UPDATED MARCH 3, 2025

By Camden Massingill & Bennett Hardymon

In recent years, Diversity, Equity, and Inclusion (DEI) have become key topics in corporate discussions, with many companies working to create more inclusive workplaces, while others focus on meeting their legal requirements. As the landscape of DEI continues to evolve, a new executive order — “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” — has recently been introduced, bringing new developments for employers to navigate. Signed by President Trump on January 21, 2025, this order marks a significant change in federal policy, and it could have important legal and practical implications for businesses across the nation. On February 21, 2025, United States District Court for the District of Maryland issued a nationwide preliminary injunction enjoining portions of this executive order as well as a provision of another executive order pertaining to equity-related federal grants and contracts.

The January 21 executive order imposes new restrictions on DEI initiatives and programs in federal contracting, while also encouraging the private sector to reconsider or scale back DEI policies by instructing federal agencies to probe private companies for potential civil rights law violations. The order focuses on practices the administration views as discriminatory in hiring, promotions, and compensation, while placing renewed emphasis on merit-based systems. If you’re an employer, this is something you’ll want to keep on your radar, as it may require adjustments to your current policies and practices. While the District of Maryland’s ruling removes some of the urgency brought by the executive order, employers should stay informed as the injunction is not a final ruling and may be reversed or modified.

Implications for Federal Contractors

For federal contractors and subcontractors, this executive order presents significant changes that will require careful attention and compliance. The new executive order revoked Executive Order 11246 (“EO 11246”), which previously required federal contractors and subcontractors of a certain size to implement certain nondiscrimination and affirmative action policies and programs. Under the new order, the nondiscrimination requirements of Executive Order 11246 and its affirmative action obligations regarding women and minorities are no longer operative. The executive order provides federal contractors and subcontractors 90 days to eliminate their affirmative action programs to the extent they are inconsistent with the executive order’s requirements. This means that federal contractors and their subs may voluntarily continue to follow the now-defunct affirmative action program requirements until April 21, 2025, at which time they may no longer consider race, color, sex, sexual preference, religion, or national origin in ways that violate federal non-discrimination laws. The new executive order further directs the Office of Federal Contract Compliance Programs (“OFCCP”) to cease current reviews or investigations concerning EO 11246.

One provision that was enjoined by the preliminary injunction would require each contractor and grant recipient to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination law,” and agree that its compliance with federal antidiscrimination laws is material to the government’s payment decisions, for purposes of the False Claims Act. False Claims Act enforcement and “any other enforcement action” under the executive order is also paused by the preliminary injunction, although the court declined to enjoin the Attorney General from investigating potential violations. In addition, the court opined that the term “illegal DEI” is vague and creates risk of arbitrary enforcement and chilled speech. If the injunction is reversed or modified in the future, employers should look for the Office of Federal Contract Compliance Programs (OFCCP) to provide guidance as to what is considered an illegal DEI program.

Notably, the new executive order does not supersede federal statute. Federal contractors are still required to comply with statutory affirmative action laws like the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA), which protects miliary veterans, and Section 503 of the Rehabilitation Act, which covers workers with disabilities. The executive order also does not impact statutory nondiscrimination requirements emanating from Title VII of the Civil Rights Act of 1964 and other federal, state, and local statutes.

Implications for All Private-Sector Employers

While the executive order primarily targets federal contractors, its impact is likely to ripple into the private sector as well. The new executive order requires the Attorney General to develop a report “to encourage the private sector to end illegal discrimination and preferences, including DEI” within 120 days. The District of Maryland declined to enjoin the Attorney General from preparing this report, which will contain a “plan of specific steps or measures to deter DEI programs or principles,” so employers should stay tuned. In the meantime, the importance of maintaining a merit-based system for hiring, promotion, and compensation will be paramount. Employers may need to revisit their DEI policies and practices to ensure they do not include racial, gender, or other diversity-related quotas or goals that could be construed as discriminatory under the new executive order.

In summary, regardless of the final results of related litigation, Trump’s new executive order will reshape how federal contractors and private sector employers approach their diversity and inclusion programs, and it’s essential for employers to understand the legal implications of its provisions.

Developments for South Carolina State Contractors

A pair of bills in the South Carolina General Assembly, similarly named the “Ending Illegal Discrimination and Restoring Merit-Based Opportunity Act,” would mirror President Trump’s federal efforts at the state level. If these bills in their current state are made into law, any employer receiving a contract from the state of South Carolina must “certify that they do not operate any programs that promote equity, diversity, and inclusion.” The bills would additionally require subcontractors to certify that they do not operate any programs promoting DEI before they may be hired by a contractor. The bill further includes prohibitions on state agencies from maintaining DEI offices, conducting training programs related to race and other protected characteristics, and hiring outside contractors to perform DEI work.

While these bills are not currently law, a majority of House members have signed on as sponsors, so employers should continue to monitor developments surrounding this legislation. Contractors working with the state of South Carolina should be prepared to take similar steps to federal contractors in adjusting current procedures to emphasize merit-based selection in hiring, promotion, and compensation.

As always, Wyche is here to assist employers navigate the new DEI legal landscape.