False Claims Act Creates Legal Risks for US Diversity Initiatives

U.S. Justice Department Intensifies Scrutiny of Workplace DEI Programs

The U.S. Department of Justice has launched a significant crackdown on workplace diversity, equity, and inclusion (DEI) programs, now using the False Claims Act to investigate employers suspected of implementing unlawful diversity policies. This enforcement strategy represents a major shift with considerable implications for multinational companies, particularly UK-based organizations with American operations.

The initiative began in January when President Trump took office and immediately positioned the effort as part of a broader campaign against what his administration termed “woke ideology.” The White House contends that certain DEI programs unfairly advantage specific groups at others’ expense and should not exist in workplaces receiving federal funding.

Shortly after taking office, Trump signed an executive order requiring all federal contractors and government fund recipients to formally certify that they do not maintain illegal DEI programs. These entities must also acknowledge that such certifications are material to their eligibility for federal money.

On July 30, the DOJ escalated matters by issuing formal guidance to all federal fund recipients, outlining examples of what it considers unlawful DEI practices. This guidance was released under the department’s new Civil Rights Fraud Initiative, signaling that certifications would be rigorously enforced and could trigger False Claims Act liability.

Recent reports indicate the DOJ has begun taking concrete enforcement actions. According to sector press, the department has started sending Civil Investigative Demands—formal requests for documents and testimony—to federal contractors and grantees regarding their DEI practices. Justice Department officials have reportedly stated that false or misleading diversity certifications will now be treated with the same severity as fraudulent billing or procurement claims.

For UK-based multinationals with U.S. operations, this represents a significant compliance risk. The government is actively encouraging employees and private citizens to act as whistleblowers and bring claims against employers they believe are violating these rules.

Cara Crotty, partner at law firm Constangy and co-chair of the firm’s DEI and contractor compliance practice groups, explains the legal framework: “Federal law prohibits employers from using protected characteristics, like race, gender, religion, national origin, as a basis for making employment decisions.”

She notes that Trump’s executive order creates two specific certification requirements: “One, that they do not have illegal DEI in place and, two, that they are acknowledging that their payment from the government is conditional on understanding the materiality of that certification.”

The consequences for non-compliance could be severe. “If a contractor, or other recipient of federal funds, has a DEI policy that would violate that provision, that discriminates in some way, then there’s a potential that the False Claims Act could apply and result in significant monetary liability,” Crotty warns.

The Department of Justice’s Civil Rights Fraud Initiative specifically encourages employees and private citizens to file qui tam actions—whistleblower lawsuits—against employers violating these provisions. This approach creates financial incentives for individuals to report their employers to federal authorities.

When asked about specific employer statements or actions that might create legal risk, Crotty cautions against certain language around diversity goals: “Any kind of statement that indicates the employer has a quota or a preference for individuals based on a protected characteristic could certainly get an employer in hot water.”

She specifically warns about “statements around goals that are expected or required to be achieved, especially by a certain date and time,” which could be interpreted as illegal quotas or preferences. As a result, many U.S. employers are completely abandoning diversity goals.

For those organizations that decide to maintain diversity goals—which are not inherently unlawful—Crotty advises that “statements around diversity goals should make it clear that protected characteristics are not being taken into account when making decisions and that employment decisions are based on legitimate job-related criteria.”

This emerging issue represents a critical compliance concern for multinational companies operating in the U.S., and HR teams in the UK with American operations should remain vigilant about their organization’s DEI policies and communications in this new enforcement environment.