EO 14398: What the Maryland Ruling Means for Contractors

BLOG OVERVIEW: On October 14, 2026, a Maryland federal court denied a preliminary injunction against Executive Order 14398, allowing enforcement of FAR 52.222-90 to proceed. The court read the order’s ban on “racially discriminatory DEI activities” as covering only intentional disparate treatment based on race or ethnicity, conduct Title VII already prohibits. Speech, training, and research about race fall outside its scope, while race-conscious eligibility rules, slates, scorecards, and pay modifiers remain high risk. Federal contractors still face False Claims Act exposure and should document the basis for employment decisions.

On October 14, 2026, Judge Adam B. Abelson of the U.S. District Court for the District of Maryland denied a preliminary injunction against Executive Order (EO) 14398, “Addressing DEI Discrimination by Federal Contractors.” While the court’s order ultimately means the administration can move forward with certification and investigations to ensure that contractors are not engaging in “racially discriminatory DEI activities” at risk of significant penalties, it also emphasizes a more practical interpretation of EO 14398. As the court read it, EO 14398 applies only to intentional discrimination based on race or ethnicity, which federal law already prohibits. It does not prohibit a program simply because it is labeled “DEI.”

In announcing a $21.5 million False Claims Act settlement with Deloitte, Attorney General Todd Blanche said that “labeling the practice DEI does not make it lawful.” The Maryland opinion offers the counterpoint: DEI labels do not make practices unlawful either. The governing test is disparate treatment.

EO 14398 Background

President Trump signed EO 14398 on March 26, 2026, directing federal agencies to include a clause in contracts and subcontracts in which contractors agree not to engage in “racially discriminatory DEI activities.” It defines this phrase as “disparate treatment based on race or ethnicity” in recruitment, employment, contracting, program participation, or the allocation of an entity’s resources. Program participation covers training, mentoring, leadership development, educational opportunities, clubs, and associations. Unlike previous executive actions, EO 14398 addresses race and ethnicity only, not sex.

The Federal Acquisition Regulatory (FAR) Council implemented the order through a new clause, FAR 52.222-90, in guidance issued on April 17, 2026. The clause applies to most federal contracts and flows down to subcontracts at every tier. Under the clause, contractors agree to furnish records on request, report known or reasonably knowable subcontractor violations, and acknowledge that compliance is material to the government’s payment decisions under the False Claims Act. The supporting statement for the related information collection projects 6,825 audits per year across roughly 430 agencies.

Case Background

The Maryland case follows earlier litigation over the administration’s 2025 DEI orders, EO 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing,” and EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” Judge Abelson enjoined parts of those orders in February 2025, and the Fourth Circuit stayed that injunction a month later. On February 6, 2026, the Fourth Circuit vacated the injunction, holding that the plaintiffs were unlikely to succeed on their facial challenge to the 2025 certification requirement under EO 14173 because it simply required compliance with existing federal antidiscrimination law.

Some of the same plaintiffs then challenged EO 14398, including the National Association of Diversity Officers in Higher Education (NADOHE), the American Association of University Professors, United Academics of Maryland, and the National Association of Minority Contractors and its DMV chapter. A key difference from the 2025 certification requirement is that EO 14398 does not refer to federal antidiscrimination law by name, removing the anchor the Fourth Circuit relied on in upholding the earlier provision.

Disparate Treatment Is a Legal Term of Art

The court took issue with the phrase “racially discriminatory DEI activities.” Standing alone, the court wrote, that phrase “may very well have run afoul of the First Amendment” because it is “far from self-explanatory” and “what one person considers ‘DEI activities’ may bear little resemblance to another person’s notion.”

Under Supreme Court precedent, including Ricci v. DeStefano and EEOC v. Abercrombie & Fitch, “disparate treatment” means intentionally treating a person less favorably than others because of a protected characteristic. The plaintiffs urged a plain-English reading of “treating things differently,” which would have swept in a wide range of race-related speech and programming. The court rejected that reading, holding that legal terms of art carry their established legal meaning. The surrounding words “racially discriminatory” reinforced that conclusion.

