DEI Initiatives in the Crosshairs of the Administration: What Nonprofits Need to Know to Mitigate Their Risk

Shortly following his inauguration in January, President Donald J. Trump signed a flurry of Executive Orders implementing a wide array of administration policies. One of the Executive Orders, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (“DEI EO”), is designed to ban both public- and private-sector programs encouraging diversity, equity, and inclusion (“DEI”). Another, entitled “Ending Radical and Wasteful Government DEI Programs and Preferencing” (“EJ EO”), terminates environmental justice programs within the executive branch and targets federal contractors and grant recipients that advance DEI and environmental justice by instructing each federal agency to “terminate, to the maximum extent allowed by law, all . . . ‘equity-related’ grants or contracts.”

Shortly following her confirmation by the U.S. Senate, on February 5, Attorney General Pam Bondi issued a pair of memoranda to U.S. Department of Justice (“DOJ”) personnel, directing the Department to eliminate internal practices related to DEI and environmental justice and directing various elements of the DOJ to “investigate, eliminate, and penalize” private companies and universities (including nonprofits) that have “illegal” DEI programs. She instructed DOJ officials to enforce federal civil rights laws to abandon what she called “illegal discrimination and preferences,” outlining strategies such as launching criminal and civil investigations. These directives were issued to implement the president’s earlier Executive Orders.

While the concepts of these Executive Orders and DOJ enforcement memoranda were not surprising, given widespread criticism of DEI and other programs considered “woke” by the political right, the text of the directives surprised many with their explicit mentions of private sector and nonprofit organizations, many of which have long-established programs dedicated to DEI efforts. Some others are organized with DEI as a central tenet or purpose. The new directives have raised many concerns among nonprofit executives about the legality of both legacy and emerging DEI efforts and the status of their organizations’ funding secured through federal grants, cooperative agreements, contracts, and loans.

At a minimum, these directives signal the administration’s intent to pressure private-sector organizations regarding their DEI practices. A more expansive view of them foreshadows an aggressive effort to challenge DEI programs through lawsuits and regulations targeting organizations perceived as ideological and political enemies of the current administration and its policies.

Of immediate concern to many nonprofit recipients of federal grants, cooperative agreements, and contracts are the requirements in the DEI EO for such recipients to affirmatively certify that their organization (i) “does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws” and (ii) is in compliance with all federal anti-discrimination laws that are “material to the government’s payment decisions for purposes of” establishing federal False Claims Act liability.

Executive orders carry the force of law. They are legally binding and can be enforced, both within the executive branch and against other entities. Executive Orders traditionally carry out existing powers of the president and implement existing law, rather than creating new law, and often dictate how the executive branch will operate by directing departments and agencies to carry out certain initiatives. Given the executive branch’s vast bureaucracy and spending, Executive Orders have traditionally been a powerful policymaking tool for presidents to test or implement new economic and social policy. Executive Orders are subject to judicial review by federal courts and can be revoked by the sitting president (including successors).

DEI Executive Order

The January 21 DEI EO’s stated purpose is to end “pernicious discrimination.” It directs federal departments and agencies to terminate “all discriminatory and illegal” DEI programs and practices and declares that DEI programs and practices are illegal” and “dangerous.” Both the Executive Orders and the DOJ directives contain cursory citations to the federal Civil Rights Act of 1964 and the U.S. Supreme Court’s 2023 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College as supporting the conclusion that DEI programs, broadly speaking, are illegal.

Notably, the DEI EO and the DOJ directives also took aim at DEI efforts in the private sector, attempting to extend the order’s reach beyond the typical province of Executive Orders of federal agencies and federal award recipients. The DEI EO directed agency heads to “take all appropriate action” to “advance in the private sector the policy of individual initiative, excellence, and hard work.” The order directs federal agencies to submit recommendations for enforcement of civil rights laws, including by identifying “discriminatory DEI practitioners” and by recommending investigations and potential litigation related to DEI programs of “publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” The explicit reference to nonprofit organizations and associations has generated concern among nonprofit and association executives, and a rush to evaluate whether any DEI practices could be considered “discriminatory.” One of the DOJ directives similarly directed DOJ’s Civil Rights Division to recommend enforcement actions and “other appropriate measures to encourage the private sector to end illegal discrimination and preferences.” Among the recommendations the attorney general requested are “proposals for criminal investigations and for up to nine potential civil compliance investigations.”

