Federal Contractor Updates
New DEI Requirements for Federal Contractors
|
APPLIES TO Covered Federal Contractors and Subcontractors |
EFFECTIVE MAR 26, 2026 |
QUESTIONS? Contact HR On-Call |
Quick Look
|
Discussion
On March 26, 2026, President Trump signed Executive Order 14398 (EO) titled “Addressing DEI Discrimination by Federal Contractors,” requiring federal agencies to implement certain contract requirements with federal contractors and subcontractors within 30 days of the EO. Specifically, contractors must agree to the following in writing:
- Prohibition of Racially Discriminatory DEI. Not to engage in “racially discriminatory DEI activities,” meaning “disparate treatment based on race or ethnicity in the recruitment, employment (g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.”
- Records Access. To provide federal contracting agencies with access to employer records for purposes of ascertaining compliance with this requirement.
- Contract Termination. The federal contract may be terminated and the business may be barred from future federal contracts in the event of noncompliance.
- Self-Reporting. “The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency.”
- Derivative Claims. “The contractor will inform the contracting department or agency if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause.”
- Contractual Payments. These contract terms are “material” to the federal agency’s payment decisions.
Additionally, the federal government will identify economic sectors that pose a particular risk of employers 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 the order within such sectors. The Attorney General will also be reviewing contractual violations for potential prosecution under the False Claims Act. Federal regulations are expected to be updated in line with the EO’s requirements.
It is important to note that while the EO brings renewed attention to DEI practices, it is limited to federal contractors and subcontractors and the prohibited activity (i.e., disparate treatment based on race or ethnicity) is already prohibited by existing law. The primary change for covered employers will be changes to federal contracts and potential prosecution for violations. Employers should continue to review federal contracts with legal counsel and review employment practices for potential liability.
Action Items
- Review employment practices for compliance with the EO.
- Review federal contracts and subcontracts with legal counsel.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase