Introduction

Following a flurry of executive orders signed by President Trump, private employers are reevaluating their diversity, equity, and inclusion (DEI) initiatives to make important decisions on these programs’ future existence and direction. Companies with DEI policies may be subjected to increased scrutiny and possible legal challenges under this new administration. Similarly, eliminating DEI programs could be perceived as abandoning important commitments to employees and undermining the company’s culture. Some private employers will decide to forge ahead with their lawful programs while some companies decide to pull back. Other private employers may take a middle-ground approach and rewrite and retool diversity policies. Regardless of your company’s approach, there are significant legal considerations and risks, and it is critical to ensure that all policies comply with state and federal laws as they evolve. 

How Does President Trump’s Executive Order Impact Private-Sector DEI Programs?

On January 21, 2025, President Trump signed an executive order (EO) titled Ending Illegal Discrimination and Restoring Merit-Based Opportunity. In addition to eliminating some affirmative action obligations for federal contractors for women and minorities, the EO states the Trump administration’s view that certain DEI programs and policies may violate federal civil rights law by unlawfully discriminating against individuals based on protected characteristics. The EO encourages private employers to focus on “individual merit, aptitude, hard work, and determination” when selecting people for jobs. The EO does not, however, provide any guidance on what makes a DEI program illegal and does not impose any new obligations or requirements. This EO excludes certain statutory obligations such as federal contractor or private-sector employment preferences for veterans from coverage.

With the assistance of the U.S. Attorney General, the EO tasks the heads of all agencies to “enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” Within 120 days of the EO, by May 21, 2025, the Attorney General shall submit a report containing recommendations for “enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” The report shall contain strategies to deter “illegal” DEI programs and propose appropriate litigation. All agencies are also tasked with identifying potential targets for civil investigations. Although the EO does not specify what makes a DEI policy “illegal,” it is clear that this administration will pursue new enforcement priorities and advance different interpretations of existing laws. In addition, because federal contractors are going to be required to certify that they are in full compliance with applicable laws, and contracts must excise references to DEI and DEIA “principles,” federal contractors and grant recipients could face significant liability for future non-compliance under the False Claims Act.

Has Federal Law Changed for Private-Sector Employers?

Simply, no. Notwithstanding the EO, federal law remains unchanged. Private-sector employers can implement lawful DEI programs if they comply with existing laws such as Title VII of the Civil Rights Act of 1964 and applicable state laws. Under Title VII, employers cannot discriminate or retaliate against employees or applicants on the basis of race, color, religion, sex, or national origin. This prohibition includes making hiring decisions based on race, color, sex, or national origin. Similarly, for educational institutions that receive federal funding, Title IX remains in place and specifically prohibits sex discrimination. Moreover, some companies or institutions may have agreed to DEI policies as part of Conciliation Agreements, Consent Decrees, or other agreements to settle claims of widespread discrimination and to cure past discriminatory behavior.

These legal frameworks remain in place. But the control over the federal agencies that enforce these laws and their enforcement priorities has, no doubt, changed. Under the Trump administration, employers are more likely to have DEI policies scrutinized for compliance and potentially be sued for reverse discrimination. Employers that are backing away from or decommissioning their DEI programs are not without risk, as they could face claims from diverse employees who believe that their interests are not being considered or protected.

What About State Law?

As one might expect, states have taken very different approaches to the enforcement of state law in this area. In the days following the EO, certain Republican state attorney generals (AGs) issued a letter targeting the DEI practices of major financial institutions. On January 23, 2025, the Texas AG and nine other state AGs¹ threatened to sue these same financial institutions if they did not address questions regarding their DEI and environmental programs. Specifically, the letter states that the institutions “appear to have embraced race- and sex-based quotas and to have made business and investment decisions based not on maximizing shareholder and asset value, but in the furtherance of political agendas.”

On the other side of the spectrum, other certain Democratic state AGs are threatening legal action against companies that have decided to pull back their DEI initiatives. On January 9, 2025, the Illinois AG and 12 other state AGs² sent a letter to Walmart regarding its decision to “step away from its commitments to diversity, equity, and inclusion” by phasing out specific diversity programs and training. The letter points out that state and federal laws “require that employers take necessary steps to address practices that are purposefully designed to discriminate as well as those that have a discriminatory effect.” Further, the Democratic state AGs argue that “[i]nitiatives and programs designed to prevent discrimination and to remedy the impact of past discrimination, including those designated as DEI, are not just good policy, but in many cases, are necessary to comply with the law.” 

