Following a series of executive orders (EOs) aimed at government contractors and grant recipients over the past year addressing diversity, equity, and inclusion (DEI) practices, the U.S. Department of Justice (DOJ) and the U.S. Equal Employment Opportunity Commission (EEOC) have announced the first settlement agreements related to allegations of illegal DEI practices by federal contractors and grant recipients.
DOJ Settlement
On April 10, 2026, DOJ announced that International Business Machines Corporation (IBM) has agreed to pay $17,077,043 to resolve allegations that it violated the False Claims Act (FCA) by failing to comply with anti-discrimination requirements in its federal contracts.
DOJ alleged that IBM discriminated against employees and applicants for employment because of race, color, national origin, or sex. Specifically, DOJ alleged that IBM (1) took race, color, national origin, or sex into account when making employment decisions, including bonus compensation; (2) altered interview criteria and other employment practices for hiring, transfers, or promotions based on race or sex; (3) developed demographic goals for employment based on race and sex; and (4) offered training, partnerships, mentoring, and developmental and educational opportunities only to employees of a specific race or sex.
EEOC Settlement
On March 19, 2026, EEOC announced that Planned Parenthood of Illinois (Planned Parenthood) agreed to pay $500,000 for violating Title VII of the Civil Rights Act by engaging in illegal DEI-related practices.
EEOC alleged that Planned Parenthood violated federal law by segregating employees by race, subjecting white employees to harassment, and engaging in disparate treatment against white employees regarding terms, conditions, and privileges of employment. This included (1) holding mandatory "affinity caucuses" segregated by race; (2) requiring DEI-related training that targeted and harassed white employees; and (3) denying white employees time off that it granted to Black employees.
Takeaways for Federal Contractors and Grant Recipients
Both DOJ and EEOC acknowledged the steps taken by IBM and Planned Parenthood in cooperating with the government's investigation. DOJ credited IBM for its cooperation during the investigation and early disclosure of facts through IBM's independent investigation, including those helpful in the calculation of damages and penalties, and taking voluntary remedial measures such as terminating or modifying the programs and practices at issue. With respect to Planned Parenthood's settlement, EEOC recognized and noted the removal of the manager responsible for the conduct at issue.
These settlements are a reminder to all federal contractors and grant recipients that DEI practices may lead to potentially significant liability. IBM's settlement also confirms that DOJ will use the FCA to enforce the administration's policies against unlawful DEI.
Notably, the text of the IBM settlement conveys that DOJ's position was, among other things, that "diverse slate" and "diverse sourcing" practices in hiring constituted impermissible uses of race, color, national origin, or sex. While this contention seems consistent with DOJ's stated expansive view of prescribed practices from its July 29, 2025 memorandum, "Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination," this aspect of the IBM settlement agreement seems to confirm DOJ is taking action based on that expansive view.
Federal contractors and grant recipients should:
- Analyze existing contracts and funding agreements with the federal government to understand the scope of any DEI prohibitions that may already be applicable to your organization, as well as the government's and your organization's audit rights. In addition to the DEI EOs issued last year, the Trump administration has maintained its policies against unlawful DEI in 2026, including by proposing updates to federal financial assistance certifications, issuing a new DEI EO aimed at federal contractors and racially discriminatory practices, and litigation expanding the scope of what constitutes "illegal DEI."
- Contractors should understand that the federal government may take the position that the clause at Federal Acquisition Regulation (FAR) 52.222-26, Equal Opportunity, itself operates as a prohibition on many DEI practices. That is the clause DOJ invoked in its settlement to argue that IBM had violated the FCA by indirectly charging the government for allegedly discriminatory DEI activities. This development is noteworthy, given that many federal agencies stopped inserting the clause into federal contracts last year as part of the implementation of EO 14173 (e.g., here and here).
- Direct all staff members who handle federal contracts and federally funded programs to be mindful of terms, conditions, representations, and certifications that may be related to DEI, and that if any such provisions are identified, that they are appropriately elevated for review and consideration before execution of any contract or award document.
- Assess and analyze potentially inconsistent and conflicting requirements, particularly of federal, state, and local programs that may mandate certain activities, such as supplier diversity or similar subcontractor spending requirements, and consider mitigation protocol.
- Based on your examination of applicable DEI prohibitions, review your internal policies, procedures, and practices as they relate to hiring, promotion, compensation, and appointment or selection processes, as well as existing workplace training programs and activities, to ensure prohibited activities are appropriately addressed.
- Examine your public-facing footprint to mitigate the misinterpretation of your organization's activities as falling within objectionable practices. This is important, as publicly announced federal investigations and DOJ settlements may encourage qui tam relators to raise whistleblower complaints related to DEI under the FCA.
- Communicate to your staff, members, and other interested stakeholders your organization's actions as they relate to compliance with DEI prohibitions.
- Monitor legal and regulatory developments as they relate to DEI practices to ensure your organization understands the most current legal landscape and your rights.
Should you have any questions regarding these settlements or the myriad of issues raised by the federal government's DEI prohibitions, please contact the authors of this article or any member of Venable's Government Contracts and Grants Practice, who will also continue to monitor and apprise you of developments in this space.