DOJ’s Use of False Claims Act to Challenge DEI Moves from Theory to Practice: What Businesses Need to Know

As 2025 drew to a close, the Wall Street Journal (WSJ) reported on December 28 that the U.S. Department of Justice (DOJ) is continuing to use the False Claims Act (FCA) to scrutinize diversity, equity, and inclusion (DEI) initiatives at major U.S. companies that do business with the federal government.

What You Need to Know:

• FCA Investigations Are Scrutinizing DEI Programs. DOJ is poised to aggressively use the FCA to investigate and pursue claims against private employers that contract with the government or seek government funding for allegedly maintaining “illegal” workplace DEI programs.
• Focus on DEI Program Implementation. DOJ is examining not just the policies but also how DEI programs are implemented and how they allocate benefits or burdens.

Continued Risks for Companies with DEI Programs

According to the WSJ article, DOJ is investigating well-known employers—including in the technology and telecommunications sectors—and demanding documents and information about workplace diversity programs tied to hiring and promotion decisions. The reported use of civil investigative demands (CIDs) in this context underscores that DOJ is treating these matters as potential fraud investigations, not merely policy disputes. Accordingly, companies with DEI initiatives, and particularly those that are government contractors, grantees, or other recipients of federal funds, should proceed carefully and deliberately.

The FCA and DEI Programs

Since January 20, 2025, Epstein Becker Green has written frequently about the administration’s unprecedented intent to use the FCA as an “antidiscrimination” tool. The FCA, enacted during the Civil War to prevent fraud on the government, is often used today to investigate, penalize, and deter allegedly false claims for payment, for instance, by health care entities billing Medicare, Medicaid, or other federal health care programs. But as the WSJ report notes, DOJ is now embracing a broader—and entirely novel—theory: that continuing certain DEI practices while holding a federal contract (or receiving federal funds) can be framed as fraud against the United States.

While courts have yet to endorse the FCA as a vehicle for penalizing DEI programs, several developments over the past 12 months have indicated that DOJ intends to pursue FCA investigations and claims against companies with allegedly “illegal” DEI programs, and that these efforts are being driven by politically appointed DOJ leadership rather than the more traditional qui tam (whistleblower) pipeline that often initiates FCA matters. The actions described below demonstrate how the administration has teed up this novel enforcement approach by characterizing certain DEI programs as “illegal,” even though they have never been characterized that way by any prior administration.

Executive Order 14173

On January 21, 2025, President Trump issued Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” designed to eliminate DEI policies and programs across the federal government and within companies that do business with the federal government (the “EO”). The EO revoked Executive Order 11246, which, since 1965, has mandated affirmative action in employment from government contractors and required implementation of affirmative action programs (AAPs).

As our colleagues wrote at the time, the EO encouraged the end of “illegal discrimination and preferences” in the private sector. In the FCA context, as we noted, it required agency heads to include the following in every contract or grant:

• a term requiring a contractual counterparty or grant recipient to certify that it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws, and
• a term requiring the contractual counterparty or grant recipient to agree that its compliance with federal discrimination laws is “material” to the government’s payment decisions for purposes of section 3729(b)(4) of the FCA.

Among other things, the FCA imposes liability on those who knowingly make, use, or cause to be made or used a false record or statement that is “material” to a false or fraudulent claim, or “material” to an obligation to pay or transmit money or property to the government.  

As we wrote in February, one actionable theory under the FCA—beyond the scenario where a company bills the government for products or services that were never provided—is “false certification,” when a party falsely certifies compliance with a required contractual provision, statute, regulation, or governmental program in connection with the submission of a claim. In false certification cases, noncompliance with applicable legal requirements must be “material” to the government’s payment decision—often a contested issue in FCA cases. DOJ’s recent framing also signals continued reliance on “implied false certification” theories, where a request for payment is alleged to carry an implicit representation of compliance with material requirements.

Challenges to the certification and materiality provisions of the EO erupted almost immediately, and on March 14, 2025, the U.S. Court of Appeals for the Fourth Circuit stayed a nationwide preliminary injunction pending appeal, allowing key provisions to take effect while the litigation proceeds.

The Bondi Memo and DOJ Guidance

On February 5, 2025, Attorney General Pamela Bondi issued a memorandum for all DOJ employees, stating that the agency’s “Civil Rights Division will investigate, eliminate, and penalize illegal DEI and DEIA [accessibility] preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.” The memo’s emphasis on “illegal” preferences is notable in practice because it focuses attention on how programs operate, not simply how they are described. For example, merely rebranding a program to eliminate the phrase “DEI” is unlikely to be sufficient to avoid scrutiny.

Subsequently, on March 19, 2025, DOJ and the Equal Employment Opportunity Commission announced new guidance materials addressing workplace DEI. DOJ’s press release regarding the joint effort quotes Deputy Attorney General Todd Blanche asserting that DOJ “is committed to ending illegal DEI initiatives, policies, and programs.”

