On July 29, 2025, the U.S. Department of Justice (DOJ) issued a sweeping and long-awaited memorandum (the Guidance) clarifying how the administration will apply federal antidiscrimination laws to recipients of federal funding — including government contractors, state and local governments, universities, and other federally supported institutions. The Guidance provides a non-exhaustive list of policies and practices, including Diversity, Equity, and Inclusion (DEI) policies, that DOJ considers illegal and presenting "significant legal risks." The DOJ also offers examples of "Best Practices" as "non-binding suggestions" to "minimize the risk of violations." 

"Unlawful Discriminatory Policies and Practices"

The "non-exhaustive" list of "unlawful practices" focuses on five specific categories of DEI practices that could result in the revocation of federal funding. 

"Granting Preferential Treatment Based on Protected Characteristics"

The Guidance states that unlawful "preferential treatment occurs when a federally funded entity provides opportunities, benefits, or advantages to individuals or groups based on protected characteristics in a way that disadvantages other qualified persons." Examples include:

• Programs or scholarships exclusively for individuals of a specific race; 
• Hiring or promotion practices that "prioritize[s] candidates from 'underrepresented groups'" where the groups "are determined on the basis of protected characteristic like race"; and
• Policies that designate facilities (i.e., a "safe space") or resources based on race or ethnicity. 

"Prohibited Use of Proxies for Protected Characteristics" 

The Guidance also takes the position that "unlawful proxies occur when a federally funded entity intentionally uses ostensibly neutral criteria that function as substitutes for explicit consideration of race, sex, or other protected characteristics." Facially neutral criteria may be "legally problematic," according to the Guidance, when they are either "selected because they correlate with, replicate, or are used as substitutes for protected characteristics" or "are implemented with the intent to advantage or disadvantage individuals based on protected characteristics." Examples include:

• Policies that require job applicants to demonstrate "cultural competence," "lived experience," or "cross-cultural skills" that "effectively evaluate candidates' racial or ethnic backgrounds"; 
• Recruitment strategies that "target[] specific geographic areas, institutions, or organizations chosen primarily because of their racial or ethnic composition rather than other legitimate factors"; and 
• Policies that require job "applicants to describe 'obstacles they have overcome' or submit a 'diversity statement' in a manner that advantages" individuals who "discuss experiences intrinsically tied to protected characteristics." 

"Segregation Based on Protected Characteristics"

"Unlawful segregation," according to the Guidance, "occurs when a federally funded entity organizes programs, activities, or resources—such as training sessions—in a way that separates or restricts access based on race, sex, or other protected characteristics."¹ Examples include: 

• Training sessions that separate participants or deny participation based on race;
• Facilities or resources that facially discourage access based on race (e.g., "BIPOC-only study lounge"); and
• Programs where eligibility is based on protected characteristics (e.g., a workshop for "underrepresented minorities only").

"Use of Protected Characteristics in Candidate Selection"

The Guidance also provides that "unlawful use of protected characteristics occurs when a federally funded entity or program considers race, sex, or any other protected trait as a basis for selecting candidates for employment… , contracts… or program participation." Examples include:

• Policies requiring a "diverse slate" of candidates for interviews or that otherwise set racial or demographic benchmarks for "candidate pools";
• Policies prioritizing the award of contracts to women-owned or minority-owned businesses; and 
• Policies that use protected characteristics as a selection criteria for program participation (e.g., an "internship program requires that 50% of selected participants be from 'underrepresented racial groups' or female students"). 

"Training Programs That Promote Discrimination or Hostile Environments"

"Unlawful DEI training programs," according to the Guidance, are "those that—through their content, structure, or implementation—stereotype, exclude, or disadvantage individuals based on protected characteristics or create a hostile environment." Examples include:

• Trainings that exclude or penalize individuals based on protected characteristics; and
• Trainings "that includes statements stereotyping individuals based on protected characteristics" (e.g., "toxic masculinity"). 

Recommended "Best Practices"

The Guidance also identifies nine non-mandatory suggestions "to assist entities in avoiding legal pitfalls and upholding equal opportunity for all." The recommendations include:  

1. Ensuring inclusive access to all workplace programs, activities, and resources, regardless of protected characteristics;
2. Focusing on specific and measurable skills and qualifications when making selection decisions related to job performance or program participation;
3. Prohibiting programs and policies that use demographic-driven criteria, even where "facially neutral", "to achieve discriminatory outcomes." Examples include educational scholarship programs targeting "'underserved geographic areas' or 'first-generation students' if the criteria are chosen to increase participation by specific racial or sex-based groups"; 
4. Documenting "legitimate rationales" if using criteria for "hiring promotions, or selecting contracts that might correlate with protected characteristics";
5. Scrutinizing facially neutral criteria for "proxy effects" before implementation; 
6. Eliminating diversity quotas in favor of "nondiscriminatory performance metrics";
7. Avoiding exclusionary training programs in favor of trainings that are "open to all . . . regardless of protected characteristics," that do not segregate participants based on protected characteristics, and do not require affirmation of "specific ideological positions" or confession of "personal biases or privileges based on a protected characteristic";
8. Including nondiscrimination clauses in third-party agreements and monitoring compliance; and
9. Establishing "clear anti-retaliation procedures" and "safe reporting mechanisms" for "individuals who engage in protected activities, such as raising concerns, filing complaints, or refusing to participate in potentially discriminatory programs."

Key Takeaways & Implications for Your Organization

The Guidance urges recipients of federal funding "to review all programs, policies, and partnerships to ensure compliance with federal law, and discontinue any practices that discriminate on the basis of a protected status." Given the Trump administration's enforcement focus on DEI activities since January (previously discussed here, here, and here), many entities have already undertaken internal assessments of their DEI-related policies and procedures. However, the Guidance, for the first time, articulates the administration's views of where historical DEI practices may give rise to enforcement risk under existing federal statutes and likely warrants a refreshed review to identify and mitigate risks. In so doing, we highlight a few key points: 

• DOJ imports a "proxy" standard into its definition of "illegal DEI." It was previously understood that the administration would take the position that quotas and selection criteria based on race, sex, color, national origin, religion, or other protected characteristics were unlawful. Prior statements, including in executive orders, targeted "DEI and DEIA principles, under whatever name they may appear." But the Guidance goes further, making clear that DOJ will consider whether facially neutral criteria (e.g., geographic targeting, "lived experiences," or "overcoming obstacles") functions as a proxy for protected characteristics. While still requiring intent and not referencing "disparate impact" theories of liability, the use of which this administration has sought to eliminate, the guidance may chill the use of facially neutral criteria that, while non-discriminatory on their face, potentially have the effect of discriminating against or creating an advantage for certain protected classes. Rather, facially neutral criteria must be applied in a manner such that no advantage or disadvantage is given to an individual based on protected characteristics.
• DOJ will expect strict compliance. The Guidance states that "benign labels, objectives, or intentions" do not protect a practice or policy from scrutiny. Selection criteria should focus on objective, merit-based qualifications, untethered to protected characteristics. The rationale for the use of criteria should be well-documented, explaining how the criteria advance institutional objectives. 
• The Guidance takes the position that it is unlawful to prioritize the award of contracts to women-owned or minority-owned businesses. For federal funding recipients who also work with state, local, and foreign governments — many of whom have their own contracting preferences and goals — a thorough review of internal policies will be necessary to ensure compliance with potentially conflicting requirements. This new position also appears at odds with federal laws that establish these kinds of preferences at the federal level. 
• DOJ intends to hold prime recipients of federal funding accountable for the use of funds in their subcontracts, subgrants, and other third-party agreements. In line with one of DOJ's "best practices," the terms of third-party agreements must (i) mandate compliance with federal law and in accordance with DOJ's guidance, and (ii) allow for prime recipients to adequately monitor compliance.

Our team is available to assist with any initial or refreshed compliance reviews, policy drafting, and training updates. For more information, please contact:

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Alejandra Montenegro Almonte, aalmonte@milchev.com, 202-626-5864

Katherine E. Pappas, kpappas@milchev.com, 202-626-5816

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

or any attorney in our Government Contracts or Workplace Culture and Conduct groups. 

¹DOJ notes "narrow" exceptions to this principle, including "where federal law expressly permits race-based remedies for specific, documented acts of past discrimination by the institution itself" or "specialized contexts such as correctional facilities." The memo also directs organizations to apply "sex-based boundaries rooted in biological differences" to athletic competitions and intimate spaces. 

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