The $17 million False Claims Act settlement with technology giant IBM by announced April 10, 2026, using affirmative action or other disfavored diversity, equity and inclusion (“DEI”) practices creates added risks for federal government contractors and grant recipients beyond those U.S. businesses as a whole already face under the Trump Administration “merit based” interpretation and enforcement of federal Civil Rights laws as prohibiting DEI or other discriminatory decision making.

In the face of the IBM and other agency investigations and enforcements under the new merit based civil rights policy, all US businesses, generally, and government contractor specifically should seek the advice of qualified legal counsel on their potential exposure and options for mitigation of their exposure under the Trump merit based Civil Rights law interpretation and enforcement policy.

Affirmative Action & Other DEI Practices Under Attack

Government and private DEI practices have faced increasing challenges under a series of Supreme Court rulings that interpret the 14th Amendment as prohibiting affirmative action and other government required or applied race based hiring and other preferences except where adopted and tailored to redress a proven specific past discrimination harm. See e.g., Students for Fair Admissions v. President and Fellows of Harvard College, 600 U.S. ___ (2023); Adarand Constructors, Inc. v. Peña, 515 U.S. 200 (1995); Ricci v. DeStefano, 557 U.S. 557, 579–80 (2009). While the Court rulings since as early as 2009 indicated racial or other DEI preferences were allowed only to redress a past history of discrimination, federal regulators and many courts applied these holdings in a manner that presumed or required little evidence of specific discrimination to uphold DEI practices. Consequently, federal regulations and enforcement encouraged if not required broad adoption of these practices for decades.

The Supreme Court cast the dye for change with its ruling in Students for Fair Admissions, that race-conscious admissions programs at Harvard University and the University of North Carolina violated the Equal Protection Clause and, as applied to recipients of federal funds, Title VI of the Civil Rights Act of 1964 (42 U.S.C. § 2000d). Rejecting the universities’ diversity rationales as insufficiently measurable and not narrowly tailored, the Supreme Court in Students for Fair Admissions ruled that racial classifications are presumptively invalid and must meet strict scrutiny with clear endpoints and individualized consideration to overcome that presumption of invalidity. Its holding and reasoning as applied to the facts leave little room for legal defense of DEI practices in education, government contracting, employment and other practices historically using DEI strategies absent a specific remedial justification tied to proven discrimination. See also Ricci v. DeStefano, 557 U.S. 557 (2009).

President Trump reacted to the Students for Fair Admissions and other Supreme Court rulings banning DEI policies in a series of Executive Orders upon beginning his second Presidency. See, Exec. Order No. 14148, Ending Radical and Wasteful Government DEI Programs and Preferencing, 90 Fed. Reg. ___ (Jan. 20, 2025); Exec. Order No. 14149, Restoring Merit-Based Opportunity and Ending Illegal Discrimination, 90 Fed. Reg. ___ (Jan. 20, 2025); Office of Mgmt. & Budget, Memorandum M-25-13, Initial Guidance Regarding President Trump’s Executive Order on Ending DEI Programs (Jan. 21, 2025); U.S. Office of Personnel Mgmt., Guidance on Implementation of Executive Orders Eliminating DEI Programs in Federal Workforce (Jan. 2025); U.S. Dep’t of Justice, Memorandum on Civil Rights Enforcement and Prohibition of Race-Based Preferences (Jan. 2025); U.S. Dep’t of Defense, Directive on Removal of Diversity, Equity, and Inclusion Training and Programs (Feb. 2025); U.S. Dep’t of Educ., Dear Colleague Letter, Application of Federal Civil Rights Laws to Race-Conscious Policies Post-SFFA (Feb. 2025).

Upon taking office, President Trump in his January 21, 2025 Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (“EO 14173”) directed federal agencies to interpret and enforce the Civil Rights Act as requiring merit-based decisions without application of preferences for diversity, equity and inclusion,” (“DEI”), “affirmative action” or other favoritism to particular groups.

In EO 14173, President Trump announced his interpretation of the equal protection and opportunity provision of the 14th Amendment of the U.S. Constitution, the Civil Rights Act of 1964 (“Civil Rights Act “), Section 1557 of the Patient Protection and Affordable Care Act of 1996 (“Section 1557”) and other federal civil rights laws as guaranteeing “merit-based” decision-making and prohibiting DEI, affirmative action and other non-merit-based race, sex, religious, national origin preferences. Consistent with this merit-based construction, President Trump ordered all federal agencies “to terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” and “to enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.”

On April 23, 2025, President Trump followed up on EO 14173 by ordering all federal agencies to stop treating disparate impact as a viable theory of liability in discrimination matters in Executive Order on Restoring Equality of Opportunity and Meritocracy.

In response to these directives, federal agencies abandoned decades of regulations and enforcement practices that encouraged if not required DEI practices to enforce a merit based decision making interpretation of federal civil rights laws that prohibits affirmative action and other DEI practices.

In response to President Trump’s Executive Orders, for instance, the Office of Federal Contract Compliance Programs (“OFCCP”) has abandoned regulations that for decades required federal contractors to demonstrate their affirmative action requirements effectiveness with a merit-only decision policy. See, Exec. Order No. 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, 90 Fed. Reg. 8633 (Jan. 21, 2025); U.S. Dep’t of Labor, Directive to OFCCP to Cease Enforcement of E.O. 11246 Affirmative Action Requirements (Jan. 24, 2025); Office of Federal Contract Compliance Programs, Director Catherine Eschbach, Letter to Federal Contractors Regarding Compliance with Executive Order 14173 and Wind-Down of Affirmative Action Programs (June 27, 2025); Office of Federal Contract Compliance Programs, Invitation to Voluntarily Report Compliance with Executive Order 14173 (2025).

additionally, for employers generally, the Equal Employment Opportunity Commission (“EEOC”) revised its guidance to reflect that Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e-2) prohibits race-based employment decisions except in narrow circumstances, reinforcing a shift toward race-neutral strategies. See, e.g., Equal Employment Opportunity Commission, What You Should Know About DEI-Related Discrimination at Work (updated 2023–2024) (explaining that Title VII prohibits employment decisions motivated by race, even when framed as DEI initiatives). See Students for Fair Admissions v. President and Fellows of Harvard College, 600 U.S. 181, 206–27 (2023); 42 U.S.C. § 2000e-2(a); Ricci v. DeStefano, 557 U.S. 557, 579–80 (2009). The change signals heightened Civil Rights discrimination risks for all employers for current or past DEI practices.

As reflected by a series of high profile agency actions initiated against educational and health care organizations using DEI practices announced in conjunction with or following President Trump’s DEI Executive Orders, federal health care and educational organizations participating in federal programs and federal government contractors face much greater risks from use of DEI practices beyond the general exposure of employers under the revised EEOC interpretation and enforcement policies. While initially these DEI enforcement policies targeted education and health care organizations participating in programs funded or managed by the Department of Education , the Department of Health and Human Services, or both, the IBM settlement makes clear these enforcement policies and risks now apply to federal government contractors and grant recipients as a whole.

Federal Government Contractor & Grant Recipient DEI False Claims Act Exposure

The first settlement announced by DOJ under the Civil Rights Enforcement Initiative announced in May, 2025, the IBM settlement with DOJ confirms DOJ is pursuing government contractors for using DEI practices under the False Claims Act (“FCA”).

On May 19, 2025, DOJ announced it would prosecute government contractors and other federal funds recipients under the Civil Rights Fraud Initiative for knowingly violating federal Civil Rights laws by using affirmative action, diversity, equity and inclusion, or other non-merit based (“DEI”) employment or other business preferences.

DOJ further clarified in subsequent guidance that DEI programs involving preferential treatment may violate statutes such as Title VI and Title VII, and that false certifications of compliance with those statutes may satisfy core FCA elements, including falsity and materiality. See, U.S. Dep’t of Justice, Guidance to Recipients of Federal Funding Regarding Unlawful Discrimination (July 2025).

DOJ takes the position that certain DEI programs expose federal contractors and grant recipients to liability under the FCA where those entities certify compliance with federal civil rights laws while maintaining practices the government views as involving unlawful race- or sex-based preferences.

