DEI on the Ropes? The Future of DEI in the Trump Administration

Within his first two days of taking office, President Donald Trump fulfilled his promise to target diversity, equity and inclusion (DEI) programs with a series of executive orders (EO) aimed at curbing what he described as "illegal and immoral discrimination programs."

On Jan. 20, 2025, President Trump issued the EO "Ending Radical and Wasteful Government DEI Programs and Preferencing." The EO eliminated all DEI programs throughout the federal government, including "Chief Diversity Officer" positions, as well as equity-related grants and contracts. For more information on this EO, see Holland & Knight's Eyes on Washington Blog.

The next day – Jan. 21, 2025 – President Trump signed another EO, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," revoking the previous administration's EOs that promoted DEI, affirmative action and equal opportunity programs. This EO also eliminated DEI requirements from federal contracting and requires every contractor to "certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws." For more information on this EO and further explanation on its impact on federal contractors, see Holland & Knight's previous alert, "President Trump Ends Affirmative Action Requirements for Government Contractors," Jan. 23, 2025.

Potential Far-Reaching Implications for the Private Sector

The EOs specifically take aim at DEI in the public sector, which leaves private-sector employers unsure of how to move forward with their DEI programs. Though the EOs do not explicitly mandate changes in private industry, they encourage changes to DEI practices in the private sphere and suggest a renewed wave of lawsuits by groups that have already taken aim at DEI in the private sector. These EOs are anticipated to reshape DEI in the private sector in the following ways:

Private Companies That Are Federal Contractors Must Eliminate DEI Focus from Their Trainings or Materials

Private companies that are federal contractors, as well as those that serve as subcontractors, will be impacted by the EOs. Taken together, the Jan. 20 and 21, 2025, EOs attempt to not only end DEI within the federal government, but also extend such action to any and all private companies that provide any services, irrespective of to what extent (e.g., 1 percent of all of the private company's activities or revenue), either directly to the federal government or to others as a result of receiving government grant(s) (e.g., U.S. Agency for International Development (USAID) contracting or healthcare services to the public). Therefore, federal contractors will need to adjust their practices to comply with the new directives. Specifically, within 60 days of the issuance of the EO, companies that employ federal contractors must:

• Eliminate DEI-Related Offices and Positions. Federal contractors and their subcontractors who provide DEI training or materials to federal employees or their own employees will be required to suspend these services/practices immediately.
• Terminate Equity-Related Action Plans, Programs and Contracts. Federal contractors must discontinue any contracts with the federal government related to DEI or equity-based programs. Contractors previously involved in such work will need to reassess their ongoing contracts to ensure compliance with the new directives.
• Remove DEI-Related Performance Requirements. Federal contractors and their subcontractors must eliminate DEI-specific performance criteria from their employee evaluations and ensure that all employment practices are aligned with merit-based standards.
• Submit Certifications. Under this order, federal contractors and subcontractors must submit certifications ensuring they are not running DEI programs that constitute illegal discrimination or preferential treatment. Companies that continue to engage in DEI practices in violation of the new rules could be exposed to significant legal risks, including False Claims Act (FCA) liability.

Rise in Discrimination Lawsuits Targeting Private Employers

Though the EOs do not mandate specific changes in the private sphere where private companies are not doing business with the federal government, private companies should be prepared for a renewed wave of discrimination lawsuits aimed at DEI practices and policies that favor one group over another. Activist groups have brought a series of lawsuits under this rubric, bringing claims that majority workers are being unfairly disadvantaged by DEI programs that benefit minorities in compensation and hiring.

A key consideration when determining whether DEI programs and practices will be subject to legal challenges is whether the programs and practices specifically exclude certain groups in a manner that impacts hiring or compensation. This is just the starting inquiry. It is recommended that employers conduct a legal assessment or audit of their DEI practices and programs to ensure they will not be subject to liability and determine what steps, if any, could be taken to minimize risk.

Potential Investigations into Private Sector DEI Practices

Though the specific mandates of the EOs apply to public employers, federal contractors and their subcontractors, the Jan. 21, 2025, EO also includes language strongly encouraging the private sector to end "DEI Discrimination." It is not clear how this would be enforced in the private sector; the EO tasks the U.S. Attorney General (AG) in coordination with the director of the Office of Management and Budget (OMB) to create a strategic enforcement plan. The plan will include investigations into the private sector, specifically targeting companies that continue to engage in DEI practices deemed discriminatory.

The AG and OMB director's report will contain a proposed strategic enforcement plan identifying, among other items:

1. key sectors of concern within each agency's jurisdiction
2. the most egregious and discriminatory DEI practitioners in each sector of concern
3. a plan of specific steps or measures to deter DEI programs or principles
4. litigation that would be potentially appropriate for federal lawsuits, intervention or statements of interest

The EO further states that "As a part of this plan, each agency shall identify up to nine potential civil compliance investigations of publicly traded corporations, large nonprofit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars."

