Addressing DEI Discrimination by Federal Contractors
Executive Order 14398 requires federal contractors and subcontractors to avoid racially discriminatory DEI activities and prove decisions are merit‑based and race‑neutral, so understanding it is critical to protecting your contracts and subcontractor relationships.
Establishes definitions for “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in employment, contracting, or program participation
02
Embeds Contractual Enforcement
Requires a mandatory contract clause in covered federal contracts and contract‑like instruments by April 25, with agency audit and information‑request rights.
03
Requires Subcontractor Flow-Down
Mandates that the new clause flows down to subcontractors and lower‑tier subcontractors, making primes responsible for policing compliance at every tier.
04
Creates Payment and FCA Risk
Links non‑compliance to contract termination, ineligibility for future awards, and False Claims Act exposure when certifications are false or misleading
Multi Agency Enforcement Authority
The Risks of Non-Compliance are Immediate
If your contract is found non-compliant, your organization faces severe penalties tied to the new mandatory clause and the accuracy of contractor and subcontractor DEI certifications.
Contract Termination: Your existing federal contracts can be suspended, canceled, or terminated.
False Claims Act Liability: Prime contractors are now explicitly accountable for their subcontractors. A false claim passed up the chain creates direct liability for the prime, with exposure of up to $28,619 per False Claims Act violation.
Suspension and Debarment: You risk losing your ability to bid on any future federal projects.
EO 14398 is a 2026 executive order that prohibits racially discriminatory DEI activities and disparate treatment by federal contractors and subcontractors in employment, contracting, and program participation.
It also requires agencies to insert a new mandatory contract clause into covered contracts and subcontracts, giving the government audit and information‑request rights and requiring contractors to certify they do not engage in racially discriminatory DEI activities in:
Recruitment
Hiring
Promotion
Other employment practices
In addition,
federal contractor employers must ensure access to training, mentoring, clubs (ERGs), associations, and similar opportunities to all employees regardless of race or ethnicity.
Federal agencies will now expect both prime and subcontractors to empirically demonstrate that their employment practices are neutral, job-related, and applied consistently across the organization once the new clause is in place. Contract clauses will begin to appear in covered contracts and contract‑like instruments by April 25, 2026, and prime contractors are responsible for their subcontractors’ compliance.
HR teams looking for a proactive, holistic approach to HR compliance & risk management. HR CaaS will keep your organization ahead of the curve and able to pivot when requirements change.
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EO 14398 Checklist
Protect Your Contracts
To navigate EO 14398 confidently, federal contractors must establish clear governance. Here is what you need to do now:
Including hiring practices, employment programs, employee groups, and DEI initiatives to ensure eligibility criteria are race‑neutral, participation is inclusive, and no benefits are restricted by race or ethnicity.
Prepare documentation for both your organization and your subcontractors that clearly show non‑discriminatory intent, race‑neutral eligibility criteria, and outcomes, in case of an agency information request or audit.
Compliance data supports smarter and more strategic planning, leading to more confident decisions.
Key Timeline of Changes
From Mandates to Merit: Understanding the New Federal Labor Landscape
The federal government has significantly shifted its approach to workplace diversity, moving toward a strict focus on anti-discrimination law compliance, merit-basedemployment, and veteran/disability compliance.
January 21, 2025
EO 14173 was issued, rescinding EO 11246 which required affirmative action plans (AAPs) for women and minorities for federal contractors. It required a contractual term that all parties are in compliance with all federal anti-discrimination laws. No further guidance has been issued on this certification as of April 2026.
EO 14281 was issued and instructed agencies to deprioritize and cease pursuing disparate impact claims.
July 29, 2025
The Attorney General issued guidance on “unlawful DEI” and best practices for federal funding recipients to ensure they are not conducting it. The items in the memo are not mandatory, but rather best practices.
Executive Order 14398, Addressing DEI Discrimination by Federal Contractors, focuses on prohibiting racially discriminatory DEI activities, specifically racial disparate treatment in recruitment, hiring, promotion, and employment practices.
No. EO 14398 specifically targets racially discriminatory DEI activities and disparate treatment based on race or ethnicity in employment, contracting, and program participation. Existing federal laws still govern discrimination based on sex, national origin, religion, age, disability, and other protected characteristics.
Federal contractors will be required to implement a contract clause for their subcontractors ensuring that they do not engage in any racially discriminatory DEI activities. Prime contractors are responsible for their subcontractor’s compliance and will incur the risk if subs falsely certify. It also builds on earlier requirements around “illegal DEI” certifications by adding a detailed clause, audit rights, and explicit False Claims Act risk.
Yes — and it is increasingly important. Data‑driven reporting on employment practices is one of the best ways for contractors to demonstrate compliance with Title VII and other civil rights requirements.
Contracting agencies can request information and reports related to the EOs compliance at any time. Reporting provides evidence that your programs and employment decisions are lawful and in compliance with EO 14398.
No. Federal contractors or subcontractors do not need to pause or dismantle DEI programs that are lawful, race‑neutral in application, and aligned with nondiscrimination principles.
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