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Diversity, Equity and Inclusion (DEI) was once a strategic talking point; today, it’s a lightning rod in legal and political discourse. President Trump’s Jan. 21 Executive Order (EO 14173) – “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” – revoked EO 11246 (Equal Employment Opportunity), originally signed by President Lyndon B. Johnson in 1965. EO 11246 had required affirmative action programs aimed at promoting equal opportunities among federal contractors.
President Trump’s new anti-DEI law effectively bars affirmative action in federal contracting jobs by prohibiting agencies from issuing contracts to organizations that engage in “workforce balancing based on race, color, sex, sexual preference, religion or national origin.” These types of employment quotas have long been illegal under Title VII of the Civil Rights Act and other statutes.
For federal contractors, failing to align with EO 14173 can result in voided contracts, penalties or disqualification from future bids.
Agencies are more attuned to potential violations, especially those involving identity-based hiring or compensation. Even legacy language – like women-only internships or quota spreadsheets – could prompt audits and legal reviews.
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While the Executive Order applies only to the federal government and companies that are federal contractors, it has created a ripple effect. Some major corporations have revised public messaging or walked back their previous DEI commitments in response to the new political climate around these issues.
Others have doubled down, defending and leaning into their legally compliant DEI initiatives.
Loosely defined DEI law changes leave many small businesses wondering: What do new DEI laws mean for us?
Businesses not bound by President Trump’s Executive Order but wanting to align with its principles can do so, even while preserving inclusive practices. Bear in mind that there is no requirement for non-federal contractors to make changes. The thoughts below are provided simply for informational purposes for smaller companies that may wish to fit their policies to the spirit of EO 14173:
Reframe DEI programs as business-driven initiatives. Replace terms like “quota” or “set aside” with “inclusive leadership,” “employee engagement” or “workplace culture improvement.” Instead of referring to efforts as “DEI,” emphasize goals like talent development, retention and fair hiring – core business outcomes that remain entirely lawful and valuable.
Employee Resource Groups (ERGs) can still thrive – just ensure they are open to all employees regardless of identity. Publish ERG charters that outline purpose, objectives and governance. Offer events like speaker series or workshops that are accessible to all team members.
Mentorship and internship programs remain powerful recruiting tools. To align with the EO, design them with merit and development in mind. Make clear that all employees and candidates are welcome to participate based on skills and potential, not demographics.
Instead of demographic quotas, focus on metrics like time-to-fill, candidate experience scores, onboarding completion rates and employee engagement.
Many S&P 500 companies have chosen to remove DEI-related hiring targets or diversity percentage goals from public reporting.
While this is less common among smaller businesses, companies that wish to publicly align with the EO may want to consider whether related changes are appropriate to statements made on their own websites or in recruiting materials.
Under the EO, managers are not to be rewarded based on demographic hiring targets, which may be interpreted as implicit quotas.
Performance bonuses can, however, be tied to culture-building goals such as employee retention, team engagement or leadership development.
While the federal government is pulling back on DEI, several states continue to push forward. For example, California, Illinois and New York maintain affirmative action or DEI requirements, while states like Florida and Texas have passed laws restricting them.
Before making any DEI policy changes, review both the federal and your state’s mandates.
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Most experts agree DEI is not going away—but it is evolving. Understanding the intersection of federal and state DEI laws will help your business stay both compliant and inclusive.
Need expert help updating your DEI policies? Axcet HR Solutions is a certified PEO that helps small businesses stay compliant with changing DEI laws through expert HR compliance support. From EO 14173 alignment to inclusive policy audits, we’ll guide you every step of the way. Contact us today for a free consultation >>
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