Following his inauguration on January 20, President Trump signed a slew of executive orders, including a handful related to Diversity, Equity, and Inclusion (DEI) initiatives.

On January 21, President Trump signed an executive order (EO) entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (DEI EO), which aims to end DEI preferences in both the public and the private sectors, including nonprofits. Section 4 of the DEI EO tasks all federal agency heads with “encouraging” private sector companies to end DEI preferences, in part by threatening legal action against them.

Executive orders[1] are directives from the President and have the force of law. Because they are not legislation, they do not require approval from Congress, and Congress cannot directly overturn them, though it does have ways to affect their implementation. And, affected parties can challenge executive orders in court.

The DEI EO, taken together with the US Supreme Court’s ruling in Students for Fair Admissions v. President and Fellows of Harvard College, which found that Harvard University’s and the University of North Carolina’s race-based admissions systems violated the equal protection clause of the 14th amendment, may portend an end to private sector and nonprofit DEI programming and initiatives as we have come to know them. Even if the DEI EO is successfully challenged, employers in the public and private sectors should be prepared for increased scrutiny of any DEI initiatives and programming.

An Overview of the Executive Order

The DEI EO begins with the premise that longstanding civil rights laws designed to protect against discrimination have been used by institutions to adopt “dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA)” which could violate those laws. According to the executive order, these actions “diminis[h] the importance of individual merit, aptitude, hard work, and determination when selecting people for jobs and services…”

The executive order mandates the following at the federal government level:

• The termination of all “discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” in any executive department or agency.
• The revocation of five executive orders from 1965, 1994, 2011, 2014 and 2016[2] focused on equal employment opportunities and promotion of diversity for the federal government and federal contractors.
• That the Office of Federal Contract Compliance Programs (OFCCP) within the US Department of Labor immediately cease (1) promoting diversity, (2) holding federal contractors or subcontractors responsible for affirmative action, and (3) allowing workforce balancing based on race, color, sex, sexual preference, religion, or national origin.

The executive order also provides the following with respect to private sector employers:

• The heads of all federal agencies must take action to advance in the private sector “the policy of individual initiative, excellence, and hard work.”
• Most notably, within 120 days, the US Attorney General, in consultation with the heads of relevant agencies and in coordination with the Director of the Office of Management and Budget (OMB), must submit a report containing “recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” The report should contain a proposed strategic enforcement plan identifying: “(1) key sectors of concern within each agency’s jurisdiction; (2) the most egregious and discriminatory DEI practitioners in each sector of concern; (3) a plan of specific steps or measures to deter DEI “programs or principles” (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences.

  As part of this plan, each agency is required to identify up to nine potential civil compliance investigations of:

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  • Publicly traded corporations.
  • Large nonprofit corporations or associations.
  • Foundations with assets of $500 million or more.
  • State and local bar and medical associations.
  • Institutions of higher education with endowments over $1 billion.
     
• In addition, within 120 days, the Attorney General and the US Secretary of Education must jointly issue guidance to all state and local educational agencies that receive federal funds, as well as all institutions of higher education that receive federal grants or participate in the federal student loan assistance program regarding the measures and practices required to comply with the principles set forth in the Supreme Court’s Students for Fair Admissions decision.

What Should Private Sector Employers (Including Nonprofits) Do Now?

The executive order raises significant questions regarding private sector use of DEI preferences and even calls into question the ability of a company to sustain or encourage an internal culture that celebrates or seeks out diversity. Because the executive order does not define “illegal discrimination or preferences,” it can be difficult to determine whether a specific practice is likely to be the target of negative government attention.

Notably, nothing in the executive order suggests that employers may not take action to seek out a diverse candidate pool, so long as ultimate hiring decisions are based on qualifications alone and do not involve illegal preferences. Therefore, to lower the risk of enforcement action by the federal government, private sector employers (including nonprofit organizations) may choose to recruit across a broader spectrum and prioritize seeking out a wide range of diverse characteristics, rather than just focusing on protected characteristics like race or sex.

At a minimum, employers who fall into one or more of the five categories to be scrutinized for potential civil compliance investigations may wish to assess their risk-tolerance and consider whether suspending affirmative action plans or DEI initiatives is in line with their company’s priorities. But, even for employers who are not the target of civil compliance investigations, these executive orders may embolden employees and applicants who feel they have been mistreated as a result of diversity initiatives to bring private claims of discrimination against their employers.

What Should Government Contractors Do Now?

Significantly, the DEI EO’s revocation of Executive Order 11246, first issued in 1965 (one year after President Johnson signed the Civil Rights Act of 1964) (EO 11246) reflects a sea change in the affirmative action obligations of government contractors. Under EO 11246, federal contractors were required to analyze workforce data and engage in good faith efforts to provide equal employment opportunities for women and minorities, but they were not required to apply quotas or preferences for those groups. President Trump’s revocation of this longstanding requirement potentially eliminates entirely the requirements that government contractors develop and certify annually their affirmative action plans.

The DEI EO permits federal contractors to operate under current rules for 90 days while they await further guidance from the government on new requirements. We anticipate that private plaintiffs will be exploring their options in terms of legal remedies in response to the revocation.

Potential Implications for Nonprofits Beyond Employment Matters

DEI principles are integral, and in some cases central, to the mission of many nonprofits. The DEI EO is drafted broadly and could encompass programmatic activities in addition to employment-related or contractual matters. As a result, while some organizations may be more risk averse and may elect to change or terminate certain programs, other organizations may decide to stay the course and continue to pursue programs that could draw the attention of the Administration, Attorney General, or relevant agencies. The decision will depend in part on the organization’s specific priorities and level of risk aversion. If an organization ultimately seeks to terminate programs or make fundamental changes to their mission, there may be other legal impediments that could arise under the federal tax law and state nonprofit laws, particularly those that apply to charitable organizations.