Employment Law Update: New Executive Order Targets DEI Practices by Federal Contractors
Date: April 3, 2026
By:
Rafiq R. Gharbi
”DEI” activities are defined broadly as disparate treatment based on race or ethnicity in recruitment, hiring, promotions, contracting, program participation (including mentoring, leadership development, and training programs), or allocation of resources. Contractors must also furnish records, as required by the contracting agency, to verify compliance, report subcontractor violations, and notify agencies of any litigation challenging the clause. Noncompliance may result in contract cancellation, termination, or suspension, and contractors may be declared ineligible for future government contracts.
Perhaps most critically, the order requires contractors to acknowledge that compliance with the clause is “material to the Government's payment decisions” under the False Claims Act, a provision designed to establish a key element of FCA liability. The order directs the Attorney General to consider bringing FCA actions against violators and to ensure prompt review of qui tam whistleblower actions, including rendering intervention decisions within the 60-day statutory period to the maximum extent practicable.
This order builds directly on the legal momentum created by the Fourth Circuit’s February 2026 decision in National Association of Diversity Officers in Higher Education v. Trump, which we discussed in our prior alert. In that case, the Fourth Circuit vacated a preliminary injunction blocking key provisions of Executive Order 14173; the administration’s earlier anti-DEI order holding that the certification provision only requires compliance with existing federal law. With that judicial obstacle removed, the new order goes further by specifically defining the prohibited conduct and attaching concrete enforcement mechanisms, including FCA exposure, that the prior order lacked.
Federal contractors and subcontractors should take immediate steps to review all DEI-related programs — particularly mentoring, leadership development, and employee resource group initiatives — and assess whether any could be characterized as involving disparate treatment based on race or ethnicity. Given the FCA materiality provision, contractors should ensure no certifications or payment requests are submitted until a thorough compliance review is complete, as each submission while prohibited activities are ongoing could constitute a separate false claim. Contractors should update subcontract templates to include the required flow-down provisions and establish processes for monitoring and reporting subcontractor compliance.
Whiteford’s Labor and Employment Practice Group will continue to monitor developments in this rapidly evolving area and advise clients as further guidance emerges.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.