Two new executive orders issued by President Trump make it clear that his administration will push back on diversity, equity, and inclusion (DEI) initiatives sponsored by employers. Companies may also come under pressure from state regulators similarly opposed to DEI, along with employees and other stakeholders that favor such efforts. Organizations must be mindful of their potential liabilities amid growing backlash to DEI and how they can mitigate their risk through management liability insurance and other means.
Ending “illegal discrimination and preferences”
Shortly after returning to the White House on January 20, President Trump issued a flurry of executive orders covering various policy areas. Included in these were two orders governing federal policy regarding DEI: Ending Radical and Wasteful Government DEI Programs (opens a new window) and Preferencing and Ending Illegal Discrimination and Restoring Merit-Based Opportunity (opens a new window).
The orders direct federal officials and agencies to take steps to “end illegal discrimination and preferences,” including eliminating DEI and diversity, equity, inclusion, and accessibility (DEIA) programs and policies. Specifically, Trump administration officials and agencies are to:
Terminate all DEI and DEIA programs policies, preferences, and activities.
Dissolve federal offices related to DEI and DEIA.
Eliminate affirmative action plan obligations regarding race and gender for federal contractors and halt enforcement activity by the Department of Labor’s Office of Federal Contract Compliance Programs regarding race or gender affirmative action plans.
Review practices of private employers and file a report with the president identifying “key sectors of concern” and “egregious and discriminatory practitioners.”
Maintain the policy of the United States “to protect the civil rights of all Americans and to promote individual initiative, excellence, and hard work” and to enforce existing civil rights laws.
The executive orders also direct officials and agencies to submit plans outlining steps to deter DEI and DEIA “programs or principles that constitute illegal discrimination or preferences” in the private sector. This includes identifying potential civil compliance investigations of publicly traded companies, large nonprofit organizations and large higher education institutions, as well as potential litigation, regulatory guidance, and “other strategies to encourage the private sector to end illegal DEI discrimination.”
Finally, President Trump’s orders require agencies and officials to provide guidance to education institutions on how to comply with the Supreme Court’s 2023 ruling in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (opens a new window). In that decision, the court held that colleges and universities cannot use race as a factor in admissions decisions.
A rapidly changing environment
In 2020, as public attention to the Black Lives Matter movement grew — and only a few years since the launch of #MeToo — businesses and schools came under pressure from employees, students, customers, and others to embrace DEI. This coincided with a larger push by activist investors for public companies to commit to environmental, social, and governance (ESG) principles.
The executive orders are the latest example of how the environment has changed in the past few years. In the wake of the Students for Fair Admissions decision, activist groups filed hundreds of lawsuits against both schools and businesses, challenging their affirmative action and DEI programs. Corporate shareholders have also pushed back against public companies’ efforts to promote ESG — and, more specifically, DEI — through litigation and opposition to pro-ESG board candidates.
By the end of 2024, five states — Alabama, Florida, Iowa, Texas, and Utah — had banned DEI offices at public universities. Meanwhile, many public and private companies ended or reduced support for ESG and DEI programs in 2024. Major news outlets have also reported that some companies have removed references to “diversity” in previously published annual reports since President Trump’s executive orders were issued.
More liability for the private sector
The new executive orders focus primarily on the federal government’s role as an employer and the employment processes of companies with federal contracts and grants. However, subsequent developments foreshadow potential future impacts in the private sector.
For example, on January 27, Texas Attorney General Ken Paxton sent a letter (opens a new window) — cosigned by the attorneys general of Alabama, Georgia, Idaho, Indiana, Iowa, Montana, Nebraska, South Carolina, Utah, and Virginia — to six global financial institutions, suggesting that their support of DEI initiatives is politically motivated and violates their fiduciary duties to shareholders. The letter warned of potential enforcement actions, including litigation against the financial institutions.
