Over the past few months, the term “DEI”—diversity, equity, and inclusion—has become a frequent topic in the media. In the employment context, DEI refers to policies and practices that support equal opportunity and prevent discrimination in line with established civil rights and labor laws. DEI practices include providing reasonable accommodations for employees with disabilities, safeguarding against age-based discrimination for individuals over 40, and ensuring job-based protections for pregnant workers.
Recent Executive Orders and Their Impact
On January 21, 2025, President Trump issued an Executive Order titled, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” This directive rescinded prior DEI-related policies within the federal government, imposed DEI-related requirements on federal contractors, and encouraged the private sector to move away from what it characterized as unlawful preferences or discrimination under the umbrella of DEI. Another executive order, “Defending Women from Gender Ideology, Extremism, and Restoring Biological Truth to the Federal Government,” reversed previous Equal Employment Opportunity Commission (EEOC) guidance that interpreted sex-based harassment to include harassment based on sexual orientation and gender identity.
Following the issuance of these executive orders, some major corporations, such as Target and Amazon, began scaling back their DEI programs, spurring public discourse and even consumer backlash. While these executive orders primarily apply to federal agencies and contractors, all businesses should be aware of their broader implications.
What This Means for Small Business Owners
Although executive orders do not change existing anti-discrimination laws like Title VII of the Civil Rights Act of 1964, they demonstrate a newfound scrutiny of employment practices. Small businesses are unlikely to be mandated by federal executive orders to alter their DEI practices unless they contract with the federal government. Also, state civil rights and employment laws may conflict with new federal guidance, and employers must balance compliance with both sets of rules. Nevertheless, the tone set by federal leadership can affect how DEI practices are enforced or challenged in the private sector.
Here are some indirect ways employers could be affected:
- Increased Legal Scrutiny: Businesses with DEI policies that include hiring targets or diversity benchmarks could face claims of unlawful discrimination.
- Shifts in Industry Practices: As large government contractors revise or eliminate their policies, DEI standards across industries may change.
- Potential for EEOC Investigations: Recent EEOC actions suggest a shift in focus on investigations into DEI-related policies.
Example: EEOC Letters to Law Firms
On March 17, 2025, the EEOC’s acting chair sent inquiry letters to twenty high-profile law firms requesting information on their DEI-related employment practices. These letters referenced concerns about possible unlawful disparate treatment or classification of employees in the terms, conditions, and privileges of employment. Examples cited in the letters include allegations certain firms promoted diversity fellowships limited to students of color, implemented DEI metrics tracking increases in “diverse attorney hours” on particular client accounts, created hiring targets focused on gender or racial representation, implemented action plans with specific percentage goals for increased racial, ethnic, or LGBTQ+ diversity, and created race equity goals targeting increased hiring, retention, and promotion of Black employees.
While it is not yet known what will become of these EEOC inquiries, the letters underscore areas of risks and scrutiny for DEI initiatives under the Trump administration.
Key Takeaways for Your Business
We recommend that small business owners:
- Review Your Policies: Assess DEI-related policies and practices for compliance with anti-discrimination laws.
- Evaluate Your Training: Make sure employee training on hiring, promotion, and corrective action focuses on merit-based decisions.
- Assess Risk Tolerance: Align your DEI initiatives with your organization’s legal risk tolerance, while ensuring equal opportunity for all current and prospective employees.
- Document Fairness: Make employment decisions based on objective, lawful criteria and document the support for those decisions.
DEI initiatives remain legal and valuable when aligned with civil rights laws and federal guidance. Inclusion efforts do not need to be abandoned in this changing political climate, but employers do need to ensure their DEI practices are deliberate and fully compliant.
Still have questions or concerns?, Consult with Law 4 Small Business to learn more.
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