The US Department of Justice released new guidance for recipients of federal funding on July 29, 2025 intended to “clarif[y] the application of federal antidiscrimination laws to programs or initiatives that may involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (‘DEI’) programs.”
This guidance follows a previous directive from the Department of Justice (DOJ), Ending Illegal DEI and DEIA Discrimination and Preferences, and joint guidance issued by DOJ and the US Equal Employment Opportunity Commission (EEOC) on discrimination related to DEI programs under Title VII in March 2025 (see our March 20, 2025 LawFlash).
While the guidance is not legally binding, it represents the DOJ’s considered views regarding the application of federal law. It should be of interest to all entities that are subject to federal anti-discrimination laws, including Titles VI and VII of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, and Section 1981 of the Civil Rights Act of 1866. We further anticipate that DOJ will use the guidance to inform its False Claims Act (FCA) investigations under the Civil Rights Fraud Initiative.
The guidance provides a non-exhaustive list of policies and practices that DOJ believes are unlawful, including:
Granting Preferential Treatment Based on Protected Characteristics
Unlawful preferential treatment occurs, according to the guidance, when entities provide opportunities, benefits, or advantages to individuals or groups based on protected characteristics in a way that disadvantages other qualified persons. The guidance provides examples such as race-based scholarships and policies that grant preferences to candidates based on protected characteristics in admission, hiring, or promotion.
Prohibited Use of Proxies for Protected Characteristics
The guidance also states that it is unlawful to use facially neutral criteria as a “proxy” or substitute for explicit consideration of race, sex, or other protected characteristics. The guidance provides examples of such proxies to include “cultural competence requirements,” geographic or institutional targeting, or diversity statements or narratives if those are used to effectively evaluate candidates based on protected characteristics.
Segregation Based on Protected Characteristics
Unlawful segregation occurs, according to the guidance, when an entity organizes programs, activities, or resources in a way that separates participants based on protected characteristics or restricts access based on those characteristics. The guidance provides examples such as training sessions where men and women are separated into groups or workshops where only persons of a certain race or sex are invited to attend.
Failing to maintain sex-segregated intimate spaces
The guidance further warns that, while compelled segregation based on protected characteristics is unlawful, failing to maintain sex-segregated intimate spaces and athletic competitions based on biological sex risks violating federal law through the creation of hostile work environments or denial of equal opportunity. The guidance notes that this includes allowing “males, including those self-identifying as ‘women,’ to access single-sex spaces designed for females.”
Unlawful Use of Protected Characteristics
Unlawful use of protected characteristics occurs, according to the guidance, when an entity considers race, sex, or another protected trait as a basis for selecting candidates for employment, program participation, or contracts. The guidance provides examples such as the use of diverse slates in hiring, race- or sex-based contract preferences, or race- or sex-based participation quotas (e.g., at least 50% of leadership development program participants must be women).
Training Programs that Promote Discrimination or Hostile Environments
Unlawful training programs, according to the guidance, are those that stereotype, exclude, or disadvantage individuals based on protected characteristics or create a hostile work environment. The guidance provides examples such as DEI trainings that include statements that stereotype individuals based on race or sex, such as saying “all white people are inherently privileged.”
The guidance also offers a list of best practices to help entities avoid the “legal pitfalls of DEI programs.” These include ensuring that programs are open to all persons, focusing on measurable skills and qualifications, eliminating diversity quotas, and avoiding exclusionary training programs. The guidance also encourages entities to broadly ban the use of demographic-driven selection criteria (such as targeting “underserved geographic areas” or “first generation students”) due to their potential use as proxy factors.
If entities use criteria that may correlate with protected characteristics, the guidance urges them to clearly document their rationales for using the criteria, ensure consistent application, and closely scrutinize the application of the criteria for proxy effects. Finally, the guidance encourages entities to include nondiscrimination clauses in contracts to third parties and establish clear anti-retaliation procedures and reporting mechanisms for protected whistleblowers.
The guidance offers valuable insight into how the US administration and DOJ define “illegal DEI” and will likely be used to guide its many active investigations into violations of Title VI, Title VII, Title IX, and the FCA based on alleged discrimination. The breadth of activities covered in the guidance should be of particular note to employers. If an entity becomes subject to a DOJ investigation (e.g., for an alleged FCA violation related to a certification of compliance with federal anti-discrimination law), it should expect that DOJ will examine all its activities for compliance, including employment, contracting, corporate social responsibility, and other charity and outreach programs.
Other key areas identified in the guidance that employers should watch include:
Proxies
As noted above, the guidance addresses the risks of using facially neutral “proxies” for protected characteristics. Nothing in the guidance suggests that using these types of factors is inherently unlawful. The DOJ’s position is that institutions violate the law if they intentionally use them as proxies for protected characteristics. For example, an organization that believes “cultural competence” is a key job skill can lawfully use it as a selection factor, provided it has a race- and gender-neutral definition of “cultural competence” and applies the definition in a race- and gender-neutral manner. Entities that use such factors, however, should be sure to carefully document their rationales for using them and clearly define how they are applied.
Sex-Segregated Facilities Under Title VII
This is the first document where the administration has formally said that allowing transgender employees to access sex-segregated facilities consistent with their gender identity can violate Title VII. While it technically only applies to entities within DOJ’s Title VII jurisdiction (e.g., state and local governments), it seems safe to assume that the new leadership at the EEOC will agree with this position once it has a quorum. This places employers in a difficult situation since federal courts have found that barring transgender individuals from accessing facilities consistent with their gender identity can violate federal anti-discrimination laws. In addition, numerous state laws require employers to grant such access.
Robust Whistleblower Protections and the FCA
Finally, the robust focus on internal whistleblower protections and reporting mechanisms within the guidance likely indicates a strategic intent to decentralize and internalize compliance monitoring within federally funded entities. The guidance serves as a direct call for employees, participants, and beneficiaries to act as internal monitors and report concerns without fear of reprisal. The emphasis on providing "confidential, accessible channels" is a significant facilitator, as it directly addresses a primary barrier to reporting: the fear of exposure or retaliation. In addition, although not explicitly stated in the guidance, the broader legal landscape includes mechanisms like the FCA, which offers its own whistleblower protections and financial incentives.
By raising awareness of what constitutes unlawful discrimination and encouraging internal reporting, the guidance effectively primes individuals to recognize potential violations that could later become the subject of an external claim if internal remedies prove insufficient. This creates a dual pressure point for federally funded entities: they must effectively address internal reports or risk external exposure and more severe consequences.
See our August 4, 2025 LawFlash for more detailed analysis of the whistleblower protections and their implications.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors or lawyers in our Organizational Culture, FCA & Qui Tam Litigation, and Government Contracts practices.