Dominique L. Casimir and Shane M. Hannon ●
Less than one month after the issuance of Executive Order 14398 (“EO 14398”), “Addressing DEI Discrimination by Federal Contractors,” a coalition of academic and contractor organizations has filed a lawsuit in federal court seeking to have it enjoined. See National Association of Diversity Officers in Higher Education v. Trump, No. 8:26-cv-01532 (D. Md. filed Apr. 20, 2026). Here is what government contractors need to know.
As we have previously covered, EO 14398 is a critical new development for government contractors. It introduces a new concept of “racially discriminatory DEI activities,” defined as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.”
The plaintiff organizations are challenging EO 14398 on three grounds.
First, they argue EO 14398 violates the First Amendment because it facially chills and censors protected expression and association concerning race; ethnicity; and diversity, equity, and inclusion (“DEI”). They also argue it is unconstitutionally overbroad because it sweeps in a substantial amount of constitutionally protected activity.
Second, they argue EO 14398 discriminates against speech based on its content—targeting only expression related to race, ethnicity, diversity, equity, and inclusion—and conditions receipt of federal funds on contractors agreeing to forgo protected expression, imposing an unconstitutional condition.
Third, they argue the False Claims Act (“FCA”) provision—requiring contractors to agree, via a new contract clause, that their compliance is material to the government’s payment decision—is ultra vires because it exceeds the President’s authority under the Federal Property and Administrative Services Act, 40 U.S.C. § 101 et seq. (the “Procurement Act”). The Procurement Act requires a “close nexus” between an executive policy and the Procurement Act’s delegation of authority for the President to provide an economical and efficient system for procurement. Plaintiffs claim no “close nexus” exists between imposing FCA liability on contractors for DEI activities and promoting an economical and efficient procurement system.
Enjoining EO 14398 vs. EO 14173
Most federal contractors are already subject to the EO 14173 requirement to certify that they do “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” In February 2026, the U.S. Court of Appeals for the Fourth Circuit vacated a lower court’s injunction of that certification requirement, reasoning that the certification merely requires affirming compliance with applicable antidiscrimination law.
The plaintiffs challenging EO 14398 point out that the new contract clause required by the EO goes further than the EO 14173 certification. EO 14398, and the new contract clause, create a wholly new defined concept—“racially discriminatory DEI activities”—not clearly tethered to existing law and, they argue, that this new concept is broader in its prohibitions than existing federal law. According to the Complaint, virtually any mention of race or ethnicity could be considered “racially discriminatory DEI.”
Impact on Government Contractors
An injunction covering all or part of EO 14398 could have significant near-term consequences for contractor obligations under Federal Acquisition Regulation (“FAR”) 52.222-90, the deviation clause created to implement the EO. An injunction would likely result in agencies striking the clause from federal solicitations and contracts and rescinding any intra-agency implementation directives. Even a partial injunction could be significant for contractors if, for example, the FCA materiality acknowledgment is enjoined. Whatever the exact contours of a preliminary injunction, it would certainly relieve some or all of the immediate FAR 52.222-90 compliance pressure for contractors and subcontractors, at least while the litigation progresses.
The Court’s reasoning in a preliminary injunction decision will provide an early window into how it views a central premise in the EO: that although government contractors are already subject to federal antidiscrimination law and to the EO 14173 certification, they must nevertheless be contractually prohibited from engaging in what the EO defines as “racially discriminatory DEI activities,” which the plaintiffs say covers conduct and practices that are legal.
Conversely, if the Court declines to issue a preliminary injunction, government contractors should be prepared for full enforcement of FAR 52.222-90. Denial of a preliminary injunction would signal that the Court has not found a likelihood of success on the merits or irreparable harm sufficient to justify halting implementation, which would in turn increase the practical risk profile for contractors who have delayed DEI-related compliance efforts. Even if the case were to proceed to trial, denial of preliminary relief would leave the clause operative in the interim—meaning contractors would need to comply with the full suite of obligations, including the subcontractor reporting on “reasonably knowable” conduct that “may violate” the clause, records access, and the FCA materiality acknowledgement, or face the risk of contract cancellation, suspension, or debarment.
Finally, this litigation may affect the timeline and substance of expected future rulemaking. The FAR Council’s implementation guidance notes that the Council intends to conduct rulemaking through the notice-and-comment process required by 41 U.S.C. § 1707 to make the clause a permanent part of the FAR. An adverse judicial ruling—particularly one that finds elements of the EO constitutionally infirm or beyond the President’s statutory authority—could force the FAR Council to narrow the scope of the permanent rule, revise key definitions such as “racially discriminatory DEI activities” or “program participation,” or address the Court’s concerns about the FCA materiality provision. Contractors should therefore view this litigation not only as a potential source of near-term relief, but as a development that could shape the permanent regulatory framework governing their DEI-related compliance obligations, potentially for years to come.