US Federal: Department of Justice secures first settlement under civil rights fraud initiative

12 May 2026 6 min read

By Courtney Gilligan Saleski, Holly R. Lake, Dawn Stern, John Hillebrecht and Meredith Gregston

At a glance

The United States Department of Justice (DOJ) has secured a USD17 million settlement with International Business Machines Corporation (IBM) for alleged breaches of anti-discrimination requirements in federal contracts under the False Claims Act (FCA).
This is the first resolution under the DOJ’s Civil Rights Fraud Initiative, signalling increased enforcement of diversity, equity, and inclusion (DEI)-related practices among government contractors.
The DOJ alleged that IBM used diversity-linked compensation, demographic hiring targets and restricted programmes based on protected characteristics.
The case highlights the DOJ’s view that certain DEI practices may conflict with federal anti-discrimination obligations tied to government funding.
Employers, particularly federal contractors, should review DEI programmes, hiring processes and compliance frameworks in light of increased FCA enforcement risk.

On April 10, 2026, the DOJ announced that IBM agreed to pay USD17,077,043, inclusive of civil penalties, to resolve allegations that it violated the FCA by failing to comply with anti-discrimination requirements in its federal contracts.

This settlement marks the first resolution secured under the DOJ's Civil Rights Fraud Initiative, which Acting Attorney General Todd Blanche launched in May 2025.

Background

Federal contracts often contain provisions requiring contractors to comply with anti-discrimination requirements with respect to employees and applicants for employment. As a condition of being a federal contractor, a company must certify that it will not discriminate against employees or applicants because of race, color, national origin, or sex. It must further certify that it will take steps to ensure that applicants are employed, and that employees are treated in a non-discriminatory manner during employment, without regard to these protected characteristics.

The settlement resolves the government's allegations that IBM failed to comply with these requirements and 'knowingly maintained practices that the United States contends were discriminatory employment practices.'

DOJ allegations

According to the DOJ, IBM allegedly engaged in the following practices:

Used a diversity modifier for compensation. The DOJ alleged that IBM used a 'diversity modifier' that tied bonus compensation to achieving demographic targets.
Used diverse interview slates. IBM allegedly altered interview criteria based on race or sex through the use of 'diverse interview slates' and other related employment practices in connection with identifying 'diverse' candidates for hiring, transfer, or promotion.
Developed demographic goals for business units. The government alleged that IBM developed race and sex demographic goals for business units and took race and sex into account when making employment decisions to achieve progress toward those demographic goals.
Restricted training and development programs. According to the DOJ, IBM offered certain training, partnerships, mentoring, leadership development programs, and educational opportunities only to certain employees, with eligibility, participation, access, or admission limited on the basis of race or sex.

Settlement terms and IBM's response

In connection with the settlement, the DOJ acknowledged that IBM took significant steps entitling it to credit for cooperating with the government in its investigation. IBM made early disclosures of facts gathered during its independent investigation, including information to assist in the calculation of damages and penalties. The company also undertook voluntary remedial measures, including the termination and/or modification of various programs and practices at issue.

IBM denied engaging in unlawful conduct, and the settlement explicitly states that 'this agreement is neither an admission of liability by IBM nor a concession by the United States that its claims are not well-founded.'

The Civil Rights Fraud Initiative

The IBM settlement reflects the Trump Administration's broader federal effort to examine DEI-related policies among government contractors and effectuates the enforcement approach the DOJ has been signaling in the past year. DOJ leadership emphasized that it views employment decisions based on race or sex – even when framed as DEI initiatives – as inconsistent with federal anti‑discrimination requirements applicable to government contractors. Consistent with this view, Deputy Assistant Attorney General Brenna Jenny stated, 'When a company accepts federal funding while engaging in practices that sort, prefer, or disadvantage employees on the basis of race or sex, the company is stepping outside the conditions under which the government agreed to contract with them, and we will hold them accountable.'

The Civil Rights Fraud Initiative uses the FCA, a federal law dating back to 1863, to enforce compliance with anti-discrimination requirements. The FCA allows the government to recover up to treble damages, in addition to penalties, and permits private citizens to file qui tam actions alleging fraud on the government and to retain a portion of any recovery.

