On March 26, 2026, President Trump issued Executive Order 14398, titled Addressing DEI Discrimination by Federal Contractors (the “order”), which creates significant new requirements for companies that do business with the federal government. The order states that certain diversity, equity, and inclusion (DEI) practices can amount to racial discrimination, and it directs federal agencies to ensure that federal contractors do not engage in what the order defines as “racially discriminatory DEI activities.” The administration frames the policy as a way to promote efficiency, reduce costs, and ensure merit-based decision-making in federal contracting.

At the center of the order is a new mandatory contract clause that all federal agencies must include in contracts no later than April 25, 2026. Specifically, the clause requires federal contractors to avoid any DEI activity that treats individuals differently based on race or ethnicity in hiring, promotions, contracting decisions, or participation in internal programs such as training or leadership development. Contractors must also provide access to records upon request, report potential violations by subcontractors, and acknowledge that compliance affects federal payment decisions under the False Claims Act.

The order also establishes strong enforcement mechanisms. Agencies are directed to cancel, suspend, or terminate contracts if a contractor or subcontractor fails to comply. They must also consider suspending or barring companies from future federal work. The Office of Management and Budget, working with other federal entities, will identify industries that may pose higher compliance risks and issue additional guidance. The United States Attorney General is instructed to consider False Claims Act actions against violators and to expedite the review of related whistleblower lawsuits.

Overall, the order creates a sweeping new compliance framework for federal contractors. Accordingly, entities with current or forthcoming contracts with the federal government should move swiftly to ensure they are in full compliance with the terms of the order by closely examining their hiring practices, training programs, subcontractor relationships, and record keeping processes to ensure they do not fall within the order’s definition of racially discriminatory DEI activities. The order signals heightened scrutiny, stronger enforcement, and potentially significant consequences for federal contractors who fail to meet the new standards.

For questions regarding this executive order, please reach out to Abigail Barr or any other member of Ice Miller’s Workplace Solutions team.

This publication is intended for general informational purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstance.