DEI-fined: Court Clarifies Scope of Government Contractor DEI Executive Order To Reach Only Intentional Discrimination

As our readers may recall, the Trump Administration issued an Executive Order (EO) followed by a new FAR Council memorandum (the Memo) that together bar government contractors from engaging in allegedly “unlawful” diversity, equity, and inclusion (DEI) practices. The U.S. Department of Justice announced a related Civil Rights Fraud Initiative that has already produced at least two False Claims Act (FCA) settlements.

Accordingly, there is widespread concern that the EO and the Memo together sound the death knell for all DEI contractor programs, but a recent judicial narrowing of their scope may keep DEI alive after all.

Executive Order 14,398 and the FAR Memo

On March 26, 2026, the President issued Executive Order 14,398, “Addressing DEI Discrimination by Federal Contractors,” requiring agencies to include provisions in contracts barring “racially discriminatory DEI activities,” defined as “disparate treatment based on race or ethnicity in the recruitment, employment..., contracting..., program participation, or allocation or deployment of an entity’s resources.” Contractors must also acknowledge that compliance is “material to the Government’s payment decisions” for FCA purposes. The EO also directs the FAR Council to issue a deviation to the Federal Acquisition Regulation (FAR) to implement its requirements.

The FAR Council issued a follow-on Memo on April 17, 2026 that implements the EO by creating a new contract clause, FAR 52.222-90 (titled “Addressing DEI Discrimination by Federal Contractors”), and requires agencies to include FAR 52.222-90 in all covered solicitations and existing contracts. Under the clause, which flows down to subcontracts, the contractor must agree “[i]n connection with the performance of work under this contract” not to engage in “racially discriminatory DEI activities.” The Memo contains the same definition of “racially discriminatory DEI activities” as the EO. 

Fearing the EO and Memo would unconstitutionally chill protected speech by gutting DEI programs and initiatives, five associations whose members include government contractors challenged them in federal district court in Maryland in April 2026. The plaintiffs sought to preliminarily enjoin enforcement of the EO on First and Fifth Amendment grounds and to stay the Memo under the Administrative Procedure Act (APA), arguing the Memo was arbitrary and capricious. On October 14, 2026, Judge Adam B. Abelson denied their motion, finding no substantial likelihood of success on the constitutional claims and no irreparable harm from the Memo. What appears at first blush to have been a win for the Administration, however, may not quite be the result the government wanted. In refusing to grant the requested relief, the Court narrowly interpreted the EO and Memo to reach only “intentional discrimination” already illegal under existing law.

The Court's Opinion

First Amendment overbreadth. The plaintiffs argued that the EO is facially overbroad because it “sweeps in an extraordinary amount of protected speech and association.” The Court acknowledged that a ban on “racially discriminatory DEI activities,” standing alone, “may very well have run afoul of the First Amendment” because the phrase “is far from self-explanatory.” But the EO defines that phrase as “disparate treatment,” a legal term of art meaning intentional discrimination, so it “only prohibits contractors from engaging in conduct that is already prohibited by federal law: intentional discrimination on the basis of race or ethnicity.” Applying that reading, the Court held that several activities the plaintiffs feared would be prohibited are not covered by the EO because none of them constitutes intentional discrimination, for example: (i) recruitment “designed to ensure that qualified non-white applicants have an opportunity to apply”; (ii) anti-racism trainings; (iii) research on diseases with “disparate negative health outcomes for particular races”; and (iv) teaching, research, and publishing on diversity topics.

Content discrimination and unconstitutional conditions. The plaintiffs also argued that the EO targets speech based on content and conditions federal contracts on giving up protected expression. Following the Fourth Circuit’s recent decision in National Ass’n of Diversity Officers in Higher Education v. Trump, 167 F.4th 86 (4th Cir. 2026) (NADOHE I), the Court rejected both arguments because the plaintiffs “have no protectable speech interest” in DEI programs that violate federal antidiscrimination law. Because the EO reaches only illegal “disparate treatment,” “any conduct prohibited by the Order is also prohibited by federal antidiscrimination law,” and, to the extent the EO reaches discrimination that federal statutes do not, the plaintiffs did not show the First Amendment protects it.

Fifth Amendment vagueness. The plaintiffs argued that the EO clause’s preface, “[i]n connection with the performance of work under this contract,” is void for vagueness because it is unclear whether it covers only contract-funded work or “any expression by a contractor or subcontractor.” The Court disagreed, holding that the language limits the clause to work performed under the specific contract.

APA. Finally, the Court rejected the plaintiffs’ APA challenge and found that the Memo is not arbitrary and capricious because its deadlines “stem directly from the [EO]” and its requirements are “substantially identical” to the EO’s. 

Implications

This decision gives government contractors some additional guidance (and potentially comfort) about what “DEI” conduct is prohibited by the EO and the Memo. In the Fourth Circuit’s earlier ruling in NADOHE I, the government conceded that “there is ‘absolutely’ DEI activity that falls comfortably within the confines of the law.” In this case, the government further agreed that at least two categories of conduct do not fall within the prohibition: (i) studying diseases that disproportionately affect one race, because such studies “are not instances in which the physicians or the scientists... are trying to discriminate based on... someone’s race or ethnicity”; and (ii) discussing racial disparities, including “talking about historical examples of racial disparities,” because “that would not be disparate treatment based on race or ethnicity.” These admissions tee up strong arguments that similar conduct is also not “intentional discrimination” and therefore falls outside the EO’s and Memo’s scope.

In sum, the Court found both the EO and the Memo to be “materially narrowed” by long-established principles of federal civil rights law such that they reach only contractor conduct constituting intentional discrimination, that is, “disparate-treatment” based on race or ethnicity stemming from “discriminatory intent or motive.” Were the government to bring an FCA case challenging DEI programs more broadly, the Court noted the targets of such enforcement could bring an as-applied constitutional challenge. Contractors can also rely on the government’s admissions when deciding whether to implement or continue DEI activities. If an FCA action is later brought, those statements would support strong scienter and materiality defenses.

Finally, contractors should note the limits of the EO’s and Memo’s reach. The Court held that the Memo “expressly applies only to work the contractor is performing for the government pursuant to the contract in which the model language appears,” and the government conceded that it cannot bar protected speech more broadly. Speech and activities unrelated to the specific contract work therefore fall outside the EO and Memo, and the Court warned that enforcement against such conduct “may well be unconstitutional retaliation.”

Although the plaintiffs no doubt hoped for a successful facial challenge, they and contractors more broadly can take comfort in the Court’s holding that the EO and Memo proscribe only conduct that is already illegal (and presumably separately enforceable under federal civil rights law). Should the government go further, it runs the real risk of an as-applied challenge that would further narrow the EO’s and Memo’s reach.

As always, Qui Notes will continue to monitor developments in this case and in DEI-related FCA enforcement more broadly

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.