New Executive Order Targeting DEI Adds Requirements for Federal Contractors

On March 26, 2026, President Trump signed an Executive Order (March EO) titled “Addressing DEI Discrimination by Federal Contractors.” The March EO builds on earlier EOs targeting Diversity, Equity, and Inclusion programs which were issued at the beginning of the second Trump administration in January 2025.

New Requirements and Enforcement Tools

The March EO attempts to clarify the requirements in the January 2025 DEI EO—EO 14173. That prior EO required contractors to certify that they did not “operate programs promoting DEI that violate any applicable Federal anti-discrimination law.”  What programs would violate the law, however, was left undefined, and the prior EO was therefore subject to legal challenge. The March EO tries to define “DEI” more specifically, noting that DEI activities treat individuals differently or single them out based on race or ethnicity, “rather than treat[ing them] equally and objectively based on their merit and without regard to their immutable characteristics.” The March EO specifically prohibits contractors from engaging in “racially discriminatory DEI activities,” which it defines as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.”  Examples of such programs include membership, participation, or access to training, mentoring, or leadership development programs, educational opportunities, or clubs or associations.

The March EO requires that by April 25, 2026, most federal contracts include a clause prohibiting contractors and their subcontractors from engaging in racially discriminatory DEI activities.  Additionally, the March EO requires contractors to “furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency . . . for purposes of ascertaining compliance” with the March EO. Federal contracts will now also require contractors to affirmatively report any actions by a subcontractor that are “reasonably knowable” and may violate the March EO. Contractors who do not comply may have their contract terminated or suspended and could be debarred from further government contracts.

Significantly, the March EO directs the Attorney General to prioritize False Claims Act (FCA) cases against contractors who violate the terms of their contracts as required by the March EO and to “ensure prompt review” of qui tam civil actions brought by private individuals on behalf of the government under the FCA.  As part of that prompt review, the March EO orders that the Attorney General render a decision on whether to intervene in FCA claims within the 60-day consideration period required under the FCA. 

The March EO directs the Office of Management and Budget (OMB) to issue guidance to agencies to ensure compliance with the order.  OMB is also tasked with identifying sectors that” pose a particular risk” of racially discriminatory DEI activities and to issue additional guidance to contracting agencies for those sectors.

Enforcement actions reflecting the goals of the March EO and January 2025 DEI EO seem to already be in progress. Two weeks after the March EO was signed, the U.S. Department of Justice (DOJ) announced that it reached a $17 million settlement with IBM based on allegations that IBM, as a federal contractor, violated the FCA by certifying in its federal contracts that it complies with Title VII, while also knowingly maintaining discriminatory employment practices. Specifically, the DOJ alleged that IBM engaged in the following unlawful employment practices: (1) modifying pay in a manner that caused employees to take race, color, national origin, or sex into account when making employment decisions, including a diversity modifier that tied bonus compensation to achieving demographic targets, (2) taking race, color, national origin, or sex into account as part of decisions to hire, transfer, or promote through the use of diverse interview slates, diverse sourcing, and altering interview eligibility criteria based on race, color, national origin, or sex, (3) developing race and sex demographic goals for business units and taking race, color, national origin, or sex into account when making employment decisions to achieve progress towards those demographic goals; and (4) offering certain training, partnerships, mentoring, leadership development programs, educational opportunities or resources, and similar opportunities only to certain employees with eligibility, participation, access, or admission limited on the basis of race, color, national origin, or sex.

Key Takeaways

This March EO reemphasizes the administration’s focus on racial components of DEI programs among federal contractors. Therefore, federal contractors should consider conducting a privileged audit of employment policies and practices to assess risk with respect to policies currently in place.  Employers should carefully examine programs including recruiting, compensation and mentoring programs as well as employee resource groups to determine whether the participation criteria are in line with applicable law.  Additionally, contractors collecting demographic information from their workforce and applicants should consult counsel to determine best practices around whether to continue collecting that information and, if so, how it should be used.  Contractors will also need to prepare to certify compliance once the contract clause is put in place, both with respect to their own practices and any subcontractors they may themselves engage for government work. Finally, contractors should continue to coordinate with counsel to monitor DEI enforcement initiatives from the administration. 

While the March EO focuses on federal contractors, all employers should take note of the government’s enforcement priorities, which continue to emphasize “root[ing] out unlawful race and sex discrimination arising from or related to DEI programs, policies, and practices.”  Such priorities were further highlighted in the EEOC’s recently released FY 2027 Agency Performance Plan and FY 2025 Agency Performance Report, which also prioritized claims of national origin bias based on favoring foreign hires, “safeguard[ing] women’s sex-based rights at work”, and religious discrimination claims.

Employers with questions about employment issues arising in relation to federal contracts, this latest Executive Order, or otherwise ensuring compliance under federal, state and local law with respect to diversity programs should contact Amanda M. Baker at abaker@fglawllc.com, Jack Culhane at jculhane@fglawllc.com, or any other attorney at the Firm.

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