On March 26, 2026, President Trump signed Executive Order 14398 (the Order), which is titled “Addressing DEI Discrimination by Federal Contractors”. The Order is the latest move in the Trump Administration’s attempts to target and eliminate what it deems to be unlawful DEI programs, practices and initiatives across a wide array of U.S. businesses, including federal contractors.

The Order and accompanying Fact Sheet specifically prohibit “racially discriminatory DEI activities” by all federal contractors and subcontractors at any tier. The Order states that DEI activities are not only unethical and often illegal, but also create inefficiency, waste and abuse for those that engage in DEI practices by adding unnecessary costs, creating workforce turnover and jeopardizing employee collaboration and problem-solving. The Order conveys the Administration’s perspective that while the federal government has made great strides in ending racial discrimination resulting from DEI activities, “some entities continue to engage in DEI activities and often attempt to conceal their efforts to do so.”

The Order follows on the Trump Administration’s anti-DEI Executive Orders issued in January 2025 that were aimed to curtail “illegal DEI,” including Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” EO 14173 was challenged and scrutinized by various courts for its failure to define what constitutes “illegal DEI.” That ambiguity left employers, higher education institutions and other organizations confused about their obligations and worried about the potential implications of crossing the line between what the Administration may interpret to be lawful and unlawful DEI practices.

Unlike the earlier Orders, this most recent Executive Order specifically defines the targeted conduct of “racially discriminatory DEI activities” as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation or allocation or deployment of an entity’s resources.” The Order further defines “program participation” as “membership or participation in, or access or admission to: training, mentoring or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.” While these definitions provide some guidance for federal contractors, ambiguity still exists as to how the Order will be applied with respect to contractors’ vendor agreements and the “allocation or deployment of an entity’s resources.” In addition, the Order does not make any reference to and is not tethered to any federal anti-discrimination laws. 

Contractual Certification Requirements Under the Order

Under the Order, all Federal agencies are required, “to the extent permitted by law”, to include specific contract provisions in all contracts and “contract-like instruments.” The required standardized contract language, which is expected to appear in contracts as early as April 25, 2026, is as follows:

“In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

1. The contractor will not engage in any racially discriminatory DEI activities, as defined in section 2 of the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors);
2. The contractor will furnish all information and reports, including providing access to books, records and accounts as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;
3. In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this contract may be canceled, terminated or suspended in whole or in part, and the contractor or subcontractor may be declared ineligible for further Government contracts;
4. The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency;
5. The contractor will inform the contracting department or agency if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause; and
6. The contractor recognizes that compliance with the requirements of this clause are material to the Government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code (False Claims Act).”

These provisions not only require contractors and subcontractors to certify that they will not engage in any “racially discriminatory DEI” activities, but they also place an affirmative obligation on prime contractors to monitor their subcontractors to ensure compliance with the Order and to report any potential violations. So, while the Order states that it is focused on preventing the inefficiencies of DEI practices, it imposes unusual flow-down obligations beyond the normal certification expectations with extensive monitoring and reporting duties to ensure that every subcontractor that they work with complies with the Order. Although the Order does not specify how contractors are expected to obtain this information, these policing mandates will likely lead to increased costs and risks for federal contractors.

Potential False Claims Act Liability and Other Penalties

The Order sets forth various penalties and enforcement mechanisms for contractors that engage in racially discriminatory DEI activities or otherwise fail to comply with Order. Federal contractors face cancellation, termination or suspension for noncompliance. The Order also authorizes suspension and even debarment for contractors that violate the Order.

Notably, violations of the Order may also place a contractor at risk of legal action from the Department of Justice (DOJ) through the False Claims Act (FCA), which carries the potential for significant financial damages. The Order expressly mentions that the contractual obligations are material to the government’s payments, which is an attempt to create a foundation for the materiality element under the FCA. The Order calls on the DOJ to consider bringing FCA claims against contractors that violate the Order and to conduct a prompt review of civil actions brought by private citizens, known as qui tam claims, under the FCA.

What to Expect and Next Steps

The Order clearly signals continued federal scrutiny of entities’ DEI programs and activities. Federal contractors will hopefully be gaining further guidance from the federal government regarding the Order’s expectations. The Order directs the Office of Management and Budget (OMB) to issue guidance to agencies to ensure compliance with the Order. While the Director of the OMB, the AG, the Assistant to the President for Domestic Policy and the Chair of the EEOC are directed to issue guidance on best practices for compliance with the Order, the Order also directs these agencies to identify economic sectors that pose a particular risk of engaging in “racially discriminatory DEI activities” based on current or past conduct.

