What does “Racially Discriminatory DEI Activities” actually mean? The administration’s own filing offers some clarity.
Executive Order 14398, which we discussed here, required federal contractors to include specific contractual language agreeing that they will not engage in “racially discriminatory DEI activities.” Prior to this executive action, the administration’s positions had lacked clarity or a roadmap for compliance. Terms such as “illegal DEI” and “racially discriminatory DEI” have been used interchangeably, with the U.S. Department of Justice, the U.S. Equal Employment Opportunity Commission (EEOC), the U.S. Department of Housing and Urban Development, and other executive agencies each providing their own view on DEI-related guardrails.
Nonetheless, EO 14398 introduced another term—“racially discriminatory DEI activities”—into the lexicon. The administration, however, did not include any detailed guidance on whether or how this prohibition related to its other DEI-related actions. As such, since EO 14398, federal contractors have been grappling with a central question: Does Executive Order 14398 dramatically change the landscape with regard to the administration’s DEI-related positions?
The question makes sense, as “racially discriminatory DEI activities” could be read to either broaden or narrow prohibited DEI actions. The order defines “racially discriminatory DEI activities” as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” The definition of “program participation” sweeps in “membership or participation in, or access or admission to” things like training programs, mentoring, clubs, and associations “sponsored or established by the contractor.” Further, “activities” or “participation” appears to include not just race-restricted programs but any program arising out of diversity or equity principles. At the same time, the EO narrows the administration’s focus to race and ethnicity and does not extend to gender or other protected groups.
While the administration has not provided any additional formal guidance regarding the meaning of the terms, a recent filing by the Trump administration in National Association of Diversity Officers in Higher Education v. Trump (D. Md., Case No. 8:26-cv-1532) lends some insight. The lawsuit alleges that Executive Order 14398 (and the subsequent guidance discussed here) violates the First Amendment of the Constitution and the Administrative Procedure Act and seeks a preliminary injunction delaying the administration’s action. The administration’s brief opposes the plaintiffs’ request and provides some insight into the administration’s positions. While contractors are fielding a wave of contract modifications and new clause requests, the upshot of the substantive DEI-related guardrails appears to have not substantially changed. The potential exists for the administration to set forth other positions or pronouncements that push the legal limits. Nonetheless, here are the key takeaways from the government’s brief:
“Disparate treatment” is consistent with Title VII
Concerns existed that, in evaluating certifications, the administration would employ a very broad definition of disparate treatment to attack various DEI programs. In its brief, the administration took the position that it intended disparate treatment to conform with Title VII and other antidiscrimination laws. Specifically, the administration stated that “disparate treatment” is “a legal term of art that refers specifically to intentional discrimination” that “springs from a clear discriminatory motive.” At bottom, the administration’s use of disparate treatment in the EO may have been intended to distinguish the term from disparate impact theory, which has been disavowed. See the DOJ’s opinion to the EEOC here. For contractors, the administration’s position that its interpretation of the EO is consistent with intentional disparate treatment concepts provides some basis to push back against future administration positions that may be inconsistent with legal precedent.
EO 14398 is in many ways narrower than EO 14173
Contractors were also concerned about how EO 14398 differed from its predecessor. The administration potentially addressed this by arguing that EO 14398 “is in many ways narrower in scope and more specific in its description of prohibited conduct” than the DEI certification under EO 14173. Whereas EO 14173 referenced all “Federal anti-discrimination laws” broadly and applied to both contractors and grantees without limiting scope to federally funded work, EO 14398 expressly limits its reach to “race or ethnicity” and limits the prohibition to conduct “[i]n connection with the performance of work under th[e] contract.” While the potential narrowing of the scope of covered government funding vehicles and protected classes helps differentiate the two EOs, it remains the case that broad antidiscrimination obligations have been part of the contracting process for more than 60 years. As such, coverage in the area by two EOs could be seen as redundant.
Contractors are not required to eliminate all DEI programs
Chief among many contractors’ concerns were broad attacks naming DEI specifically and implying that all DEI was illegal. See, for example, the FTC Chairman’s announcement here. (“DEI is a scourge on our institutions. It denies to all Americans the Constitution’s promise of equality before the law. It divides people into castes on the basis of immutable characteristics, and treats them as caste members rather than as individuals. It stokes tensions by elevating race and other immutable characteristics above merit and excellence. It promotes invidious discrimination. And it violates federal and natural law.”) Faced with a court filing, the government pulled back on many of its broader claims such as these that all DEI programs violate the law. In its filing the administration stated, “The text of the Certification does not require Plaintiffs to certify that they will eliminate all their DEI programs.” Rather, the administration stated that it intended to target discriminatory conduct that may have resulted from DEI programs.
