Mitigate Risk. Lead with Clarity.

EXECUTIVE ORDERS & FEDERAL POLICY 

 19 States and the District of Columbia Challenge Administration Over New Federal Contractor DEI Rules

• States sue Trump administration over anti-DEI terms in federal contracts 

• AG Nessel Joins Lawsuit Challenging Unlawful Trump Administration Mandates on Federal Contractors

OVERVIEW

On June 10, 2026, a coalition of 19 states and the District of Columbia filed a lawsuit in federal court in Maryland challenging Executive Order 14398, Addressing DEI Discrimination by Federal Contractors, issued on March 26, 2026. The EO restricts federal contractors from engaging in what the administration describes as "racially discriminatory" diversity, equity, and inclusion activities.

The lawsuit, Maryland et al. v. Pete Hegseth et al., challenges the requirements imposed on federal contractors, including state governments that receive federal funding through contracts and grants. According to the complaint, federal agencies have begun incorporating the requirements into federal agreements without clearly defining what activities are prohibited.

The coalition alleges that the agencies implementing the executive order violated the Administrative Procedure Act by imposing the new requirements without providing public notice or an opportunity for comment, exceeded their statutory authority, and failed to adequately explain or justify the policy. The states further argue that the requirements are impermissibly vague and create uncertainty for contractors attempting to comply with federal obligations.

The lawsuit seeks a court order declaring the agencies' actions unlawful and preventing the administration from enforcing the new contract provisions while the litigation proceeds.

LEGAL INTERPRETATION

The lawsuit challenges the implementation of Executive Order 14398 under the Administrative Procedure Act (APA), which governs how federal agencies adopt and implement regulatory requirements. The coalition alleges that federal agencies imposed new contracting obligations without providing public notice or an opportunity for comment and failed to adequately explain the legal and factual basis for the new requirements.

The complaint also argues that the executive order and implementing contract provisions do not clearly define what constitutes a prohibited "racially discriminatory" DEI activity. According to the states, the lack of clear standards creates uncertainty for contractors attempting to comply with the requirements and distinguish them from existing federal anti-discrimination obligations.

In addition to restricting certain DEI-related activities, the challenged provisions require contractors to disclose records, monitor subcontractor compliance, and report potential violations of the executive order. The coalition argues that these obligations were imposed without sufficient guidance regarding what conduct may constitute a violation.

The states further allege that contractors face potential consequences for noncompliance, including debarment from future federal contracting opportunities and exposure under the False Claims Act. The lawsuit asks the court to declare the agencies' actions unlawful and enjoin enforcement of the challenged requirements.

BRIDGE POV

This case raises fundamental questions about how far federal agencies can go in imposing new obligations on contractors without formal rulemaking, clear definitions, or explicit congressional authorization.

While the administration characterizes the challenged provisions as necessary to prevent discrimination, the states argue that the requirements create new compliance obligations that were implemented outside established administrative processes.

Periods of regulatory uncertainty require disciplined governance. Organizations should anchor decisions in established legal obligations rather than evolving interpretations that remain subject to ongoing litigation and judicial review.

ACTIONABLE STRATEGIES

1. Map Contractual Risk: Identify contracts, grants, and subcontracting relationships that could be affected by evolving federal contractor requirements and assess potential operational exposure.
   
   
2. Distinguish Established Obligations from Emerging Requirements: Separate compliance obligations arising from existing law and executed contracts from requirements that remain subject to ongoing litigation.
   
   
3. Coordinate Legal and Procurement Functions: Establish a process for reviewing new contractual provisions and evaluating their implications across procurement, compliance, and operational teams.

See also: New Anti-DEI Order Targets Federal Contractors (Issue 58); DOJ Outlines Antidiscrimination Enforcement Strategy Under False Claims Act (Issue 53); DOJ Uses False Claims Act to Secure $17 Million Settlement with IBM (Issue 60); Coalition Sues to Block EO 14398 Targeting Federal Contractor DEI Programs (Issue 61)

FEDERAL FUNDING & OVERSIGHT 

SBA Proposes New Standard for 8(a) Program Eligibility

• SBA Reforms 8(a) Business Development Program to End Racial Discrimination in Federal Contracting 

• Reforms To Remove SBA's 8(a) Program's Rebuttable Presumption of Social Disadvantage for Individually Owned Firms Only; Reforms Do Not Impact Entity-Owned Firms

OVERVIEW

On June 11, 2026, the U.S. Small Business Administration (SBA) proposed a rule that would change how small businesses qualify for the 8(a) Business Development Program, a federal contracting program designed to help small businesses owned by socially and economically disadvantaged individuals compete for government contracts.

