After Trump’s DEI Order, Companies Navigate a Legal Minefield

Companies that just one year ago celebrated Black History Month and stocked Pride products on their shelves are in a new phase — what some lawyers refer to as “rainbow-hushing,” meaning dropping or quietly rebranding their diversity, equity and inclusion programs.

They are retreating, or clamming up, as they brace for lawsuits encouraged by President Trump’s war against D.E.I. Employers are walking a narrow path: They are trying to keep enough of their diversity efforts in place to remain protected from future discrimination lawsuits, while also avoiding Mr. Trump’s ire, federal investigations and lawsuits from anti-D.E.I. conservatives.

Some corporate initiatives that fall under the D.E.I. label — like mandatory training on avoiding bias and discrimination — were created to break down discriminatory barriers as the work force became more diverse.

“D.E.I. programming grew popular because it was responding to real challenges organizations were facing,” said Musa al-Gharbi, a sociologist and an assistant professor at Stony Brook University who has written extensively on diversity programs. “Basically they’re being told to do nothing about these problems. That seems nonviable from a legal standpoint.”

Many types of D.E.I. programs could draw lawsuits now that Mr. Trump has signed an executive order threatening federal investigations for “illegal D.E.I.,” a term that has caused widespread confusion and has lawyers scrambling to interpret what it might mean.

“We’re in a brave new world,” said Jon Solorzano, a partner at Vinson & Elkins, who is counseling dozens of companies on their approaches to D.E.I. “People are freaked out.”

For private companies (at least those that are not federal contractors) the letter of the law on D.E.I. has not fundamentally changed. But the spirit of how it is interpreted and is expected to be enforced has undergone a major shift.

The primary law on anti-discrimination in private-sector employment is Title VII of the Civil Rights Act of 1964, legislation that came out of the civil rights movement, which says employers cannot make employment decisions on the basis of race, sex or other protected classes.

The Equal Employment Opportunity Commission, an independent agency, enforces this law, and changes in staffing there portend a shift in its approach. Mr. Trump quickly ousted two of the Democrats on the five-person commission. He named as acting chair a commissioner, Andrea Lucas, who said her priorities included “rooting out unlawful D.E.I.-motivated race and sex discrimination.”

“Instead of focusing on discrimination against Black workers and women, they’re going to focus on discrimination against majority groups in the form of D.E.I.,” said David Glasgow, executive director of the Meltzer Center for Diversity, Inclusion and Belonging at New York University’s law school.

Mr. Trump also issued an executive order charging each federal agency to identify nine entities to investigate for “illegal D.E.I.”

A memo from the Department of Justice last week indicated that the department would be involved in enforcing the executive order and could introduce criminal investigations, a prospect that has left organizations “quite alarmed,” Mr. Glasgow said.

A coalition of professors, diversity officers and others has sued to block the executive order.

Meanwhile, corporate executives are hustling to interpret what the administration means by “illegal D.E.I.” The Supreme Court’s 2023 decision striking down affirmative action in college admissions offers a clue. Though the court’s decision did not extend to private-sector employment, lawyers are advising clients that fellowships, internships and mentorship programs that are open only to people of certain protected classes could now put them at legal risk.

“Anything that could be considered exclusive is, I believe, what the administration would say is illegal D.E.I.,” said Craig E. Leen, a partner in the employment practice at the law firm K&L Gates.

Jocelyn Samuels, one of the Democrats removed from the Equal Employment Opportunity Commission by Mr. Trump, said she worried about the doubt being cast over D.E.I. programs, like collecting data on the diversity of a work force, which she views as lawful and important.

“It is a heartbreaking conundrum for employers,” Ms. Samuels said.

Edward Blum, a lawyer who was the architect of the Supreme Court case that ended race-conscious college admissions, has since pressured several high-profile law firms to open up fellowship programs originally directed toward people from underrepresented groups. Mr. Blum said he believed that corporate counsel had known for a long time that such diversity programs were on legally tenuous ground.

“I don’t think this is a head-scratcher for the legal community,” Mr. Blum said in an interview. “They know now, and probably knew seven or eight years ago, that raising the bar for applications to their company based on an applicant’s race and ethnicity really was problematic.”

There are plenty of diversity programs that carry little legal risk, lawyers emphasize. Employee resource groups that are nonexclusive tend to be safe. That is also true of unconscious-bias training required for all staff, as well as educational events, Black History Month celebrations and mentoring workshops that are open to all.

“If it’s not conferring a preference on any protected groups, I feel pretty good about those D.E.I. practices,” Mr. Glasgow said.

But that leaves a lot of gray area. What if companies post language about diversity goals on their websites or share data with external groups like the Human Rights Campaign, which tracks L.G.B.T.Q. progress? Would doing so draw scrutiny from federal agencies?

Mr. Solorzano said tying executive compensation to meeting diversity goals could put companies in the government’s cross hairs, because it arguably offers people an incentive to make employment decisions on the basis of race or sex.

Yet pulling back too far on D.E.I. could also put companies at risk.

“In a lot of firms, legal counsel tells the chief executive that if they get rid of diversity training it will look bad if they’re ever sued for discrimination,” said Frank Dobbin, author of “Getting to Diversity: What Works and What Doesn’t.”

Fair-employment lawyers, suddenly flooded with calls from frightened corporate clients, are developing a playbook for executives trying to protect themselves legally and politically.

Mr. Solorzano has made a checklist of sorts for clients calling in a panic. He advises them to assess the different groups that they’re accountable to in making any change on D.E.I. strategy: Will investors approve? Could consumers boycott? Will employees complain? Will talent look elsewhere for job opportunities?

Consumer-facing companies like Target, which recently pulled back its D.E.I. commitments, or Costco, which has doubled down, have more complex factors to consider: They could face boycotts from either supporters or opponents of D.E.I.

Mr. Solorzano also advises his clients to consider disclosing in their filings to investors the risk that they might be sued or boycotted because of their diversity programs.

Target offers an example of the bind that so many companies now face: It is being sued by shareholders who claim that it concealed the risks of its D.E.I. approach. It is also facing calls for a boycott from consumers who support D.E.I. and are upset about the rollback.

Not all the criticism of identity-based programs comes from the right. Some on the far left view corporate D.E.I. as a distraction from labor organizing that would address economic inequality. Even some people who have created and led diversity programs across the private sector feel D.E.I. programs haven’t always served their purpose. They are asking executives to use this moment of chaos to take stock of which diversity initiatives are effective and which were mostly used for public relations value and should be discarded.

“A lot of these moves have been for optics,” said Lily Zheng, a D.E.I. strategist and the author of “Reconstructing DEI.” “If you can get rid of D.E.I. in a day, that tells you those D.E.I. commitments were the flimsiest of flimsy commitments.”

Alarm over how to navigate this new D.E.I. terrain pops up anywhere corporate leaders gather. In January, leaders in artificial intelligence, including representatives from OpenAI and DeepMind, gathered in Gloria Steinem’s living room, convened by the media start-up Charter and Bloomberg Beta, to talk about gender equality in their industry. A computer scientist described her worries over an organization she works for that supports underrepresented groups in the A.I. industry, wondering whether its website should drop its language about focusing on Black, Latina and nonbinary people.

Ms. Steinem offered her own perspective on the long history of counterattacks on efforts to boost representation of women and minorities in any industry: “There’s always a backlash,” she said. “As soon as you’re approaching a place of real power.”