Understanding and Managing Legal Risk in Corporate DEI

Rapid legal developments in the US related to diversity, equity & inclusion (DEI) practices, programs, and policies require continuous monitoring to ensure companies have accurate, up-to-date information regarding compliance and evolving regulatory standards. As the legal landscape develops in this area, companies are identifying and evaluating the specifics of their existing programs to determine compliance with state and federal law, as well as overall program effectiveness. While “illegal DEI” remains undefined by the new administration, recent developments have provided some direction useful to the private sector.

This report compliments our February 2025 essay Navigating Legal Risk In Corporate DEI.

Key Insights

• Companies should harmonize regulatory and legal compliance with their broader inclusive workplace culture objectives. The ability to swiftly adapt to legal changes, proactively manage risk, and engage in transparent communication will be critical to sustaining lawful workplace programs while reaffirming a commitment to equal opportunity, merit, and access.
• Conduct scenario planning to ensure your leadership team is aware of developments and your communications strategy considers alternative outcomes. Engage with legal counsel and other resources to gain a broader perspective on applicable legal principles and evolving interpretations. Regular attorney–client privileged audits can strengthen organizational resilience against legal scrutiny.
• Ensure that employees and other key stakeholders understand the organization’s commitment to creating and maintaining a culture of fairness and inclusion. Provide employees with timely updates on any changes to existing workplace policies.

Executive Orders

Since the implementation of three Executive Orders (EOs) related to DEI, there have been a number of legal challenges to some provisions of the orders.[1] It is important to note that EO 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”) is the only DEI-related EO to directly impact federal contractors, grantees, and private employers.

The DEI-related EOs that have come into force since January 20, 2025: EO 14148 (“Initial Rescissions of Harmful Executive Orders and Actions”) EO 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”) EO 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”)

On February 21, 2025, a Maryland District Court preliminarily enjoined (prohibited) two key provisions of EO 14173: the Certification Provision of Section 3 and Enforcement Threat Provision of Section 4. [2] The court found that it is likely that the terms “illegal DEI” and “equity related” will be found unconstitutionally vague without further definition by the administration.

For the time being, there continues to be no affirmative action obligations under the now-rescinded EO 11246, the “Equal Employment Opportunity” order, which required federal contractors to ensure equal employment opportunities. As a result of the Maryland preliminary injunction, federal contractors and grantees are not required to include certifications in their grants and contracts and will not face immediate enforcement actions. Attorney General Pam Bondi is still proceeding with the preparation of a strategic enforcement plan. The administration has filed an appeal of the nationwide preliminary injunction in the Fourth Circuit of Appeals. It is unlikely there will be a decision on the appeal before June 2025.

Despite the absence of clear definitions on what the administration considers to be “illegal DEI,” certain actions by federal agencies and state attorneys general have provided insights regarding various employment policies and practices that fall under that category.[3] For example, Attorney General Pam Bondi’s memoranda regarding DEI emphasizes that programs, initiatives, or policies that discriminate, exclude, or divide individuals based on race or sex violate federal antidiscrimination laws and will be investigated, signaling heightened enforcement risks. The Office of Personnel Management’s memo providing further guidance regarding ending DEI offices, programs, and initiatives includes guidance that lawful employee resource groups and special emphasis programs should be open to all employees. Acting Chair of the Equal Employment Opportunity Commission Andrea Lucas warned of the legal risks of screening employees for a “commitment to diversity,” “diverse backgrounds,” or “diverse perspectives,” especially if applicants are encouraged to disclose their race.

Based on the federal agency memoranda, guidance, and public statements, as well as litigation developments cited in endnote three, equal treatment under the law means:

1. Avoiding identity-based considerations in employment decisions (recruitment, hiring, promotion, retention, and separation), procurement, and contracting;
2. Closely reviewing statistical disparities, as the disparities alone do not automatically constitute unlawful discrimination;
3. Equal dignity and respect for all;
4. Rewarding individual excellence;
5. Creating workplaces focused on merit-based equal employment opportunity; and
6. Fulfilling obligations related to disability accessibility, accommodations, and other programs that are not contrary to the Rehabilitation Act of 1973 or the Civil Rights Act of 1964.

Public attention remains focused on the issue of members of majority groups challenging employment decisions and practices as a result of the recent oral argument before the Supreme Court in the workplace discrimination case Ames v. Ohio Department of Youth Services. In that case, a straight white woman claimed she was discriminated against when a job she applied for went to a gay man instead. The decision will resolve a split in the circuit courts of appeal on the standard of proof (currently higher) required by a member of a majority group (e.g. white, male, heterosexual, etc.) to prove a violation of Title VII.

Monitor Government Actions and Guidance, and Court Developments to Keep Your Workplace Policies and Programs Compliant

The Department of Labor (DOL) and Department of Justice (DOJ) have received requests to investigate corporate DEI practices, alleging that certain initiatives violate antidiscrimination laws. In February, the group America First Legal wrote to the DOL urging the department to investigate federal contractors for prohibited discrimination, emphasizing that all race- and sex-based employment practices are unlawful. The organization’s alleged instances of prohibited discrimination were present in at least eight federal contractors named in its letter.