Under current regulations, members of certain designated racial and ethnic groups are presumed to be socially disadvantaged for purposes of 8(a) eligibility. The proposed rule would eliminate that presumption and require all applicants to demonstrate social disadvantage through an individualized, fact-based showing. The SBA stated that the change is intended to establish a race-neutral standard and align the program with constitutional equal protection requirements.

According to the SBA, applicants could establish social disadvantage by demonstrating that they experienced discrimination or exclusion based on race, ethnicity, or culture. The agency identified diversity, equity, and inclusion programs, affirmative action policies, race-based hiring targets, quotas, set-asides, and similar programs that favored other groups as examples of evidence that may support such claims.

The proposal would not apply to entity-owned firms or businesses owned by Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations. Public comments on the proposed rule are due by July 13, 2026.

LEGAL INTERPRETATION

The proposed rule is intended to replace the 8(a) program's longstanding rebuttable presumption that members of certain racial and ethnic groups are socially disadvantaged. The SBA stated that the change is intended to establish a race-neutral standard for determining social disadvantage and align the program with constitutional equal protection requirements.

The proposal follows the 2023 decision in Ultima Services Corp. v. U.S. Department of Agriculture, in which a federal district court prohibited the SBA and USDA from relying on the program's rebuttable presumption that members of certain racial and ethnic groups are socially disadvantaged. The court concluded that the use of a race-based presumption violated constitutional equal protection principles.

Under the proposed rule, social disadvantage would remain a requirement for participation in the 8(a) program, but applicants would be required to establish disadvantage through individualized evidence rather than membership in a designated racial or ethnic group. Applicants would need to demonstrate that a governmental or private entity discriminated against a racial, ethnic, or cultural group of which they are a member, or favored a group of which they are not a member, and that they suffered material harm as a result.

The proposal remains subject to notice-and-comment rulemaking. Public comments are due by July 13, 2026, after which the SBA will determine whether to finalize, modify, or withdraw the rule.

BRIDGE POV

While the Small Business Administration operates as an independent federal agency, its leadership is appointed by the President and its policy priorities are often influenced by the administration in office.

The proposal does not eliminate the 8(a) Business Development Program, but it would fundamentally change how social disadvantage is established for future applicants. The shift from a group-based presumption to an individualized evidentiary standard reflects the growing legal scrutiny of programs that rely on racial classifications, even when those programs were created to address historical barriers to opportunity.

For organizations that support supplier diversity and small business development, the proposal reinforces the importance of grounding programs in documented barriers, objective eligibility criteria, and legally defensible standards.

ACTIONABLE STRATEGIES

1. Review Supplier Diversity Eligibility Standards: Assess whether supplier diversity, small-business, or procurement programs rely on categorical eligibility criteria that may face increased legal scrutiny. Document the business rationale and eligibility requirements supporting each program.
   
   
2. Strengthen Documentation of Barriers to Opportunity: Where programs are designed to expand access for underserved businesses, ensure the underlying barriers, business objectives, and selection criteria are clearly documented and supported by evidence.
   
   
3. Evaluate Impact on Supplier Pipelines: Identify current or prospective suppliers participating in the 8(a) program and assess how changes to eligibility requirements could affect supplier development strategies, contracting opportunities, and long-term procurement goals.

See also: Recent Legal Developments Affecting Supplier Diversity Programs (Issue 8)

COURTS & LITIGATION 

Court Dismisses Challenge to EEOC's Rollback of Gender Identity Discrimination Enforcement

• A Judge Tosses a Lawsuit Over EEOC Transgender Worker Protections, Citing No Jurisdiction

• EEOC Gets Court Win in Challenge Over Its Treatment of Trans Bias Claims

OVERVIEW

On June 12, 2026, U.S. District Judge George L. Russell III dismissed a lawsuit brought by FreeState Justice challenging the Equal Employment Opportunity Commission's handling of workplace discrimination charges involving gender identity.

The lawsuit followed actions taken by the EEOC after Chair Andrea Lucas announced in January 2025 that the agency would begin "rolling back the Biden administration's gender identity agenda." According to the complaint, the EEOC subsequently stopped processing certain charges involving sexual orientation and gender identity discrimination, withdrew several lawsuits involving transgender workers, and informed state and local Fair Employment Practices Agencies that it would no longer reimburse them for processing gender identity-related charges.

The EEOC has since resumed processing some gender identity discrimination charges involving hiring, firing, and promotion decisions. However, according to court filings, the agency has not resumed investigations involving harassment or retaliation claims based on gender identity.

FreeState Justice filed suit in July 2025. Judge Russell dismissed the case on jurisdictional grounds, holding that the court lacked authority to review the EEOC's discretionary enforcement decisions. In his opinion, Russell described the agency's actions as "deeply troubling" but concluded that federal law generally does not permit judicial review of such enforcement choices.