The Order also directs the Federal Acquisition Regulatory Council (FAR Council) to amend the Federal Acquisition Regulation (FAR) to include the contract provisions of the Order and remove any conflicting or inconsistent terms in Federal procurement, solicitations and contracts subject to the Order. The FAR Council is also directed to, within 60 days, issue deviation and interim guidance regarding agency implementation of the Order’s contractual provisions prior to its finalization of the amendments to the FAR.

While the breadth of applicability of the Order to “contract-like instruments” is unclear, the Administration has pursued parallel, yet distinct efforts to impose similar certification mandates upon all recipients of federal financial assistance through proposed amendments to the System for Award Management (SAM). The General Services Administration (GSA)’s proposed amendments would require entities seeking federal grants and contracts to certify compliance with prohibitions against “illegal DEI.” Specifically, applicants utilizing the government’s award system would have to agree to: “Comply with the US Constitution, all federal laws and relevant executive orders prohibiting unlawful discrimination on the basis of race or color in the administration of federally funded programs.” The public comment period relative to those proposed changes closed on March 30. Once the Administration reviews and responds to that input, we may see new documents go into effect under the SAMS system.

Contractors should be aware of these requirements going forward and be prepared for the implementation of these new contractual provisions in future contracts. Additionally, it is yet to be seen what impact the provisions set forth in the Order will have on other obligations contractors may have under State contracts, such as requirements under the New York MWBE program. However, as previous Executive Orders targeting DEI have faced legal challenges, it is possible that this Order may face similar challenges.

Bond continues to follow these and related developments closely. Please contact Christa Cook, Gavin Gretsky, any attorney in Bond's labor and employment practice or the Bond attorney with whom you normally work, for questions, concerns and tailored consultation.

The U.S. Department of Labor (DOL), Office of Federal Contract Compliance Programs (OFCCP) announced that its Contractor Portal will open to receive Affirmative Action Program (AAP) certification submissions on April 1, 2024. The deadline for contractors to certify that they are in compliance with their AAP obligations for each establishment and/or functional unit is set for July 1, 2024.

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The U.S. Equal Employment Opportunity Commission (EEOC) announced on Sept. 1, 2023, that its EEO-1 filing platform will open on Oct. 31, 2023. The deadline for employers to file their EEO-1 reports will be Tuesday, Dec. 5, 2023.

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On March 15, 2022, the U.S. Department of Labor, Office of Federal Contract Compliance Programs (OFCCP) issued a new directive addressing pay equity audits. The new Directive 2022-01 sets forth what OFCCP views as its apparent authority to obtain access to and review federal contractors’ pay equity audits that are conducted in connection with contractors’ compliance mandates. 

 

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On Dec. 2, 2021, the Office of Federal Contract Compliance Programs (OFCCP) revealed its new online system that will be used to track and review federal contractors’ Affirmative Action Program (AAP) compliance. 

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The Office of Federal Contract Compliance Programs ("OFCCP") approved the use of a revised voluntary self-identification of disability form (Form CC-305) on May 5, 2020.  Federal contractors have until August 4, 2020, to implement the new form into their applicant and employee systems and processes.

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The U.S. Department of Labor announced it has made technical changes to the National Labor Relations Act ("NLRA") rights poster that federal contractors and subcontractors are required to display under Executive Order 13496, “Notification of Employee Rights Under Federal Labor Law.”

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On March 30, 2018, the Office of Federal Contract Compliance Programs ("OFCCP") announced the new national hiring benchmark for protected veterans under the Vietnam Era Veterans' Readjustment Assistance Act ("VEVRAA").  The new hiring benchmark is effective March 31, 2018, and lowers the benchmark to 6.4% from the previous benchmark of 6.7%.  The hiring benchmark is the percentage of total hires who are protected veterans that a federal contractor should seek to hire during the year.

