On March 29, United States embassies across Europe began sending letters and an accompanying “Certification regarding compliance with applicable federal anti-discrimination law” to companies in Belgium, Bulgaria, Denmark, France, Italy, Luxembourg, and Spain.  This certification purports to apply Executive Order (“EO”) 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”) to U.S. government suppliers and contractors based in Europe “regardless of their nationality and the country in which they operate.”  As we wrote in a prior alert, the Trump administration intends for EO 14173 to end what it considers to be “illegal preferences and discrimination” including those “under the guise of so-called ‘diversity, equity, and inclusion’ (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA)” programs by prescribing required provisions for federal contracts. 

The March 29 certification required recipients to certify that (1) they are in compliance with “all applicable Federal anti-discrimination laws” and that the certification is material to the government’s payment decisions for purposes of the U.S. False Claims Act, and (2) they do not operate any programs promoting DEI that violate “any applicable Federal anti-discrimination laws,” as prescribed by EO 14173.  Taken together, the provisions could potentially expose companies that sign the certifications to liability under the False Claims Act.  Letters received by some companies explain that the certification relates to “U.S. federal antidiscrimination law.” Contractors were asked to sign these certifications within five days or “provide detailed reasons” for not doing so.  Within days, government ministers from France and Belgium publicly criticized these requests.

The letters and certification requests have generated significant press attention, but they likely have limited legal impact in most cases.  Title VII of the Civil Rights Act of 1964—which is the primary federal anti-discrimination law in the United States and the primary statute that would be used to determine “illegal preferences and discrimination” under EO 14173—has extraterritorial application only to U.S. citizens working for U.S. or U.S.-controlled companies outside of the United States.  As a result, Title VII does not apply to the foreign operations of a foreign entity that is not controlled by an American employer and therefore there is little basis under that statute upon which to conclude that any programs operated by such companies outside the United States “violate applicable Federal anti-discrimination laws.”

United States government contracts also do not extend the statutory reach of Title VII to contract performance outside of the United States, and the U.S. government would not have a basis to argue that a foreign company’s DEI practices applicable to its non-U.S. citizen employees would be subject to Title VII.  As a result, at present, the U.S. government may not lawfully terminate a contract for cause solely on the basis that the government disagrees with a contractor’s DEI policies outside the United States.   

It is possible that the U.S. government will nonetheless attempt to exert pressure on contractors and contractor affiliates that maintain DEI policies outside the United States.  For example, the U.S. government may seek to terminate contracts for convenience by asserting that contracting with foreign companies that maintain certain DEI policies is contrary to U.S. policy and not in the best interests of the United States.  For the same reasons, the U.S. government could seek to amend contract terms going forward to prohibit certain DEI practices as a matter of policy, take the position that the foreign entities of U.S. government contractors are ineligible for future contracts, or take other retaliatory measures against foreign companies that maintain DEI programs that the Trump administration would consider “illegal.”  Finally, in spite of the limited application of Title VII outside of the United States, the administration might still consider initiating False Claims Act investigations of contractors who sign the certifications, based on those contractors’ operation of DEI programs outside of the United States.  Even if litigation under the False Claims Act ultimately failed, contractors could still incur the costs of defending an investigation and litigation.  All of these approaches would be unprecedented, and potentially subject to legal challenge.     

For years, European companies have balanced the enthusiasm of U.S.-based companies for DEI programs with many European countries’ strict rules against positive action—differentiating among employees in an effort to help certain targeted groups—and the potential risks that come with that.  The U.S. concept of “DEI” has not always aligned with the laws and norms of various European nations, which may not recognize the same demographic “protected categories” that have been the focus of U.S. DEI initiatives.  So the change in direction—and attendant “certification” request—is equally vexing to some.  Even before the March 29 letters and certifications, since President Trump’s inauguration, companies across Europe have been navigating the new administration’s fiercely critical view of DEI efforts.  In particular, the administration has made it clear that it does not support workforce representation goals or initiatives such as leadership or mentorship programs aimed at specific employee demographics, such as women or minorities, that are not extended to all employees—practices that have not previously been found unlawful in the United States.

In navigating this shift, companies have adopted different approaches.  Some companies with operations in the United States and Europe have ended various DEI-related representation goals or hiring targets in the United States, while maintaining similar goals in Europe.  Others have discontinued the use of goals in both jurisdictions, particularly in the United Kingdom.  Similarly, some companies have removed certain DEI-related language from websites and annual reports in the United States while keeping that same language on European websites and reports. A few have announced the termination of all DEI programs across Europe and the United States.

Companies operating outside the United States but doing business with the United States should carefully consider whether their programs and initiatives outside the United States that might be characterized as “DEI” are lawful under their own countries’ laws, and if so, whether they might nevertheless attract scrutiny by U.S. regulators.  Companies that received certification requests will need to weigh the value of their commercial relationship with the U.S. government, and potentially consider whether to maintain or modify certain components of their DEI programs, in connection with any response to the request.  This is of course a rapidly evolving situation, so companies will need to continue to monitor, in particular, the development of the law in the U.S. and the position of the U.S. government.