The Civil Rights Fraud Initiative and Blanche Memo

On May 19, 2025, DOJ announced an initiative signaling that false certification of compliance with civil rights laws to obtain payment of federal funds would trigger treble damages and statutory penalties under the FCA. The WSJ similarly reported that Deputy Attorney General Blanche described the FCA as the “weapon” for pursuing entities that “continue to adhere” to unlawful discriminatory policies while receiving federal funds or holding federal contracts.

However, compliance with civil rights laws is being articulated through a more aggressive enforcement lens than many organizations have historically assumed, and a same-day memo issued by Blanche noted that FCA liability would attach when race, ethnicity, or national origin determines allocation of benefits or burdens. This formulation is likely to drive investigative focus toward decision points, including eligibility criteria, advancement pathways, scoring mechanisms, manager incentives, and other processes that can be characterized as allocating “benefits or burdens.”

The Shumate Memo

On June 11, 2025, Assistant Attorney General Brett Shumate pledged aggressive investigation and use of the FCA against “entities that receive federal funds but knowingly violate civil rights laws.”

The July 29 Guidance

While not expressly referencing the FCA, Bondi issued a memorandum on July 29, 2025 (the “July 29 Guidance”), clarifying “the application of federal antidiscrimination laws to programs or initiatives that may involve discriminatory practices, including those labeled [DEI] programs.”

For many recipients of federal funds and government contractors, the July 29 Guidance functions as a de facto enforcement roadmap, both for agency oversight and for FCA theories premised on false certification, “fraudulent inducement,” or similar misrepresentation-based theories.

The Materiality Requirement

These most recent discrimination investigations may face an uphill battle, as courts ultimately may not consider compliance with federal anti-discrimination laws as “material,” under the FCA, to the government’s decision to pay.

Even if federal contracts and grant awards contain a clause that such compliance is “material” to the contract, the U.S. Supreme Court has held in Universal Health Services, Inc. v. U.S. ex rel. Escobar that the materiality standard is “rigorous” and “demanding” because the FCA is not “a vehicle for punishing garden-variety breaches of contract or regulatory violations,” 579 U.S. 176, 194 (2016). Escobar explicitly states that “the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive.” Id. at 178.

In practice, “materiality” disputes often turn on real-world government behavior. For example, what did the agency know, when did it know, and whether payments continued. Continued payment in the face of actual knowledge can be powerful evidence against materiality, while termination, suspension, or other concrete adverse action can cut the other way. For contractors and grantees, that makes contemporaneous documentation—and careful handling of agency communications—especially consequential.

What Employers Should Do Now

As the WSJ report reflects, FCA investigations into allegedly “illegal” DEI programs are not limited to one industry, and companies are receiving demands for DEI-related documents and information. Private-sector employers contracting with the government or seeking government funds need to remain meticulous in reviewing the terms and conditions of those contracts and in reviewing their DEI programs.

In addition, employers should do the following:

• Promptly review any DEI/DEIA plans, programs, and policies, as well as AAPs, to determine whether they contain any aspects that could be deemed unlawful under Title VII of the Civil Rights Act of 1964 or any other federal, state, or local civil rights law. The July 29 Guidance provides a roadmap as to how DOJ and other federal agencies will interpret and apply existing federal anti-discrimination laws when assessing enforcement and liability. Targeted programs could include utilizing quotas, granting preferential treatment based on protected characteristics, or facilitating programs or activities where access is restricted based on race, sex, or any other protected category.
• Consider whether to take any action to modify DEI/DEIA plans, programs, or policies, as well as AAPs, in consultation with employment counsel.
• Assess how DEI concepts are operationalized in practice, not just how policies are titled. In FCA investigations, DOJ can be expected to look past labels and focus on whether a program allocates benefits or burdens based on protected characteristics (e.g., eligibility gates, scoring rubrics, targets treated as de facto quotas, promotion panels, manager compensation tie-ins, or “priority” pathways).
• Review internal reporting procedures, particularly for concerns raised about DEI initiatives, because employees who perceive noncompliance may later surface as FCA whistleblowers incentivized to file qui tam actions.
• Bear in mind that even before DOJ files a complaint, a CID can impose significant cost and business disruption. A prompt, structured response is essential: institute a tailored litigation hold, identify custodians and data sources, and safeguard privilege through counsel-directed fact development. Early assessment is also critical to align document collection, messaging to agencies, and internal communications under a coherent theory of compliance.

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For additional information about the issues discussed in this Insight, or if you have questions, would like assistance reviewing your DEI initiatives, or receive a request for information from DOJ, including a CID, please contact the attorney(s) listed on this page or the Epstein Becker Green attorney who regularly handles your legal matters.

Epstein Becker Green Staff Attorneys Ann W. Parks and Elizabeth A. Ledkovsky contributed to the preparation of this Insight.