On May 19, 2025, the Department of Justice (DOJ) issued a memorandum launching a new enforcement program known as the Civil Rights Fraud Initiative (the Initiative). Furthering the Trump Administration’s direct targeting of diversity, equity, and inclusion ((DEI) policies and alleged antisemitism among corporations and institutions receiving government funds, the Initiative will utilize the False Claims Act (FCA) to “investigate and . . . pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” As part of the Initiative, DOJ is “strongly encouraging” whistleblowers to file lawsuits asserting complaints of alleged civil rights violations. Given the potential stiff monetary penalties for FCA violations, government contractors, universities, and other entities receiving federal government funding face heightened risk. Government contractors and other entities doing business with the government must be aware of the increased scrutiny the government and whistleblowers are directing at DEI programs, review both internal and public-facing policies to ensure compliance, and enhance internal protocols to mitigate risk. Join us on July 10 for an in-depth discussion on this critical topic. Register here.
Background: False Claims Act and the Initiative
The FCA is the government’s primary vehicle to recover funds obtained or withheld from the government as a result of fraud or misrepresentation. A person or entity receiving federal funds may violate the FCA by:
- submitting a false claim for payment to the government;
- submitting an otherwise valid claim for payment to the government, accompanied by a materially false representation;
- failing to return money or property that belongs to the government; or
- conspiring to commit any of these acts or omissions.
Liability under the FCA exists where an individual, corporation, or entity receiving federal funds acts “knowingly” in violation of the FCA, i.e., with actual knowledge of, reckless disregard for, or deliberate ignorance of, its alleged wrongdoing. Defendants liable under the FCA are subject to triple damage awards and statutory mandatory penalties. For government contractors, damages can be calculated based on the total revenues received from a contract, a harsh result that can cripple a federal contractor permanently. When whistleblowers are involved, attorneys’ fees awards are also a possibility.
According to the memorandum announcing the Initiative, the government believes that the FCA is “implicated when a federal contractor or recipient of federal funds knowingly violates civil rights laws—including but not limited to Title IV, Title VI, and Title IX, of the Civil Rights Act of 1964—and falsely certifies compliance with such laws.” The memorandum then explains: a university could violate the FCA “when it encourages antisemitism, refuses to protect Jewish students, allows men to intrude into women’s bathrooms, or requires women to compete against men in athletic competitions.” With regard to government contractors and federal grant recipients, the memorandum states that entities receiving federal funding may violate the FCA by “engaging in racist preferences, mandates, policies, programs, and activities, including through diversity, equity, and inclusion . . . programs that assign benefits or burdens on race, ethnicity, or national origin.”
5 Key Takeaways for Government Contractors
This Initiative follows President Trump’s issuance of Executive Order (EO) 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, in January. EO 14173 seeks to end “illegal” DEI efforts by federal funding recipients. Among other things, the EO required federal agencies to include in every federal contract or grant an obligation for companies to certify they do not operate DEI programs that violate any federal anti-discrimination laws and terms acknowledging that compliance with federal anti-discrimination laws is material to the government’s decision to pay under the contract or grant.
DOJ’s position that violating federal anti-discrimination laws or using “illegal” DEI policies may violate the FCA changes the landscape of the FCA battleground in material ways for government contractors. Here are 5 key takeaways that government contractors should consider moving forward:
- Violations of federal anti-discrimination laws rarely have led to FCA cases in the past; that is changing now. In some prior instances, whistleblowers have attempted to assert FCA claims based on alleged employment discrimination in the workplace. However, those efforts generally were dismissed by federal courts because garden-variety violations of statutes, rules, and regulations alone are insufficient to give rise to FCA liability. For a statutory or regulatory violation to confer FCA liability, it must be the subject of an express or implied certification by the recipient of the funds, and the violation must be material to the government’s decision to pay. This is a difficult burden to meet where the purported discrimination was not tied to work performed under a contract. The notable exception is where a contractor or grant recipient was obligated to comply with non-discrimination policies as part of the recipient’s work, such as where recipients received funds specifically to implement and operate non-discriminatory housing programs. The rules are now changing. Between this Initiative and EO 14173, government contractors and grant recipients will be required to certify their compliance with civil rights statutes. Even if the certification requirement does not appear in a government contract or grant, the Trump Administration’s directives will ensure that agencies will treat statutory compliance as an implied certification requirement. By making compliance with civil rights statutes an express or implied certification for federal contracts and grants, the Trump Administration has opened the door to a new pathway for FCA liability.
