DOJ Issues New Guidance for Federal Funding Recipients Regarding Unlawful Discrimination in DEI Programs

From its inception, the new Trump Administration issued executive orders that were critical of Diversity, Equity and Inclusion (DEI) programs.  For example, as we previously addressed, Executive Order 14173  prohibited “illegal DEI programs” by federal contractors, but it failed to define what constituted illegal DEI and gave the impression that all DEI was per se illegal.  The Administration coupled its criticism of DEI with a threat to use the False Claims Act against federal contractors who falsely certify that they are in compliance with federal anti-discrimination laws. The Administration’s failure to provide concrete guidance gave rise to numerous legal challenges.

This week, on behalf of the U.S. Department of Justice (DOJ), Attorney General Pam Bondi finally issued “nonbinding” guidance clarifying how federal anti-discrimination laws apply to programs or initiatives labeled as DEI programs “that may involve discriminatory practices.” The guidance also provides practical recommendations and examples to assist entities receiving federal funding in complying with federal anti-discrimination laws. 

Key Areas of Focus

The DOJ's memorandum emphasizes the importance of adhering to federal anti-discrimination laws, which ban discrimination based on protected characteristics such as race, color, national origin, sex, and religion. The guidance highlights the “significant legal risks” associated with initiatives that might involve what it describes as unlawful discrimination under the guise of DEI programs. It underscores that terms like "DEI" or "equity" do not exempt entities from legal scrutiny.

Marking a significant shift from prior administrations that often promoted DEI programs along with diversity and inclusion, the DOJ guidance explicitly addresses what it characterizes as the potential for DEI programs to inadvertently engage in discriminatory practices and provides several suggested “best practices” to “minimize the risk" of violating anti-discrimination laws.

Examples of Unlawful Discriminatory Practices

The DOJ identifies several practices that could lead to the revocation of federal funds or legal liability:

• Preferential Treatment: Providing opportunities or benefits based on race, sex, or other protected characteristics that disadvantage other qualified individuals. For example, race-based scholarships or hiring practices that favor certain groups over others.
• Use of Proxies: Implementing ostensibly neutral criteria that function as substitutes for protected characteristics. This includes requirements like "cultural competence" or requiring “diversity statements” that effectively evaluate candidates based on race or ethnicity.
• Segregation: Organizing programs or resources in ways that separate individuals based on protected characteristics, such as race-based training sessions or facilities.  The memorandum does encourage entities to affirm sex-based boundaries rooted in biological differences by maintaining sex-separated athletic competitions and intimate spaces. 
• Candidate Selection Based on Protected Characteristics: Using race, sex, or other traits as criteria for selecting candidates for employment, contracts or program participation.
• Discriminatory Training Programs: Conducting DEI training that stereotypes or disadvantages individuals based on protected characteristics and thereby creating a hostile environment.

DOJ’s Recommended Best Practices for Compliance

Framed as non-binding suggestions, the DOJ memorandum identifies the following “best practices” to help entities comply with federal anti-discrimination laws: 

• Ensure Inclusive Access: Open all workplace programs and resources to all qualified individuals, regardless of protected characteristics.
• Focus on Skills and Qualifications: Base decisions on measurable skills directly related to job performance or program participation. Focus on skills like language proficiency or educational credentials over socioeconomic status or first-generation status that can be used to prioritize individuals based on protected characteristics. 
• Prohibit Demographic-Driven Criteria: Avoid programs designed to achieve specific demographic outcomes, even if those programs use facially neutral means.  Instead, focus on academic merit or financial hardship as criteria, without regard to protected characteristics.
• Document Legitimate Rationales: Clearly document rationales for criteria that might correlate with protected characteristics, ensuring they are related to legitimate objectives.
• Scrutinize Neutral Criteria: Before implementing evaluation criteria, consider whether neutral criteria serve as proxies for protected characteristics.
• Eliminate Diversity Quotas: Focus on performance metrics without referencing race, sex, or other protected traits.  Evaluate all applicants based on merit.
• Avoid Exclusionary Training Programs: Ensure that trainings are inclusive and do not segregate participants based on protected characteristics.
• Include Nondiscrimination Clauses: Incorporate clauses in contracts to ensure third-party compliance with federal law and specify that federal funds cannot be used for programs that discriminate based on protected characteristics. Actively monitor third parties to ensure ongoing compliance and terminate funding for non-compliant funding.

• Establish Anti-Retaliation Procedures: Implement policies that prohibit retaliation against individuals who report concerns or refuse to participate in discriminatory programs.  Provide confidential, accessible channels for individuals to report concerns. 

Conclusion

The DOJ’s guidance together with the Administration’s Executive Orders take a strong stance against all types of DEI programs. This guidance is a valuable tool for all businesses in assessing existing DEI policies and practices. 

Businesses should work with legal counsel to identify risks and evaluate steps to mitigate any that are identified. Entities that receive federal funding, whether directly or indirectly, should pay especially close attention to this guidance as they have heightened risk for any non-compliance due to the False Claims Act.

Please contact A. Brian Albritton, Raquel Ramirez Jefferson or any member of the Phelps Labor and Employment or White Collar Defense and Investigations teams if you have questions or need advice or guidance.