Much attention has been given to the Trump Administration’s new Executive Order titled “Ending Illegal Discrimination and Restoring Merit Based Opportunity” (the “EO”). As stated, its principal aim is to eliminate race- and sex-based preferences administered in the name of DEI (diversity, equity, and inclusion) and DEIA (diversity, equity, inclusion, and accessibility) programs and policies. Less attention, however, has been paid to the potential future liability exposure for federal contractors embedded in the EO’s citations and references to the federal False Claims Act (FCA). As written, the EO appears to set the stage for potential enforcement actions initiated by private parties through the qui tam provisions of the FCA and may thereby increase the likelihood of litigation against federal contractors challenging their future maintenance and implementation DEI and DEIA policies programs.

Specifically, the EO requires the head of each federal government agency to include in each of its contracts and grant awards “[a] term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code.” EO §3(a)(iv) (emphasis added). It also requires “[a] term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Id. (emphasis added). The referenced legislative provision—USC Title 31, section 3729(b)(4)—is the definition of “material” in the FCA. As written, the EO does not appear directly to impact federal contractors operating under existing contractual arrangements; the EO specifies that “Federal contractors may continue to comply with the regulatory scheme in effect on January 20, 2025” for 90 days from the date of the EO (i.e., until April 21, 2025).

For those unfamiliar with its provisions, the FCA imposes liability on individuals and entities (a “person” in FCA parlance) who knowingly present to the government a false or fraudulent claim for payment or approval or who knowingly make or use a false record or false statement material to a false or fraudulent claim.[1] FCA liability also may attach where a person knowingly makes or uses a false record or statement material to an obligation to pay or transmit money to the government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government.[2]

A unique aspect of the FCA is the qui tam provision[3] allowing private citizens (“relators”) to file lawsuits on behalf of the government against alleged offenders. Suits filed by relators may be prosecuted by the government through intervention or, at least for now[4], where intervention is declined following an investigation by the Attorney General[5], by relators themselves. Recoveries against persons found to have violated the FCA may include treble damages plus civil money penalties. Over the last decade, the U.S. Department of Justice has recovered more than $25 billion under the FCA.[6] Successful relators may share in any recovery by the government, including reasonable attorneys’ fees and costs, thus providing a powerful incentive for potential whistleblowers.

Of additional import, in the provisions of the EO that pertain to “Encouraging the Private Sector to End Illegal DEI Discrimination and Preferences”, the Attorney General, in consultation and coordination with agency heads, is directed to submit a report “containing 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.” EO §4(b). Such report is to include a “strategic enforcement plan” that, among other things, identifies “[l]itigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest” – a further indication of the potential for actions initiated under the FCA.

Accordingly, federal contractors should pay particular attention to the EO’s required agreements and certifications in future federal contracting, since, if included, they would directly tie to potential FCA liability. In particular, by requiring a contracting counterparty “to agree” that compliance with applicable anti-discrimination laws “is material to the government’s payment decisions”, the EO substantially undercuts any materiality defense to an FCA claim relating to a federal contract incorporating such terms based on an anti-discrimination theory.

Also of note, enforcement actions against federal contractors for violations of anti-discrimination laws have historically been within the purview of the Office of Federal Contract Compliance Programs (OFCCP). The OFCCP conducts both random audits and audits that are responsive to specific complaints, much like EEOC investigations. Generally, OFCCP audits consist of deep dives into employers’ applicant and compensation data. Sometimes they last for years, requiring considerable government expense. By incentivizing private enforcement actions under the FCA, the EO signals a new potential enforcement direction and strategy, which could arguably lessen the need for a robustly funded OFCCP.

In the wake of the Supreme Court’s 2023 decision in the Students for Fair Admissions[7] cases, many institutions and organizations found it prudent to reassess the compliance posture of their DEI programs. With the publication of the EO potentially inviting private whistleblower actions under the FCA, federal contractors maintaining DEI programs and policies entering into new contracts incorporating the terms mandated by the EO may wish yet again to review their employment, procurement, and contracting practices.

[1] See 31 U.S.C. §3729(a)(1)(A)-(B).

[2] See 31 U.S.C. §3729(a)(1)(G). Such violations are sometimes referred to as “reverse false claims.”

[3] See 31 U.S.C. §3730(b)

[4] Notably, the qui tam provision of the FCA is itself subject to current constitutional challenge as an impermissible delegation of Executive Branch authority to private actors.  See U.S. ex rel. Zafirov v. Florida Medical Associates, LLC, 2024 WL 4349242 (M.D. Fla. Sept. 30, 2024) (holding FCA relators in a non-intervened case are “Officers of the United States” subject to Article II’s Appointments Clause and not properly appointed as such).

[5] See 31 U.S.C. §3730(a) which requires the Attorney General to investigate FCA violations.

[6] In certain industries (e.g., healthcare), the potential for recovery of treble damages plus per claim penalties under the FCA has led to multi-million dollar settlements.

[7] 600 U.S. 181 (2023).