By James Yand, Miller Nash LLP

The January 21, 2025, Executive Order (EO), titled “Ending Illegal Discrimination And Restoring Merit-Based Opportunity” was released and carries significant implications for federal contractors. Some of the implications for federal contractors include:

• Pay applications will now require certification that the general contractor does not operate DEI programs that violate federal anti-discrimination laws.
• Rescission of the long-standing Executive Order 11246 of 1965, which mandated affirmative action programs for federal contractors and created much of the DEI requirements in current federal contracts. The affirmative action requirements and reports are expected to no longer be required in the next 90 days, absent court action.
• The Office of Federal Contract Compliance Programs (OFCCP) has been directed to stop enforcing diversity promotion and affirmative action requirements in federal contracts. This is consistent with other directives across other federal agencies.
• Federal agency heads are directed to include in every contract or grant award the following:
  • “A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code.”
  • “A term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
  • Most importantly, Federal contractors had a safe harbor to adapt to these new requirements until April 21, 2025, when enforcement began. The process for federal contractors to assess if existing policies are in compliance with this Executive Order should have already begun.

Implications for Contractors Performing Federal Work

All federal contractors and subcontractors should consider the following immediate actions:

• Identify Diversity Equity and Inclusion (DEI), affirmative action, and similar policies that may not align with the letter or spirit of this new Executive Order.
• Consider that women-owned and minority-owned business status may be rendered redundant in the near future. This has not been explicitly stated to date, but it is a reasonable inference from this Executive Order. Additional Executive Orders are expected to follow in the coming weeks and months expanding on this issue.
• Pay applications will require compliance with the Executive Order, opening the door to potential claims of fraudulent certification against federal contractors, subcontractors, and their owners who are found not measuring up to the new standards. The Executive Order also allows for whistleblowers to file lawsuits seeking recovery for illegal or fraudulent activities in federal projects under the False Claims Act. For this reason, all federal contractors and subcontractors should consult their insurance broker or agent to determine whether such claims are or can be covered under existing or available insurance.  Generally, violations of law are not covered under many policies at intentional acts.
• Certification of compliance with this Executive Order will be required as a condition to perform federal work across all federal programs.
• The Executive Order contains exceptions for the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) or the Rehabilitation Act so those obligations remain.
• Compliance guidance is expected within 120 days from various federal agencies, including the US Attorney General and Secretary of Education.

Considerations for Contractors Without Federal Work

• The Executive Order does not directly impact private or state/local government funded projects.
• Contractors engaged in jointly trusteed apprenticeship programs (JATCs) should be aware that 29 CFR Part 30, which enforces equal employment in apprenticeships, has not been addressed in the Executive Order. Obligations under the Employment and Training Administration (ETA) remain intact for now.
• The Executive Order highlights a federal policy change that creates a shadow over many private-sector DEI preferences, mandates, policies, programs, and activities.  The question is whether these previously compliant programs are essentially “illegal” under the executive order or whether existing federal civil rights laws prevail.
• The Executive Order adopts arguments made by some advocacy groups and litigants that have asserted claims in recent years to eliminate corporate DEI efforts on the basis of federal civil rights laws preventing any type of discrimination.
• There is a higher likelihood that the U.S. Equal Employment Opportunity Commission (EEOC), Department of Justice, and other federal agencies will aggressively investigate so-called “reverse” discrimination and other discrimination claims regarding employer DEI activity, even if contractors believe DEI policies promote their business goals. For example, Costco’s well-publicized DEI program is currently under heavy scrutiny, even though supported by the company and its unionized Costco workers. Private lawsuits against company DEI programs, including conservative activist Robby Starbuck, are expected to continue and expand.
• Contractors will have to carefully navigate the incongruent requirements now existing between various local, state and federal agencies and their laws. Conferring with legal counsel while the legal landscape shifts is advised.

