On March 26, 2026, President Trump signed an Executive Order (EO) called Addressing DEI Discrimination by Federal Contractors. The EO directs federal agencies to add a new contract clause requiring federal contractors, and their subcontractors, not to engage in what the EO calls “racially discriminatory DEI activities.” It also contemplates cancellation, suspension, termination, debarment, and even potential False Claims Act exposure for noncompliance.
If you own a small business or run a nonprofit, here’s the key point: this Executive Order didn’t rewrite federal or New York law.
Title VII, Section 1981, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Equal Pay Act, and the New York State Human Rights Law all still exist. Employers and nonprofits are still expected to follow those laws.
No Executive Order gives anyone a free pass to discriminate, retaliate, or ignore their legal obligations.
What The Executive Order Does
In plain English, this EO is aimed at federal contractors and subcontractors. It says agencies must, to the extent permitted by law, start including a clause in federal contracts within 30 days that bars contractors from engaging in race- or ethnicity-based disparate treatment in recruiting, hiring, promotion, contracting, program participation, and resource allocation. It also directs the Federal Acquisition Regulatory Council to issue interim guidance within 60 days and to amend the Federal Acquisition Regulation.
The EO also tells agencies to require contractors to provide information and access to records, to report certain subcontractor conduct, and to recognize that compliance is material to federal payment decisions. It further directs agencies to consider suspension or debarment for violations and instructs the Attorney General to consider False Claims Act enforcement in appropriate cases.
The Affected Small Businesses and Nonprofits
If you are not a federal contractor or subcontractor. This EO may not directly govern your organization today. Still, it matters because it signals how the Trump Administration is approaching DEI-related issues, especially where the federal government spends money or awards contracts. That means scrutiny may increase, even outside the federal contracting context, and employers should be thoughtful about how they describe and administer workplace programs.
If you are a federal contractor or subcontractor. You need to pay close attention now. This EO is directed at your contracts, your subcontracts, and your compliance practices. If your organization receives federal contract money, performs work under a federal contract, or serves as a subcontractor to a prime contractor, this isn’t something to ignore. The EO specifically contemplates new contract language, record access, reporting obligations, contract termination, debarment, and possible False Claims Act consequences.
If you are a nonprofit. Don’t assume you’re exempt just because you are mission-driven. If your nonprofit has a federal contract or works as a subcontractor on federally-funded contract work, the EO may affect you. If you only receive grants, the analysis may be different, but that doesn’t mean you should shrug this off. You need to understand exactly how your organization receives federal funds and whether those funds come through a procurement contract, a subcontract, or another arrangement. The EO itself is framed around federal contracting.
What the Order Doesn’t Do
This part is important.
This Order does not repeal discrimination laws.
It does not eliminate your obligation to avoid discrimination and harassment.
It does not change New York law.
And it does not mean employers should stop treating equal employment opportunity as a legal requirement.
In fact, New York employers remain subject to robust State-law protections, and as we’ve written before, New York discrimination law remains very much alive.
So if you’re in New York, the message remains the same: follow the law, make employment decisions based on legitimate business reasons, and avoid policies or practices that treat people differently because of protected characteristics.
What Small Businesses and Nonprofits Should Do Now
Here is the practical to-do list.
1. Figure out whether you’re in the federal contracting chain
Don’t guess. Confirm whether you’re:
- a prime federal contractor,
- a subcontractor,
- a lower-tier subcontractor, or
- a nonprofit performing work under a federal contract.
If you do government-related work, review your active agreements and procurement relationships carefully. The EO expressly reaches contractors and subcontractors.
2. Review DEI-related programs for legal risk, not political labels
This is where many organizations get tripped up. The issue is not whether a program is called “DEI.” The issue is whether a policy or program could be viewed as using race or ethnicity as a basis for different treatment in hiring, promotion, vendor selection, mentoring access, leadership programs, or resource allocation. That’s how the EO defines the prohibited conduct.
A careful legal review beats a panicked overreaction.
3. Don’t abandon lawful inclusion efforts
Creating a respectful workplace, training supervisors, preventing harassment, widening recruiting pipelines, and using fair, job-related selection criteria still are lawful and smart. The answer isn’t to throw out every workplace initiative that touches culture, belonging, training, or retention. The answer is to make sure your programs are structured lawfully and administered consistently.
4. Revisit hiring, promotion, and vendor-selection practices
Make sure your criteria are documented, business-related, and consistently applied. If you have aspirational language, special programs, or set-asides that could be misunderstood or challenged, get them reviewed. The risk is higher for organizations connected to federal contracting because the EO focuses directly on those areas.
5. Watch for agency guidance and contract updates
The EO directs agencies to act quickly and directs the FAR Council to issue interim guidance. That means the real-world impact may depend on what agencies and contracting officers do next. Businesses and nonprofits in the federal contracting space should expect more guidance, updated clauses, and potentially new certification or reporting expectations.
6. Train the people who actually make decisions
Your HR team, executive director, managers, procurement staff, and anyone involved in recruiting, promotions, leadership programs, or vendor selection should understand two things:
First, discrimination laws still apply.
Second, Executive Orders can affect how federal agencies evaluate contracts and compliance.
Those two truths exist at the same time.
The Bottom Line
This new EO matters, especially for federal contractors and subcontractors. But it doesn’t change the underlying federal and New York statutes that prohibit discrimination. Small businesses and nonprofits shouldn’t panic, and they shouldn’t assume they can ignore it either.
The right move is to stay calm, understand whether your organization is in the federal contracting stream, review policies and programs with counsel, and continue complying with federal, New York State, and local law.
That’s still the rule. Follow the law. Document your reasons. Treat people fairly. And stay alert when a new EO changes the compliance landscape for organizations doing business with the federal government.
If you’ve got questions, we’ll get you answers. Reach out to us at 716.839.9700 or info@coppolalegal.com.