Environmental Justice Executive Order

Like the DEI EO, the EJ EO directs federal agencies to terminate federally funded DEI programs and initiatives—including through nonprofits that receive federal grants or contracts—and extends the culling to include agency efforts to promote environmental justice. The intent of the EJ EO seems to be to claw back parts of the Biden administration’s environmental regulations, as well as portions of the federal Infrastructure Investment and Jobs Act and the Inflation Reduction Act that provided funding for environmental justice programs.

Although there is some clear overlap in the subject matter of the EJ EO and the DEI EO, the EJ EO goes further than the DEI EO by targeting federal contractors and grant recipients. It directs agencies to provide the White House Office of Management and Budget (“OMB”) with a list of federal contractors who have provided DEI training to federal agencies, as well as federal grantees who received federal funding “to provide or advance DEI, DEIA, or ‘environmental justice’” programs. Although the EJ EO does not direct that litigation or enforcement actions be taken against these grantees or contractors, the intent of the Executive Order seems clear: to achieve compliance with its goals by the mere threat of including these organizations on an administration list of supposed transgressors.

Also of note is that on January 27, OMB took the extreme step of “pausing” all federal grants, cooperative agreements, and loans, putting mission-driven nonprofits in critical areas—including public health, environmental protection, immigration, international development, and others—at risk of losing funding that they rely on to carry out their missions. While the administration reversed its “pause” shortly after its issuance, and multiple federal courts have since enjoined the action, the Executive Orders remain in full force and effect.

Related Litigation

On February 21, a federal judge in Maryland issued a nationwide preliminary injunction against portions of the DEI EO and EJ EO, ruling that portions of the Orders were likely to violate the First Amendment’s Free Speech Clause because those portions constituted impermissible content and viewpoint discrimination. The injunction also found that portions of the Executive Orders were likely to violate the Fifth Amendment because they are unconstitutionally vague.

The trend in private litigation against private-sector DEI programs, which increased in the wake of Students for Fair Admissions, has continued following the president’s Executive Orders. As a recent example, on March 5, a nonprofit group called Do No Harm, a watchdog group that describes itself as mobilized around “protecting healthcare from the disastrous consequences of identity politics,” filed a complaint in federal district court against the nonprofit 501(c)(3) American Chemical Society (“ACS”), seeking to enjoin ACS from operating the ACS Scholars Program, a scholarship program for students from historically underrepresented groups in the chemical sciences. Only Black, Hispanic, and Indigenous American applicants are eligible for the scholarships. Do No Harm alleged that the program violated Section 1981 of the Civil Rights Act of 1866, which prohibits discrimination on the basis of race in making and enforcing contracts. The suit also alleges violations of Title VI of the Civil Rights Act of 1964, which prohibits discrimination on the basis of race, color, and national origin in programs that receive federal financial assistance. To that end, the suit claims that ACS’s federal tax exemption under Section 501(c)(3) (due to the ability to receive tax-deductible charitable contributions) is a form of federal financial assistance that brings ACS’s scholarship program within the scope of Title VI. Note that the antidiscrimination reach of Title VI is not limited only to race and contracts and is in fact far broader.

Practical Considerations

Unfortunately, the DEI EO and the EJ EO do little to elaborate on what they view as “discriminatory” and “illegal.” Additionally, the EJ EO and DOJ directives somewhat obscure the consequences of being on an administration “list” of organizations providing DEI training or programming for the federal government, although the clear implication is the loss of federal funds. While both Executive Orders and the DOJ directives make oblique references to statutes and court decisions, they do not examine them in depth, nor do they indicate which elements of a DEI program would make it discriminatory or illegal, adding to the lack of clarity regarding the legal risk and the anxiety of nonprofit leaders. Recent administrative actions have been so broad as to imply that innocuous textual references to diverse groups are evidence of illegal activity prohibited by the Executive Orders. For instance, according to recent reporting, staff at the National Science Foundation (“NSF”) have reviewed thousands of active science research projects using a list of flagged keywords (such as “women,” “diversity,” “minority,” “institutional,” “historically,” and “socioeconomic,” among dozens of others), to determine if the projects include activities that violate the new Executive Orders. Scientists who receive NSF funding were already put on notice to cease any activities that do not comply with the Executive Orders. In this context, nonprofit executives who have concerns about the legality of DEI programs should consult experienced legal counsel to further examine their legal risk and discuss potential mitigation strategies.