From there, the court concluded that the order “only prohibits contractors from engaging in conduct that is already prohibited by federal law: intentional discrimination on the basis of race or ethnicity.” That holds even for employers too small for coverage under Title VII of the Civil Rights Act (Title VII), because 42 U.S.C. § 1981 independently prohibits intentional race discrimination in making and enforcing contracts, including employment contracts.

The court warned that enforcement against DEI-related speech or programming that does not involve disparate treatment would fall outside EO 14398’s scope and could violate the First Amendment.

Race as Expression vs. Decision-Making Factor

The distinction the court drew is between expression about race and decisions made because of race. Programs, trainings, and research that discuss race sit on one side (expression). Eligibility rules, scorecards, and compensation structures that take into account an individual’s race sit on the other (decisions).

The practices at the center of the Department of Justice’s (DOJ) recent False Claims Act settlements illustrate the latter. In the IBM case, DOJ alleged a diversity modifier tied to bonus compensation, interview criteria altered through diverse-slate requirements, and training and leadership programs limited by race or sex. In the Deloitte settlement, DOJ alleged the company used color-coded demographic scorecards, senior partner compensation tied to workforce composition targets, promotion slates managed by race and sex, and development programs with restricted eligibility. Both are settlements of allegations, and IBM’s settlement states that it is not an admission of liability. The allegations share a common feature: race or sex allegedly entered decisions about specific people.

Although EO 14398 only covers race and ethnicity, the IBM and Deloitte cases involved both race- and sex-based allegations of discrimination. The IBM settlement relied on Title VII and FAR 52.222-26, the legacy Equal Opportunity clause. Employment decisions taking race and sex into account remain unlawful under Title VII.

Obligations That Remain After the Ruling

This decision narrows how EO 14398 is read, but does not reduce the obligations contractors carry or the consequences of noncompliance.

EO 14398 remains in effect, and so do FAR 52.222-90’s operational duties, including records access, subcontractor reporting, and notice of subcontractor suits challenging the clause. False Claims Act exposure remains as well because the clause states that compliance is material to the government’s payment decisions. Because of this, discrimination allegations can turn into False Claims Act liability with the risk of treble damages.

Takeaways for Contractors

The court’s reading shifts the compliance focus from program labels to actual employment decision-making. Several priorities follow from that shift:

• EO 14398 targets decision-making in recruitment, hiring, promotion, contracting, program eligibility, and resource allocation. Risk sits where race or ethnicity enters those decisions, such as eligibility criteria, slate requirements, scorecards, or pay modifiers. Any program that constitutes a quota or preference based on race would be a violation.
• The court placed teaching, research, publishing, and discussion of racial disparities outside EO 14398. Eliminating programs solely because of their name goes beyond what the order requires under this reading and gives up lawful work.
• Disparate treatment is intertwined with intent, so documentation of the “why” and “how” of programs is imperative. Contractors can further demonstrate decisions are merit-based by collecting and analyzing workforce data on a proactive basis.
• The court read FAR 52.222-90 to reach only work performed under the contract that contains it, not a contractor’s speech or conduct outside that work. Knowing which contracts carry the clause, and which operations perform that work, defines the scope of compliance efforts. However, the ruling does not settle how agencies will structure their reviews, an open question discussed in our previous blog.

A Clarified Scope for EO 14398

The Maryland ruling neither weakens EO 14398 nor expands it. Instead, it clarifies that the order’s reach matches existing antidiscrimination law: intentional, race- or ethnicity-based treatment of individuals in the work performed under a federal contract. The IBM and Deloitte settlements show that DOJ is actively enforcing that standard, with significant financial consequences.

The distinction between expression about race and decisions made because of race offers a more tangible understanding of compliance with EO 14398. It supports reducing False Claims Act exposure while preserving important programs that remain lawful.

DCI will continue to monitor this case and related developments. In the meantime, employers should download DCI’s complimentary FAR 52.222-90 and Executive Order 14398 Checklist.