Don’t Forget About Public Reactions and Potential Fallout.

Beyond legal compliance, companies must consider the practical and political implications of their DEI decisions. Regardless of your company’s stance, you should expect reactions and possible fallout from core constituencies like employees, customers, and business partners. Some companies may pull back DEI programs due to pressure campaigns, including threats to boycott, sue, or picket. However, discontinuing DEI programs may result in the same type of campaigns. Decisions made by high-profile companies are receiving significant media attention, and several have come out stating they are ending DEI programs. Others have reiterated their commitment to maintaining DEI policies. As these companies have found, there is political backlash regardless of stance. Therefore, it is up to each company to decide what is best.

What Steps Should Private-Sector Employers Consider Taking Now?

There is no cookie cutter answer to this question. Every organization is unique, with a different employee culture and sensitivity to third-party and government pressure. Regardless of what is “right” for your business, we have identified below the legal and practical issues to be considered in making this critical decision on the future of your company’s DEI program. Seriously consider consulting with legal counsel on your plans to ensure ongoing compliance.

Option 1 – To Maintain A Lawful and Robust DEI Program Consider the Following:

• Risk Assessment. Evaluate the company’s risk tolerance and appetite for potential legal challenges.
• Legal Review: Conduct a thorough review of all DEI policies and programs to ensure they comply with Title VII, Title IX as may be applicable, and any applicable state laws.
• Documentation: Meticulously document all DEI initiatives, including their purpose, design, implementation, and outcomes. This documentation will be crucial in defending against any legal challenges.
• Transparency: Communicate the company’s commitment to lawful DEI initiatives and the legality of its programs to employees, stakeholders, and the public, along with the reasons for this stance.
• Training: Review training materials to ensure they are lawful, effective, and consistent with company values without being unnecessarily divisive or political. 
• Monitoring: Continuously monitor DEI programs for effectiveness and adjust as needed to ensure they achieve their intended goals without discriminatory impact.

Option 2 – To Pursue A Moderate Position and Retool Your DEI Program Consider the Following:

• Risk Assessment: Evaluate the company’s risk tolerance and appetite for potential legal challenges.
• Legal Review: Review all existing DEI policies and programs to determine what aspects the company wishes to retain, and ensure that they comply with applicable federal and state laws.
• Policy Revision: DEI policies, programs, and training may be revised to focus on equal employment opportunity and applying a broad definition of diversity to include skills, capacities, and experience while ensuring compliance with anti-discrimination laws.
• Emphasis on Inclusion: Consider shifting the emphasis from specific demographic employee populations to fostering a culture of inclusion and belonging for all employees.
• Data Analysis: Analyze workforce demographics and identify areas where diversity may be lacking but avoid setting quotas or targets based on protected characteristics.
• Review Incentives: Analyze financial incentives or other rewards for achieving diversity targets to ensure they are not unduly restrictive or viewed as de facto quotas.
• Stakeholder Engagement: Engage with employees, employee resource groups, and community partners to gather feedback and ensure DEI initiatives are aligned with the company’s values and goals.

Option 3 – To Reduce DEI Efforts as Permitted by Law Consider the Following:

• Legal Review: Conduct a comprehensive legal review to identify any DEI initiatives that may pose a higher risk of legal challenge under the current administration.
• Phased Approach: Consider a phased approach to scaling back DEI efforts, starting with initiatives that are most vulnerable to legal scrutiny.
• Consider Your Rationale: Be prepared to justify the reasons for any changes to DEI programs.
• Communication: Communicate any changes to DEI policies and programs to employees, explaining the rationale behind the decisions.
• Alternative Initiatives: Explore alternative initiatives that promote a positive and inclusive workplace culture without focusing specifically on DEI metrics.

Additional Considerations for All Options

• State Laws: Pay close attention to state laws and enforcement priorities, as these may differ significantly from federal regulations. 
• Public Relations: Develop a communication strategy to address potential public reactions and media inquiries regarding any changes to DEI initiatives.
• Employee Morale: When making changes to DEI programs, consider the potential impact on employee morale and engagement.