Federal Funding

On July 29, 2025, the U.S. Department of Justice (“DOJ”) released guidance clarifying that federal antidiscrimination laws apply to programs or initiatives that involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (“DEI”) programs.  According to the guidance, entities that receive federal funds must ensure that their programs and activities comply with federal law and do not discriminate on the basis of race, color, national origin, sex, religion, or other protected characteristics—no matter the program’s labels, objectives, or intentions.

The guidance outlines a non-exhaustive list of unlawful practices that could result in the revocation of federal funding.  Some of the key examples are summarized below.

• Granting Preferential Treatment Based on Protected Characteristics

Preferential treatment occurs when a federally funded entity provides opportunities, benefits, or advantages to individuals or groups based on protected characteristics in a way that disadvantages other qualified persons, including such practices portrayed as “preferential” to certain groups.

• Preferential Hiring or Promotion Practices

A federally funded entity’s DEI policy prioritizes candidates from “underrepresented groups” for admission, hiring, or promotion, bypassing qualified candidates who do not belong to those groups, where the preferred “underrepresented groups” are determined on the basis of a protected characteristic like race. The guidance provides examples such as race-based scholarships and policies that grant preferences to candidates based on protected characteristics in admission, hiring, or promotion. 

• Segregation Based on Protected Characteristics

Segregation based on protected characteristics occurs when a federally funded entity organizes programs, activities, or resources-such as training sessions-in a way that separates or restricts access based on race, sex, or other protected characteristics. Such practices generally violate federal law by creating unequal treatment or reinforcing stereotypes, regardless of the stated goal (e.g., promoting inclusion or addressing historical inequities).

However, the guidance further points out that, while compelled segregation based on protected characteristics is unlawful, failing to maintain sex-segregated intimate spaces and athletic competitions based on biological sex risks violating federal law through the creation of hostile work environments or denial of equal opportunity. The guidance states that this includes allowing “males, including those self-identifying as ‘women,’ to access single-sex spaces designed for females.” 

• Trainings That Promote Discrimination Based on Protected Characteristics

DEI training that includes statements stereotyping individuals based on protected characteristics may be found to be unlawful.  The guidance provides examples such as statements stereotyping individuals based on protected characteristics such as “all white people are inherently privileged,” “toxic masculinity.”

The guidance provides recommendations on best practices for employers.  All workplace programs, activities, and resources should be open to all qualified individuals, regardless of race, sex, or other protected characteristics and employers should avoid organizing groups or sessions that exclude participants based on protected traits. The guidance notes that some sex separation is necessary where biological differences implicate privacy, safety, or athletic opportunity.

The guidance also recommends that employers focus on skills and qualifications, basing selection decisions on specific, measurable skills and qualifications directly related to job performance or program participation.  In addition, employers should discontinue any program or policy designed to achieve discriminatory outcomes, even those using facially neutral means.

The DOJ advises that violations of these antidiscrimination principles could result in revocation of grant funding and warns that recipients of federal funds could be liable for discrimination “if they knowingly fund the unlawful practices of contractors, grantees, and other third parties.” Although the guidance is directed at employers that receive federal funds, private employers should evaluate their own policies for practices that could be considered unlawful according to this guidance, as the EEOC and other federal agencies are likely to implement the DOJ’s guidance.

Should you have any questions, please contact Ali Law Group.

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