New Executive Order Expands Restrictions on DEI Activities by Federal Contractors

It's time for federal contractors to (yet again) take a close look at their Diversity, Equity, and Inclusion (DEI) programs. On March 26, 2026, the White House issued an Executive Order entitled, "Addressing DEI Discrimination by Federal Contractors," and a related Fact Sheet. While the new order is in many respects consistent with earlier executive actions addressing DEI, it includes an expanded definition of prohibited DEI activities that could create risk around programs previously considered lawful. To avoid creating risk, including from the order's new certification and compliance provisions, federal contractors should revisit their DEI programs to ensure they align with the new definition.

Expanded Definition of Prohibited DEI Activities

The new executive order states that, despite the Administration's efforts to root out racial discrimination enacted through "so-called" DEI programs, "some entities continue to engage in DEI activities and often attempt to conceal their efforts to do so." It then states, "DEI activities are not only unethical and often illegal, but also cause inefficiencies, waste, and abuse within entities that engage in such practices." To that end, the Administration finds it necessary to take additional steps to address perceived discrimination.

The new order prohibits "racially discriminatory DEI activities," which it defines as "disparate treatment based on race or ethnicity in recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity's resources."

The order defines "program participation" broadly to include "membership or participation in, or access to admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities sponsored by the contractor or subcontractor."

This is by no means the Administration's first effort to limit DEI work among federal contractors. Earlier executive orders, however, targeted "illegal DEI" and in doing so incorporated existing employment law. Because not every difference in treatment among employees constitutes an adverse employment action or a term or condition of employment sufficient to violate civil rights laws, employers could continue diversity efforts so long as they were comfortable that their programs did not violate existing laws. Now, however, the Administration has taken the step of offering its own definition of "racially discriminatory activities," and, in doing so, has broadened the scope of DEI activity that could defy the order.

Under this new, expanded definition, certain activities that may previously have been viewed as compliant with civil rights laws could now be risky. For example, programs that may warrant additional review include:

• Targeted recruitment efforts aimed at increasing diversity in candidate pools;
• Leadership or educational programs, whether internal to the organization or conducted through partnership with an outside entity, that are designed for and/or available to members of particular demographic groups;
• Networking activities or other social opportunities reserved for members of specific groups;
• Conference attendance tied to a protected class and limited to employees in that group; and
• Employee resource groups, clubs, or similar organizations with membership limited to certain racial or ethnic groups.

These are some examples of programs that could draw more scrutiny, but the language of the order is very broad, and one can presume the Administration will construe it liberally. As a result, contractors should closely review any initiatives that reference racial or ethnic identities to ensure they cannot be viewed as treating people differently based upon race or ethnicity.

The order also specifically references contracting and vendor relationships, which means companies should review external partnerships, sponsorships, grants, or supplier diversity initiatives that involve race- or ethnicity-based criteria.

New Certification Requirement for Federal Contractors

The potential penalties are high. The order introduces a new certification requirement that federal agencies must include in contracts and contract-like instruments within 30 days. Under this clause, contractors must certify that they will not engage in "racially discriminatory DEI activities" as defined by the order. This is similar to the certification that contractors and federal grant recipients are already seeing, except in that it goes further than requiring compliance with existing law and instead requires compliance with the new order's definition.

The certification also requires contractors to:

• Provide agencies with access to books, records, and accounts necessary to confirm compliance;
• Report subcontractors whose conduct may violate the clause; and
• Notify agencies if a subcontractor brings litigation challenging the certification requirement.

In practical terms, this provision allows agencies to request records related to a contractor's DEI programs in order to verify compliance, even outside the context of a formal investigation.

As with earlier DEI-related executive orders, the certification clause also states that compliance with these requirements is material for purposes of the False Claims Act, underscoring the potential enforcement risks associated with inaccurate certifications.

Practical Considerations

Because the order expands the definition of prohibited DEI activities, federal contractors and subcontractors should consider revisiting prior program reviews conducted in response to earlier executive orders to ensure none of the programs that are safe under civil rights laws are nevertheless risky under this new order. Additionally, given the chance that federal agencies may be reaching out to request information, contractors should ensure that discussions about their DEI programs are done in a manner that maintains attorney-client privilege over any sensitive communications or risk analyses. Finally, contractors should look out for more information, as the order directs the Office of Management and Budget (OMB) to issue guidance to contracting agencies to ensure compliance with the order. It also directs OMB to work with the Attorney General, the Assistant to the President for Domestic Policy, and the Equal Employment Opportunity Commission to identify "economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI activities" and to issue additional guidance to agencies to ensure compliance with the order within those sectors.

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If you have questions about how this executive order may affect your organization or would like assistance reviewing your DEI-related programs, please contact Vicky Slade or another member of the Davis Wright Tremaine employment team. To stay informed, sign up for our alerts.