AG Internal Memo Outlines Enforcement and Guidance for Federally Funded Institutions

On Feb. 5, 2025, newly sworn-in AG Pam Bondi sent out an internal memorandum (memo) to several divisions of the U.S. Department of Justice (DOJ) outlining the agency's strategy for enforcement. The memo directs the Civil Rights Division and Office of Legal Policy to "submit a report containing recommendations for enforcing federal civil-rights laws and taking other appropriate measures to encourage the private sector" to eliminate DEI preferences. It specifically calls for taking steps to discourage DEI initiatives and exploring potential criminal investigations.

Other items include guidance for institutions receiving federal funds, emphasizing compliance with federal civil rights laws. The memo states: "Educational agencies, colleges, and universities that receive federal funds may not treat some students worse than others in part because of race." Additionally, the memo instructs the DOJ and U.S. Department of Education to work together to provide guidance and the Civil Rights Division to "pursue actions to comply with Students for Fair Admissions."

Private Companies May Continue to Engage in Free Speech Surrounding DEI

The EO is also explicit that it is not intended to restrict First Amendment-protected free speech. This means businesses and individuals may still engage in discussions and educational efforts around this focus of DEI, provided they do not engage in unlawful preferences or discrimination. Companies should continue to engage in discussions and educational efforts with caution to ensure that they comply with the EOs and do not go beyond such protections.

Private Companies Will Have a Greater Need for Legal Review of Their DEI Policies and Practices

Given the increased scrutiny over private-sector DEI practices – in particular, those involving recruitment and hiring – it will be even more important for private companies to engage outside counsel and consultants to conduct legal audits and legal risk assessments to determine if their policies and practices could be subject to present legal risks or AG and OMB review.

Investor Pressure May Drive DEI Accountability

Investor and stakeholder influence continues to shape corporate DEI strategies, with pressure coming from multiple directions. Many shareholders, donors, clients and customers have advocated for strong DEI commitments, recognizing them as integral to long-term value and corporate responsibility, while others have pushed to scale back efforts due to political pressures. Notably, several large corporations are moving forward with DEI initiatives, with their explicit support from shareholders recognizing their value – demonstrating that investor influence plays a key role in the evolving DEI discussion. Among the giants, Costco, Disney, JPMorgan Chase and Deutsche Bank have reaffirmed their commitment to diversity, bolstered by strong investor support. Costco recently reaffirmed in its proxy statement the continued importance of its DEI initiatives in fostering an inclusive workplace aligned with its code of ethics. On Jan. 23, 2025, Costco shareholders made their position clear, voting overwhelmingly to reject a proposal that called for an assessment of the risks tied to the company's DEI initiatives.

Other corporations – including Target, Walmart and Meta – have recently taken steps to scale back their DEI efforts in response to the Trump Administration's guidance, causing a reaction in stock prices. On Jan. 31, 2025, Target's shareholders sued the company in a proposed class action suit for allegedly defrauding them into paying inflated prices for its stock and supporting the "misuse of investor funds to serve political and social goals." Moreover, philanthropic advisors warn that the backlash against DEI is having a chilling effect on funders, many of whom are now hesitant to support race-based nonprofit initiatives. The legal challenges faced by organizations who closed previous programs set up to support DEI initiatives have set a precedent that is making donors wary of potential lawsuits.

Takeaways

This Holland & Knight alert addresses just two EOs that have been promulgated on the topic of DEI – a key focus of the administration and an area that will continue to evolve. Though the guidance for public employers is clear, private companies are left to navigate the DEI landscape without a clear picture of the future of DEI. For now, private companies should keep the following takeaways in mind:

• Scrutiny of DEI Programs. Companies should run legal audits or risk assessments on their DEI initiatives to determine whether their programs violate the new mandate against discriminatory practices or otherwise pose a legal risk due to the likely rise in reverse discrimination lawsuits.
• Civil Compliance Investigations. Investigations could target private employers, including publicly traded companies and nonprofits, with a focus on high-profile companies with significant DEI programs.
• Enforcement of Merit-Based Standards. The government will prioritize enforcement of merit-based hiring and promotion practices, potentially imposing penalties on companies that do not comply with these standards. Companies may focus efforts to foster inclusivity by utilizing merit-based, non-discriminatory approaches that comply with the new legal landscape.

If you have any questions – including how your company can ensure compliance with the EOs, reduce legal risk and adapt its DEI policies and practices based on these EOs – please contact the authors or another member of Holland & Knight's DEI Task Force.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.