The public interest law firm Wisconsin Institute for Law & Liberty (WILL) sent two investigation request letters to Attorney General Bondi in February alleging race discrimination in government contracting programs at the Wisconsin Department of Administration (DOA) and the New York Department of Economic Development (DED). WILL alleges that the Wisconsin DOA’s Supplier Diversity Program and the New York DED’s Minority and Women-Owned Business Enterprise Program constitute discrimination on the basis of race. The letters request that the DOJ open formal investigations into these programs, alleging that they violate Title VI.

This summer, the Supreme Court is expected to rule on the Ames case. Should the court rule in the plantiff’s favor, the higher bar set by some courts that adversely impacts a member of a majority group who makes workplace discrimination claims will end. This could potentially lead to greater scrutiny of, and more lawsuits challenging, employer hiring and promotion decisions.

As businesses navigate the evolving landscape, they should align compliance with broader inclusive workplace culture objectives. By maintaining robust compliance protocols, proactively adapting to legal developments, and consulting with legal professionals, businesses can effectively navigate this evolving landscape and sustain lawful, inclusive workplace programs while reaffirming their commitment to equal opportunity, merit, and access. Figure 1 provides a consolidated look into 16 state attorneys generals’ statements on what constitutes legal diversity-related initiatives.

Source: The Conference Board, 2025

Regular audits and third-party reviews can strengthen organizational resilience against legal scrutiny. Workplace programs should be developed and implemented in accordance with well-established antidiscrimination legal frameworks.

By proactively identifying areas of legal vulnerability and ensuring equal opportunity for all, businesses can safeguard their values and commitments to inclusive workplaces while minimizing legal exposure. Examples of such actions include:

• Prioritizing equal opportunity rather than implementing race- or gender-based preferences.
• Clearly documenting the business case for initiatives to demonstrate lawful and objective justifications.
• Ensuring state and local legal requirements are also considered, as some jurisdictions may impose additional compliance obligations.
• Defining otherwise undefined and ambiguous terms that the administration identified as potentially suspect, including “diversity,” “equity,” “inclusion,” and “DEI.” Providing meaning to these terms will decrease the risk that third parties attach unintended meanings to them.
• Reviewing relevant training materials to ensure they do not ask employees to accept specific viewpoints or contain personal attacks.
• Reviewing recruitment, sourcing, hiring, promotion, retention, and separation practices to ensure employment decisions are not made based on any protected characteristic.
• Closely examining public-facing equal opportunity commitments to ensure legal compliance
• Conducting a legal review to confirm that an employee’s race or sex does not impact the company’s decision-making with respect to various benefits of employment, such as attendance at outside seminars and events, travel allowances, and client and customer assignments.
• Eliminating quota-based initiatives that could be construed as discriminatory under federal law.
• Ensuring that all educational, cultural, and historical observances; affinity group meetings; and events that celebrate diversity and promote awareness do not restrict attendance (explicitly or functionally) and do not separate participants during events based on protected characteristics.

Structuring initiatives to enhance fair opportunity and access around sound legal principles will foster inclusive workplaces while ensuring legal compliance. Businesses should also consider evolving internal policies and employee handbooks in concert with rapidly changing legal developments in this area.

This article is based on corporate disclosure data from The Conference Board Benchmarking platform, powered by ESGAUGE.

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1See National Association of Diversity Officers in Higher Education et al. v. Trump et al., D. Md., Case No. 25-cv-00333; Shapiro et al. v. U.S. Department of the Interior et al., E.D. Pa., Case No. 25-cv-763; Does v. Office of the Director of National Intelligence et al., E.D. Va., Case No. 25-cv-00300; National Urban League et al. v. Trump et al., D.D.C., Case No. 25-cv-00471; San Francisco AIDS Foundation et al. v. Trump et al., D.D.C., Case No. 25-cv-1824; Chicago Women in Trades v. Trump et al., N.D. Ill., Case No. 25-cv-02005; and American Association of Colleges for Teacher Education v. Carter, D. Md., Case No. 25-cv-00702. This list is current as of March 11, 2025.(go back)

2The Section 3 Certification Provision mandates that federal agencies include certifications in all contracts and grants confirming compliance with federal antidiscrimination laws and affirming that they do not operate DEI programs that violate these laws. The Section 4 Enforcement Threat Provision directs the attorney general to take measures to deter illegal discrimination and preferences, including DEI programs, through potential civil compliance investigations.(go back)

3See Attorney General Pam Bondi’s February 5, 2025 memoranda, Ending Illegal DEI and DEIA Discrimination and Preferences and Eliminating Internal Discriminatory Practices; Acting Head of the Office of Personnel Management Chuck Ezell’s February 5, 2025 memorandum, Further Guidance Regarding Ending DEIA Offices, Programs and Initiatives; Acting Chair of the Equal Employment Opportunity Commission Andrea Lucas’ February 11, 2025 post on X regarding legal risks of screening employees for a “commitment to diversity;” Federal Campaign Commission Chairman Brendan Carr’s February 11, 2025 letter to Comcast Corporation, Comcast and NBCUniversal’s Promotion of DEI; 16 state attorneys general February 13, 2025 guidance, Multi-State Guidance Concerning DEI and Accessibility Employment Initiatives; the Department of Education’s March 1, 2025 FAQ, Frequently Asked Questions About Racial Preferences and Stereotypes Under Title VI of the Civil Rights Act; Attorney General Bondi’s March 4, 2025 move to intervene in a lawsuit against Illinois for requiring nonprofits to publicly post-race-based data; and President Donald Trump’s March 6, 2025 Executive Order 14230: Addressing Risks from Perkins Coie LLP.(go back)