As explained in a prior blog post, on January 21, 2025, President Trump signed Executive Order 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”) (the “EO”), establishing new requirements for federal contractors and grant recipients to agree that their compliance with federal anti-discrimination laws is “material to the government’s payment decisions” for purposes of the False Claims Act (“FCA”) and to certify that they do not operate any “programs promoting DEI that violate any applicable Federal anti-discrimination laws.”  On February 21, a federal judge in the District of Maryland granted a preliminary injunction to block these and other portions of the EO, including potential FCA enforcement actions based on the certification provision, as well as a provision of Executive Order 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”).

The preliminary injunction was short-lived:  On March 14, a three-judge panel of the Fourth Circuit Court of Appeals issued a stay of the preliminary injunction.  With respect to EO 14173, the stay means that agencies may now require federal contractors and federal grant recipients to certify that they do not “operate any programs promoting DEI that violate any applicable federal anti-discrimination laws,” and the U.S. government may also bring FCA enforcement actions against federal contractors and grant recipients that allegedly make a false certification.  In addition, agencies are again permitted, under the terms of EO 14151, to terminate all “equity-related” grants or contracts, though grants may not be terminated “based on a grantee’s speech or activities outside the scope of the funded activities.”

In terms of practical considerations, two of the three judges on the Fourth Circuit panel emphasized that their opinion was based on their interpretation that the EO does not “purport to establish the illegality of all efforts to advance diversity, equity or inclusion” and that the “Certification” and “Enforcement Threat” provisions of the EO apply “only to conduct that violates existing federal anti-discrimination law” [emphasis added].  Those judges cautioned that “[w]hat the Orders say on their face and how they are enforced are two different things.  Agency enforcement actions that go beyond the Orders’ narrow scope may well raise serious First Amendment and Due Process concerns . . .”

In practice, this means that only those agency enforcement actions challenging DEI programs that clearly violate existing federal antidiscrimination law (mainly Title VII of the Civil Rights Act of 1964 and Section 1981 of the Civil Rights Act of 1866 (42 U.S.C. § 1981)) would likely fall within the bounds of what the Fourth Circuit would deem appropriate under the EO, and this should provide some assistance to entities required to make these certifications.  However, it is likely that the U.S. government may still pursue enforcement actions against companies that have DEI practices that the administration disfavors, even if those practices do not violate existing interpretations of Title VII and Section 1981.

The Fourth Circuit’s March 14 opinion contemplates an “expedited briefing” schedule.  While the schedule will ultimately be up to the parties, it is likely that briefing will occur over approximately the next six weeks with an argument likely to be set for May.