Update (2/27/2025): In National Association of Diversity Officers in Higher Education et al. v. Trump et al., No. 1:25-cv-00333, the plaintiffs challenged certain provisions of the EO discussed below in the U.S. District Court for the District of Maryland. On February 21, 2025, the District Court issued a preliminary injunction enjoining federal agencies from requiring certifications under the EO and from bringing False Claims Act enforcement actions related to the certifications. Notably, this injunction applies to non-parties. The full memorandum opinion is available here. It is likely that the defendants will appeal the ruling. For now, this injunction means that local governments may not see additional requests for certification.

Overview

On January 21, 2025, President Trump issued Executive Order 14173, entitled Ending Illegal Discrimination and Restoring Merit-Based Opportunity (the “EO”). The EO states that practices undertaken in the pursuance of diversity, equity, and inclusion (DEI) “can violate the civil rights laws of this Nation.” To guard against that kind of violation, the EO requires every contractor, contractual counterparty, or grant recipient under a federal contract to (1) certify that it does not operate DEI programs that violate federal anti-discrimination laws, and (2) agree to a contract term that, if a violation of this certification is found, could lead to liability under the False Claims Act. This blog post highlights provisions in the EO that are relevant to local governments and offers some guidance for handling any required contract clauses or certifications.

Much of the EO focuses on the federal government’s employment practices and contracting considerations. For example, Section 3(a) of the EO revokes President Barack Obama’s  Executive Order 13583, Establishing a Coordinated Government-Wide Initiative to Promote Diversity and Inclusion in the Federal Workforce. Section 3(b) includes language revoking President Lyndon Johnson’s Executive Order 11246, Equal Employment Opportunity, and directing the Office of Federal Contract Compliance Programs (OFCCP) within the Department of Labor to stop promoting “diversity” and stop holding federal contractors and subcontractors responsible for taking “affirmative action.”

Although the phrases “diversity” and “affirmative action” are not defined in the EO, a definition for “contract” can be found in the Federal Acquisition Regulations (FAR), which are applicable to federal agency procurement. At Section 2.101 of the FAR, “contract” plainly refers to instances where the federal government is contracting for goods and services. Thus, in the context of the EO, the terms “contractors” and “subcontractors” generally mean entities that are providing goods or services directly to the federal government.

Applicability of the EO to Local Governments

But additional language in the EO pertains to local governments in North Carolina. Section 3(b)(iv) applies more broadly than federal contractors or subcontractors, and extends to a “contractual counterparty” or “grant recipient” of the federal government. Although these terms are not defined in the EO, they can certainly include local governments.

Specifically, Section 3(b)(iv) requires federal agencies to include in every contract or grant award:

(A) A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code; and

(B) A term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.

Taken together, these contract clauses mean that to receive federal funding, local governments will have to certify that any of their “programs promoting DEI” do not violate federal anti-discrimination law. Section (A), which refers to section 3729(b)(4) of title 31, United States Code, ties the certification to the False Claim Act, which is discussed later in this blog post.

Contract Clauses and Certification for Existing and Future Federal Funding

The EO applies to current and future contracts. Federal agencies have already started incorporating these clauses into notices of funding opportunities and requiring certifications of compliance. For example, the Department of Transportation issued a revised notice of funding opportunity on January 24, 2025, which clarified inclusion of the clauses from the EO and changed the title of the grant from Rebuilding American Infrastructure with Sustainability and Equity (RAISE) to Better Utilizing Investments to Leverage Development (BUILD).

In North Carolina, local governments have begun receiving communications from federal agencies requiring certification that their use of federal funding complies with all administration Executive Orders and does not include any activities that promote DEI activities. For example, Americorps has sent letters such as this and this with these additional instructions about compliance with the EO. In these communications, federal agencies are offering, as an alternative to certification, that federal fund recipients can modify their grant applications or relinquish their grant awards.

In the weeks and months to come, local governments can expect similar communications from federal agencies, particularly if existing funding involves racial equity, disadvantaged or underserved communities, environmental justice, and other topics that have been identified explicitly in executive orders. Additionally, local governments should plan for any new funding agreements with federal agencies to include contract clauses that reflect the requirements in the EO. 

The remainder of this blog post explains how local governments can navigate the evolving environment of federal contracts and should consider liability under the False Claims Act as a consequence of the new certification process.

