DOJ issues guidance on ‘unlawful’ employer DEI policies, programs and practices

As discussed in our prior alert and seen in numerous actions undertaken since the Trump administration took office, employers should expect significant changes to the federal government’s antidiscrimination enforcement policies regarding employer diversity, equity and inclusion (DEI) programs and initiatives. 

On July 29, 2025, the U.S. Department of Justice (DOJ) issued a memorandum that offers additional guidance regarding the federal government’s view of certain DEI-related practices. The guidance reflects the administration’s view about what DEI practices violate Title VII of the Civil Rights Act of 1964 (Title VII) and is specifically targeted at entities receiving federal funds. Importantly, the guidance warns that recipients of federal funds “may also be liable for discrimination if they knowingly fund the unlawful practices of contractors, grantees, and other third parties.” It also identifies “Best Practices” for complying with federal antidiscrimination law as nonbinding suggestions to employers that do not receive federal funding.

Background

Last month’s DOJ guidance on DEI programs follows months of executive action by the Trump administration aimed at eliminating “illegal” DEI programs. The guidance aligns itself with previous executive orders, prior DOJ advice and other formal guidance by the Equal Employment Opportunity Commission (EEOC) on the subject.

The July 2025 DOJ Guidance on ‘Unlawful’ DEI Practices by Federally Funded Entities

The DOJ’s July guidance identifies five key DEI practices that it considers unlawful under Title VII: 

• Practices that grant preferential treatment based on protected characteristics, which would include selectively granting race-based scholarships, preferential hiring or promotion practices, and granting exclusive access to facilities or workspaces based on a person’s race or ethnicity.
• Practices that favor certain applicants based on facially neutral criteria that function as substitutes for a protected characteristic, which would occur when “us[ing] ostensibly neutral criteria that function as substitutes for explicit consideration of race, sex, or other protected characteristics.” Examples of unlawful DEI-related action in this context could include requiring job applicants to demonstrate “cultural competence,” “lived experiences” or “cross-cultural skills” as a proxy to evaluate a candidate’s racial and ethnic background rather than objective qualifications. The DOJ also emphasizes how certain recruitment strategies targeting specific geographic areas primarily because the locations are associated with certain racial or ethnic groups could violate Title VII. 
• Practices that segregate employees based on protected characteristics in a way that affects an employee’s status or otherwise deprives them of employment opportunities (i.e., limiting membership in workplace affinity or employee resource groups to only certain employees or separating employees into groups based on a protected characteristic when administering DEI or other workplace trainings).
• Practices that promote the disparate treatment of employees or candidates in the terms, conditions or privileges of employment, such as practices based on a specific protected trait that results in favorable outcomes for certain groups at the exclusion of another based on a protected trait (e.g., hiring, firing, demotion, promotion, increased compensation, access to workplace trainings and/or mentorship, and fellowship or sponsorship programs). The DOJ specifically emphasized that “diverse slate” policies for hiring that require a certain percentage of candidates be from an underrepresented group or of diverse backgrounds are unlawful, along with “sex-based” selection criteria for contracts that prioritize selecting women or minority candidates over equally or more qualified businesses without a preferred group status.
• Training programs that promote discrimination or hostile environments, which would occur if an employee is subjected to unwelcome remarks or conduct based on their status of belonging to a protected group. This could occur through the pervasive use of presentations, videos and other workplace training materials that “single out, demean, or stereotype individuals based on protected characteristics.”

The July 2025 DOJ Guidance and Recommended ‘Best Practices’ for All Employers

The guidance lists nine “best practice” recommendations to ensure DEI practices comply with federal antidiscrimination law. The recommendations purport to apply to all employers, whether or not they receive federal funds.

• Ensure inclusive access to all workplace programs, activities and resources regardless of race, sex or other protected characteristics.
• Focus on specific, measurable skills and qualifications related to job performance for any job-related decision (e.g., hiring, firing, promotion).
• Eliminate demographic-driven criteria if the intent is to use it to increase the participation or membership of specific racial or sex-based groups.
• Document legitimate rationales that are unrelated to race, sex or other protected characteristics when making job-related decisions, particularly if they may correlate with protected characteristics.
• Scrutinize any use of “neutral” criteria for potential use as proxies for the selection of candidates based on a protected characteristic.
• Eliminate diversity quotas and focus solely on nondiscriminatory performance metrics (e.g., program participation rates or academic outcomes) and discontinue policies that mandate percentage-based representation of specific racial, sex-based or other protected groups.
• Avoid exclusionary training programs and ensure all employer-sponsored programs and opportunities are open to all qualified participants, regardless of their protected status.
• Include nondiscrimination clauses in contracts with third parties (e.g., grant agreements, vendor contracts) and monitor third-party compliance with federal antidiscrimination laws.
• Establish clear anti-retaliation procedures and create a safe reporting mechanism for employees who engage in protected activities, including refusing to participate in potentially discriminatory DEI programs.

Main takeaways for employers

The current administration, through various executive orders and official agency guidance, has clearly communicated its view that past DEI efforts went too far and resulted in discriminatory conduct in violation of federal antidiscrimination law. The latest DOJ guidance confirms the continued scrutiny of employer DEI practices. 

While the DOJ’s guidance is not legally enforceable, it provides insight regarding the types of DEI programs the administration believes are unlawful under federal law. Though neither executive orders nor agency guidance can nullify existing laws regarding workplace discrimination, providing preferential treatment to employees who belong to a certain race and/or gender has always been illegal. 

As a practical matter, maintaining racial quotas and racial balancing practices has never been legal. Therefore, corporate DEI programs that present the most risk include those that demonstrate a preferential treatment for certain individuals belonging to a protected group. Similarly problematic are employer practices that tie manager compensation to diversity metrics. And programs, affinity groups, mentorship opportunities, access to business networks, fellowships or scholarships open to only minority candidates, employees, contractors and other business partnerships all are subject to attack. 

With the prospect of joint EEOC and DOJ workplace investigations on the horizon, some employers have commenced internal audits analyzing the relative legal and reputational risks of their existing DEI programs. At a minimum, employers that have not already done so should evaluate their current DEI policies and strategies to ensure compliance with existing federal, state, and local antidiscrimination laws. 

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For questions or concerns regarding any of the issues raised in this alert, please contact a member of the HSF Kramer Employment Law Department.