The new executive order includes a robust set of requirements designed to deter and respond to racially discriminatory DEI.

On March 26, 2026, President Donald Trump signed another executive order on “DEI, Addressing Discrimination by Federal Contractors.”[1] See our Alert on earlier DEI orders. The new executive order includes language critical of DEI—or diversity, equity and inclusion—generally. However, it attacks only “racially discriminatory DEI” by federal contractors and subcontractors. The new executive order defines racially discriminatory DEI to include disparate treatment based not only on race, but also on ethnicity. Notably, the new executive order does not apply to federal grantees or address discrimination by federal contractors or subcontractors based on sex, gender or any other protected characteristic.[2]

DEI as Defined in the Executive Order

Under the executive order, racially discriminatory DEI is defined broadly to apply to “recruitment, employment (e.g., hiring, promotion), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” The executive order defines “program participation” to mean “membership or participation in, or access or admission to, training, mentoring, or leadership programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.”

Below are three important details about the definition:

Diversity Recruitment

The inclusion of recruitment separate from hiring and promotion is consistent with prior guidance provided by the Department of Justice and Equal Employment Opportunity Commission that actions short of the ultimate hiring decision, such as targeted recruiting and diverse slate requirements, may be unlawful depending on a number of factors (for example only, an employer’s motivation in adopting them).

Employee Resource Groups

Although not specifically mentioned in the definition of program participation, employee resource groups fall within the catchall for “similar opportunities that are sponsored or established by the contractor or subcontractor.” Having eligibility requirements based on race, ethnicity or sex for any such opportunities all but invites legal attack. So does separating (segregating) individuals participating in such programs based on race, ethnicity or sex, even if the same program is offered and with the same resource allocation.

Contracting and Allocating Resources

The above definition includes a reference to “contracting (for example, vendor agreements.)” It also references the “allocation or deployment of an entity’s resources.” The latter could cover, for example, grant making by the contractor or subcontractor. These are but two examples of how the new executive order is not limited to employment programs, and this is relevant to any audit of DEI programs, discussed below.

Requirements of the Executive Order

The new executive order includes a robust set of requirements designed to deter and respond to racially discriminatory DEI. More specifically, all federal departments and agencies must ensure that contracts, subcontracts and similar agreements include the following clause, as taken from the order:

In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

1. The contractor will not engage in any racially discriminatory DEI activities, as defined in section 2 of the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors);

2. The contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;

3. In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this contract may be canceled, terminated, or suspended in whole or in part, and the contractor or subcontractor may be declared ineligible for further Government contracts;

4. The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency;

5. The contractor will inform the contracting department or agency if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause; and

6. The contractor recognizes that compliance with the requirements of this clause are material to the Government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code (False Claims Act).

The executive order requires that the above-described clause be included in federal contracts, subcontracts and related agreements effective 30 days from the order’s issuance—that is, as of April 25, 2026

Let’s zoom in on requirement No. 4, which requires reporting by contractors of racially discriminatory DEI by subcontractors. Notably, the reporting obligation applies when the unlawful conduct is “reasonably knowable” as opposed to “reasonably known.” This leaves open the door for the government to argue that contractors have some responsibility to review affirmatively their subcontractors’ DEI programs.

Let’s also focus on requirement No. 6, which states that compliance with the contractual clause is material for purposes of the False Claims Act. As noted in our prior Alert, claims under the False Claims Act carry with them significant cost, time and potential exposure.

If the government is able to meet the tight timetable it has set for itself, federal contractors and subcontractors will be required to certify, subject to the False Claims Act, that they do not have any “racially discriminatory DEI” later this month, that is, by April 25, 2026. Between now and then, contractors and subcontractors should consider auditing their DEI programs, at a minimum, for racially discriminatory DEI as defined broadly in the new executive order. Because the executive order is not limited to employment/HR issues, the audit should not be limited to DEI in employment/HR either. Rather, the contractor or subcontractor should evaluate, ideally under attorney-client privilege (at least initially), where race or ethnicity may be considered not only in employment but also in contracting, resource deployment, etc. Where there is—even arguably—racially discriminatory DEI, the contractor or subcontractor should take corrective action to mitigate its legal risk (where possible, without admitting any unlawful conduct).

For More Information

If you have any questions about this Alert, please contact Jonathan A. Segal, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Notes

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.