Story Highlights
- EO 14398, issued March 26, 2026, requires federal agencies to include contract clauses requiring all contractors and subcontractors to certify they do not engage in “racially discriminatory DEI activities,” with immediate implementation directed by the Federal Acquisition Regulatory Council by April 24
- The lawsuit, led by the National Association of Diversity Officers in Higher Education, argues the order violates First Amendment free speech and association rights, is unconstitutionally vague, and exceeds the president’s procurement authority
- The FAR Council issued a deviation for new contracts effective April 24, with existing contracts required to be updated by July 24, 2026
What Happened
President Donald Trump‘s executive order directing agencies to cancel federal contracts and subcontracts with businesses that engage in “racially discriminatory” diversity, equity, and inclusion activities violates the First Amendment, a new lawsuit alleges. The March 26 order is “so broad and overly vague that it violates the free speech and association rights of federal contractors and subcontractors by misconstruing the concept of DEI to equate any discussion of race and ethnicity with racially discriminatory DEI activities.”
Wendell R. Stemley, national president of the National Association of Minority Contractors, said: “For centuries, minority-owned businesses have faced discrimination. This executive order is aimed at undermining the very policies that work to address that discrimination and move the nation toward fairness and inclusion.” Sarah von der Lippe, pro bono chief counsel of the Minority Business Enterprise Legal Defense and Education Fund, called the order “a gag rule dressed up as a contract clause.” She said: “It demands minority-owned businesses trade their First Amendment right to speak about race and discrimination for fair access to federal contracts.”
The order requires federal agencies, within 30 days of its issuance, to ensure all contracts include a clause addressing “racially discriminatory DEI activities.” The Federal Acquisition Regulatory Council has already issued a new Federal Acquisition Regulation deviation for inclusion in new contracts starting April 24, 2026, and instructed agencies to make every effort to have the clause added to existing contracts by July 24, 2026.
The new lawsuit over EO 14398 is the latest challenge to the Trump administration’s executive orders seeking to eliminate DEI in federal contractors and other employers. In February 2026, the U.S. Court of Appeals for the Fourth Circuit vacated a preliminary injunction against earlier executive orders after focusing on certification text, noting that if officials misinterpret those laws to punish lawful expression, plaintiffs may bring as-applied challenges. That decision did not validate the administration’s broader enforcement practices or its interpretation of federal antidiscrimination law.
The plaintiffs argued they could not engage in protected expression or association related to race or ethnicity without facing canceled or denied contracts, loss of opportunity, or legal punishment. Skye Perryman, president and CEO of Democracy Forward, the legal group representing the plaintiffs, said: “The president’s executive order defies both the law and reality.”
Why It Matters
The constitutional stakes of this lawsuit go to the core of First Amendment doctrine as it applies to government contractors. The Supreme Court has long held that the government may not condition receipt of a public benefit on the surrender of a constitutionally protected right — a doctrine known as the “unconstitutional conditions” principle. By threatening contract cancellation and False Claims Act prosecution against any contractor who discusses race or ethnicity in ways the administration deems to be DEI, EO 14398 arguably imposes precisely such a condition.
The associations allege EO 14398 violates the First Amendment by chilling constitutionally protected speech and association on matters of race, ethnicity, diversity, equity, and inclusion. They also allege the order is unconstitutionally overbroad because it sweeps in substantial amounts of protected expression — including lawful discussions of race, academic research, mentorship programs, and professional associations — and deters such expression through threats of contract loss and penalties.
The order’s vagueness is a separate and significant legal problem. By failing to define “illegal DEI” with precision, the executive order leaves contractors in a position where they cannot know in advance whether their lawful activities cross the line into prohibited territory. This kind of regulatory uncertainty has historically been found by courts to impose a chilling effect on protected speech that itself constitutes a constitutional violation, even without any actual enforcement action being taken.
For the more than half a million companies that hold federal contracts — representing trillions of dollars in government purchasing activity — the order creates immediate operational uncertainty. Human resources practices, employee resource groups, targeted recruiting programs, academic research on race and discrimination, and mentoring initiatives for underrepresented employees all potentially fall within the order’s reach.
Economic and Global Context
The federal contracting ecosystem is one of the largest economic sectors in the United States, with total contract obligations exceeding $700 billion annually. The DEI order’s reach extends to subcontractors as well as prime contractors, meaning that virtually any business that participates in the supply chain serving government agencies is potentially subject to its terms. The economic impact of mass compliance — or mass uncertainty — could reshape hiring, training, and organizational practices across enormous swaths of the private sector.
Parties in the lawsuit reported that the directive could cause them to refrain from certain activities that might run afoul of it. One contractor’s Washington, D.C., chapter said it was “anxious” about hosting future events similar to a recent mayoral candidate forum it sponsored with a Black business community organization. A member of the organization may stop advertising jobs in a local newspaper targeted to Black readers due to the executive order.
Higher education institutions that hold federal research contracts face a distinctive exposure. Universities receive hundreds of billions in federal research funding annually, and any determination that their academic programs, speaker series, or faculty mentoring initiatives constitute “racially discriminatory DEI activities” could expose them to contract cancellation and False Claims Act liability. That threat has an obvious and intended chilling effect on academic freedom and research.
Implications
The Maryland federal court will now weigh whether to issue a preliminary injunction blocking enforcement of EO 14398 while the merits of the constitutional claims are litigated. Given the Fourth Circuit’s February 2026 ruling that vacated the earlier injunction against Trump’s 2025 DEI orders, the administration will argue that plaintiffs lack standing or that the order does not constitute a facial First Amendment violation. The Fourth Circuit’s concurring opinion, however, explicitly flagged that enforcement actions going beyond the order’s scope “may well raise serious First Amendment and Due Process concerns.”
The lawsuit seeks preliminary and permanent injunctions prohibiting federal agencies from implementing or enforcing EO 14398, and asks the court to declare the order unlawful and unconstitutional. The plaintiff coalition also argues the order’s False Claims Act components exceed the president’s authority under the Procurement Act.
Regardless of the immediate judicial outcome, the legal battle over EO 14398 is heading toward the Supreme Court. The Roberts Court has already significantly limited affirmative action in higher education admissions, and the current bench’s conservative majority may be receptive to the administration’s argument that race-conscious workplace programs constitute impermissible discrimination. How the court ultimately defines the boundaries between unlawful racial preferences and protected speech about race will shape employer practices for decades.
Sources
Newest Anti-DEI Trump EO Violates First Amendment, Suit Says
