New Executive Order Ties DEI Compliance to False Claims Act Risk for Federal Contractors

New Executive Order Ties DEI Compliance to False Claims Act Risk for Federal Contractors

On March 26, 2026, the White House issued an executive order titled Addressing DEI Discrimination by Federal Contractors. The order states that its purpose is to “promote economy and efficiency in Federal contracting by preventing racial discrimination.” 

The order does not regulate DEI programs in the abstract. It directly connects certain practices to federal contracting eligibility, payment, and potential liability under the False Claims Act. Interestingly, the False Claims Act is now before the Supreme Court in Eli Lilly and Company v. United States, et al., ex rel. Ronald J. Streck, where it could undercut or strengthen this executive order by clarifying the rights of a private citizen to bring a claim in claiming an "injury" exists to the United States. 

What the Executive Order Requires

The order requires federal agencies to include a clause in contracts stating that:

“The contractor will not engage in any racially discriminatory DEI activities…”

It also defines those activities as “disparate treatment based on race or ethnicity in the recruitment, employment… contracting… program participation, or allocation or deployment of an entity's resources.”

Contractors must also:

• “furnish all information and reports, including providing access to books, records, and accounts”
• report subcontractor conduct that “may violate this clause”
• comply with agency-directed remedial actions

Payment and the False Claims Act

The order expressly links compliance to payment under federal contracts. The required clause states:

“The contractor recognizes that compliance with the requirements of this clause are material to the Government's payment decisions…”

The order further directs that the Attorney General shall:

“consider whether to bring actions under the False Claims Act against any contractors or subcontractors that violate the clause…”

It also requires prompt review of whistleblower actions brought under 31 U.S.C. § 3730, but again, see the case now before the Supreme Court. 

As a result, practices tied to hiring, promotion, training programs, or vendor selection may have implications beyond contract compliance where payment certifications are involved.

Subcontractor and Vendor Requirements

The order applies to subcontractors and lower-tier subcontractors. It requires that:

“The contractor will report any subcontractor's known or reasonably knowable conduct that may violate this clause…”

It also provides that contracts may be:

“canceled, terminated, or suspended… and the contractor or subcontractor may be declared ineligible for further Government contracts.”

Scope of Covered Programs

The order defines “program participation” broadly to include:

“training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities…”

This definition extends beyond hiring and promotion and includes internal programs sponsored by the contractor.

Enforcement Framework

The order directs agencies to take action for noncompliance, including:

• contract cancellation, termination, or suspension
• suspension and debarment

It also directs federal agencies to identify “economic sectors that pose a particular risk” and issue further compliance guidance. 

Implementation Timeline

• Within 30 days: agencies must begin including the required clause in contracts
• Within 60 days: interim FAR guidance is expected
• Within 120 days: agencies must review and report on implementation

What General Counsel Should Review

• Hiring and promotion practices tied to federal contracts
• Eligibility criteria for training, mentorship, and leadership programs
• Vendor and subcontractor selection and oversight
• Contract terms addressing compliance and reporting obligations
• Internal records, communications, and documentation subject to agency review
• Statements or certifications tied to payment requests
• The case before the Supreme Court and the precedent it sets

Bottom Line

This executive order establishes that certain internal practices may affect federal contract eligibility, payment, subcontractor oversight, and potential False Claims Act exposure. It requires alignment between company practices, documentation, and contractual representations in connection with federal work.

Lieb at Law, P.C. represents companies in litigation arising from federal contract compliance, including False Claims Act claims, contract termination disputes, and enforcement actions. We focus on defending complex matters where regulatory risk becomes litigation.

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NYC Enacts Gender-Motivated Violence Protection Law

There is a new civil cause of action in NYC (Administrative Code of the City of New York section 10-1104) for crimes of violence motivated by gender that occurred prior to January 9, 2022. Now, any person claiming to be injured by a party who committed, directed, enabled, participated in, or conspired in the commission of a crime of violence motivated by gender may bring a civil claim against that party. This allows survivors to bring claims even if those claims would have otherwise been barred by the statute of limitations. However, the revitalization of claims is not permanent where claims brought under this law must now be commenced within 18 months of January 28, 2026. So, act immediately if this impacts you. Also, if you brought a claim between March 1, 2023 and March 1, 2025 that would satisfy the requirements of a cause of action under this section, you may now amend or refile (if dismissed) their claim to add a cause of action under this section. Finally, you can recover compensatory and punitive damages, injunctive and declaratory relief, attorney's fees and costs, and such other relief as a court may deem appropriate. 

