What DOJ Guidance on Unlawful DEI Reveals About False Claims Act Enforcement

The Department of Justice issued new guidance on July 30, 2025, reaffirming the Trump Administration’s stance that federal antidiscrimination laws apply to Diversity, Equity, and Inclusion programs, even when employers rename these initiatives to avoid scrutiny. The guidance specifically warns against using “ostensibly neutral criteria” as “unlawful proxies” for considering race, sex, or other protected characteristics.

Though not legally binding, this guidance represents the most comprehensive articulation of the administration’s position on what constitutes “unlawful” DEI practices. It follows Executive Order 14173, signed by President Trump on January 21, 2025, which revoked the previous requirement for federal contractors to implement affirmative action programs for women and minorities.

The new guidance provides a non-exhaustive list of prohibited programs and offers best practices to help recipients of federal funds avoid violations that could result in funding revocation. It signals continued federal scrutiny and potential enforcement actions in this area.

Executive Order 14173 called for the Attorney General to submit a strategic enforcement plan by May 21, 2025, identifying “key sectors of concern” and the “most egregious and discriminatory DEI practitioners.” While this report has not been publicly released, the Justice Department has reportedly begun issuing Civil Investigative Demands to publicly traded companies regarding their DEI practices, raising concerns about potential violations of federal anti-discrimination laws and the False Claims Act.

On May 19, 2025, the DOJ launched a Civil Rights Fraud Initiative specifically focused on bringing False Claims Act cases to address violations of civil rights laws. The initiative highlights potential FCA implications “whenever federal-funding recipients or contractors certify compliance with civil rights laws while knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through diversity, equity, and inclusion programs.”

In a parallel development, the Office of Federal Contract Compliance Programs (OFCCP) issued a letter on June 27, 2025, inviting federal contractors to voluntarily submit information about their efforts to comply with EO 14173. The letter specifically asks contractors whether they have reviewed their previous affirmative action efforts, if they believe modifications to employment practices are necessary, and what steps they have taken to implement changes.

The OFCCP letter provides examples of practices that might raise concerns, including “making trainings, sponsorship programs, leadership development programs, educational funding, or other privileges of employment available only to employees of a certain race or sex” or using participation in race- or sex-related groups as a proxy for protected characteristics in employment decisions.

Although responding to OFCCP’s letter is voluntary, contractors have until September 25, 2025—just days before the end of OFCCP’s fiscal year—to submit information. With the Department of Labor’s Proposed Budget for FY2026 suggesting elimination of OFCCP, questions remain about how any submitted information will be used, including whether it will be shared with DOJ and the White House for enforcement through the False Claims Act.

The FCA is a powerful enforcement mechanism that allows the government to take action against parties knowingly submitting false claims for government payment. In this context, a false statement would be a contractor’s certification of compliance with anti-discrimination laws when they knew or recklessly disregarded that their DEI programs violated these laws.

FCA suits can be brought directly by the government or by whistleblowers who can receive up to 30 percent of recovered funds. Violations can result in treble damages based on the contract value and penalties up to $28,619 per false claim.

Given these developments, companies—particularly federal contractors—should carefully review all DEI and related programs to ensure compliance with federal anti-discrimination laws. Special attention should be paid to practices that might be construed as using proxies for protected characteristics in employment decisions. Companies should also implement robust non-discrimination policies, provide appropriate training, and establish effective processes for addressing employee complaints and potential whistleblowing.