Another DEI Executive Order: What It Means for Employers

On March 26, 2026, President Trump signed an EO titled “Addressing DEI Discrimination by Federal Contractors” (EO 14398), aimed at curbing DEI programming by employers that contract with the federal government.

EO 14398 is the latest in a series of federal actions to specifically address private employers in the administration’s ongoing effort to scrub DEI activities—which the EO describes as “unethical and often illegal”—from U.S. workplaces. Based on a “Fact Sheet” posted by the White House, this is at least the 10th executive action addressing DEI since January 20, 2025.

What EO 14398 Says

New Language Required in Federal Contracts

Among other things, EO 14398 requires that, by April 25, 2026, all federal contracts include a new clause with language indicating a contractor’s consent to six requirements. This mandatory clause is also required for federal contractors’ subcontracts and their subcontractors’ subcontracts. Under this directive, federal contractors and subcontractors will need to agree to:

1. not engage in any “racially discriminatory DEI activities,” defined as “disparate treatment based on race or ethnicity in the recruitment, employment …, contracting…, program participation,[1] or allocation or deployment of an entity’s resources”;
2. furnish any information and provide access to books, records, and accounts, as required by the federal government to ascertain compliance with EO 14398;
3. accept the cancellation, termination, or suspension of the contract if the contractor or a subcontractor is found to be noncompliant;
4. report any subcontractor’s known (“or reasonably knowable”) DEI-related violations to the contracting federal agency and implement any follow-up actions as directed by the federal government;
5. inform the government if any subcontractor lawsuit challenges the validity of the mandatory clause; and
6. assent to the applicability of the False Claims Act as a means of enforcement for compliance.

Directives for Federal Agencies

EO 14398 directs the Office of Management and Budget and the Federal Acquisition Regulatory Council to issue new guidance for compliance. It also requires all federal agencies to cancel, terminate, or suspend any contracts that do not comply with the above-described requirements.

Significantly, the EO also urges agencies to pursue “appropriate action to suspend and debar” any contractors or subcontractors that fail to comply. As noted in a U.S. Small Business Administration regulatory alert, this means that a contractor or subcontractor may be declared ineligible for further government contracts.

In addition, EO 14398 directs senior administration officials, including the Attorney General and the Chair of the Equal Employment Opportunity Commission, to “identify economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI activities based on current or past conduct and issue additional guidance to contracting agencies regarding best practices to ensure compliance with this order within such sectors.” It further directs the Attorney General to consider actions under the False Claims Act when contractors violate the newly required contract clauses, and to promptly review False Claims Act actions filed by private individuals. Agency heads are required to provide a compliance report to Vince Haley, the Assistant to the President for Domestic Policy, by July 24, 2026.

Implications and Uncertainties

While EO 14398 creates a 30-day timeline to add the newly mandated clause to federal contracts and subcontracts, it does not state whether existing contracts must be modified to comply.

EO 14398 is consistent with other EOs and federal policies banning what the federal government perceives as “racially discriminatory DEI activities,” including EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” signed in January 2025, which applies to federal contractors (and grantees).

EO 14398 expressly states that “some entities continue to engage in DEI activities and often attempt to conceal their efforts to do so,” and it appears to ramp up potential enforcement, not only by requiring the new mandatory clause regarding racially discriminatory DEI activities, but also by focusing on the repercussions for violations.

The specter of using the False Claims Act to push back against DEI in the private sector has been looming since the U.S. Department of Justice announced a new Civil Rights Fraud Initiative in May 2025. EO 14398’s express inclusion of the additional threat of debarment—an action federal agencies can take to prevent entities from receiving any new contracts, typically for three years—indicates that the administration is expanding its penalty options.

What Federal Contractors Should Do Now

The phrase “racially discriminatory DEI activities” may be subject to interpretation, raising a compliance concern for federal contractors and subcontractors. Federal contractors and subcontractors should immediately undertake the following concrete steps in response to EO 14398, especially if they are in the process of procuring new work in the coming weeks, when the requirements are expected to be added to new agreements:

• Conduct an earnest review of policies, practices, and procedures to ensure compliance with EO 14398, as with all other federal mandates.
• Be mindful of other, broader DEI federal mandates, such as EO 14173. While EO 14398 addresses race and ethnicity, EO 14173 targets “the employment, procurement, and contracting practices of Federal contractors and subcontractors” in the context of “race, color, sex, sexual preference, religion, or national origin” (emphasis added).
• If DEI remains a core mission or value of your company that contracts (or subcontracts) with the federal government, stay informed about changes in the law related to DEI and remain “a step ahead” of any federal DEI investigation or enforcement action under Title VII of the Civil Rights Act of 1964, the False Claims Act, or any other federal law to avoid the repercussions referenced in EO 14398.
• Take affirmative steps to ensure that contracts, programs, and workforce policies related to recruitment, hiring, promotions, advancement opportunities, or other conditions of employment comply with the U.S. Constitution, as well as federal, state, county, and local laws that prohibit discrimination.
• Stay abreast of the promulgation of new DEI-related rules. For example, the General Services Administration has also proposed a rule that would require federal recipients of aid to essentially certify that their DEI programs do not discriminate.

****

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

Staff Attorney Elizabeth A. Ledkovsky assisted with the preparation of this Insight.

ENDNOTE

[1] The term “program participation” is further defined as “membership or participation in, or access or admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities….”