Update on DEI—Federal Court Temporarily Blocks Most of the Administration’s DEI Orders, But Uncertainty Continues

On February 21, 2025, a federal court in Maryland issued a temporary restraining order (the “TRO”) blocking implementation, for now, of parts of the Executive Orders that the U.S. Administration issued relating to diversity, equity and inclusion (DEI) practices, including at private sector companies. Notwithstanding the TRO, uncertainty continues for companies as to what actions, if any, they should take with respect to their DEI policies, programs and practices. While the TRO temporarily blocks “enforcement actions” against private sector entities relating to their DEI policies and practices, it does not block the President’s directive to the U.S. Attorney General to develop a specific plan to eliminate “illegal DEI” in the private sector.

Below, we discuss:

The EOs. On January 20, 2025, the Administration issued EO 14151, which directs federal agencies, employees, grant recipients, and contractors to “terminate to the maximum extent allowed by law” any equity-related grants or contracts and DEI-related performance requirements. On January 21, the Administration issued EO 14173, which prohibits federal agencies from engaging in or promoting DEI-related practices, and requires heads of federal agencies to generate reports identifying “the most egregious DEI practitioners” in each “sector of concern” within the agency’s jurisdiction. This EO also requires each agency to develop a plan to deter DEI at private-sector companies, with a focus on publicly-traded corporations, “large non-profit corporations or associations,” foundations with more than $500 million in assets, state and local bar and medical associations, and institutions of higher education with endowments of $1 billion or more. The EO also expressly revokes the EO issued by President Lyndon Johnson that, among other things, for decades has required every government contract and government job posting to include a statement that the contractor or the government (as the case may be) will not discriminate against any employee or applicant for employment because of race, creed, color, or national origin. Also, the EO directs the U.S. Attorney General to issue a report by March 3, 2025 with further specific recommendations for a plan to discourage private sector “illegal DEI.”

The DOJ Memoranda. On February 5, 2025, the U.S. Department of Justice (DOJ) and Office of Personnel Management (OPM) issued internal memoranda relating to implementation of the EOs.

• DEI at private-sector companies. The DOJ Memoranda direct the Civil Rights Division to “investigate, eliminate and penalize illegal DEI…preferences, mandates, policies, programs and activities in the private sector and in educational institutions that receive federal funds.” In addition, they direct government agencies to undertake “litigation activities” to end private-sector companies’ DEI practices—including through intervention in pending cases, regulatory actions, and “sub-regulatory guidance.” The Memoranda direct the U.S. Attorney General to issue a report by March 3, 2025 with further specific recommendations as to how the government will discourage private sector “illegal DEI.”
• DEI at government agencies. The Memoranda direct federal government agencies to eliminate their “unlawful DEI practices.” They also direct the DOJ to identify federal contractors, suppliers, vendors and grantees “who have provided DEI training or DEI training materials to agency or department employees since January 20, 2021”; to identify federal grantees who received federal funding to provide or advance DEI or “environmental justice” programs, services, or activities since January 20, 2021; and to identify new DEI hires at government agencies.
• Footnotes on cultural celebrations. In footnotes, both Memoranda state that they are not intended to prohibit “educational, cultural, or historical observances—such as Black History Month, International Holocaust Remembrance Day, or similar events—that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination.”

The OPM Memorandum. On February 5, 2025, the OPM Memorandum was issued, which focuses on eliminating DEI practices at federal agencies—but is instructive in indicating the Administration’s views on particular DEI practices, which it potentially could seek to apply to private sector companies as well.

• Protected characteristics. The OPM Memorandum directs government agencies to eliminate “[u]nlawful discrimination related to DEI,” which, it states, “includes taking action motivated, in whole or in part, by protected characteristics….” The memorandum clarifies that “a protected characteristic does not need to be the sole or exclusive reason for an agency’s action” for it to constitute unlawful discrimination.
• Diverse slate policies. One notable directive in the Memorandum is that agencies must end “diverse slate” policies (i.e., policies requiring that a diverse group of candidates be interviewed for a position before a hiring decision is made).
• Employee resource groups. The Memorandum states that agencies must prohibit employee resource groups, or affinity groups, “to the extent they promote unlawful [DEI] initiatives or advance recruitment, hiring, preferential benefits…, or employee retention agendas based on protected characteristics.” ERGs can, however, “gather for social and cultural events,” so long as they do so consistently with the “goal of creating a federal workplace focused on individual merit.” The Memorandum states that an agency cannot permit the formation of ERGs only for certain groups and not for others.

The TRO. On February 3, 2025, a lawsuit—Natl. Assn. of Diversity Officers in Higher Education, et al (NADOHE) v. Trump—was filed in a Maryland federal district court by three national associations (representing university diversity officers, university professors, and restaurant workers, respectively) and the Mayor and City Council of Baltimore. On February 21, the court issued its decision.

