board and employee level
committee charters; and other materials that may contain DEI
obligations, commitments or disclosures. As noted by the Costco
letter, public statements can draw attention by government actors
to your company's DEI programs.
- Consider multijurisdictional sources for DEI program
challenges. For multistate and international employers,
the Costco letter highlights the potential for conflicting
regulatory guidance and enforcement between the jurisdictions a
company, its subsidiaries and its operations may be subject,
whether U.S. federal, state or local, or non-U.S. jurisdictions.
Care should be taken to understand how DEI efforts may fare in
various jurisdictions and whether these efforts may draw further
scrutiny of other labor and employment practices. In addition to
regulatory guidance, companies should review their DEI materials in
light of the particular stakeholder priorities of their employees,
customers, investors, lenders and proxy advisors, services and
suppliers, and others. Each company's stakeholders may present
different challenges, conflicts, and priorities.
- Create an informed but flexible response plan. In Executive Order 14173, President Trump gives the U.S. AG along with relevant agency heads 120 days from the order to submit a "plan of specific steps and measures to deter DEI programs and principles" by private employers. These details may inform employers further on what DEI efforts, if any, will survive the government's scrutiny. Additionally, more judicial challenges are expected to possibly delay, pause, or prevent these executive orders from continued implementation. Employers should consider how changes may impact their position and plan.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
