The DEI Quagmire For Companies: How Differing Views About DEI Across Jurisdictions Create Risks That Can Be Mitigated
Introduction
Multinational employers now must navigate a quagmire with respect to any diversity, equity, and inclusion (DEI) efforts because of the tension between differing federal, international and some state laws and policies. This tension raises risks for multinational employers. This client alert outlines the shift in federal guidance on DEI; the tension between federal, international and state policies on DEI, and highlights ways in which companies may be able to mitigate risk.
The Shifting Federal Landscape on DEI
The federal landscape on DEI shifted sharply in 2025. The Trump administration has taken a markedly skeptical approach to DEI, with the Department of Justice (DOJ) and the Equal Employment Opportunity Commission (EEOC) leading efforts to limit practices they view as unlawful.
In January 2025, President Trump signed an Executive Order entitled Ending Illegal Discrimination and Restoring Merit-Based Opportunity (the “President’s Executive Order”). The Order revoked several prior DEI-related executive orders dating back to 1965 and directed federal agencies to eliminate “illegal preferences, mandates, policies, programs, and activities” tied to protected characteristics.
In March 2025, the EEOC and DOJ released coordinated technical assistance on DEI and workplace discrimination. The EEOC published What You Should Know About DEI-Related Discrimination at Work, while the two agencies jointly issued What To Do If You Experience Discrimination Related to DEI at Work. The agencies stressed that Title VII prohibits employment actions motivated, even in part, by protected traits such as race or sex.
In May 2025, Deputy Attorney General Blanche launched the Civil Rights Fraud Initiative. This program applies the False Claims Act to contractors and funding recipients who falsely certify compliance with civil rights laws while engaging in discriminatory conduct. The DOJ cautioned that DEI initiatives allocating benefits or burdens based on race, sex, or national origin could trigger treble damages and whistleblower suits.
In July 2025, Attorney General Bondi issued guidance to all federal funding recipients. The memo reiterated that using race, sex, or other protected traits in decision-making, even indirectly through proxies such as “cultural competence” or “lived experience,” may be unlawful. It warned that segregated programming or preferences could lead to litigation or loss of federal funds.
The Tension Between U.S. and International Policies on DEI
This shifting federal landscape may create a landmine for multinational employers, especially for multinational employers that are federal contractors. Indeed, President Trump prohibited federal contractors from promoting DEI programs that purportedly violate federal anti-discrimination laws. Furthermore, in March 2025, the U.S. State Department advised foreign federal contractors that they must comply with the President’s Executive Order and threatened sanctions under the False Claims Act. Further complicating the landscape, the U.S. State Department abruptly changed its position on in April 2025, when it limited the scope of the President’s Executive Order to foreign companies that are controlled by a U.S. employer and employ U.S. citizens.
The U.S. federal government’s position, however, creates two distinct issues for multinational employers. First, it is at odds with foreign laws. For example, the Leadership Position Directive in the European Union mandates that publicly-listed companies must ensure that persons from underrepresented gender groups constitute at least 40% of all non-executive director positions or that 33% of all director positions are held by the "underrepresented sex" by June 30, 2026. Furthermore, this directive contemplates penalties for non-compliance. Likewise, Japan requires certain companies to create and to execute “action plans” that, inter alia, articulate objectives with respect to gender equality and outline concrete and meaningful steps that employers will take to meet them. Second, it requires multinational employers to engage in a nuanced, fact-specific inquiry to determine if they constitute a U.S. employer or can invoke the foreign law defense.
The Tension Between State and Federal Policies on DEI
While trying to comply with the shifting federal landscape on DEI, companies that operate in different states must also be mindful that certain states encourage, or otherwise mandate, compliance with DEI efforts. In February 2025, the Attorneys Generals of Massachusetts, Illinois, Arizona, California, Connecticut, Delaware, Hawaii, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, and Vermont issued multi-state guidance to help businesses and organizations, operating in those states, understand how DEI initiatives and programs could remain compliant with federal anti-discrimination laws and otherwise reduce the risk of litigation.
Moreover, certain states may mandate diversity reporting. For example, California has a Diversity Reporting Law, which requires certain venture capital funds that have a “nexus” to California to report the demographics of leadership of the companies in which they invest, with the first reports set to be filed in March 2026. California also has a law that requires private employers of 100 or more employees and/or 100 or more workers hired through labor contractors to annually report pay, demographic, and other workforce data to the state Civil Rights Department. In Pennsylvania, regulated public utility companies must annually report on their corporate diversity policies. Pennsylvania also supports small diverse business programs to encourage equitable contracting.
Some state laws or policies that seek to mandate diversity reporting or compliance have or will likely face legal challenges. However, to the extent that there are state laws or policies in effect that encourage or mandate DEI initiatives and programs, businesses must grapple with the possibility that in their efforts to comply with federal guidance regarding DEI initiatives, they may face certain state Attorney General investigations.
Takeaways
Companies face a confounding predicament because of the tension between U.S., international, and state laws and policies on DEI, but risk can be mitigated by:
Understanding corporate structures and ownership composition to determine whether they are considered domestic or foreign;
Identifying the jurisdictions in which they have a physical and/or a legal presence that may subject them to foreign and/or state laws;
Auditing DEI programs for risks, such as candidate slate requirements, exclusive employee groups that limit membership, proxy criteria, or trainings that stereotype or segregate employees;
Base decisions on neutral, job-related criteria, not protected traits, since employer motive is irrelevant under Title VII;
Document compliance efforts to demonstrate that DEI initiatives align with federal civil rights laws; and
Anticipate enforcement and litigation as DOJ, EEOC and State AG scrutiny increases.
If you have questions about this Client Alert or are interested in additional details or guidance, please reach out to Giovanni Antonucci (giovanni.antonucci@pierferd.com), Eric Meyer (eric.meyer@pierferd.com), Alicia N. Washington (alicia.washington@pierferd.com), or your regular PierFerd contact for assistance.
This publication and/or any linked publications herein do not constitute legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, the author(s) and PierFerd assume no liability whatsoever in connection with its use. Pursuant to applicable rules of professional conduct, this publication may constitute Attorney Advertising. © 2025 Pierson Ferdinand LLP.