Meanwhile, on February 5, newly appointed Attorney General Pam Bondi told Department of Justice employees in a memo that the DOJ’s “Civil Rights Division will investigate, eliminate, and penalize (opens a new window) illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.”
Given the guidance the Trump administration has issued to date, it seems likely that businesses will be subject to more regulatory investigations and enforcement activity and continued litigation brought by employees, whistleblowers, shareholders, and third-party activists.
Discrimination, harassment, and hostile work environment claims filed by historically protected classes are likely to continue, but we also anticipate that “reverse discrimination” claims may increase, alleging that any employment practices based on race, sex, and/or gender are improper. Corporate board decisions will likely come under greater scrutiny as companies work to define their hiring practices and processes, and even benefit plans may be more likely targets as participants closely examine fund investments.
A potential complicating factor for organizations is that employees continue to see value in DEI programs. Even as companies brace for action from anti-DEI federal regulators, their employees and other stakeholders may urge them to maintain existing DEI initiatives. Employees may also advocate for companies to cancel federal government contracts rather than be subject to new rules for contractors.
Insurance considerations
Commercial insurance can provide organizations with crucial protection in the event of litigation and regulatory actions, including investigations and enforcement proceedings. Three forms of insurance coverage will likely be most applicable:
Employment practices liability (EPL) insurance is designed to respond to employment-related claims — such as discrimination, wrongful termination, failure to employ or promote, and violation of employees’ civil rights — brought against employers by current and former employees, job applicants, state and federal regulators. In some instances, EPL insurance also extends to claims brought by third parties, such as clients, customers, and vendors, that allege discrimination or harassment. EPL policies can provide coverage for legal defense costs, settlements, and damages awarded in litigation.
Directors and officers liability (D&O) insurance can protect organizations, board members, and other senior leaders from claims brought by shareholders, investors and regulators regarding management decisions. D&O insurance can reimburse insureds for legal defense costs, litigation awards and settlements, and, in some instances, regulatory actions, investigations, and related costs.
Fiduciary liability insurance provides coverage to organizations and senior executives — in their role as employee benefit plan fiduciaries — for claims alleging they mismanaged those plans or their assets. In the context of President Trump’s recent executive orders, fiduciary liability insurance could apply in the event of litigation by plan participants alleging that plan investments in funds that prioritize ESG principles, such as DEI, violate insureds’ fiduciary responsibilities. Policies typically provide coverage for legal defense costs as well as some litigation awards and settlements.
Organizations should review these policies with their insurance brokers to understand what is and is not covered and to address any potential gaps or insufficiencies in coverage.
Although it is still too early to tell how insurers will ultimately respond to the executive orders — and the prospect of additional DEI-related claims in the future — buyers should prepare for additional underwriting scrutiny. For example, underwriters may ask an insured:
Are you a federal contractor or grant recipient?
Do you have an affirmative action program in place and/or hiring goals related to specific groups?
Have you evaluated your DEI policies and procedures since the executive orders were issued?
Best practices for employers
Employers should consider engaging counsel to review their DEI, DEIA, and similar programs, policies and practices. Employers and their counsel should carefully consider the intent of their DEI, DEIA, and similar programs, policies, and practices to confirm alignment with their organizational objectives and identify potential risk areas in preparation for future scrutiny and claims.
Businesses may want to include in their review programs based on race and/or gender. This includes any forms of affirmative action and any policies related to promotions, scholarships, grants and other benefits and awards that are limited to specific demographic groups.
Companies should also stay abreast of DEI enforcement developments at the federal and state levels and seek guidance from legal advisors.
For more information and insights on this topic, contact a member of your Lockton Professional and Executive Risk team.
For specific guidance on how government contractors can respond to the new executive orders, contact Kelly Kenney (opens a new window), GovCon Solutions Leader, Lockton People Solutions.
For more information and support in reviewing and developing inclusive people programs, policies, and offerings, contact Rebecca Krauland (opens a new window), Lockton People Solutions.