The decision addresses the following provisions of the EOs (the “Challenged Provisions”):

1. “Termination Provision”—requiring that federal agencies and federal grant recipients “terminate, to the maximum extent allowed by law, all equity-related grants or contracts.”
2. “Certification Provision”—requiring that every federal contract or grant award must include a provision requiring the contractual counterparty or grant recipient (a) to agree that its compliance with federal anti-discrimination laws is material to the government’s payment decisions for purposes of potential Federal Claims Act liability; and (b) to certify that it does not operate any programs promoting DEI that violate federal antidiscrimination laws.
3. “Enforcement Threat Provision”—directing the U.S. Attorney General (a) to prepare a report for the President with “recommendations for measures to encourage the private sector to end illegal discrimination and preferences, including DEI,” and (b) to develop “[a] plan of specific steps or measures to deter DEI programs or principles…that constitute illegal discrimination or preferences,” including identifying potential private sector targets for investigations.

The court held that the Termination and Enforcement Threat Provisions are likely unconstitutionally vague on their face, as they lack definition of operative terms, such as “DEI,” “equity-related,” “promoting DEI,” and “illegal DEI.” Further, the court stated, the Certification and Enforcement Threat Provisions “squarely, unconstitutionally, abridge the freedom of speech” as they constitute governmental “viewpoint discrimination” and “content-based restriction on protected speech,” which are subject to strict judicial scrutiny and are “all but dispositive in a First Amendment challenge” (at least with respect to private sector entities). The court emphasized that “efforts to foster inclusion have been widespread and uncontroversially legal for decades,” and that, as the Challenged Provisions “infringe on core constitutional protections,… the status quo must be maintained” pending resolution of the litigation.

The TRO temporarily blocks the Termination Provision and the Certification Provision, and blocks the Enforcement Threat Provision in part. With respect to the Enforcement Threat Provision, the TRO bars “enforcement actions” that are threatened under that Provision against private sector companies, whether pursuant to the False Claims Act or otherwise. However, the TRO does not block “the investigative portion of the [Provision] to the extent it is merely a directive from the President to the Attorney General to identify ‘a plan or specific steps or measures to deter DEI programs or principles that constitute illegal discrimination or preferences.’” It is unclear, by our reading, whether, under the TRO, “investigations” of private sector companies might still be permissible although they could not be followed up with enforcement actions.

We note that, as the court’s decision was based in large part on the vagueness of the EOs, the Administration might seek to make the language clearer to increase the potential for success in the litigation on the merits.

Other lawsuit challenging the EOs. On February 19, 2025, the National Urban League, the National Fair Housing Alliance, and the AIDS Foundation of Chicago filed suit in federal district court in Washington, D.C., challenging the EOs relating to DEI (as well as the Administration’s EO, issued January 20, 2025, relating to transgender issues)—claiming that the EOs violate the organizations’ rights to free speech and due process by forcing them to adopt the Administration’s views regarding DEI, and that they deny equal protection to people of color, women, and other groups.

False Claims Act issue. One potential legal issue arising from the EOs is the risk of potential liability under the False Claims Act (FCA) for federal government contractors and grant recipients, who may be deemed to be not complying with antidiscrimination laws. EO 14173—which revokes certain long-standing EOs promoting nondiscrimination and affirmative action— directs government agencies to cease requiring that contractors take affirmative action in their employment actions. The EO expressly contemplates that the FCA will be used as an enforcement tool with respect to the government’s anti-DEI efforts. It specifies that the head of each agency must include in every contract or grant award terms that require the contractor or grantee to (i) “agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decision” for purposes of the FCA, and (ii) “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”

State attorneys general statement. On February 13, 2025, the attorneys general of sixteen states issued a statement on “Multi-State Guidance Concerning Diversity, Equity, Inclusion and Accessibility Employment Initiatives”—which encourages employers to maintain lawful DEI practices. The statement stresses that “discrimination” is illegal, but that DEI “best practices,” which “protect[] against discriminatory conduct,” are not illegal. The statement outlines certain best practices in recruitment, hiring, professional development, retention, and assessment of employees, that help protect against discriminatory conduct that is unlawful. The statement reminds employers that they must comply with state civil rights laws, which may provide more expansive protections than federal civil rights laws.

The Glass Lewis letter. On February 19, 2025, proxy advisory firm Glass Lewis issued a letter to its clients, stating that that it will issue new guidance on March 3, 2025 relating to DEI. With respect to institutional investors who “remain committed to the value of diversity,” Glass Lewis stated that, given the Administration’s position on DEI, it may not be “fully possible” for Glass Lewis to support those investors’ voting preferences. Glass Lewis stated that it “may in fact determine that it is in [its] clients’ best interest for Glass Lewis to change its approach to voting guidance on board elections and DEI-related shareholder proposals at U.S. companies, particularly in areas where this guidance considers gender, ethnic, and racial diversity of the board.” Glass Lewis stated that it will “gather[] input from clients” and then will issue new guidance on March 3, following the U.S. Attorney General’s issuance of its DEI report.

The ISS statement. On February 11, 2025, proxy advisory firm Institutional Shareholder Services (ISS) issued a statement that it will no longer consider the gender, racial or ethnic diversity of a company’s board when making vote recommendations on directors of U.S. companies. ISS stated it will “continue to review its…guidelines as appropriate.”

Private sector companies’ DEI actions. It has been reported that many companies in the technology industry have publicly supported the Administration’s anti-DEI efforts; and that many Wall Street firms, big banks, and large corporations have been retreating, at least in part, from their DEI initiatives since the EOs were issued. Many large corporations have revised the language in their most recent annual reports to investors to downplay, soften, or eliminate references to diversity or DEI. Actions taken by private sector companies have included eliminating public mention of DEI efforts; removing references to race and gender from their written policies; curtailing recruitment of employees from underrepresented groups; and ending or changing programs and policies (particularly “diverse slate” interviewing policies) that utilize racial or gender preferences. Among notable actions that have been reported, Nasdaq has withdrawn its rules that ordered companies listed on the stock exchange to disclose and explain their board-level diversity statistics; asset manager Vanguard has said it will no longer press for boards to ensure diversity in gender, race and ethnicity; and Google abandoned employee diversity targets and stated that it would be reviewing its other DEI practices and ending them if it determines they “raise risk” or are ineffective. Some large corporations have publicly reaffirmed their commitment to diversity, in some cases while also taking action to remove from their policies specific references to race and gender preferences.

Practice Points

• Uncertainty. Companies face difficult decisions about whether, when and how to revise (a) their DEI policies, programs and practices, and (b) their public statements about DEI, including in their public filings and on their websites and social media accounts. At the same time, companies must balance their responses to the EOs with their ongoing legal obligations under federal, state and local antidiscrimination laws. Private-sector companies should consider to what extent they wish: (i) to take a wait-and-see approach pending further developments; or (ii) to act to eliminate, reduce or modify their DEI initiatives; or (iii) to publicly advocate and/or litigate against the Administration’s anti-DEI stance. These judgments may depend on, for example: whether the company is in a category expressly targeted in the EOs or guidance; the company becomes the subject of a government investigation or litigation activities as specified in the EOs or guidance; the practices being adopted by peer companies; the company’s past level of commitment to, and public statements about, DEI; the relative diversity of the company’s workforce relative to peer companies, the industry or companies in general, and relative to the company’s past statistics (with statistics showing a high level of diversity, or showing no reduction in diversity following the EOs, possibly creating greater exposure); expectations of the company’s stakeholders; the perceived likelihood of the Administration taking action against companies in the future for having continued their DEI practices if the TRO is lifted and the Administration ultimately is successful in the litigation; and the company’s general risk tolerance with respect to such matters.
• Internal audit. An advisable first step is to conduct an internal audit to identify all of the company’s internal- and external-facing DEI-related policies, programs and practices; as well as the company’s compliance with existing federal, state and local anti-discrimination laws. Particular attention should be given to identifying any of the company’s policies, programs or practices that could imply preferences for, or exclusions of, individuals based on demographic characteristics such as race and gender.
• Internal guidance. Consideration should be given to providing guidance to the company’s board, executive management, human resources and communications departments, and others with respect to the new environment and the possibility of investigation and/or litigation by the federal government relating to DEI practices.
• Due diligence. In connection with any M&A transaction, the acquiror should include in its due diligence investigation the target company’s DEI practices and the extent to which such practices may be noncompliant with the Administration’s directives and/or existing nondiscrimination laws; may be inconsistent with the acquiror’s own DEI practices or its approach in response to the Administration’s directives; and/or may be likely to attract government scrutiny, heighten potential FCA liability, or generate negative publicity. Target companies should be prepared to provide due diligence information with respect to their DEI practices.
• Keep apprised. Companies should keep apprised of developments relating to DEI policies and practices, including developments in pending litigation, developing practices among peer and other companies, and any changes in the Administration’s guidance to clarify vague terms in its EOs and guidance. Companies also should keep in mind that the Administration may seek to affect other corporate policies and practices in future EOs or regulatory guidance (including, for example, relating to the environment, energy use, employee medical care, and so on).