Affirmative Action and I&D: Compliance Changes Offer Opportunities

In the wake of recent executive orders (EOs) from President Donald Trump, federal contractors are facing significant inclusion and diversity (I&D) compliance challenges. These orders called for the elimination of “illegal” and “discriminatory” programs within organizations that contract with the federal government. Private companies also need to consider their own compliance challenges after over a dozen memos from Attorney General Pam Bondi were shared with staff at the Department of Justice (DOJ). One memo requires the DOJ’s Civil Rights Division and Office of Legal Policy  to provide a report with “recommendations” to “encourage the private sector to end illegal discrimination and preferences, including policies relating to DEI [diversity, equity, and inclusion] and DEIA [diversity, equity, inclusion, and accessibility].”

While there may be additional guidance through legislation or court decisions, HR leaders can act now to ensure their organizational culture upholds I&D while adhering to current compliance actions.

SHRM recently hosted a webcast addressing the challenges facing federal contractors managing affirmative action and other programs that fall under the EOs. The issues of equal opportunity and equity for individuals and organizations “have impact far beyond the formal definitions and boundaries of affirmative action,” said SHRM Chief Commercial Officer Nick Schacht, SHRM-SCP, who moderated the webcast featuring a panel of top experts.

The discussion tackled not only the broader impact of these EOs, but also the nuances of specific programs and agreements that may fall under their purview.

Breaking Down the Executive Orders

One of the largest impacts comes from Executive Order 14173 that rescinds EO 11246, which was signed in 1965 by then-President Lyndon B. Johnson and required federal contractors to practice affirmative action based on race and gender. EO 14173 follows the 2023 U.S. Supreme Court decision in Students for Fair Admissions v. Harvard, which struck down race-based affirmative action programs in college admissions. The new EO’s impact, according to the panelists, falls directly on the programs and practices that complied with the earlier EO’s affirmative action requirement, as well as the employees involved in that compliance. The second Trump order, Executive Order 14151 , dissolves DEI programs, including training and performance requirements.

Trump’s orders also lay out new compliance requirements for federal contractors. Specifically, for federal contractors to remain certified, they must now include proof of compliance. The text of EO 14173 instructs each agency head to require federal contractors to certify their “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions ...” and that they do not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”

This EO also calls for stronger enforcement mechanisms for compliance. It requests a report from the attorney general, in conference with agency heads and the director of the Office of Management and Budget (OMB), with “recommendations for enforcing Federal civil-rights laws.” Added to that is a request for measures to encourage the private sector to “end illegal discrimination and preferences, including DEI.” While specific guidance on enforcement is forthcoming, federal contractors should remain aware of updates from the identified parties mentioned above.

There are also new reporting obligations for agency, department, and commission heads to provide the OMB director with a list of “[f]ederal contractors who have provided DEI training or DEI training materials to agency or department employees.” Panelist Martina Bradford, founder and CEO of Palladian Hill Strategies, noted that some private companies have updated the language around DEI in annual reports and their Form 10-K.

Even with these legal changes, Title VII of the Civil Rights Act of 1964 remains in effect. It was most recently upheld in a 2019 Supreme Court decision, Bostock v. Clayton County, which found that Title VII’s prohibition on discrimination based on sex also includes sexual orientation and gender identity or expression. (The law’s prohibitions on discrimination based on race, color, religion, and national origin have not changed.) However, according to Bradford, there is some conflict between Bostock and Trump’s. She predicted that this conflict will need to be addressed by acting Equal Employment Opportunity Commission Chair Andrea Lucas, as well as the DOJ under the direction of Bondi.

Adjusting I&D Programs: What’s Admissible?

Employee resource groups (ERGs) are one aspect of work culture that could be affected by the EOs and future directives from the DOJ, panelists said. “You can still have affinity groups or ERGs, but I think you have to dig down deep to see exactly what those groups are participating in,” said O’Kelly McWilliams III, an attorney in Holland Knight’s Washington, D.C., office. “What are their activities, mission, and goals?”

McWilliams cited a memo from Bondi and other available guidance that clarifies that as long as groups are open, accessible, and provide benefits to the entire workforce, they can be deemed permissible. However, he cautioned that groups engaging in special activities regarding leadership, mentorship, or anything else that might lead to tangible benefits will need to be evaluated.

