DOJ Reportedly Using False Claims Act to Scrutinize Federal Contractor DEI Practices

Key Takeaways

• DOJ is reportedly conducting active False Claims Act investigations into federal contractors’ DEI hiring practices, using civil probes and document demands to examine compliance with federal nondiscrimination requirements.
• The reported enforcement theory centers on whether DEI-related hiring practices render federal contract compliance certifications false or misleading, potentially exposing contractors to FCA liability, treble damages, and civil penalties.
• Federal contractors should proactively review DEI programs, hiring practices, and compliance certifications to confirm legal compliance and mitigate increased enforcement risk.

Recent media reports indicate the U.S. Department of Justice (“DOJ”) has initiated civil probes into the Diversity, Equity, and Inclusion (“DEI”) practices and programs of federal contractors under the False Claims Act (“FCA”). According to reporting by The Wall Street Journal, DOJ has issued demands for documents and information to several large companies that hold federal contracts, including Alphabet’s Google and Verizon, reflecting an effort to test the novel theory that DEI-related practices may give rise to fraud liability.¹ These reported investigations suggest that DOJ has moved beyond 2025’s policy pronouncements² and is actively scrutinizing federal contractors’ compliance certifications in this area.

This alert explains the reported legal theory, outlines potential risks, and provides practical mitigation steps for federal contractors.

The Reported False Claims Act Theory

As described in the reporting, the DOJ appears to be advancing a “false certification” theory of liability. Under this theory, a federal contractor’s DEI program can give rise to a false certification theory under the False Claims Act if the contractor expressly or impliedly certifies compliance with federal nondiscrimination or contracting requirements while implementing DEI initiatives that result in impermissible preferences based on race, ethnicity, national origin, or sex in hiring or promotion. If compliance with those requirements is a condition of payment or eligibility for federal contracts, any misrepresentation about the DEI program’s legality could render claims for payment knowingly false.

To succeed on an FCA claim, the DOJ would also need to prove that the contractor’s compliance certification was “material” to the government’s decision to pay for goods or services. In the context of DEI programs, the “materiality” element could be met where the government conditions contract awards, renewals, or payments on compliance with equal employment and contracting laws, such that truthful disclosure about the DEI program would have influenced the government’s decision to pay.³

If a government contractor is found liable under the FCA, it may face treble damages and per-claim civil penalties that can total millions of dollars, even for relatively small contracts. In addition to monetary liability, contractors may be subject to suspension or debarment from future federal contracting, which can have severe long-term business consequences. Investigations may also trigger parallel enforcement actions, increased compliance oversight, and significant reputational harm.

Active Civil Probes of Federal Contractors

Unlike traditional FCA investigations, which are often triggered by whistleblowers or internal government auditors, the reported DEI-related probes appear to have been initiated by senior DOJ officials. Media reports indicate that the DOJ has sent Civil Investigative Demands (“CIDs”) to companies across a range of industries, including defense, telecommunications, pharmaceuticals, automotive manufacturing, and utilities, many of which are significant federal contractors.

These investigations reportedly stem from the DOJ leadership’s view that federal contractors may be violating their obligations to the government if they continue to maintain or implement DEI initiatives that the DOJ considers inconsistent with federal nondiscrimination requirements. While the DOJ has not publicly commented on specific investigations, the reported scope of these probes has unsettled contractors because of the potential financial and reputational consequences associated with FCA enforcement.

Practices Likely to Draw Heightened Scrutiny

High-risk practices that may attract DOJ scrutiny for federal contractors include:

• Using an individual’s protected status (e.g., race, ethnicity, national origin, sex) as a “plus factor,” tiebreaker, or determinative criterion in hiring or promotion;
• Setting rigid demographic targets or quotas; and
• Offering programs, fellowships, or internships that are exclusively available to individuals of a certain race, ethnicity, national origin, or sex.⁴

What to Expect in a DOJ Civil Probe

Reports suggest these investigations are proceeding as “civil probes,” which typically means the DOJ is using its pre-litigation authority, including CIDs, to gather information. Federal contractors receiving a CID can expect broad requests for documents and data, such as:

• Policies and training materials related to DEI and hiring;
• Hiring and promotion data;
• Internal communications discussing DEI goals or candidate selection;
• The company’s Affirmative Action Programs (AAPs); and
• Copies of all government contract certifications related to equal opportunity compliance.

CIDs may also require written answers to interrogatories and may also compel oral testimony before a government official, which can place significant burdens on the officers and employees of government contractors that receive CIDs.

Practical Risk-Mitigation Steps for Federal Contractors

In light of the reported investigations, federal contractors should proactively review and align their hiring practices with legal requirements to mitigate risk. Key steps include:

• Reviewing all DEI programs and hiring policies under privilege to identify and remediate high-risk practices;
• Training recruiters and hiring managers about impermissible preferences;
• Strengthening documentation of job-related reasons for all hiring decisions;
• Verifying the good-faith basis for all compliance certifications before submission; and
• Ensuring any demographic goals are aspirational and do not operate as quotas.

Federal Contractor Compliance Considerations Going Forward

The reported DOJ probes represent a significant new enforcement front, linking federal contractors’ DEI initiatives directly to FCA liability risk. The DOJ has indicated an expansive approach, treating alleged civil-rights violations as actionable “fraud” where contractors certify compliance while maintaining programs the government views as discriminatory. While DEI and equal opportunity remain important objectives, the implementation of these programs is under heightened scrutiny. Proactive, privileged review and careful alignment with the newly established rules governing DEI are now essential to mitigating this risk.

[1] Lydia Wheeler, Justice Department Using Fraud Law to Target Companies on DEI, Wall St. J. (Dec. 28, 2025), https://www.wsj.com/politics/policy/trump-doj-dei-fraud-investigations-93213d52.

[2] See Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, 90 Fed. Reg. 8633 (January 21, 2025); Memorandum from Deputy Attorney General Todd Blanche to Associate Attorney General et al., Civil Rights Fraud Initiative (May 19, 2025), https://www.justice.gov/dag/media/1400826/dl?inline; Memorandum from Attorney General Pam Bondi to All Federal Agencies, Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination (July 29, 2025), https://www.justice.gov/ag/media/1409486/dl?inline.

[3] See Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, 90 Fed. Reg. 8633 (January 21, 2025) (“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[.]”).

[4] DOJ Issues Expansive Guidance on Unlawful Discrimination and DEI Programs, Arnall Golden Gregory LLP (Aug. 7, 2025), https://www.agg.com/news-insights/publications/doj-issues-expansive-guidance-on-unlawful-discrimination-and-dei-programs/; DOJ Expands Use of the False Claims Act to Target DEI and DEIA Initiatives, Arnall Golden Gregory LLP (May 20, 2025), https://www.agg.com/news-insights/publications/doj-expands-use-of-the-false-claims-act-to-target-dei-and-deia-initiatives/.