Appeals Court Lifts Injunction Against EO Targeting Private Sector DEI

Employment Law, Inclusion and Diversity

Friday evening, a federal appeals court lifted the injunction against President Trump’s executive order targeting private sector DEI programs, allowing the Trump Administration to fully enforce its executive order while the litigation challenging the order continues.

Federal contractor certification requirement back in effect: The Executive Order’s requirement that federal contractors certify that they do not have any DEI programs or other practices that violate anti-discrimination laws is once again in effect.

• While the certification requirement theoretically would only apply to prospective contracts, the uncertain legality of requiring them for contracts already in progress may not deter the administration from attempting to do so.
• After the Order was originally issued, several companies with ongoing contracts received requests from procurement officials to provide such certifications, even though what is an unlawful DEI program is not yet defined.
• A refusal to provide the certification could prevent the contractor from being awarded contracts and could potentially result in termination of ongoing contracts.

The decision: A unanimous three-judge panel of the Fourth Circuit Court of Appeals found that because the Executive Order does not attempt to change the law but merely enforces existing anti-discrimination law, the injunction blocking it was unnecessary.

• Specifically, the Court found that the Executive Order is “of distinctly limited scope” and “do[es] not purport to establish the illegality of all efforts to advance diversity, equity, or inclusion, and…should not be so understood.”
• The decision warned, however, that the Order could be permanently blocked if the Trump Administration enforces it beyond its narrow scope – i.e., if the Administration uses it to require companies to end certain DEI practices that are currently lawful (by threatening the loss of federal contracts, for example).
• The panel included two judges appointed by Democratic presidents, and each judge wrote separate concurring opinions, including Chief Judge Albert Diaz, who also included support for “true diversity”.

Risk and uncertainty remain for all employers: Even for those employers that are not federal contractors, the Executive Order – whether or not enjoined – serves as notice of the Administration’s intent to use all available resources to target employers for perceived “illegal” DEI practices.

• What the administration considers “illegal” remains unclear, leaving employers in an uncomfortable limbo. The full impact of the Order hinges on the eventual scope of that definition.
• That definition may be revealed in the forthcoming report in May that will list companies considered to be the worst offenders of “illegal” DEI practices and provide recommended enforcement and regulatory actions.

What’s next: The Executive Order will remain in effect until the appeals court issues a full decision on the merits of the lawsuit challenging the legality of the order, which may take several weeks or months. That decision – whether it upholds or blocks the order – is likely to be appealed to the Supreme Court. In the meantime, the May report may provide the Administration’s true blueprint for attacking private sector employer DEI practices.

Employer Resources:

• FAQs: Use this resource to clearly understand what the Executive Order does and does not mean, its place in the current broader legal landscape, and what companies should be thinking about.
• Sample DEI Audit Checklist: Safeguard your company against legal and reputational dangers in the present anti-DEI climate by auditing your diversity, equality, and inclusion strategies, including external partnerships. Now is the time to review DEI programs and practices to understand and mitigate any potential risks. This checklist provides a template for common areas of focus for effective audits.
• Sample Risk Assessment Matrix for DEI Programs: While most commonly-used DEI programs are considered lawful as of now, some may present higher legal or reputational risks than others – particularly under the current administration. Each company’s risk profile will differ based on company size, brand, customer and investor base, and public exposure. Use this resource to get an idea of your company's risk level for common DEI initiatives.