Justice Department Investigating DEI Hiring Practices Under False Claims Act, WSJ Reports

The Biden administration has launched a sweeping investigation into diversity hiring practices at some of America’s largest corporations, using the False Claims Act as its legal foundation, according to sources familiar with the probe.

Justice Department officials have turned their attention to major technology, automotive, pharmaceutical, defense, and utility companies that hold federal contracts, including tech giant Alphabet, the parent company of Google, and telecommunications leader Verizon Communications.

Multiple sources who spoke to The Wall Street Journal on condition of anonymity revealed that investigators believe companies violate federal law when they maintain government contracts while simultaneously considering diversity as a factor in their hiring decisions. The Justice Department’s position holds that such practices constitute fraud against the federal government, potentially exposing companies to substantial financial penalties.

The False Claims Act, a Civil War-era law originally designed to combat supplier fraud against the Union Army, allows the government to pursue triple damages against contractors found to have defrauded federal programs. In recent decades, it has become a powerful tool in healthcare fraud cases, but its application to diversity initiatives represents a significant expansion of its use.

“This marks a dramatic shift in how the government views corporate diversity efforts,” said Sarah Reynolds, an employment law attorney not involved in the investigations. “Companies have long been encouraged to increase workforce diversity, but now face potential liability for those very same programs.”

For Alphabet, which receives substantial federal contracts for cloud computing services through Google, the investigation adds another layer of regulatory scrutiny. The company has publicly committed to improving representation of underrepresented groups throughout its workforce, with specific goals for increasing Black representation in leadership positions.

Verizon similarly maintains significant federal telecommunications contracts while operating diversity programs that include recruitment initiatives targeted at underrepresented communities and internal mentorship programs.

The probe comes amid ongoing national debate about the role of diversity considerations in hiring and education. Last year, the Supreme Court effectively ended race-conscious admissions programs at universities, and some legal experts see this investigation as an extension of that judicial philosophy into the corporate sphere.

Companies caught in the investigation face difficult choices. Federal contractors must comply with certain equal employment opportunity requirements, which historically included goals for inclusive hiring. However, the current investigation suggests that explicit diversity initiatives might now expose them to False Claims Act liability.

“These companies are in a catch-22,” explained Marcus Johnson, a former Department of Labor official who now consults on workplace compliance. “They’ve developed these programs partly in response to previous government guidance and societal expectations. Now those same programs are being scrutinized as potentially fraudulent.”

The investigation could have far-reaching implications for corporate America’s approach to diversity, equity, and inclusion (DEI) initiatives. Many major corporations have established DEI departments and set specific goals for increasing representation of women and minorities, particularly in leadership positions.

Industry groups have expressed concern that the investigations might force companies to scale back diversity efforts that were implemented to address historical inequities in the workplace. The U.S. Chamber of Commerce has urged the administration to provide clearer guidance on what practices are permissible for federal contractors.

Neither Alphabet nor Verizon has commented publicly on the investigations, and Justice Department officials have declined to discuss ongoing enforcement actions.

Legal experts anticipate that any cases emerging from these investigations would face significant challenges in court, as companies would likely argue their diversity initiatives comply with existing equal employment opportunity laws and do not conflict with their federal contract obligations.

The outcome of these investigations could reshape corporate hiring practices for years to come, particularly among the thousands of companies that maintain federal government contracts.