April 23, 2026

By: Mark T. Sottile , Scott A. Coffina

Questions abound over the United States Justice Department’s (“DOJ”) aggressive posture towards federal contractors with DEI policies. On April 10, 2026, the DOJ settled with IBM, as the multinational technology company agreed to pay $17 million to resolve allegations its diversity practices violated the False Claims Act. The DOJ asserted that since 2019, IBM improperly tied the bonus compensation of management employees to meeting certain demographic targets related to race, sex, or gender.

The settlement should not be unexpected. The Trump Administration has touted its intention to dismantle what it views as illegal Diversity, Equity, and Inclusion (“DEI”) programs within the government, education, and private sectors from the beginning of its second term. The False Claims Act, which is meant to combat fraud against the United States government, allows for civil penalties for falsely billing the government, over-representing the amount of a delivered product, or understating an obligation to the government. The False Claims Act may be enforced by the DOJ or private individuals in a qui tam proceeding. Based on published reports, no whistleblower was involved in this case.

The government’s False Claims Act theory in the IBM case and in its broader enforcement initiative is essentially a false certification claim. Recipients of federal funds must certify to their compliance with antidiscrimination laws as a condition of receiving payment, and in the government’s view, having DEI programs render such certifications false.

Such was the case with IBM. The DOJ alleged that several of its employment practices taking into account race, color, national origin, or sex, violated the Civil Rights Act of 1964, which the company falsely certified it complied with, as required by their government contracts. Unlike traditional fraud cases, the DOJ has not asserted that IBM failed to provide contracted-for services or products, making the basis for calculating the $17 million settlement unclear.

A Broad Brush

The DOJ put all recipients of federal funds on notice through guidance memos in May and July 2025 that it would use the False Claims Act as its primary tool to enforce antidiscrimination laws; and DEI programs are particularly susceptible to False Claims Act scrutiny. Graduate and undergraduate university programs giving preferences in admissions, scholarships, or advancement opportunities to racial or ethnic groups were cited by the DOJ as specific examples of unlawful practices. Although not False Claims Act cases, Cornell University and the University of Virginia each entered into DEI-related settlement agreements with the DOJin late 2025, and dozens more schools are reportedly under investigation by either DOJ or the Department of Education. There are municipalities, health systems, and other government contractors also reportedly under investigation.

Advice to Employers

Given that President Trump specifically campaigned on ending DEI programs and made it a first-week priority by signing an Executive Order targeting DEI initiatives, more high-profile settlements seem likely. For many employers, the die may already be cast. In the case of IBM, the program awarding bonuses for hitting certain diversity thresholds had been in place since 2019. Going forward, companies who have been awarded government contracts should avoid offering financial rewards to their employees for encouraging diversity in recruitment and hiring, as IBM did. Similarly, offering development programs exclusively to members of a certain race or gender could also jeopardize companies’ contracts, while creating the potential for expensive False Claims Act litigation.

Employers contracting with the federal government must be sure to conduct a comprehensive review of their diversity practices and policies to ensure compliance with federal discrimination laws and federal contract provisions. If necessary, employers should take direct measures to modify such programs, particularly as they may relate to hiring, promotion, and recruitment.