From Title VII of the Civil Rights Act, to the Age Discrimination in Employment Act, to the Americans with Disabilities Act, and beyond, the list of antidiscrimination laws of the United States is well known. But in 2025, companies now need to be alert to a new tool in the civil rights arsenal: the False Claims Act (FCA). This is a significant innovation that requires general counsel teams with employment responsibilities to work closely with government contracting, litigation, and white collar counterparts.
One of the administration’s top priorities is the elimination of "illegal” Diversity, Equity, and Inclusion (DEI) practices. Executive Order 14173 (EO) directed every federal agency to identify ways to “deter” DEI in the private sector, and specifically called for using the FCA against contractors and grantees who pledge to follow U.S. antidiscrimination laws but who maintain unlawful DEI practices (or do so in the eyes of an agency or whistleblowers). Attorney General Pam Bondi reiterated this sentiment in a February 5, 2025 memorandum, that emphasized the DOJ’s commitment to investigating illegal DEI.
Last week, the Department of Justice announced a new initiative, which aims to “utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.”
In Deputy Attorney General (DAG) Todd Blanche’s memorandum directing the creation of the Civil Rights Fraud Initiative (the “Blanche Memo”), DAG Blanche notes that “vigorous enforcement” of the FCA will be a powerful tool in the administration's ongoing efforts to end illegal DEI.
DOJ’s Plans
Bringing the FCA to bear in the civil rights and antidiscrimination field is novel.
The FCA imposes liability on individuals and companies that defraud the federal government. It provides for significant penalties, including treble damages and civil fines. The FCA permits the government to pursue civil enforcement, but also incentivizes private citizens to file qui tam suits on behalf of the government to receive a portion of the recovered funds. Criminal liability also attaches to any individual or company that knowingly submits a false claim to the government, who may then face up to five years in prison and/or be subject to a fine.
The Blanche Memo makes it a DOJ priority to pursue federal contractors and grantees who maintain unlawful DEI programs. The Department is on the lookout for companies that “continue to adhere to racist policies and preferences—albeit camouflaged with cosmetic changes that disguise their discriminatory nature.” This appears to signal that DOJ plans to look under the hood following reports that many companies have made changes to how they describe their DEI programs in 2025.
The Blanche Memo directs DOJ’s Civil Fraud Section and Civil Rights Division to pursue FCA enforcement actions “when a federal contractor or recipient of federal funds knowingly violates civil rights laws—including but not limited to Title IV, Title VI, and Title IX, of the Civil Rights Act of 1964—and falsely certifies compliance with such laws.”
The Blanche Memo also signals that DOJ’s doors are open to whistleblowers. It explicitly encourages private individuals to report “discrimination by federal-funding recipients” to the government, signaling that qui tam complaints will be welcomed.
Potential Challenges for FCA Enforcement
While the establishment of the Civil Rights Fraud Initiative signals an aggressive enforcement approach to “illegal DEI,” uncertainties around common but newly-contested corporate practices may create challenges for DOJ and qui tam claims:
Falsity
First, to establish falsity of a representation or certification under the FCA, the government would need to prove that an entity’s DEI practices did in fact violate federal law. Predicating FCA actions on new or novel theories of antidiscrimination law may make it difficult to meet that standard. As Chief Judge Diaz of the U.S. Court of Appeals for the Fourth Circuit has pointed out, the EO does not “define[] DEI or its component terms,” and as a result, it is “unclear what types of programs—formal or informal—the administration seeks to eliminate.” Order Granting Motion for Stay Pending Appeal, Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, No. 25-1189 (4th Cir. March 14, 2025).
However, ongoing federal litigation may soon provide additional guidance on when corporate DEI practices cross the line to illegality. See, e.g., Missouri v. Starbucks Corp., No. 25-cv-00165 (E.D. Mo. Feb. 11, 2025); State Board of Administration of Florida v. Target Corporation, No. 2:25-cv-00135-JLB-KCD (M.D. Fla. Feb. 20, 2025). Likewise, recent publications from the Equal Employment Opportunity Commission on “DEI discrimination” foreshadow changes it is expected to make to formal guidance once it has a quorum to do so. Thus, the amount of colorable ambiguity in the law is subject to change and companies should pay close attention to developments.
Knowledge
Second, the government would need to prove that an entity acted with actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity of the claim at issue. This leaves open the availability of a scienter defense, in which a contractor or recipient of federal funds could argue that they did not have a subjective understanding of the illegality of their DEI practices.
Indeed, in an effort to rebut arguments that the definition of “illegal DEI” in the EO was unconstitutionally vague, DOJ indicated a defense was available against FCA liability based on a good-faith but incorrect interpretation of antidiscrimination law. See Gov’t’s Motion for Stay Pending Appeal, Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, No. 25-1189 (4th Cir. March 14, 2025).
Other defenses and considerations may be available depending on the circumstances. Diligence today could help neutralize the FCA claims of tomorrow, and at the outset.
Implications for Your Organization
Federal contractors and grantees need to be alert to the evolving DEI landscape. Although there has been no change to federal civil rights statutes, what constitutes “illegal DEI” in the eyes of federal agencies is shifting.
In March, the Equal Employment Opportunity Commission—the lead agency for enforcing anti-discrimination laws in the US—published a new website titled, “What You Should Know About DEI-Related Discrimination at Work.” It’s an important statement of the new EEOC leadership’s views. The website describes unlawful DEI practices as any “employment action motivated—in whole or in part—by race, sex, or another protected characteristic.” The guidance also flags potentially unlawful “disparate treatment” in mentoring, sponsorship, and networking groups. Indeed, in 2023, the now-Acting Chair of the EEOC suggested the law might soon prohibit many “increasingly popular” corporate diversity initiatives.
Now, following DOJ’s announcement of the Civil Rights Fraud Initiative, companies should consider taking stock of their DEI programs in light of the terms of their contracts or grants to assess the potential for FCA claims. Companies should also consider how they describe their DEI programs on their websites, in their annual reports, in submissions to federal regulators, and internally. DOJ’s emphasis on targeting “camouflaged” DEI programs underscores the importance of matching changes in how programs are described to how they are implemented.
Freshfields’ cross-disciplinary, cross-border team combines investigators, litigators, and governance attorneys, and is continuing to evaluate the rapidly evolving DEI landscape, including the possibility of FCA investigations and enforcement actions. Should you have any questions about the new Civil Rights Fraud Initiative’s implications for your business, or require guidance on managing DEI-related risks, please do not hesitate to contact us.
