The U.S. Department of Justice (DOJ) has reportedly begun investigating diversity, equity, and inclusion (DEI) programs of federal contractors and other recipients of federal funds under the False Claims Act (FCA), as we previously described here. These investigations, if pursued beyond the investigative stage, could represent a meaningful expansion in FCA enforcement, as historically the FCA has been used primarily to combat billing fraud and other financial misconduct involving government funds. The DOJ's initiative, however, suggests a willingness to apply the FCA to companies' DEI-related policies through alleged false certifications of compliance with anti-discrimination requirements that are often embedded in federal contracts, grants, and related funding agreements.
Federal contractors and grant recipients are often required to certify compliance with applicable federal anti-discrimination and equal employment opportunity laws as a condition of receiving federal funding. The DOJ's recent initiative suggests that it may scrutinize whether certain DEI initiatives, particularly those that explicitly consider protected characteristics, are consistent with those certifications. Employers that maintain DEI programs while contracting or subcontracting with, or receiving funding (directly or indirectly) from, the federal government should be aware that perceived inconsistencies between written certifications and actual practices could prompt costly investigations.
What This Means for Employers
- Possible FCA Exposure. When employers certify compliance with anti-discrimination laws as a condition of payment under a federal contract or grant, the DOJ may argue that employment practices it views as discriminatory render those certifications false under the FCA (as described in the July 2025 DOJ memorandum, and as we further analyzed here). The DOJ appears to be focused on whether the employment practice, as implemented, aligns with the substance of the certification.
- Resource-Intensive Investigations. FCA investigations typically begin with information and document requests (including for corporate communications) regarding workplace policies and practices, including hiring, promotion, compensation, training, and DEI-related programs and materials. These investigations can trigger thorough internal reviews of policies, practices, and emails. Even where an investigation does not result in a lawsuit or penalties, responding to DOJ inquiries can impose substantial legal costs, time, and operational burdens on employers.
- Risk of Private FCA Actions. The FCA allows private individuals to file whistleblower (qui tam) actions on the government's behalf. The DOJ's current focus on, and enforcement of, potentially unlawful DEI programs and practices under the FCA may encourage current and former employees (and even vendors and competitors) to challenge these practices and compliance certifications as inconsistent with anti-discrimination obligations tied to federal funding. This creates a new pathway for disputes that previously would have been assessed under employment laws to be recast as fraud claims under the FCA, where potential damages and penalties are significantly greater.
Takeaways
Employers that contract or subcontract with, or receive funding from, the federal government (directly or indirectly) should consider revisiting their employment policies and DEI-related programs to assess whether any aspects could be construed as inconsistent with federal anti-discrimination laws. Even policies and programs adopted with lawful or remedial intent may draw scrutiny under the FCA if they rely on protected characteristics in ways that the DOJ views as inconsistent with certification obligations. Employers are also encouraged to evaluate DEI-related language in contracts and grant agreements to understand certification obligations and any contractually imposed compliance standards. Finally, maintaining documentation demonstrating that employment decisions are grounded in business necessity and neutral criteria can strengthen employers' positions if subject to DOJ review.
Venable will continue to monitor developments in this area. Employers with questions regarding the DOJ's use of the FCA, its implications for labor and employment practices, or its application to specific DEI practices are encouraged to contact the authors of this article or any attorney in Venable's Labor and Employment Group.