This recommendation is in line with guidance from Jonathan Segal, an attorney with Duane Morris in Philadelphia and New York City, who explained during another recent SHRM webinar  that “ERGs should either be open to all employees, or any such limiting factor cannot be a Title VII [of the Civil Rights Act of 1964] factor.” For example, an employer could expand a women’s leadership group to include men.

Aside from ERGs, the panelists identified the following safe zones for I&D efforts.

• Upskilling and workforce training
  • Training and upskilling opportunities that are open to all employees offer the opportunity to uplift employees while avoiding exclusionary practices.
• Diversity awareness initiatives
  • Events and activities that promote cultural awareness should include all employees.
• Disability and veterans’ programs
  • Legal hiring protections for veterans and people with disabilities remain in place for now.

Legal Risks and Considerations for Federal Contractors

It can be difficult to determine all legal risks related to these new orders, but panelists explored a few key areas for federal contractors to review.

Collective Bargaining Agreements

Can these orders impact an agreement a federal contractor has made with a third party? McWilliams acknowledged the difficulty of providing a direct answer but laid out a few factors that could impact these agreements.

First, he noted that changes in leadership at the National Labor Relations Board (NLRB) could impact collective bargaining agreements across the board, not just those held by federal contractors. In the face of that uncertainty, certain parts of an agreement, such as the acknowledgment of specific holidays, could be argued for under the First Amendment right to free speech through the court system.

Bradford pointed out the broad approach of the DOJ, citing one of Bondi’s memos that identifies contracts and grants as up for review to see whether they violate the spirit of EO 14173.

8(a) and Set-Aside Programs

These programs, frequently offered by the U.S. Small Business Administration,  seek to uplift certain individuals and businesses to help them compete for federal contracts. To analyze the potential impact of the Trump orders, Stan Soloway, president and CEO of Celero Strategies LLC, cited current court actions, including a case where an owner was asked to prove they had been personally discriminated against in their life.

Soloway said he has not seen this kind of test before, and he doesn’t “know that we’re at the point now that Congress would go be so bold as to get rid of the program.” What may happen instead is that goals are reduced or not enforced. “If we have a certain percentage requirement for women-owned businesses, minority-owned businesses or what have you, you could see these goals substantially reduced or not policed,” Soloway explained.

Actionable Steps for Federal Contractors

While updates and guidance continue to take shape, panelists identified several areas of action rooted in assessment. The legal, contractual, and financial risks are important, according to Soloway, but engagement and communication with employees are also key. Based on available information and panelists’ insight, federal contractors can take the following steps now to help ensure compliance.

1. Conduct a Compliance Audit

With the EOs as a guide, take time to assess current recruiting and hiring practices, as well as education and upskilling programs available to employees.

2. Maintain Workforce Inclusion Efforts

It’s important to keep up inclusion efforts, not only in practices and programs but throughout an organization’s culture. Finding ways to ensure employees feel respected, valued, and part of the team is crucial to supporting the success of the organization while maintaining alignment with EOs and subsequent guidance.

3. Engage Legal and HR Stakeholders

Explore current relationships and contracts with legal and compliance professionals to determine the need for establishing new partnerships. These experts can help ensure diversity initiatives align with the evolving regulatory framework. By proactively assessing these partnerships, organizations can potentially pre-empt potential legal challenges while maintaining organizational integrity. 

4. Communicate Changes Clearly

Legal and HR stakeholders are important for compliance, but employees are also key to maintaining success. Find ways to clearly communicate with employees during this time and throughout any forthcoming changes in guidance from the federal government. Facilitate open communication to allow employees to share their thoughts and ideas on inclusion, as well as to ask questions about how to best meet any new standards.

Ultimately, federal contractors navigating the complexities of evolving EOs and compliance standards should take a proactive and informed approach. Prioritizing transparency, conducting compliance assessments, and maintaining inclusive practices can help them not only stay compliant but also keep their employees engaged and their business flowing. Collaboration with legal and HR is also crucial as more details on guidance and compliance become available.