Federal Court Leaves Contractor DEI Order in Place, Narrows Its Reach

A federal court has declined to block Executive Order 14398, "Addressing DEI Discrimination by Federal Contractors," ruling that the order prohibits only unlawful intentional discrimination and applies solely to work performed under contracts containing the required clause.

The October 14, 2026, opinion in National Association of Diversity Officers in Higher Education v. Trump, No. 26-cv-1532 (D. Md.), denied preliminary relief against both the EO and the Federal Acquisition Regulatory (FAR) Council's implementing memorandum. The decision addresses interim relief only. It does not resolve the underlying case, and the litigation continues.

For federal contractors, the immediate consequence is administrative, not theoretical: the contract clause remains live, and compliance teams should now be mapping which programs fall inside — and outside — a covered contract's scope.

What does EO 14398 actually require?

Issued March 26, 2026, EO 14398 directs agencies to include a clause in federal contracts prohibiting what it describes as racially discriminatory diversity, equity, and inclusion (DEI) activities. Unlike its predecessor, EO 14151, which arguably never clearly defined prohibited DEI activities, EO 14398 spells them out:

• Disparate treatment based on race or ethnicity in recruitment
• Employment decisions, such as hiring and promotions
• Contracting, including vendor agreements
• Program participation
• Allocation or deployment of an entity's resources

The penalties carry real weight. Violations may lead to contract termination, ineligibility for future contracts, or enforcement under the False Claims Act (the federal statute imposing liability for fraudulent claims on government funds).

Five associations challenged the EO, arguing in part that it restricts protected speech and is impermissibly vague. They sought a preliminary injunction blocking enforcement.

How did the court interpret "disparate treatment"?

The court found the associations had not shown a likelihood of success on their constitutional claims. Central to the analysis was the term "disparate treatment." The court anchored itself in the term's established legal meaning — unlawful intentional discrimination — and concluded that, read that way, the EO prohibits conduct federal antidiscrimination law already bars.

That reading is narrower than the order's loudest critics feared. It is roughly the difference between banning race-conscious programs as such and banning race-based decision-making, which Title VII has prohibited for decades.

The court also rejected the argument that the clause's connection to contract performance was impermissibly vague. The EO, the court explained, applies only to work performed for the government under the contract containing the clause.

The opinion does not offer detailed guidance on how that limitation maps onto particular organizational activities. It does, however, recognize that contractors may be able to challenge enforcement actions targeting protected speech or conduct falling outside a covered contract's scope.

What should contractors do now?

The EO and the implementing memorandum remain in effect while litigation proceeds. The practical checklist for contractors is short but consequential:

• Review the language of applicable federal contracts to confirm whether the clause is present
• Assess how existing DEI programs and activities relate to work performed under those covered contracts
• Identify activities that sit outside a covered contract's scope, where the court has signaled enforcement may be contestable

The bottom line

The ruling is a stay-put order with a built-in boundary: contractors must comply with the clause where it governs their work, but the court has drawn the order's jurisdiction at the contract line. Whether that boundary holds will depend on how the full case, and any appeal, develops.