Aside from concerns related to federal funding, many nonprofits are concerned that their federal tax-exempt status may be at risk due to DEI-related activities. Although there has not been any evidence of DOJ or the Internal Revenue Service (“IRS”) challenging nonprofit organizations’ federal tax exemptions on this basis, such concerns have been raised by claims made in private litigation framing 501(c)(3) tax-exempt status as a form of federal financial assistance, thus bringing such organizations under the ambit of Title VI of the federal Civil Rights Act of 1964, which has a much broader reach—with even more alarming adverse consequences—for these entities. Beyond this argument, it is not inconceivable that a “weaponized” IRS or DOJ could seek to revoke the tax-exempt status of any tax-exempt organization that it believes is primarily engaged in activities—such as “illegal DEI”— that it believes are contrary to public policy. There is some precedent in case law for such arguments. If the IRS and/or DOJ were to go down this path, the potential adverse implications for some tax-exempt organizations are sweeping.

Even in this time of uncertainty, there are several steps nonprofit executives can take to understand their legal risk related to DEI initiatives. These steps all require a degree of self-awareness of an organization’s values and culture, as well as a careful examination of organizational finances, legal risk, and public profile.

Know your values. Some nonprofits are organized for the specific purpose of supporting certain racial, ethnic, religious, or gender groups, or other groups, in a way that may be considered “DEI” by the Trump administration. For these organizations, there may be a direct conflict between their organizational purposes and the dictates of the Executive Orders and DOJ directives. Don’t be too quick to abandon a central tenet of your organization without careful consideration, but examine whether certain less drastic steps can be taken to mitigate risk. For instance, many nonprofits are scrubbing their public-facing websites to remove any DEI-related references.

Examine your funding streams. Organizations that do not rely on federal awards for their operations are much more insulated from these Executive Orders and potential DOJ enforcement than ones that do. If your organization does receive federal funds, and it has a constellation of subsidiaries and affiliates, identify which entity or entities house the federally funded programs and the DEI or environmental justice programs that put you at risk under the Executive Orders, and do what you can to insulate the other entities accordingly. Also, begin examining funding alternatives, such as private foundation grants, that may allow you to fulfill your mission and meet your funding needs.

Scrutinize your DEI initiatives. Take a hard look at your DEI-related initiatives to ensure that they are consistent with current law, and consult experienced legal counsel for assistance. The federal Civil Rights Act of 1964, mentioned in the DEI EO, is only one of the laws implicated by such programs. As discussed above, also very relevant is Section 1981 of the federal Civil Rights Act of 1866, which has been used to launch legal attacks on programs from nonprofits and other entities that restrict eligibility for certain grants, scholarships, fellowships, and other opportunities to certain races, among other protected characteristics. Other laws implicated could include state public accommodations laws and state education and employment laws. Several states have passed anti-DEI laws covering employment, state grants, and education that need to be taken into account, such as the Florida law that prohibits private nonprofit and other employers from providing any DEI-related training to their Florida-based employees. See our prior article on mitigating risks of DEIA programs for a more expansive discussion of these issues.

Assess your culture. Have a good understanding of the level of support for DEI-related initiatives within your nonprofit organization and among your members, donors, grantors, and other stakeholders. Understand your organization’s risk tolerance, budget, values, public profile, and ability to withstand legal challenges and the significant costs that often accompany them (some of which may not be covered by insurance). Be able to identify any potentially controversial programs as a way to anticipate legal and regulatory challenges, and consider what interim changes can be made in order to mitigate risk and make your organization less of a target in the current climate.

Most of the administration’s directives in this area (and others) are already the subject of legal challenges in the courts—some of which have found early success—but the fate of that litigation, much of which is likely to work its way up to the U.S. Supreme Court, is uncertain. While many legal experts believe that a number of the new directives are unlawful, relying on such presumptions can carry with it a high degree of risk.

Although the new administration’s actions have instilled fear and uncertainty in many in the nonprofit community, these early actions may prove to be the catalysts that encourage nonprofits to take necessary protective actions. The Trump administration has given nonprofit organizations an early opportunity to galvanize themselves against potential adverse legal and regulatory consequences. By taking early prophylactic steps against these threats, nonprofits will be better positioned to defend themselves for the next four years while maintaining progress toward their missions.

For more information, please contact the authors at jtenenbaum@TenenbaumLegal.com and kserafino@TenenbaumLegal.com.

The views expressed herein are solely those of the authors and are not necessarily those of the authors’ firm, the American Bar Association, or the Business Law Section.