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The revised Regulations of Section 503 of the Rehabilitation Act (which became effective in March 2014) required Federal contractors and subcontractors to invite applicants and employees to self-identify their disability status using an Office of Federal Contract Compliance (OFCCP) prescribed form:  (1) at the pre-offer stage of the application process, (2) post-offer after an applicant is offered a position but prior to starting work, and (3) by survey of the workforce every 5 years.  The required OFCCP Form is Form CC-305; this form cannot be altered or changed.  The original Form CC-305 approved by the Office of Management and Budget (OMB ) expired on 1/31/2017. The OFCCP recently published a notice that the OMB has approved a new Form for another three years.  No change was made to the Form except the expiration date.  Effective immediately, Federal contractors and subcontractors must either download the renewed form(s) or update their electronic version(s) of the Form to reflect the new expiration date of 1/31/2020.  The Form is available in multiple formats and languages and can be obtained from the OFCCP’s website here.

On September 29, the U.S. Department of Labor announced the issuance of its final rule implementing Executive Order 13706, which requires certain Federal contractors to provide at least 56 hours of paid sick leave per year to all employees (both hourly and salaried employees) working on Federal contracts.  The final rule was published in the Federal Register on September 30 and applies to new or replacement contracts that result from solicitations issued on or after January 1, 2017 (or are awarded outside the solicitation process on or after January 1, 2017). Coverage under the final rule is nearly identical to regulations for Executive Order 13658, which requires payment of a higher minimum wage to employees of certain Federal contractors.  Coverage applies to four types of contracts (including subcontracts):

• Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
• Service contracts covered by the McNamara-O’Hara Service Contract Act (SCA);
• Concessions contracts, including any concessions contracts excluded from the SCA; and
• Contracts in connection with Federal property or lands and related to offering of services for Federal employees, their dependents, or the general public.

As stated in a prior blog post, paid sick leave may be used for employees' own healthcare, care of family members or loved ones, and for purposes resulting from being a victim of domestic violence, sexual assault, stalking, or to assist a family member or loved one who is such a victim.  The regulations create a regulatory scheme similar in complexity to the Family and Medical Leave Act, with detailed notice and recordkeeping rules. The final rule contains a few changes from the proposed rule discussed in our prior blog post.  The modifications include:

• An option to provide employees with the 56 hours of paid sick leave at the beginning of each year, rather than accruing throughout the year.  Under the accrual method, employees would accrue 1 hour for every 30 hours worked on a Federal contract.
• The addition of a provision specifying that contractors who grant PTO that meets the requirements in the final rule do not have to provide separate paid sick leave even if the employee uses all of the time for vacation.
• A grace period until January 1, 2020, or the termination date of the labor agreement, whichever is sooner, for contractors with a collective bargaining agreement that provides at least 56 hours of paid leave time for health-related reasons.
• The ability for contractors to fulfill their obligations jointly with other contractors by utilizing multi-employer plans to provide access to paid sick leave.
• Confirmation that a contractor will not have to reinstate accrued sick leave that was paid out to an employee upon separation from employment if the employee returns within 12 months.

Additional information is provided on the Department of Labor’s Wage and Hour Division landing page for the final rule.

As previously reported on this blog, President Obama signed Executive Order 13706 in September 2015, requiring certain federal contractors and subcontractors to provide at least seven paid sick days per year to employees (both hourly and salaried) working on federal contracts.  Recently, on February 25, 2016, the United States Department of Labor (DOL) issued a Notice of Proposed Rulemaking (NPRM), setting forth its proposed regulations to implement this executive order.  Interested parties can now submit comments on these proposed regulations, but must do so quickly.  Comments must be received by the DOL by midnight on March 28, 2016 (although several commentators have already requested that the deadline be extended.) First, the basics. Contractors will be required to allow paid sick time to be used not only for an employee’s own illness or medical appointments (including preventative care), but also for the illness and medical appointments of a family member (defined quite broadly) or for absences related to domestic violence, sexual assault or stalking.  The leave cannot be tracked in increments greater than one (1) hour.  While unused time must be carried over into a new calendar year, the contractors will be permitted to cap accrual of new time until the employee’s time drops below 56 hours. Compliance with Executive Order 13706 will not be as easy as confirming your existing paid time off policies include seven sick days and cover the right types of absences.  The proposed regulations create a regulatory scheme similar in complexity to the Family and Medical Leave Act (FMLA), with detailed notice and recordkeeping rules.  For example:

• Contractors must notify employees in writing of the amount of paid sick leave they have accrued no less than monthly, as well as each time they request sick leave, and each time they request the information (but no more than once a week), and again upon separation.
• Contractors may only require medical certification or documentation for absences of three or more days.  Significantly, the employee has up to 30 days after the first day of the absence to provide the documentation.  During those 30 days, the contractor must treat the request for paid leave as valid.  If the contractor does not receive the documentation, or if it is insufficient, the contractor may retroactively deny the employee’s request for use of paid sick leave, and may deduct any sums paid, but only if those deductions are lawful under state wage payment laws.  (Given the intricacy of New York’s wage payment law and its restrictions on deductions, the practical impact may be that New York employers rarely, if ever, seek to recoup this pay.)
• An employee may make a request for paid sick leave orally or in writing, and must make the request seven days in advance if possible.  If advance notice is not possible, the employee need only make the request when he or she becomes aware of the need for leave or the next business day.
• If the contractor approves the use of paid sick leave, it can do so orally as long as it also provides a written statement of how much leave is available.  If the contractor denies the use of paid sick leave, however, it must do so in writing with an explanation of the denial.  If the denial is based on insufficient documentation, the employee must be given an opportunity to submit a new, corrected request.
• The contractor’s response to the employee’s request must be made “as soon as is practicable.”  Notably, the proposed regulations state that in many instances, the contractor should be able to respond to a request “immediately or within a few hours.”
• Contractors need only apply the paid sick time off policy to employees actually working on the covered contract, and only for the hours they are working on the covered contract.  However, if the contractor intends to make such a distinction, it must keep records reflecting when the employee is and is not working on the covered contract.
• At the completion of a covered contract, a prime contractor must provide to the contracting officer a certified list of all employees entitled to paid sick leave under the Executive Order at any time during the twelve months preceding the end of the contract, the date each employee separated if prior to the completion of the contract, and the amount of paid sick leave each employee had available for use.
• Finally, contractors must keep records of the following available for inspection by the DOL:
  1. Name, address, Social Security number, and occupation for each employee;
  2. Wage rates, hours worked, deductions made, and total wages each pay period;
  3. Copies of notifications to employees of the amount of paid sick leave accrued;
  4. Copies of employee leave requests, and if requests are not made in writing, other records reflecting those oral requests;
  5. Dates and amounts of paid sick time used;
  6. Copies of written denials of requests;
  7. Copies of certifications and other documentation provided by employees;
  8. Any other records showing tracking or calculations of accrual and time used;
  9. Copies of any certified list of employees' unused paid sick leave provided to or received from a contracting officer; and
  10. The relevant covered contract.

Similar to the FMLA, contractors are prohibited from interfering with an employee’s use of leave or discriminating against an employee for requesting or using leave.  There is no private right of action, but employees may file complaints with the DOL.  The DOL may order penalties, including back pay, reinstatement and liquidated damages, and debarment. Given the impact of this proposed regulatory scheme, contractors should consider submitting comments on how this will impact their business and/or how the rules should be modified or clarified to the DOL before the March 28, 2016 deadline.  Comments can be easily submitted online by clicking "Submit a Formal Comment” on this page.

As we reported in a previous blog post, the Office of Federal Contract Compliance Programs (“OFCCP”) Final Rule implementing Executive Order 13665 (titled Non-Retaliation for Disclosure of Compensation Information) took effect on January 11, 2016.  This Executive Order amended Executive Order 11246 by prohibiting Federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant. The new Rule applies to Federal contractors who enter into or modify existing covered Federal contracts greater than $10,000, on or after January 11, 2016.  The new Rule also requires Federal contractors to:  (1) revise the “equal opportunity clause” to include the new non-discrimination provision in contracts, subcontracts, and purchase orders; (2) incorporate an OFCCP-prescribed non-discrimination provision into existing employee manuals and handbooks; and (3) disseminate the non-discrimination provisions to employees and job applicants. The OFCCP has created two versions of the mandatory non-discrimination provision:

• One formatted with the OFCCP’s logo and contact information to be posted electronically or printed and posted on an employer’s premises.
• A second version which includes only the required language.  At a minimum, Federal contractors must use this prescribed language.

With the Final Rule already in effect, contractors should ensure their policies are in compliance with the non-discrimination provisions, make sure the OFCCP non-discrimination provision is included in handbooks or manuals and disseminated to employees and applicants, and ensure their “equal opportunity clause” in contracts, subcontracts and purchase orders is in compliance.