In the Civil Rights Fraud Initiative announcement, DOJ stated that entities receiving federal funds that “knowingly violate[] federal civil rights laws” may be liable under the FCA because such violations can render certifications of compliance false and material to the government’s payment decisions. See U.S. Dep’t of Justice, Justice Department Establishes Civil Rights Fraud Initiative (May 19, 2025).

Government contractors targeted by DOJ for False Claims Act prosecution under its Civil Rights Enforcement Initiative face serious consequences as Civil Rights Act compliance is a condition of participation in federal programs. Since compliance with these requirements is a prerequisite to eligibility to bill or receive federal funds under federal programs, DOJ contends that billing the federal government or receiving funds under programs subject to these terms of participation for periods that the contractor are Grant recipient had DEI or other non-merit based practices constitutes making a false claim in violation of the False Claims Act.

Since announcing its FCA initiative, DOJ has encouraged whistleblower (qui tam) actions and signaled it was conducting active investigation and enforcement against federal funding recipients whose DEI policies allegedly conflict with federal nondiscrimination requirements of 31 U.S.C. §§ 3729–3733. See also U.S. Dep’t of Justice, Civil Division Memoranda on Civil Rights Enforcement and FCA Application (2025).

IBM Settlement Confirms DOJ FCA DEI Enforcement

The IBM settlement secured under DOJ’s Civil Rights Fraud Initiative confirms DOJ is pursuing government contractors for DEI practices.

On April 10, 2026 (publicly reported mid-April), DOJ announced that IBM agreed to pay approximately $17 million to resolve allegations that it violated the FCA by certifying compliance with federal anti-discrimination requirements in its government contracts while allegedly maintaining DEI practices that the government contended were discriminatory on the basis of race or sex. See U.S. Dep’t of Justice, IBM Pays $17 Million to Resolve Allegations of Discrimination Through Illegal DEI Practices (Apr. 10, 2026).

The DOJ IBM prosecution and resulting settlement reflect DOJ treats DEI programs as prohibited discrimination that can create FCA exposure where tied to contractual compliance obligations.

In its IBM prosecution, DOJ asserted that federal contractors must certify compliance with Title VII and related Federal Acquisition Regulation clauses as a condition of payment, and that knowingly maintaining noncompliant practices can render those certifications false and actionable under the FCA.

While IBM did not admit liability in the settlement, the DOJ sent a strong message to other government contractors to act to mediate their own exposure by repotting IBM received credit for cooperation, including early disclosures and remediation measures such as modifying or terminating the challenged programs.

As demonstrated by the announced IBM settlement, sanctions for False Claims Act violations are harsh. Along with potential criminal consequences for intentional or knowing violations, civil violations of the False Claims Act can result in treble damages and significant penalties, program exclusion or both.

Act Proactively To Mitigate Risks

The IBM settlement and other federal agency investigations and prosecutions sends a strong warning to Federal government contractors and federal grant recipients specifically and U.S. businesses generally to take proactive steps to mitigate their very real risk that their past and current DEI or other non-merit based employment and other policies.

With FCA enforcement now added to the employment discrimination enforcement risk government contractors face for challenged DEI practices, government contractors also must recognize their government contractor status puts them at a high risk of scrutiny due to the reporting and audit protocols used with government contracts and grants. When weighing the likelihood that their past or current practices will trigger scrutiny, government contractors are reminded that current and past certification and reporting facilitate the ability of DOJ and OFCCP to identify targets for enforcement under this new interpretation and enforcement of Civil Rights laws while sanctions secured through enforcement return significant revenue to federally constrained budgets.

Consequently, businesses generally and government contractors specifically should seek the assistance of qualified legal counsel to assess and mitigate their risk from past or current DEI initiatives in light of heightened litigation risk and federal agencies’s interpretation and enforcement of new Civil Rights merit based enforcement position. Organizations are encouraged to keep in mind that the sensitive nature of this investigation and analysis makes it critical that organizations conduct this analysis and their options for mitigation of liability within the scope of attorney. Client privileged to protect sensitive conversations and analysis from discovery.

