A 20-jurisdiction lawsuit challenges contract clauses banning DEI activities, leaving federal contractors in legal limbo
Image from: The Trump White House, Public domain, via Wikimedia Commons
Federal contractors with diversity, equity and inclusion (DEI) programs face a sharply uncertain compliance landscape after attorneys general from 19 states and Washington, D.C., filed suit on June 10, 2026, claiming the Trump administration is illegally imposing anti-DEI contract clauses without due legal process. The lawsuit, filed in U.S. District Court for the District of Maryland (Maryland v. Hegseth, No. 1:26-cv-02322), targets more than two dozen federal agencies and asks the court to block the new contract language.
The plaintiffs allege agencies are inserting clauses barring any racially discriminatory DEI activities into contracts covering an estimated 640,000 contracts and subcontracts with more than 34,000 unique contractors nationwide, according to federal estimates cited by Massachusetts Attorney General Andrea Joy Campbell’s office. The states argue those additions violate the Administrative Procedure Act because agencies acted without public notice or explanation of what is actually prohibited.
“This is yet another example of haphazard actions designed to confuse and intimidate rather than provide clear guidance to people and businesses — in this case federal contractors,” said Andrea Joy Campbell, Massachusetts Attorney General.
What the executive order requires
President Donald Trump signed Executive Order 14398, titled “Addressing DEI Discrimination by Federal Contractors,” on March 26, 2026, directing agencies to add a compliance clause to all contracts within 30 days. Contractors must certify they will not engage in race- or ethnicity-based disparate treatment in recruitment, hiring, promotions, or program participation. Noncompliance can result in contract cancellation, suspension, or debarment from future government work, and the order directs the attorney general to consider False Claims Act actions against violators.
The April 25, 2026 compliance deadline has already passed. As HRD America reported, the Federal Acquisition Regulatory Council moved quickly to implement enforcement guidance, leaving contractors that have not yet updated their practices operating in the gap the lawsuit now challenges.
What HR leaders need to know
Many organizations have already begun scaling back public-facing DEI programs while trying to preserve internal inclusion practices. HRD America’s February 2026 analysis found the number of Fortune 500 companies publicly documenting their DEI policies fell 65% in a single year, from 377 firms in 2025 to 131 in 2026, per the Human Rights Campaign Foundation’s Corporate Equality Index.
Enforcement is no longer theoretical. In April 2026, IBM reached a roughly US$17 million settlement with the Department of Justice over alleged false statements tied to its diversity hiring practices under federal contracts. HRD America’s coverage of the IBM settlement examined the implications for corporate DEI programs nationwide.
The June 10 suit is the second major legal challenge to the March order, following an April 2026 lawsuit by the National Association of Diversity Officers in Higher Education and the National Association of Minority Contractors, which also has a pending injunction request. With multiple cases in parallel and no regulatory clarity in sight, employment law firms including Epstein Becker Green and DLA Piper are advising federal contractors to seek specific legal guidance now rather than wait.
