DOJ Announces First False Claims Act Case Targeting DEI Programs

Nearly a year after launching a new Civil Rights Fraud Initiative aimed at diversity, equity, and inclusion (DEI) practices, the US Department of Justice (DOJ) announced on 10 April 2026 its first False Claims Act (FCA) resolution targeting employment practices that it contends violated federal anti-discrimination requirements incorporated into government contracts.¹ The civil settlement—the first public instance in which the Trump administration has utilized the FCA and its treble damages provisions in the context of DEI—makes clear that this area remains a priority for the DOJ and, for government contractors and other federal fund recipients, provides insight regarding the types of practices that may be called into question.

Alleged DEI Practices at Issue

The settlement resolves claims that certain International Business Machines Corporation (IBM) employment practices allegedly considered race, color, national origin, or sex (protected characteristics) in ways that conflicted with contractually required equal employment obligations. The settlement resolves alleged practices dating back to 2019, which included:

• Using modifications or adjustments to compensation that caused managers to take protected characteristics into account when making employment decisions, including a “diversity modifier” that tied bonus compensation to achieving demographic targets;
• Applying “diverse interview slates,” “diverse sourcing,” and altered interview eligibility criteria based on protected characteristics in making hiring or promotion decisions;
• Developing race and sex demographic goals for business units; and
• Offering training, mentoring, leadership development programs, and similar opportunities with eligibility based on protected characteristics.

Critical to invoking the FCA, the DOJ alleged that the company certified compliance with the anti-discrimination requirements in seeking payment for services provided under its federal contracts, while knowingly maintaining these allegedly violative practices. IBM did not admit liability, and in fact expressly denied that it engaged in the at-issue conduct.

The DOJ credited IBM for its cooperation and remedial steps, which included early disclosure of facts gathered in IBM’s independent investigation, providing information to assist in the calculation of damages and penalties, and terminating or modifying various of the at-issue practices. As part of the settlement, the company will pay US$17 million, nearly half of which is restitution.

Practical Takeaways for Federal Contractors

DOJ Is Moving Forward With DEI-Related Enforcement

Over the past 15 months, the Trump administration has issued announcements and policies targeting “illegal DEI.”² Acting Attorney General (then-Deputy) Todd Blanche created the Civil Rights Fraud Initiative to focus on this topic, and numerous speeches and memoranda have highlighted the potential for FCA liability for recipients of federal funding that maintain illegal DEI practices. This resolution marks the first public example of this policy priority in action.

Reassess Employment Practices

The settlement identifies examples of DEI-related conduct that DOJ considers illegal. Companies—particularly federal contractors and other recipients of government funding—should consider how their own practices compare to the at-issue conduct in the settlement. Of particular note, the settlement relates to conduct beginning in 2019—well before this administration’s policy shift on DEI.

Cooperation Credit and Remediation Measures

The settlement credits the company’s early, substantive cooperation and remedial steps, which led to a reduced financial penalty. This credit was awarded notwithstanding the fact that the company did not admit violations and expressly denied the underlying conduct.

Be Mindful of Potential Whistleblowers

Although not the situation in this settlement, companies should keep in mind that the FCA allows private citizens to file lawsuits on behalf of the government (a “qui tam” action), and DOJ has openly encouraged it in DEI cases. Significant financial incentives for whistleblowers accompany such actions.

Contact us to discuss the implications of this action and its impact on your business. Our team is well-versed in federal anti-discrimination and government contracting requirements, defending against FCA investigations and litigation, and conducting audits or internal investigations of potentially problematic conduct.