On July 29, the U.S. Department of Justice (DOJ) issued new guidance warning all federal agencies and recipients of federal financial assistance that their programs, policies, or activities, including those labeled as Diversity, Equity, and Inclusion (DEI) programs, must fully comply with federal anti-discrimination laws.
The memo, “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination,” emphasizes that granting preferential treatment based on protected characteristics (including race, color, religion, sex, or national origin) is unlawful unless specifically authorized by statute or upheld under strict judicial scrutiny. It also provides both a non-exhaustive list of practices that may lead to a violation, as well as a list of “Best Practices” to help entities/employers mitigate risk.
What is the Trump administration calling illegal DEI?
According to the memo, the following are examples of unlawful practices:
- Race-Based Scholarships or Programs
- Preferential Hiring or Promotion Practices
- Access to Facilities or Resources Based on Race or Ethnicity
- Race-Based Training Sessions
- Implicit Segregation Through Program Eligibility
- Race-Based Policies in Hiring
- Sex-Based Selection for Contracts
- Race or Sex-Based Program Participation
The following are examples of best practices for avoiding violations:
- Ensure Inclusive Access
- Focus on Skills and Qualifications
- Prohibit Demographic-Driven Criteria
- Document Legitimate Rationales
- Scrutinize Neutral Criteria for Proxy Effects
- Eliminate Diversity Quotas
- Include Nondiscrimination Clauses in Contracts to Third Parties and Monitor Compliance
- Establish Clear Anti-Retaliation Policies and Create Safe Reporting Mechanisms
Is my DEI program Illegal?
The new DOJ guidance closely aligns with the Trump administration’s prior executive orders and other actions cracking down on DEI initiatives across government programs. AGC has published articles to help construction employers evaluate their DEI programs for compliance with evolving federal standards. These articles include top takeaways for federal contractors and what private-sector employers should do now. In addition, AGC has explained how recent EEOC guidance could impact employer policies related to DEI training, hiring practices, and employee resource groups—highlighting the importance of reviewing any initiatives that could result in differential treatment based on protected characteristics.
Federal contractors should also be aware that Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” mandates that “every contract or grant” award include in the recipient’s agreement that “Its compliance in all respects with all applicable Federal anti-discrimination laws is materialto the government’s payment decisions for purposes of” the federal False Claims Act. This, in turn, requires the recipient to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
AGC’s Commitment to Inclusivity and Care
Like many contractors, AGC has found that cultivating a workforce with a broader range of backgrounds and perspectives strengthens our performance, improves workforce retention, and lifts morale. That’s why we developed the Culture of CARE program.
Specifically for the construction industry, AGC’s Culture of CARE program provides contractors with a framework for creating inclusive and respectful work environments for all employees. The program’s flexibility and industry-specific design make it especially effective for contractors seeking to embed inclusion into their daily operations and build a strong workplace culture.
To strengthen this message and provide clear, data-driven insights, AGC recently released the Business Case for Inclusion & Belonging. This new report outlines the tangible business benefits of fostering inclusive workplaces. Construction companies that prioritize inclusion are more successful in attracting and retaining a diverse workforce, experience improved safety outcomes, have stronger employee engagement, and face lower employee turnover, all factors that directly influence jobsite performance, team cohesion, and long-term profitability.
AGC’s Culture of CARE program supports companies in turning the insights gained from the Business Case report into action. Through BuildCulture.org, firms have access to a comprehensive and growing library of free, high-impact resources designed to operationalize inclusion and belonging in meaningful ways.
These include customizable workplace signage, including job site banners, posters, and hard hat stickers to reinforce respectful workplace expectations and demonstrate visible support for inclusion. To support ongoing learning and team engagement, Culture of CARE provides a set of toolbox talks and tailgate discussion videos focused on respect, mental health and wellbeing, leadership, and communication. In addition, Culture of CARE provides sample inclusive policies and HR materials tailored to assist with recruitment and hiring for construction workplaces.
Do I still have to abide by federal DBE and other set-aside requirements?
Many contractors have questions about the new DEI policies and their impact on the Department of Transportation’s (DOT) Disadvantaged Business Enterprise (DBE) program. While the administration’s policy shift affects many DEI-related programs, Executive Orders and DOJ guidance cannot override statutes or regulations. The federal DBE and SBA 8(a) Business Development programs are both creatures of statute and therefore cannot be eliminated without congressional action. This op-ed underscores that only Congress or the courts—not the Executive Branch—can eliminate the DBE Program. If the Trump administration attempts to end these programs, and bypass Congress or the courts, they would likely face legal challenges in court. Now, DOT may propose updates to its DBE regulations to reflect the priorities of the new administration and/or the outcomes of court rulings. AGC has very extensive recommendations on how to improve the existing DBE program, which are outlined in AGC’s Surface Transportation Reauthorization Recommendations.
As a reminder, both programs are facing legal challenges alleging unconstitutional use of race- and gender-based presumptions. In the event that happens, AGC released a model program to assist emerging construction firms. This document highlights five core principles that should guide any future efforts to support small and emerging contractors, particularly if current programs are revised or eliminated.
For more information, contact Alex Etchen, Leah Pilconis, Jordan Howard, Deniz Mustafa, or Brynn Huneke.