Compliance with Federal Anti-Discrimination Laws

The new contract clauses required by the EO require a “contractual counterparty” or “grant recipient” to certify it does not operate any “programs promoting DEI” that violate any federal anti-discrimination laws.  However, the EO does not define “programs promoting DEI.”  The phrase is open to interpretation. Other language in the EO suggests that “preferences” and “workforce balancing” could be construed as elements of “programs promoting DEI.”

Regardless of the meaning of “programs promoting DEI,” the EO requires certification that DEI programs do not violate federal anti-discrimination laws. There are many federal anti-discrimination laws, which protect people in certain classes and certain contexts. The Civil Rights Act of 1964 is one of the more prominent anti-discrimination laws, with eleven parts, known as Titles, that address discrimination based on race, color, religion, national origin, and sex, in contexts ranging from voter registration practices to employment. Other federal anti-discrimination laws include the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967 (ADEA), Equal Pay Act of 1963, Section 504 of the Rehabilitation Act of 1973, the Genetic Information Nondiscrimination Act of 2008 (GINA), the Pregnancy Discrimination Act of 1978, the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), and the Equal Protection Clause of the United States Constitution. This non-exhaustive list demonstrates that anti-discrimination law is an extensive field.

Even before this new certification requirement, local governments could not violate federal anti-discrimination law. So, what has changed and why is this certification necessary? For one, the legal landscape surrounding “affirmative action” programs has been evolving quickly, particularly in the wake of the United States Supreme Court’s ruling in Students for Fair Admissions v. President and Fellows of Harvard College, which found that Harvard and UNC’s current race-conscious admissions policies violated the Equal Protection Clause of the United States Constitution.[1] And for another, the consequences of a violation could now include liability under the False Claim Act, as described in the following section.

About the False Claims Act

The False Claims Act (the “FCA”), 31 U.S.C. §§ 3729-3733, is a civil enforcement mechanism commonly used by the United State Department of Justice (DOJ) for addressing fraud against the federal government. The FCA imposes liability on any person who knowingly submits false claims to the government or knowingly makes a false statement that is material to a false or fraudulent claim. The civil penalty for a violation is between $5,000 and $10,000, adjusted for inflation, plus three times the amount of the federal government’s actual damages—commonly known as treble damages. The law also has qui tam provisions that allow a private individual, known as a relator, to file suit for violations of the FCA on behalf of the federal government.

The language of the FCA warrants further analysis of several terms: “material,” “claim,” and “person.” According to the FCA, “material” means having tendency to influence, or be capable of influencing, the payment or receipt of money or property. Thus, to be actionable under the FCA, a misrepresentation about compliance with a requirement must be material to the federal government’s payment decision.[2] When evaluating materiality under the FCA, the federal government’s decision to expressly identify a provision as a condition of payment is relevant, but not dispositive. Instead, the materiality analysis turns on whether the defendant knowingly violated a requirement that the defendant knows is material to the government’s payment decision.[3]

The FCA defines a “claim” to include any request for money that is presented to a federal agency under a contract, which captures the federal government’s relationships with contractors and subcontractors. Id. at (b)(2)(A)(i). Particularly relevant to local governments, a “claim” also includes a request for money to be paid to a contractor, grantee, or other recipient, if the money is to be spent or used on the federal government’s behalf or to advance a federal government program or interest. Id. at (b)(2)(A)(ii).

Finally, the FCA does not define “person,” but the applicability of the FCA to state and local governments has been litigated extensively.  For some time, the federal Circuit Courts were split on whether states and state agencies are defendant persons under the FCA, both as matter of the plain language of the statute and Eleventh Amendment immunity.[4] In 2000, the United States Supreme Court concluded that states are not subject to FCA liability in actions brought by qui tam relators.[5] (The Supreme Court did not decide the question of whether states can be sued by the federal government under the FCA, but caselaw suggests this is permissible.) Several years later, the United States Supreme Court reached a different outcome for local governments when it opined that municipal corporations are subject to qui tam actions under the FCA.[6] Since the United States Supreme Court handed down these two decisions, federal district and circuit Courts have approached subsequent cases by analyzing whether a defendant is an “arm of the state.”[7]

The qui tam provisions of the FCA, 31 U.S.C. 3730, impose procedural requirements on relators, including bringing the action in the name of the federal government and serving the federal government. The complaint in a qui tam action is filed under seal, remains under seal for at least 60 days, and is not served on the defendant until the court issues an order. The federal government must then choose whether to proceed with the case. Qui tam relators are entitled to up to thirty percent of a settlement in a FCA action with no monetary cap. Last year, the Department of Justice reported record numbers in settlements and judgments under the FCA, exceeding $2.68 billion for fiscal year 2023. During this same period, 712 qui tam actions were filed, leading to over $349 million paid to individuals who filed those actions. One federal district court recently held that the FCA’s qui tam provisions violate the Appointments Clause of the United States Constitution because qui tam plaintiffs act as improperly appointed United States officers.[8] This case is currently on appeal in the Eleventh Circuit and was briefed by the federal government last month. However, most courts have rejected this constitutional argument.[9]

Ultimately, the EO raises the possibility of FCA claims against local governments with federal contracts based on their DEI activities. In light of the above, the next section provides some guidance and takeaways for local governments.