As noted in a previous client alert discussing a recent Executive Order on DEI discrimination by federal contractors, at the Federal Bar Association's Qui Tam Conference in February 2026, Jenny discussed the Trump Administration's approach to FCA enforcement in the context of anti-discrimination. Jenny noted that using the FCA to pursue violations of anti-discrimination law represents a new application and that her office is prioritizing anti-discrimination FCA cases for expedited review. According to Jenny, some FCA matters currently under DOJ review have been initiated by qui tam relators (ie, individual whistleblowers), and the DOJ is reviewing matters involving companies across a range of industries, including automotive, defense, pharmaceuticals, technology, telecommunications, and utilities.

Implications for employers

Federal contractors are encouraged to evaluate existing practices. The IBM settlement confirms that the DOJ is actively pursuing companies whose DEI programs may conflict with anti-discrimination certifications required under federal contracts. Federal contractors are encouraged to review their current DEI practices to ensure compliance with federal anti-discrimination requirements.

Based on the practices alleged in the IBM settlement, this review could include the following considerations:

Compensation structures, bonuses, or other incentives tied to achieving diversity metrics or demographic targets.
Interview processes that consider demographic characteristics, including 'diverse slate' requirements.
Demographic goals or targets that influence hiring, promotion, or transfer decisions.
Training, mentorship, leadership development, or educational programs with eligibility or participation criteria based on protected characteristics.

Enhanced compliance and documentation requirements

Although the allegations resolved in the IBM settlement arose under pre‑existing anti‑discrimination obligations incorporated into IBM’s federal contracts, rather than from the March 2026 Executive Order, the settlement underscores the DOJ’s willingness to use the FCA to enforce those requirements.

In March 2026, President Donald Trump signed Executive Order 14398, 'Addressing DEI Discrimination by Federal Contractors,' which builds on earlier executive actions addressing DEI practices and requires federal agencies to include a clause in covered contracts prohibiting contractors and subcontractors from engaging in racially discriminatory DEI‑related activities, with compliance expressly subject to potential FCA liability. Ahead of the April 25, 2026 implementation deadline, contractors are encouraged to review any new contract actions, options, or modifications to determine whether the new clause has been incorporated. Contractors should also assess whether their current record keeping, compliance controls, and internal reporting systems are sufficient to support compliance with both existing and newly imposed contractual requirements.

Remediation

IBM received credit for its cooperation with the government, which included early disclosures during its independent investigation and voluntary termination or modification of programs at issue. Employers identifying potentially problematic practices may benefit from proactively implementing changes. The DOJ has indicated it will consider five factors in evaluating the application of damages multipliers:

The defendant's cooperation.
The extent of self-disclosure.
The duration and scope of the alleged misconduct.
Whether senior leadership was involved.
The extent of the defendant's commitment to remediation.

Whistleblower exposure

The DOJ's enforcement activity is not limited to government-initiated investigations. Current and former employees, as well as other whistleblowers, may initiate qui tam actions based on publicly available information about an employer's DEI commitments and workforce composition. This information may include data from publicly available government reporting and diversity-related metrics that companies published on websites or in public annual reports.

Beyond federal contractors

While this enforcement action focused on a federal contractor, and federal contractors have specific FCA risk due to their certification requirements, the DOJ's approach may reflect a broader policy direction. Companies that do not hold federal contracts are encouraged to assess their DEI programs for compliance with Title VII and other anti-discrimination statutes. Importantly, the existence of DEI programs or policies does not necessarily indicate a violation of anti-discrimination laws; similarly, an employer can face potential exposure under those laws without having formal DEI programs or policies in place.

Conclusion

The IBM settlement is a key development for federal contractors and employers generally. It underscores the DOJ's commitment to using the FCA to challenge discriminatory DEI programs. Employers are encouraged to proactively review their DEI initiatives, compensation practices, hiring and promotion procedures, and training programs to ensure compliance with both federal contract requirements and anti-discrimination laws more broadly.

For more information, please contact the authors.