Fast Pass Through The Employer's Legal Landscape: Lap 2, The State Of DEI

We continue our series of topics addressed during Ward and Smith's Employment Law Symposium, focusing on the current state of DEI.

X. Lightfoot, a member of the firm's labor/employment group and a North Carolina State Bar Board Certified Specialist in Employment Law, offered an overview of recent changes pertaining to Diversity, Equity and Inclusion.

Diversity, Equity and Inclusion

"The legal landscape has been constantly shifting this year and I love that, because it gives me a chance to catch up with my clients and help them navigate these changes," said Lightfoot. "Part of what I do is helping employers mitigate risk and ensure compliance."

An eye-catching headline from early 2025 centered on Executive Order (EO) 14151, "Ending Radical and Wasteful Government DEI Programs." A key phrase in the EO mentioned terminating all discriminatory programs, including illegal DEI programs.

The same "illegal DEI programs" phrase is also found in EO 14173, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity." In response, a federal court in Maryland issued a temporary injunction based on First Amendment violations and due process concerns over undefined terms, such as "illegal DEI."

"Who knows what illegal DEI actually means? The thing is that the term was not defined in the Executive Order. Also, it's not in the federal statutes...it's not in Title VII or any regulations," explained Lightfoot. "That's why the court in Maryland was able to enjoin the order, pausing its implementation."

A few months later, however, the Fourth Circuit Court of Appeals overturned that injunction, allowing it to be enforced. "This let the federal government and certain federal agencies terminate all DEI programs and mandates within the federal government," added Lightfoot. "It also allowed for the termination of DEI positions in the federal government, and some layoffs have already been happening."

Both EO 14151 and EO 14173 contain a provision requiring federal contractors and grantees to certify their operations do not include "illegal" DEI programs. The enforcement of the certification provision by the US DOL was blocked nationwide by a temporary injunction issued by a federal court in Illinois.

"The bottom line is the certification provision will likely continue to be a requirement for federal contractors and grantees, since it's only the DOL that has been prohibited from enforcing it," said Lightfoot. This is important for federal contractors because the administration is using the False Claims Act (FCA), an anti-fraud law, as a method to enforce its policy on "illegal" DEI programs.

The courts have made it clear that not all DEI programs and initiatives are illegal. It is also worth noting that federal contractors and grantees do not have to eliminate DEI activities just because they signed the certification.

Federal contractors and grantees can avoid liability under the FCA if they have an honestly held, good faith belief that their DEI activities or programs comply with federal anti-discrimination laws (i.e., a contractor is not liable under the FCA unless the government or a whistleblower can prove that the contractor made the false certification "knowingly" or with "reckless disregard").

Considering the confusion surrounding the definition of illegal DEI, Lightfoot offered a definition: "Illegal DEI is a discriminatory practice based on a protected characteristic."

As it was in the past, discriminating based on race, sex, religion and/or national origin is still illegal. "The only thing that has changed is that the new administration is focused on certain language and words that are used in organizations," Lightfoot explained. "As long as your DEI program does not discriminate based on a protected characteristic or violate a federal anti-discrimination statute, it is not illegal."

Illegal DEI and Lawful DEI Scenarios

To shed light on illegal DEI practices, Lightfoot shared a few scenarios based on a memo published by the US Attorney General Pam Bondi on July 29, 2025:

• A federal contractor launches an internship program aimed at increasing diversity. It advertises a "Black Student Excellence Internship" and only students identifying as Black may apply. Other academically qualified students from different racial groups are explicitly excluded.
• A federally funded nonprofit organization requires job applicants to submit a "cultural competence statement" describing their lived experience with diverse communities. Hiring managers infer candidates' racial or ethnic background from these statements, and this becomes an unofficial way to favor certain racial or ethnic identities without explicitly stating racial preference.
• A university that receives federal funding organizes mandatory DEI training. Attendees are split into separate sessions: one exclusively for "White Allies" and another only for "BIPOC Faculty." Employees not in the designated group are barred from joining the other session.

A few small modifications can transform the previous scenarios into lawful DEI programs:

• The internship program is open to all students regardless of race, but includes outreach efforts to underrepresented communities, such as hosting informational sessions at HBCUs or Hispanic-serving institutions. Selection is based on race-neutral factors such as academic performance, leadership, and interest in the field.
• Applicants are asked about experience working in diverse teams or inclusive settings, but responses are evaluated based on job-related skills, not personal identity or lived experience. The same criteria apply to all applicants.
• The university offers voluntary affinity group discussions open to all employees, regardless of race, and also provides general DEI training sessions where everyone participates together. No one is excluded based on race, and participation in affinity groups is optional.

Ed. Note: This is the second article in a two-part series. Click here for "Lap 1"

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