US diversity, equity, and inclusion (DEI) initiatives encounter heightened legal perils due to the False Claims Act.
The U.S. Department of Justice (DOJ) has issued formal guidance to all federal fund recipients, setting out examples of what it considers unlawful Diversity, Equity, and Inclusion (DEI) practices. This move follows President Trump's executive order requiring federal contractors to certify that they do not have illegal DEI programs in place.
The DOJ's increased scrutiny of DEI programs began in January when President Trump took office. Statements around diversity goals should make it clear that protected characteristics are not being taken into account when making employment decisions. Employers should avoid creating the perception that protected characteristics are being used in making employment decisions, even if diversity goals are retained.
False or misleading diversity certifications will now be treated by the DOJ as if they were fraudulent billing or procurement claims. The DOJ is investigating employers believed to be running unlawful diversity policies, and has started taking action, sending Civil Investigative Demands to federal contractors and grantees about their DEI practices.
Employers in the U.S. could face significant monetary liability if their DEI policies discriminate based on protected characteristics. Statements indicating a quota or preference for individuals based on protected characteristics could create a legal risk in the U.S. The White House has framed this move as part of a wider push against what it called 'woke ideology.'
This guidance was issued under the new Civil Rights Fraud Initiative. The U.S. law firm Constangy, Brooks, Smith & Prophete, LLP is urging its partner Cara Crotty to go beyond stating that DEI policies in the U.S. might trigger False Claims Act liability, highlighting the risks and legal exposures related to illegal DEI programs for federal contractors and recipients of federal funds.
Cara Crotty, a partner at Constangy, discusses the issue and its implications for UK-based multinationals. She advises UK-based HR teams to be aware of the increased scrutiny of DEI programs in the U.S. This issue is important for multinationals with a presence in the U.S., as they may be subject to these new regulations.
The DOJ encourages employees and private citizens to file whistleblower lawsuits against employers with illegal DEI policies. The political drive to scrutinise DEI programs is likely to continue, making it crucial for businesses to ensure their DEI practices are lawful and transparent. A full interview with Cara Crotty will be available later in the month.
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