If you have questions about or need assistance with these and other risk management or compliance concerns, contact the author. 

For More Information

We hope this update is helpful. For more information about the  or other health or other employee benefits, human resources, or health care developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297.

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About the Author

A Fellow in the American College of Employee Benefits Counsel and Board Certified in Labor and Employment Law by the Texas Board of Legal Certification, Cynthia Marcotte Stamer has more than 35 years experience, advising plan sponsors, fiduciaries, service providers and others about fiduciary responsibility and other employee benefit plan design, administration, risk management and compliance. i

Ms. Stamer is a Martindale-Hubble AV-Preeminent (highest/top 1%) practicing attorney recognized as a “Top Woman Lawyer,” “Top Rated Lawyer,” and “LEGAL LEADER™” in Health Care Law and Labor and Employment Law; among the “Best Lawyers In Dallas” in “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law recognized for her experience, scholarship, thought leadership and advocacy on health and other employee benefits, insurance, healthcare, workforce, HIPAA and other data and technology and other compliance in connection with her work with health care and life sciences, employee benefits, insurance, education, technology and other highly regulated and performance-dependent clients.

Ms. Stamer has more than 35 plus years of experience advising and representing, employers, employee benefit plans and their fiduciaries and administrators, their administrative services, technology and other business associates and other vendors, managed care and insurance, health care and other clients about these and other workforce, employee benefits, internal controls and other operations and compliance concerns.  

Ms. Stamer is nationally sought out for her decades of leading-edge experience in the design, sponsorship, administration, and defense of health, severance, savings retirement and other employee benefit, workforce, insurance, healthcare, data and technology, and other operations to promote legal and operational compliance, reduce regulatory and other liability, and advance other operational goals. This experience includes decades of work on ERISA, Internal Revenue Code and other related labor and employment, insurance, corporate and securities, data privacy and security, licensing and other laws. She also sought out for her extensive speaking and publications on these and related concerns.

Along with her decades of legal and strategic consulting experience, Ms. Stamer also contributes her leadership and experience to many professional, civic and community organizations including current or previous service as Employee Benefits Group Chair and a Substantive Groups Committee Member for the ABA Real Property Trusts and Estates (“RPTE”) Section and Chair of its Welfare Plan, Fiduciary Responsibility and Plan Terminations Committees; Chair of the ABA International Section International Employment Law Committee; Chair and Vice Chair of the ABA Tort Trial and Insurance (“TIPS”) Section Medicine and Law Committee, Vice Chair of its Employee Benefits and Worker’s Compensation Committees; and Chair of the ABA Intellectual Property Section Law Practice Management and Special Technologies Committees; ABA Joint Committee on Employee Benefits (“JCEB”) Council Representative and Scribe for its annual agency meetings with the Department of Health and Human Services; International Section Life Sciences Committee Chair; Health Law Section Managed Care & Insurance Interest Group Chair; Vice Chair, Tax Section Fringe Benefit Committee Chair, and in various other ABA leadership capacities. Ms. Stamer also is a former Southwest Benefits Association Board Member and Continuing Education Chair, SHRM National Consultant Board Chair and Region IV Chair, Dallas Bar Association Employee Benefits Committee Chair, former Texas Association of Business State, Regional and Dallas Chapter Chair, a founding board member and Past President of the Alliance for Healthcare Excellence, as well as in the leadership of many other professional, civic and community organizations. She also is valued and celebrated for her decades of policy advocacy and charitable, pro bono, community and other service and leadership to promote understanding and strengthening health care, workforce, saving, disability, aging and retirement and other key policies and challenges through her PROJECT COPE Coalition For Patient Empowerment initiative and many other pro bono service involvements locally, nationally and internationally.

Ms. Stamer is the author of many highly regarded works published by leading professional and business publishers, the ABA, the American Health Lawyers Association, and others. Ms. Stamer also often speaks and serves on the faculty and steering committee for many ABA and other professional and industry conferences and conducts leadership and industry training for a wide range of organizations.

For more information about Ms. Stamer or her health industry, health and other benefits, workforce and other experience and involvements, see the Cynthia Marcotte Stamer P.C. website or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.

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