DEI, the False Claims Act, and the New Enforcement Reality for Employers

National Law Review article published this week highlights a significant shift in federal enforcement strategy: the U.S. Department of Justice is now actively using the False Claims Act (FCA) to scrutinize workplace DEI initiatives at companies that receive federal funds or hold government contracts.

Read the article here:
https://lnkd.in/ee_mvzCg

According to the article, DOJ is issuing civil investigative demands to major employers and treating DEI-related inquiries as potential fraud investigations, not policy disagreements. The focus is no longer limited to what a DEI policy says on paper, but how it operates in practice.

For employers and the attorneys, this represents a material change in exposure.

The FCA has traditionally been used to police false billing and fraudulent payment claims. DOJ is now advancing a novel theory: that maintaining certain DEI practices while certifying compliance with federal anti-discrimination laws can constitute a false or misleading claim for payment. This approach has been reinforced by executive orders, DOJ guidance, and public statements from senior DOJ leadership.

Whether courts ultimately endorse this theory remains to be seen. In the meantime, investigations are underway, and the cost of responding to a CID alone can be significant. Documentation, internal decision-making, and how DEI concepts are operationalized are now front and center.

This is exactly why Attorney Andrew Lieb recently served as a featured instructor for a New York State Bar Association CLE titled Risk-Informed DEI: Balancing Legal Exposure and Organizational Culture. The program was designed to address the reality employers and counsel are facing now.

The CLE focuses on practical, defensible frameworks for advising employers in this environment. That includes identifying where FCA risk may arise, understanding how regulators evaluate DEI implementation rather than labels, and developing documentation and compliance strategies that align with both legal obligations and organizational goals.

For attorneys advising employers, and for organizations that contract with or receive funding from the federal government, DEI is no longer a purely cultural initiative. It is a legal risk management issue that requires careful, informed handling.

Details on the NYSBA CLE, including registration and CLE credit information, are available here:
https://lnkd.in/eHK9FHfk

As enforcement continues to evolve, employers should not assume that rebranding or surface-level changes are sufficient. The question regulators are asking is how programs actually function, how decisions are made, and what representations are being made to the government. Getting that analysis right now can make the difference later.

What Brokers Need to Know About NY’s New Restrictive Covenant Removal Law

Starting on June 3, 2026, NYS A1820A requires sellers of real estate to remove restrictive covenants that discriminate on the basis of race, color, religion, sex, sexual orientation, familial status, marital status, disability, national origin, source of income or ancestry. To do this, Real Property Law 327-a requires sellers of servient property (where the covenant has its effect) to submit "a restrictive covenant modification document" to the County Clerk and the purchaser at or prior to closing. A restrictive covenant is a private zoning agreement that (in this scenario) runs with the land. 

Additionally, by June 3, 2027, Condos, Co-ops, and HOAs must "delete or amend any covenants, conditions and restrictions that exist in a recorded document which discriminate on the basis of race, color, religion, sex, sexual orientation, familial status, martial status, disability, national origin, source of income, or ancestry." 

If discriminatory restrictions surface in a deal, our litigation team handles these cases. Contact Lieb at Law, P.C. for a case evaluation. 

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Are Company DEI Programs Going to Get Them Sued for Reverse Discrimination?

This past month, the Department of Justice issued guidance on Diversity, Equity, and Inclusion (DEI) for Funding Recipients, but every employer and employee (regardless of government funding) should take notice of this guidance because it explains a lot of acts that give rise to a reverse discrimination lawsuit and many employees now seem to have a good case. 

Federal law prohibits discrimination on the basis of protected characteristics like race, sex, and religion, and if you object to a policy you believe is discriminatory, you are legally protected from retaliation. The DOJ’s new guidance clarifies that all discrimination, including “reverse discrimination” is illegal, even when done with good intentions under a DEI label. 

This means that policies giving preferential treatment based on race or sex in hiring, promotions, or contracting are likely unlawful. Watch out for “diverse slate” mandates or quotas in hiring, as these are specifically called out by the DOJ as problematic. 

The government is also scrutinizing seemingly neutral terms like “cultural competence” when they are just used as a substitute for race. Notably, DEI training that segregates employees by race or promotes stereotypes can create a hostile environment and violate federal law. The main takeaway is clear: workplace policies must ensure equal opportunity for everyone, without exception, and calling a discriminatory policy DEI does not protect it from constituting actionable discrimination.