KHVPF Insight
DEI Programs Under Fire: Heightened Risk for All Employers
In recent months, the federal government has moved aggressively to curtail Diversity, Equity, and Inclusion (DEI) programs, especially at institutions like universities that rely on federal funding. The administration has used the threat of withholding funding as a powerful lever to bend institutions to its will on domestic policy priorities. Dismantling DEI programs is foremost among those priorities. What was once a politically charged issue has become a serious compliance matter, requiring careful review by employers.
The Administration’s Actions. In the early days of the Trump administration, the White House issued Executive Order 14173, titled Ending Illegal Discrimination and Restoring Merit-Based Opportunity. It requires all recipients of federal funds, including government contractors, universities, and healthcare institutions, to certify that they do not operate or maintain DEI programs that are inconsistent with federal civil rights laws. Critically, the EO declares that compliance with these laws is “material” to the government’s payment decisions—language that paves the way for enforcement under the False Claims Act (“FCA”).
The Department of Justice has since acted swiftly to implement this policy. On May 19, 2025, the Civil Division announced a new enforcement framework called the “Civil Rights Fraud Initiative.” It instructs all DOJ attorneys to use the False Claims Act to “investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” A separate memorandum affirmed that the DOJ will deploy “all available resources” to combat unlawful DEI initiatives—including bringing FCA litigation and proactive investigative efforts. Notably, the DOJ has named “doctors, hospitals, pharmaceutical companies, and other related providers” as specific subjects of enforcement.
The DOJ has also made clear that institutions of higher education are in the crosshairs, identifying as targets universities that allegedly “encourage anti-Semitism” (such as by condoning pro-Palestinian protests), or allow transgender females to compete in women’s sports. DOJ has asserted that any federally funded institution maintaining a DEI initiative that “assigns benefits or burdens” based on protected characteristics—such as race, gender, or religion—places its federal funding at risk.
An Existential Threat for Federal Funds Recipients. The administration’s actions have introduced an existential threat to those institutions and corporations that depend on federal funding. Previously, when DEI programs were challenged under federal civil rights laws, such disputes were resolved in the courts under a long-established body of precedent. DEI initiatives were evaluated through familiar legal standards and allowed to stand if crafted with care and constitutional rigor. While politically controversial, companies and institutions could rely on judicial interpretation to determine whether their programs were legally compliant.
That has now changed dramatically for both nonprofit and for-profit entities that rely on federal funds. The Trump Administration has claimed broad executive discretion to penalize institutions that, in its view, violate civil rights law—even when those views depart from or stretch the bounds of settled case law. The well-founded fear is that even the most carefully designed DEI program will be presumed unlawful. Some of the same officials behind the Civil Fraud Initiative have made the dubious assertion that the mere existence of a DEI statement or diversity training policy may create a “hostile work environment” for majority employees. While such extreme positions may not hold up in court, the threat of enforcement—through audits, litigation, and funding delays—can inflict substantial harm well before an institution can vindicate its position through litigation.
For universities and other recipients of federal funding, the current legal landscape demands urgent attention. Organizations should immediately reexamine DEI policies and programs in coordination with outside counsel or consultants familiar with federal civil rights law and False Claims Act compliance. The key is to retain only those elements of DEI strategy that are unassailable under current law and clearly critical to the institutions’ missions.
Those retained components should not stand under the banner of “DEI.” Instead, they should be integrated into broader institutional initiatives—such as compliance training, employee engagement, leadership development, or harassment prevention—where their value is aligned with nondiscrimination objectives.
Serious legal risks for all employers. For private-sector businesses and institutions that do not receive federal funding, the government’s enforcement options are more limited. However, that has not insulated them from escalating legal risk. Anti-DEI activist groups have filed lawsuits across the country, targeting DEI programs in Fortune 500 companies, law firms, and other entities. Starbucks, McDonald’s, and major U.S. law firms have already faced such claims. The Supreme Court’s recent decision in Ames v. Ohio Department of Youth Services – which eliminated the heightened pleading standard for “reverse discrimination” lawsuits, thus creating a new element of risk. Prior to this decision, the many federal courts (including the Sixth Circuit covering Michigan) required employees of a majority group to show that the employer was “the unusual employer who discriminates against the majority” as a predicate to proceeding with a Title VII claim. That additional burden has now been eliminated, opening the door to Title VII lawsuits claiming that DEI programs are “discrimination” against, among others, white male employees.
That said, for businesses and institutions that are not dependent on federal funding, over-correction is not advised. Laudable initiatives aimed at building a more inclusive and respectful work environment should not be abandoned. Training programs that help diverse workforces engage across differences remain highly valuable, both for morale and for mitigating legal risk related to hostile work environment claims by minority employees.
However, employers should be cautious in how they frame such efforts. It is advisable to avoid the increasingly politicized “DEI” label and to steer clear of terminology such as “equity” or “equitable representation,” which opponents equate with racial quotas and affirmative action. Many legally compliant elements of DEI programming—such as skills training, mentoring, and inclusive workplace practices—can be incorporated into efforts focused on professionalism, mutual respect, and equal opportunity.
Likewise, mentoring or development programs should be available to all employees in each job classification, and membership in employee resource groups should be open and inclusive. By reframing inclusion efforts in universal terms, employers can continue to advance important values while avoiding the legal and political risks increasingly associated with DEI branding.