- The government’s encouragement of whistleblowers to file lawsuits presents a legitimate and significant risk for all companies receiving federal funds. Qui tam suits filed by whistleblowers are on the rise, and plaintiffs’ attorneys are always looking for ways to expand the reach of the FCA to gain access to potential windfall damages. Expect whistleblowers and their attorneys to embrace DOJ’s encouragement and take direction from the DOJ memorandum to raise FCA claims under the Initiative. While contractors and grant recipients certainly can expect investigations, inquiries, audits, and litigation arising from the types of DEI programs and operational practices specifically identified in DOJ’s memorandum, the memorandum also opens the door to likely unintended consequences. Indeed, the combination of DOJ’s Initiative and EO 14173 could turn every garden-variety employment discrimination claim against a government contractor or grant recipient into an expensive FCA investigation and litigation. A former employee who suffered what they believe is a discriminatory termination is generally limited in the type and amount of damages they can seek under Title VII of the Civil Rights Act of 1964. Why would that employee (and their attorney) not choose to amplify the pressure on the former employer by including an FCA claim based on the Initiative in any lawsuit, substantially increasing the damage claims, the costs of defense, and the potential settlement value of the case? Government contractors and grant recipients must be prepared for this inevitable outcome and understand the implications of the Initiative and how it can affect their company.
- The vague, circular nature of DOJ’s position on what constitutes wrongful conduct makes compliance difficult and is likely to result in inconsistent enforcement. Under the Initiative, there is also increased risk for government contractors and grant recipients based on the vague and circular nature of DOJ’s position. DOJ’s memorandum explains that DOJ will use the FCA to weed out “illegal” discrimination. It is easy to allege, but much harder to prove, “illegal” discrimination. Importantly, a company engages in “illegal” discrimination if a regulator (such as the Equal Employment Opportunity Commission or Department of Labor), judge, or jury determines a company violated an employment-based statute or public policy without a legally viable excuse. For instance, terminating an employee with a disability is only illegal if the employee is capable of performing the core duties of their job with or without a reasonable accommodation. If the employee cannot perform their core job duties, or their requested accommodation is unreasonable, there can be no violation of civil rights statutes protecting persons with disabilities, and the termination would not be illegal. DOJ’s efforts to curb “illegal” discrimination mean that employers who take adverse employment action may not have a clear understanding of the implications of their actions until after the fact. The fact that an FCA violation must be committed “knowingly” does not solve the problem. If a company recklessly disregards or is deliberately indifferent to the possibility that a termination constitutes “illegal” discrimination, it could face liability under the FCA. Simply put, whether a company engaged in “illegal” discrimination is a fact-specific inquiry, likely leading to inconsistent enforcement, including across jurisdictions. A jury in a state like California may be more likely to find “illegal” discrimination based on the same conduct a jury in Florida may find is a legal termination. And a DOJ attorney in Massachusetts may be more likely to pursue an FCA case for “illegal” discrimination based on the same conduct a prosecutor in Alabama may seek to dismiss. The disparate way these fact-based inquiries may take shape places a complicated and difficult compliance burden on government contractors and grant recipients.
- Complaints about discrimination, preferential hiring, and DEI must be taken seriously. In light of the increased risks associated with DOJ’s Initiative and encouragement of whistleblowers, government contractors and grant recipients must take complaints about discrimination, preferential hiring, and so-called “illegal” employment practices seriously and investigate them thoroughly. Companies should retain competent counsel to assist or conduct any investigation and provide privileged reports to company leadership. If there is a legitimate risk that a company’s conduct may have violated a civil rights statute, government contractors and grant recipients may wish to consider voluntarily disclosing the events to the government, even where the fact of “illegal” discrimination may be in doubt. Furthermore, companies must cure potentially discriminatory policies where concerns are raised in order to avoid scrutiny in an FCA case.
- Government contractors, universities, and other companies doing business with the federal government should review internal and external-facing policies with competent counsel to ensure compliance. One of the most important defenses available to companies facing FCA investigations and liability is that the company did not act with scienter, e., the company did not have actual knowledge of, and did not engage in reckless disregard for or deliberate ignorance of, any alleged wrongdoing. One way companies can prove their lack of scienter is through evidence that they vetted their policies, programs, and practices through competent counsel knowledgeable about civil rights law statutes. Even before an FCA dispute arises, counsel can recommend changes to the language of a policy, the guidelines for a program, or the implementation of employment practices to help avoid running afoul of civil rights statutes. In addition, counsel can audit existing written policies, manuals, and handbooks to ensure the language accurately reflects the companies’ actual practices. All of these efforts can be used in any future FCA investigation or litigation to mitigate risk and obtain the best possible result.
If you have questions about the Initiative and potential impacts on your business or other FCA-related matters, please contact Matt Feinberg, Sarah Nash, Abby Finan, or another member of PilieroMazza’s False Claims Act or Labor & Employment practice groups. Visit this link to register for our webinar, “DOJ Uses FCA to Target DEI Policies and Antisemitism: The Impact on Government Contractors” and check out our podcast Ex Rel. Radio.
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If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
