The Department of Justice (“DOJ”) recently issued new guidance clarifying how federal antidiscrimination laws, including Title VI and Title VII of the Civil Rights Act of 1964, apply to federal contractors that receive federal funds. This guidance implements Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” and represents a significant shift in how regulators view diversity, equity, and inclusion (“DEI”) practices in the workplace. For federal contractors, the message is clear: many programs once considered progressive now create legal risk.
The DOJ begins the guidance with a strong statement of principle:
Discrimination based on protected characteristics [is not only] illegal under federal law, but it is also dangerous, demeaning, and immoral.
In other words, the agency intends to apply existing laws aggressively and to pursue contractors whose programs give advantages or impose disadvantages based on protected traits such as race, sex, ethnicity, national origin, or religion. This marks a decisive move away from equity-based initiatives and toward strict equality of treatment.
What the DOJ Sees as Risky or Unlawful
The guidance highlights three categories of DEI practices that will now face scrutiny.
Preferences based on protected characteristics. Programs that set aside opportunities, create hiring or promotion preferences, or designate “safe spaces” for particular groups are now in the crosshairs. Even if these programs aim to correct historical disadvantages, the DOJ considers them discriminatory when they are tied to protected categories of individuals.
Use of proxies. Contractors must also avoid “facially neutral” criteria that function as stand-ins for protected traits. Phrases such as “lived experience,” “cultural competence,” or “overcoming obstacles” may seem neutral, but if they operate as substitutes for race- or sex-based considerations, they could expose employers to liability. For example, requiring “diversity statements” from applicants or limiting recruitment to certain schools or geographic areas could raise red flags if the effect is to favor particular demographics.
Training programs. Finally, the DOJ warns against training that stereotypes individuals or pressures employees to adopt ideological positions. Programs focused on concepts like “white privilege” or “toxic masculinity” may be considered hostile if they demean or exclude participants based on protected characteristics.
The Stakes for Federal Contractors
Although the DOJ’s guidance does not carry the force of law, it signals how regulators intend to interpret and enforce federal civil rights statutes. Contractors who ignore this shift could face costly investigations. The DOJ has linked its new approach to its Civil Rights Fraud Initiative, which utilizes the False Claims Act (“FCA”) as its primary enforcement tool. If a contractor certifies compliance with antidiscrimination laws while maintaining programs that DOJ views as discriminatory, the agency may pursue FCA claims. Such claims carry the risk of substantial financial penalties and reputational harm.
In short, contractors should review their policies now before making compliance certifications. The risk is not only theoretical; this is an area where the DOJ has made clear it will pursue enforcement.
Best Practices for Reducing Risk
The DOJ does not leave contractors without guidance. In fact, it provides a roadmap of “best practices” that, while not mandatory, can help employers demonstrate good faith and reduce the risk of investigation. Federal contractors should consider taking the following steps:
- Open all programs and resources to every employee. Avoid restrictions based on race, gender, or other protected traits. Contractors should ensure that professional development, mentorship, and leadership opportunities are available to everyone
- Focus on measurable skills and qualifications. Tie all selection criteria directly to the job or program requirements. This ensures that decisions rest on legitimate, business-related factors
- Eliminate quotas and demographic benchmarks. The DOJ views any target tied to race or gender as unlawful. Instead, use nondiscriminatory performance metrics to measure success
- Review neutral criteria for hidden risks. Before rolling out policies that use terms like “lived experience” or “cultural competence,” analyze whether they may serve as proxies for protected traits
- Document decision-making. Keep clear records of the rationale behind hiring, promotion, and training policies. If challenged, documentation will be key to demonstrating compliance
- Include nondiscrimination clauses in contracts. Ensure that vendors, subcontractors, and partners also adhere to federal standards. Regularly monitor compliance to reduce downstream risk
- Strengthen reporting systems. Establish confidential reporting channels for employees who believe they have experienced discrimination. Pair these with strong anti-retaliation policies to protect whistleblowers and encourage internal resolution
- Train leadership in compliance. Managers and supervisors need practical training on the implications of this guidance. Leadership must understand the difference between lawful equal opportunity efforts and unlawful preferences
- Communicate with employees clearly. Contractors should seize this opportunity to reset the message around inclusion, focusing on fairness, equal access, and respect for all. Clear communication helps avoid confusion and builds trust
By adopting these practices, contractors not only reduce their liability exposure but also promote a culture of fairness and transparency that can strengthen morale and performance.
What Contractors Should Do Next
The DOJ’s new guidance raises the stakes for any contractor that receives federal funding. Programs and policies that once seemed progressive may now trigger government scrutiny, particularly where they involve explicit preferences or subtle proxies for protected traits. The combination of heightened oversight and the risk of FCA enforcement means contractors must review their DEI initiatives sooner rather than later.
Contractors should start by auditing their current policies and practices. From there, they should revise any programs that raise red flags and create documentation that demonstrates nondiscriminatory rationales. They should also update compliance certifications with care to avoid false statements. Finally, contractors should prepare for possible questions or audits from federal agencies by ensuring that leadership understands and applies the DOJ’s expectations.
At Hoyer Law Group, we are already helping clients navigate this new regulatory environment. Our attorneys understand the DOJ’s evolving approach and can guide federal contractors through audits, policy revisions, and compliance certifications. We also assist in developing training programs and reporting procedures that align with federal law.
This is a critical moment for federal contractors. Acting now can reduce risk, protect federal funding, and prevent costly disputes. If your organization receives federal funds, our team can provide you with the legal insight and practical guidance you need to move forward with confidence. Please contact us today at Hoyer Law Group to discuss how this guidance affects your business and how we can help protect your compliance.
