Executive Order on DEI: What Federal Contractors and Employers Need to Know

Applies to: All Employers
Effective: January 21, 2025

Overview: What's Happening to DEI?

The Executive Order, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” relays this Administration’s desire to end “Diversity, Equity, and Inclusion” (DEI) for federal contractors and private employers. However, when looking at the text of the Executive Order, one is left with more questions than answers.

What Does the Executive Order Do?

The Order calls for a number of actions. First, focusing on the federal government and federal contractors:

• All executive departments and agencies must (1) terminate “all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements;” and (2) enforce civil rights laws and “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.”
• Previous Executive Orders (i.e., 12898, 13583, 13672) and Presidential Memorandum (Oct. 5, 2016) promoting diversity and equal employment were terminated.
• Federal contractors “shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.”
• Federal contracts must include (1) a certification that the contractor “does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws;” and (2) a statement that the contractor’s compliance with “all applicable Federal anti-discrimination laws is material to the government’s payment decisions.”
• The Office of Management and Budget (OMB) must (1) review and revise all government processes and guidance; (2) remove DEI principles from federal contracts; and (3) end DEI requirements and activities.

Second, the Order seeks to “encourage” private employers to end “illegal” DEI discrimination and preferences.

• Federal agencies must advance the policy of “individual initiative, excellence, and hard work.”
• Similar to federal contractors, the Executive Order does not change lawful private-sector employment and contracting preferences for veterans and the disabled.
• Within 120 days, the Attorney General shall make recommendations for “enforcing Federal civil rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”

The main question most employers have is: What is “illegal” DEI?

The Executive Order does not define this term but makes references to “race- and sex-based preferences” made under the guise of DEI that “can violate the civil-rights laws of this Nation;” and “illegal … discrimination that has prioritized how people were born instead of what they were capable of doing.” In accordance with the Order, we expect to see clarification on this point in the next 120 days.

What is the Current Law?

Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, color, national origin, ancestry, religion, and sex, including preferential hiring based on a protected category. Title VII applies to military departments and executive agencies in the federal government, units of the judicial branch and the government of the District of Columbia that have positions in the competitive service, and a number of federal organizations, and private employers with 15 or more employees. Most state laws prohibit discrimination on the basis of these same protected categories.

In 1978, the U.S. Supreme Court in Bakke v. University of California said that engaging in workforce balancing based on race, color, sex, sexual preference, religion, or national origin is prohibited. In 2023, the U.S. Supreme Court in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (SFFA) said that direct consideration of a college applicant’s race in achieving diversity in higher education is unlawful. However, the Court said that federal law does not exclude considering a university applicant’s racial experiences if they are tied to the person’s unique character traits or abilities.

The Executive Order does not override or change existing legislation and judicial rulings on discrimination prohibitions. Employers still cannot discriminate on the basis of a protected category.

What Does This Mean for Employers?

For federal contractors, the EO requires employers to certify, within any contract or grant with the federal government, that the employer does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws. The EO also directs all federal agencies to place on paid administrative leave any federal employees whose duties involve DEI and to prepare to cut any DEI-related offices or programs from their budgets. Regardless, federal contractors must still follow federal and state anti-discrimination laws. Federal contracts will be updated to certify the employer’s compliance with anti-discrimination laws.

For private employers, currently, nothing has changed. Private employers must still follow federal and state anti-discrimination laws.

However, the Executive Order has indicated this Administration’s intention to eliminate “illegal” DEI practices. Employers should expect to see further guidance from the federal government and, ultimately, enforcement actions. EEOC Commissioner Andrea Lucas has said her “priorities will include rooting out unlawful DEI-motivated race and sex discrimination…” For now, employers should locate and review any diversity, equity, and inclusion and equal employment opportunity statements and policies for compliance with existing law. The Executive Order is currently being challenged in court, so employers should continue to watch this topic for further development.

Action Items for Employers

1. Federal contractors should update hiring practices consistent with the termination of Executive Order 11246.
2. Federal contractors should review contractual obligations with legal counsel.
3. All employers are permitted to maintain lawful employment and contracting preferences for veterans and the disabled.
4. All employers should locate and review any diversity, equity, and inclusion and equal employment opportunity statements and policies for compliance with existing law.

As federal policies continue to evolve, rely on our team of compliance leaders to help you stay on top of key actions, pending legislation, and regulatory changes that may impact your organization. Visit OneDigital's resource page for real-time updates: Federal Policy Updates for Employers: What to Watch in 2025.