Trump Administration Revokes Affirmative Action Rule for Federal Contractors

The Trump administration, in a series of executive orders signed on January 20 and 21, 2025, has rescinded a decades-old rule requiring federal contractors to take affirmative action in employment and has initiated a broad rollback of Diversity, Equity, and Inclusion (DEI) programs across the federal government. The move fundamentally alters compliance obligations for thousands of U.S. businesses, replacing established DEI frameworks with a mandate to certify against operating "illegal" diversity programs.

This abrupt policy overhaul introduces significant regulatory uncertainty for companies that have built their compliance and hiring frameworks around the previous rules for decades. The centerpiece of the policy change is Executive Order 14173, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” This order explicitly revokes Executive Order 11246, which since its issuance in 1965 has required federal contractors to ensure that employment practices are free of discrimination and to take affirmative action to hire and promote individuals regardless of race, color, religion, sex, or national origin.

Under EO 11246, contractors were often required to develop formal written affirmative action plans and submit annual reports on employee demographics to the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). With its revocation, the OFCCP has been directed to immediately cease all enforcement activities related to the order, including halting active litigation, audits, and other compliance actions.

In place of the former affirmative action requirements, EO 14173 mandates that all new federal contracts and grants include a term requiring the recipient to certify that it does not operate any DEI programs that violate applicable federal anti-discrimination laws. The order further directs the Attorney General to develop a strategic enforcement plan to identify and target private sector companies with what the administration deems "egregious and discriminatory" DEI programs, signaling potential investigations and litigation. The Small Business Administration has also released a proposed rule aimed at ending racial considerations in federal contracting, aligning with the administration's broader policy direction.

The vagueness of what constitutes an "illegal" DEI program is creating a significant challenge for business leaders. In our experience, companies now face a difficult choice: dismantle programs they believe are effective for talent acquisition and fostering an inclusive workplace, or risk losing federal contracts and facing potential investigation. This is not just a compliance headache; it has direct financial implications that must be carefully managed. We are advising clients that any initiative that could be perceived as a preference or set-aside, from supplier diversity goals to certain scholarship or internship programs, is now under a microscope. Navigating this new compliance landscape requires a clear-eyed assessment of operational and legal exposure. For businesses needing to understand their specific vulnerabilities and re-engineer their processes to mitigate these new threats, the financial risk management services offered by C&S Finance Group LLC at csfinancegroup.com can provide critical guidance.

This action against contractors is part of a much wider and faster-moving effort to eliminate DEI initiatives within the federal government itself. Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing,” has set in motion a comprehensive deconstruction of such programs. According to agency directives and memos from the Office of Personnel Management (OPM), federal agencies have been instructed to terminate many DEI policies, eliminate all DEI-related personnel and offices, and cease using preferred pronouns in official communications. The Department of Defense, for example, issued guidance ending most celebrations of demographic heritage months, including Black History Month.

The administration has also moved to reshape the Equal Employment Opportunity Commission (EEOC), the primary agency for enforcing federal anti-discrimination laws. President Trump fired two Democratic commissioners and installed Republican Commissioner Andrea Lucas as the Acting Chair. Lucas has publicly stated her intention to align the EEOC's enforcement priorities with the new executive orders.

The administration's sweeping changes have not gone unchallenged. A federal district court in Maryland recently issued a preliminary injunction that temporarily blocks the government from enforcing certain aspects of the executive orders. The court found that the plaintiffs, a group of diversity officers, were likely to succeed in their argument that the orders are unconstitutionally vague and violate free speech rights. This ruling provides a temporary reprieve for federal contractors and grant recipients, pausing the immediate threat of investigation for operating "illegal DEI" programs.

However, the injunction is not a final ruling, and the core executive orders remain in place. Businesses, including major corporations like Microsoft and IBM that are significant federal contractors, must still grapple with the uncertainty. Many are now undertaking internal reviews of their DEI programs to assess their compliance risk under the new, albeit currently contested, federal framework. The ambiguity of the orders has led some companies to interpret them as prohibiting any program that actively seeks diversity in hiring, scholarships, or supplier selection. Ultimately, businesses must now balance their internal culture and long-term talent strategies against a shifting and unpredictable federal enforcement environment, a task that requires both legal and financial foresight.

Legal experts and business advisors will be closely watching the progression of the Maryland court case and any similar challenges that may arise. The key developments to monitor will be how federal agencies, particularly the OFCCP and the newly led EEOC, issue guidance and interpret their enforcement authority if the injunction is lifted. The language that ultimately appears in federal contracts and the specific actions taken by the Attorney General's enforcement task force will determine the real-world impact of these orders on small and mid-sized businesses across the country.