Guidance and Takeaways for Local Governments about the EO

• Be on the Lookout for Contract Clauses and Certifications. Local governments need to be aware that federal funding agreements will soon include (or amend) language making their compliance with federal anti-discrimination laws a material condition of the federal government’s payment under the agreements. The inclusion of these contract clauses may provide an easier pathway for qui tam relators to file a complaint if they believe a local government is violating federal anti-discrimination laws.

• Review Contract Clauses and Certifications Carefully. Pay attention to whether the clauses or certifications are specific only to the related funding, grant, or program, or apply more broadly to a local government’s activities. Even if a certification is limited to a particular program, assess how any actions taken under it—such as modifying the grant language—could imply prior non-compliance. Local governments may wish to qualify certifications by stating that prior activity under the program did not violate federal anti-discrimination laws. Finally, ensure that the language of any contract clauses and certifications is not more comprehensive than the language of the EO. While federal agencies probably will not negotiate the contract clauses or certifications, the breadth of the language may influence the local government’s decision to provide the required certification, amend program language, or give up the federal funds.

• Review DEI Programs and Initiatives. While the meaning of “programs promoting DEI” is unclear, local governments should assess their current programs and initiatives to confirm that they can certify compliance with federal anti-discrimination laws. Conducting these evaluations with legal counsel may help ensure that the review is considered attorney work product, which could later be protected from disclosure.

• Put Employees on Notice and Give Instructions. Local governments should instruct individuals within their units who are involved in contracting or may receive a certification request related to the EO to promptly notify appropriate personnel (e.g., the local government’s attorney) upon receipt. This will help prevent the unit from inadvertently becoming subject to clauses or certifying compliance without sufficient review and organizational awareness.

• Keep Tabs on Developments. Many federal agencies have yet to issue contract amendments or certification letters for existing funding agreements. As more federal agencies start incorporating the EO directives into their funding agreements, the requirements may become clearer. Additionally, ongoing litigation, filed in District Court for the District of Columbia on February 19, 2025, seeks a permanent injunction against the use of contract clauses pursuant the EO. It will be important to closely monitor this lawsuit and federal agency actions.

I will update this blog post as I learn of any relevant information or guidance. If you have any questions or comments, please contact me at cuccaro@sog.unc.edu.

[1] See Students for Fair Admissions, Inc. v. President & Fellows of Harvard Coll., 600 U.S. 181 (2023).

[2] Universal Health Servs., Inc. v. United States, 579 U.S. 176 (2016).

[3] United States ex rel. Heath v. Wisconsin Bell, Inc., 92 F.4th 654 (7th Cir. 2024), cert. granted, 144 S. Ct. 2657.

[4] See United States. ex rel. Long v. SCS Bus. & Tech. Inst., Inc., 173 F.3d 870 (D.C. Cir.), supplemented, 173 F.3d 890 (D.C. Cir. 1999).

[5] Vermont Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765 (2000).

[6] Cook County, Ill. v. United States. ex rel. Chandler, 538 U.S. 119 (2003).

[7] See United States ex rel. Lesinski v. S. Fla. Water Mgmt. Dist., 739 F.3d 598, 601 (11th Cir. 2014) (To determine whether an entity is acting as an “arm of the state,” the court examines four factors: “(1) how state law defines the entity; (2) what degree of control the State maintains over the entity; (3) where the entity derives its funds; and (4) who is responsible for judgments against the entity.”)

[8] See United States ex rel. Zafirov v. Fla. Med. Assocs., LLC, No. 8:19-cv-01236-KKM-SPF, 2024 WL 4349242, at 19-20 (M.D. Fla. Sept. 30, 2024).

[9] See United States  v. Chattanooga-Hamilton Cnty. Hosp. Author., No. 1:21-cv-00084, 2024 WL 4784372, at 2-3 & n.2 (E.D. Tenn. Nov. 7. 2024).