LEGAL INTERPRETATION

The court's decision turned on standing and judicial review rather than the legality of the EEOC's policy. Judge Russell relied in part on the Supreme Court's 2023 decision in United States v. Texas, which held that federal courts generally may not review Executive Branch decisions regarding how enforcement resources are allocated or which cases are pursued.

The court concluded that the EEOC's decisions concerning the investigation and prosecution of discrimination claims fall within the agency's discretionary enforcement authority. As a result, the court did not reach FreeState Justice's claims under Title VII, the Fifth Amendment, or the Administrative Procedure Act. The court also noted that a similar challenge to the EEOC's enforcement approach had previously been dismissed in federal court in the District of Columbia.

The case was dismissed without prejudice, leaving open the possibility that future challenges could be brought under different legal theories. The ruling also does not alter the underlying legal standard established by the Supreme Court in Bostock v. Clayton County, which held that discrimination based on gender identity constitutes discrimination because of sex under Title VII.

BRIDGE POV

This case illustrates how protections can remain legally intact while access to enforcement becomes more limited. Although the court did not rule on the legality of the EEOC's actions, the decision allows the agency to continue exercising broad discretion over how it investigates and pursues claims involving gender identity discrimination.

At a time when LGBTQ+ rights and protections are facing increasing legal and political challenges, employers should be careful not to confuse changes in enforcement priorities with changes in the law. Title VII protections recognized in Bostock remain binding, regardless of how aggressively they are enforced.

This requires greater ownership of workplace governance. Organizations should ensure their policies, practices, and employee protections remain anchored in settled law rather than shifting enforcement priorities.

ACTIONABLE STRATEGIES

1. Review LGBTQ+ Workplace Protections: Confirm policies, reporting channels, and investigation procedures align with Title VII and applicable state laws governing gender identity discrimination.
   
   
2. Apply Standards Consistently: Ensure complaints involving gender identity are investigated and resolved using the same processes and protections applied to other forms of discrimination.
   
   
3. Validate Multi-Jurisdictional Compliance: Assess whether federal, state, and local legal requirements impose different obligations across your workforce and update policies accordingly.

See also: EEOC Takes Action on Religious Discrimination While Transgender Protections Face Uncertainty (Issue 20); EEOC Reverses Stance, Allows Some Transgender Discrimination Complaints (Issue 26); EEOC Rescinds Voting Procedures and Workplace Harassment Guidance (Issue 48)

Diversity Lab Closes After FTC Investigation

• Diversity Lab Is Ending. Its Impact Is Not. 

• Diversity Lab Closes After FTC Investigation

Diversity Lab announced that it will cease operations after nearly a decade of work advancing diversity and inclusion initiatives within the legal profession. The organization is best known for creating the Mansfield Certification, a framework adopted by more than 400 law firms and corporate legal departments to broaden access to leadership and advancement opportunities.

The closure follows a Federal Trade Commission investigation launched in January 2026 into Diversity Lab's programs and practices. In announcing the decision, the organization stated that the current legal and regulatory environment had made it increasingly difficult to continue its work.

Founded in 2013, Diversity Lab played a significant role in shaping how law firms and legal departments approached talent development, leadership pipelines, and accountability. Its closure marks the end of one of the most influential organizations supporting diversity initiatives in the legal industry.

See also: EEOC Sends Investigative Letters to 20 BigLaw Firms (Issue 4); EEOC Settles With 4 Law Firms Targeted for Investigation (Issue 9); Summary Judgment for Perkins Coie in Lawsuit Against Trump (Issue 12); EEOC Closes Law Firm DEI Investigation With No Action (Issue 52)

Interior Department Cuts 43 Partnerships Tied to DEI, Environmental Justice, and Immigration

• Trump Admin Axes Ties to Dozens of Progressive Groups in 'Direct Opposition' to Mission 

The U.S. Department of the Interior announced that it is terminating 43 partnership agreements with outside organizations and eliminating more than $4 million in planned funding following a review of nearly 3,000 active agreements with approximately 2,000 external entities.

According to the department, the terminated agreements supported programs involving diversity, equity, and inclusion, environmental justice initiatives, conservation efforts, and services for immigrants. Interior Secretary Doug Burgum stated that the review identified organizations whose activities were inconsistent with the department's mission and policy priorities.

The terminations are part of the department's implementation of Executive Order 14151, which directed federal agencies to eliminate DEI, DEIA, and environmental justice programs, positions, grants, and contracts to the maximum extent permitted by law.

See also: Trump Administration Implements New Oversight Procedure to Ensure Federal Grants Are Not Used to Support DEI and Other Far-Left Initiatives (Issue 25); USDA Keyword Purge Targets "Diversity" and "Climate" Grants (Issue 39); OMB Proposes Rule Barring Federal Grants for DEI Activities (Issue 67)