On January 21, 2025, President Trump issued an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the Order), which seeks to eliminate diversity, equity, and inclusion (DEI) policies and programs across the federal government and within private industries that do business with the federal government.¹ Part of a broader suite of DEI-related executive actions,² the Order reverses federal contracting requirements—dating back nearly 60 years—that obligated federal contractors and subcontractors to implement affirmative action programs, and it imposes new requirements targeted at organizations with DEI programs.³ This alert summarizes the Order’s application to federal contractors and grant recipients, including its potentially significant implications under the False Claims Act (FCA). 

Changes to Federal Contractor Compliance with Civil Rights Laws 

The Order declares that “race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ … can violate the civil-rights laws of this Nation.”⁴ And it provides that “[t]he Federal contracting process shall be streamlined to enhance speed and efficiency, reduce costs, and require Federal contractors and subcontractors to comply with our civil-rights laws.”⁵

The Order revokes Executive Order 11246, which since 1965 has required that federal contractors and subcontractors take “affirmative action” to ensure equal employment opportunity.⁶ Federal contractors are given a grace period of 90 days—until April 21, 2025—to continue complying with the prior “regulatory scheme” that was in effect before President Trump took office.⁷ The Order, however, directs the Office of Federal Contract Compliance Programs, an agency within the Labor Department, to “immediately cease,” among other things, “[a]llowing or encouraging federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”⁸ Because “workforce balancing” is undefined, there may be uncertainty about what it means and how it will be interpreted in different factual circumstances.

The Order also imposes two new terms on all federal contracts and grants that could have significant consequences under the FCA. First, it directs the head of each agency to require federal contractors and grant recipients to agree that their “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions” under the FCA.⁹ Second, it requires federal contractors and grant recipients to certify that they do “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”¹⁰ 

Relevant False Claims Act Background

Several features of FCA enforcement and litigation are relevant to the Order. First, as the primary tool used to combat fraud in government programs, the FCA imposes mandatory treble damages and civil monetary penalties on individuals and companies that knowingly submit false claims for payment to the government or cause such claims to be submitted.¹¹ The penalty amounts alone—currently ranging from $13,946 to $27,894 for each false claim¹²—can create staggering exposure for companies that submit hundreds or thousands of claims for payment to the government each year, even where the actual damage to the government may be minimal. In fiscal year 2024 alone, the federal government reported more than $2.9 billion in FCA settlements and judgments.¹³

Second, many FCA cases concern claims for payment that are alleged to be false, not because the private party billed the government for goods or services that it did not provide, but because it allegedly misrepresented its compliance with rules imposed by statute, regulation, or contract. In the latter cases, involving so-called “false certification” or “legal falsity,” there may be genuine disputes about the correct interpretation of the applicable legal requirements and the defendant’s knowledge of its noncompliance with the correct interpretation. The FCA, however, does not require actual knowledge and defines “knowingly” to include acting with deliberate ignorance or reckless disregard of the truth or falsity of the information.¹⁴ In 2023, in United States ex rel. Schutte v. SuperValu Inc., the Supreme Court clarified that knowledge in such cases turns on the defendant’s “subjective beliefs,” including whether the defendant is “conscious of a substantial and unjustifiable risk that [its] claims are false, but submits the claims anyway.”¹⁵

Third, false-certification cases may also involve genuine disputes about whether any noncompliance by the defendant with the applicable legal requirements was ultimately “material” to the government’s payment decision. Under the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, “[t]he materiality standard is demanding” because the FCA “is not ‘an all-purpose antifraud statute.’”¹⁶ Under Escobar, the government’s express designation of a particular requirement is a “relevant” factor, but it is “not dispositive of the materiality inquiry.”¹⁷ And courts must consider other factors, such as whether the government “consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement.”¹⁸ 

Fourth, unlike other federal laws that are enforceable only by the federal government, the FCA also allows private whistleblowers, known as relators, to file qui tam actions on behalf of the government in exchange for a share of the recovery.¹⁹ That mechanism—which gives relators a chance to receive between 15 and 30 percent of potentially multimillion-dollar recoveries—creates powerful incentives for employees, among others, to litigate perceived wrongdoing by their company. Indeed, of the $2.9 billion in reported FCA settlements and judgments in 2024, more than $2.4 billion arose from qui tam actions, with more than $400 million going not to the government but directly to the relators in those cases.

Implications Under the False Claims Act 

The Order’s new certification and materiality requirements for all federal contracts and grant awards create heightened FCA risk for clients that participate in government programs. 

• The Order seeks to leverage the vast penalties and threat of both private and government enforcement under the FCA as part of a larger effort to eliminate DEI programs within the private sector, targeting “major corporations, financial institutions, the medical industry, large commercial airlines, law enforcement agencies, and institutions of higher education.”²⁰ Members of these industries should expect greater FCA scrutiny with respect to their DEI programs. The Order also requires the US Attorney General to produce a report within 120 days—by May 21, 2025—regarding enforcement of federal civil rights laws.²¹ In light of the Order’s new federal contracting requirements, that report may include specific recommendations for how the Department of Justice should enforce any noncompliance with federal civil rights laws by federal contractors.
• The Order’s requirement that federal contractors and grant recipients certify their compliance with federal civil rights laws creates FCA risk in part due to the uncertain and contested nature of these statutory requirements. While the Order expresses skepticism of DEI initiatives, the lawfulness of any particular initiative must be decided on a case-by-case basis under the state of the law as enacted by Congress and interpreted by courts.²² Organizations with DEI programs will need to look to future agency regulations and guidance to clarify what (if any) DEI programs remain permissible, as well as judicial decisions clarifying the law. That is because agency views are not dispositive. Under the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, courts interpreting federal civil rights statutes will “use every tool at their disposal to determine the best reading of the statute and resolve [any] ambiguity,” affording the agency no deference in that determination.²³
• Companies that have DEI initiatives will face heightened risk of private qui tam actions brought by employees and others opposed to those initiatives. The FCA’s anti-retaliation provisions also prohibit adverse employment actions against employees, contractors, and agents for protected activities, including investigating and reporting false claims arising out of allegedly noncompliant DEI programs. Issues involving alleged discrimination at a company with a DEI program thus pose potential FCA risks for federal contractors in addition to any risk they may face under federal civil rights laws like Title VII. 
• Finally, the FCA’s broad venue provision creates opportunities for forum shopping. Specifically, under the FCA, enforcement actions may be filed in any judicial district in which the defendant transacts business or engaged in the allegedly proscribed conduct. Companies that conduct business nationwide therefore may face exposure to suits in judicial districts and circuits that are most favorable to relators’ or the Trump Administration’s positions on the law.

WilmerHale’s False Claims Act Practice and Government and Regulatory Litigation Practice are closely monitoring the Trump Administration’s executive orders, as well as agency regulations and guidance, and are available to advise companies participating in federal programs on how to navigate the risks posed by the shifting landscape for federal contractors and recipients of federal funding. WilmerHale’s Anti-Discrimination Practice and Labor and Employment Practice are also available to provide guidance on DEI issues as the law regarding these issues continues to evolve.