Unresolved Questions and Legal Challenges

• State Contracts: Some states (e.g., California, Minnesota) have affirmative action and DEI requirements that may conflict with this Executive Order. Federal contractors working in such states should assess potential compliance risks, and carefully determine the applicable requirements at the state versus federal levels.
• Private Sector Clients: If private companies still require affirmative action plans for contractors, a contractor may need to separate its federal and private work through distinct entities or new subsidiaries to maintain compliance.
• Vendor Compliance: It is unclear whether using materials from vendors with their own DEI initiatives could impact federal project eligibility. Further guidance from the federal government is needed on this issue. For now, vendor compliance with the Executive Order versus contractor and vendor’s own DEI initiatives should be reviewed on a contract-by-contract basis.
• Impact on Apprenticeships: The Executive Order does not explicitly address JATCs, leaving questions about the enforcement of affirmative action obligations in limbo until further guidance is forthcoming.
• Pending Court Cases: As with other Executive Orders, lawsuits have already been filed against enforcement of the new requirements. Either further federal agency information or the lawsuits themselves will likely provide guidance as to what extent the Executive Order is enforceable.
• Trade Groups: Industry trade groups such as FSA, AGC, and ASA are providing valuable guidance to its members on how to navigate these troubled waters.  These trade groups will play a vital role advocating for their members so the impact to the construction industry is mitigated as much as possible.

Recent EEOC Guidance

Beyond merely restating existing law, there is some new, relevant information contained in the “What To Do If You Experience Discrimination Related to DEI at Work” guidance. The jointly-issued DOJ and EEOC guidance expressly states: “DEI policies, programs, or practices may be unlawful if they involve an employer … taking an employment action motived – in whole or in part – by an employee’s race, sex, or another protected characteristic” (emphasis in original). The guidance goes on to identify several employer actions that are considered to constitute unlawful discrimination, including:

1. use of quotas or other actions to “balance” a workforce by race, sex, or other protected traits;
2. hiring, promotion, compensation, demotion, or termination of a person based on race, sex, or other protected traits;
3. excluding persons from training, “leadership development,” internships, fellowships, mentoring, or sponsorships based on race, sex, or other protected traits;
4. selection for interviews and placement on “candidate slates” of persons based on race, sex, or other protected traits;
5. limiting employee resource, affinity, networking, and/or “business resource” groups to those persons in a particular protected class;
6. segregating or separating persons by protected class in trainings, programming, employment resources, or other terms and conditions of employment; and
7. any of the foregoing applies equally to employees as well as potential and actual job applicants, interns, and training program participants.

Based on this guidance, the DOJ and EEOC have reiterated that quotas or other practices intended to promote or benefit any group in any way based on a protected characteristic will be considered unlawful. Affinity groups or employee resource groups based on any protected or other characteristic remain lawful provided such groups are not “exclusive” to persons with that characteristic. Employers with such affinity or resource groups should review the policies or practices for these groups to ensure there are no “exclusivity” provisions. Training, mentoring, fellowship, sponsorship, and other programs intended to assist persons with protected characteristics likewise cannot be “exclusive” to those persons.

Employers with any such programs intending to assist persons with protected characteristics should review the policies or practices for these programs to ensure there are no “exclusivity” provisions. Any classes, resources (print or online), events, or other programming intended for the benefit of employees with protected characteristics must be made available to all employees. For example, a “resources for immigrant employees” webpage listing various third-party groups and programs that support immigrant families must be accessible to all employees, and a “Black History Month” program must be available to all employees. Finally, employers with outreach programming to attract potential and actual job applicants, such as participating in career fairs, should ensure that such programming or career fairs are open to all persons regardless of protected class status. For example, an employer participating in a “women in construction trades” program and hiring fair should ensure that the hiring fair is not restricted to women only (most if not all such programs already do not have unlawful restrictions).

Proceed with Caution Around DEI

The key takeaways for all contractors—but particularly federal contractors and subcontractors—is to remain vigilant about these new requirements, staying abreast of the guidance coming from federal agencies and the courts about best practices. Consulting with your legal professional about specific programs and contracts is recommended to address increasing difficult compliance questions. Finally, be prepared to defend existing DEI and affirmative action policies as being compliant with not only the letter of the law but the spirit of the agency regulators that are now enforcing the new requirements.

About the Author

Jim Yand is a partner with Miller Nash LLP. His practice focuses on resolving challenges involved in construction and property development. Jim has more than 30 years of experience resolving high-conflict cases that often determine the continued success of the client’s project or business. His work also extends to serving as outside counsel for various trade groups and advising on a range of business questions that arise. You can reach Jim by email at james.yand@millernash.com or by phone at 206.777.7404.