Supporting membership and associations are not banned—only discriminatory gatekeeping
EO 14398 took aim at contractors’ support of membership-based organizations, which raised many questions about whether a contractor had to withdraw any support of diversity-related organizations. However, in its filing, the administration has pulled back on these broad attacks and stated that the order “does not bar” membership or associations. Rather, it “only prohibits ‘disparate treatment’ in decisions regarding membership and associations”—meaning intentional discrimination on the basis of race or ethnicity in who gets admitted to or participates in contractor-sponsored programs. An affinity group open to all employees does not run afoul of this standard.
The administration’s positions seem to align with recent court decisions
DEI, in this administration, has become a complex and hot-button topic that has yielded mixed results. The administration has achieved some high-profile settlements with federal contractors. For example, it reached a $17 million settlement with IBM, which included some broad changes in how the company administered its DEI programs. Courts, however, have not necessarily agreed with many of the aggressive positions taken by the government or other opponents of DEI. The EEOC, for example, has stated that diverse slate policies and diversity targets violate the law. See the EEOC’s new National Enforcement Plan here (listing “aspirational goals” and diverse slate policies as matters involving intentional discrimination). Yet in one of many recent cases, a court found that an employer’s aspirational diversity goals and diverse slate interview panel policies, standing alone, did not raise a minimal inference of discrimination to survive a motion to dismiss. Perelman v. Visa USA, Inc., No. 24-cv-9793, 2026 WL 1013377 (S.D.N.Y. Jan. 20, 2026), report and recommendation adopted in relevant part, No. 24-cv-9793, 2026 WL 696886 (S.D.N.Y. Mar. 12, 2026).
The EEOC has taken the position that diversity trainings could potentially violate anti-harassment laws. However, as we discussed in our prior update on DEI training, employers have prevailed in several cases in which plaintiffs attacked diversity training and other workplace initiatives, with courts consistently finding that such trainings do not rise to the level of actionable discrimination or harassment under Title VII.
The administration’s brief is potentially a signal that, while high-profile settlements can deter commitments to DEI, courts have taken a more critical look at challenges to DEI-related practices and policies.
What should federal contractors take away?
Some will question whether the administration’s muted litigation posture will change what contractors can expect on the enforcement front. However, we note that these representations were made in federal court and likely carry legal weight. Moreover, decisions like Perelman reinforce the distinction courts continue to draw between maintaining lawful diversity programs and engaging in discriminatory conduct—two fundamentally different things.
The practical guidance remains that employers should not consider any wholesale withdrawal from effective and appropriate DEI programs. Indeed, IBM’s settlement illustrates the conundrum many contractors face. While IBM agreed to a broad settlement arising from its practices, plaintiffs have filed litigation against employers alleging that widescale abandonment of programs evidences racial discrimination against African Americans. See, e.g., Washington v. International Business Machines Corp., 8:25-cv-03550 (D. Md. filed Oct. 29, 2025) (claiming that termination stemmed from IBM’s desire to remain a favored federal contractor by, in part, dropping its DEI programs); Brooks v. International Business Machines Corp., 7:26-cv-03664 (S.D.N.Y. filed May 4, 2026) (same). Specifically, federal contractors (as well as other employers) should:
- Audit programs for any practices that could constitute genuine disparate treatment—race-based quotas, race-exclusive opportunities, or race-conscious hiring/promotion decisions
- Not act rashly by dismantling open-to-all affinity groups, mentoring programs, or professional development initiatives merely because they have a racial or ethnic focus
- Ensure certifications are in place, accurate, and compliant with the language found in EO 14398 if they are a federal contractor
- Keep updated on the enforcement and litigation landscape—actions by the government, as well as private plaintiffs, continue to heighten risk, but courts will generally have the last word on DEI-related guardrails.
Grounding compliance strategy in existing law—rather than worst-case speculation—remains the prudent course. Overcorrection risks unnecessarily abandoning lawful programs.
