US federal: Diversity, equity, and inclusion practices face increased scrutiny

At a glance

• A new Executive Order was issued, requiring agencies to prohibit Diversity, equity, and inclusion (DEI) practices by federal contractors and subcontractors.
• The Equal Employment Opportunity Commission (EEOC) requested elimination of large employer demographic data reporting requirements.
• The EEOC released a new National Enforcement Plan.

On March 26, 2026, President Donald Trump signed EO 14398, 'Addressing DEI Discrimination by Federal Contractors,' requiring federal agencies to prohibit racially discriminatory DEI practices by federal contractors and subcontractors. 

The EO includes the following provisions:

• Within 30 days, agencies must add a mandatory contract clause that expressly makes compliance material to government payment decisions, potentially exposing contractors to False Claims Act liability.
• The Office of Management and Budget (OMB) and the Department of Justice (DOJ) are responsible for enforcement, with increased scrutiny of whistleblower‑led investigations

At the agency level, the EEOC submitted a request to the OMB on May 14, 2026 for review of a proposal to eliminate large-employer data reporting requirements on race, ethnicity, and sex. On June 4, 2026, the EEOC announced its new National Enforcement Plan. 

Key priorities include:

• Prioritizing disparate-treatment claims over disparate-impact claims.
• Evaluating DEI programs.
• Addressing religious discrimination and accommodation.
• Addressing sex-based issues.