February 07, 2025
On April 10, 2026, the U.S. Department of Justice (DOJ) announced that International Business Machines Corporation (IBM) agreed to pay approximately $17.1 million to resolve allegations that it violated the False Claims Act (FCA) by falsely certifying compliance with anti-discrimination requirements in its federal contracts. The settlement is the first of its kind and marks a significant escalation in the federal government’s enforcement posture toward diversity, equity, and inclusion (DEI) programs. Employers should take heed. This settlement signals the current administrations intent to use fraud-based enforcement tools to target corporate DEI programs.
Background: The Enforcement Landscape
The Trump administration has made targeting what it views as unlawful DEI practices a central enforcement priority. In January 2025, as Hinckley Allen previously covered, President Trump signed Executive Order 14173, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” In February 2025, then-Attorney General Pam Bondi directed DOJ to investigate, eliminate, and penalize illegal DEI programs in the private sector. In May 2025, through a memorandum entitled Civil Rights Fraud Initiative, the DOJ articulated its position that federal contractors or federal fund recipients could face FCA liability by certifying compliance with federal civil rights laws while knowingly engaging in “racist preferences, mandates, policies, programs, and activities, including through [DEI] programs that assign benefits or burdens on race, ethnicity, or national origin.” This is significant as the FCA is a federal statute that provides that any person who knowingly submits, or causes to submit, false claims to the government is liable for three times the government’s damages, plus a penalty that is linked to inflation. In addition to allowing the government to pursue claims under the statutes, the FCA allows private citizens to file suits on behalf of the government against those who have defrauded the government. These suits are known as qui suits actions and the whistleblowers may receive a portion of the government’s recovery in successful actions. Finally, and most recently, on March 26, 2026, President Trump signed Executive Order 14398, titled “Addressing DEI Discrimination by Federal Contractors,” which directs federal agencies to include anti-discrimination clauses in federal contracts requiring contractors to certify that they will not engage in “racially discriminatory DEI activities” and directed the Attorney General, in consultation with relevant contracting agencies, to consider bringing FCA actions against contractors and subcontractors who violate the Executive Order.
The IBM Settlement
The IBM settlement is the first tangible result of these enforcement efforts.
In the settlement agreement, the DOJ alleged that IBM knowingly maintained employment practices that discriminated against employees and applicants based on race, color, national origin, or sex — rendering false IBM’s certifications that it complied with anti-discrimination requirements under Title VII of the Civil Rights Act of 1964 and Federal Acquisition Regulation (FAR) clause 52.222-26 (Equal Opportunity). Specifically, DOJ identified four categories of allegedly discriminatory practices spanning from January 2019 to the present:
- Modification or adjustment to pay, bonus, or other compensations that caused employees to take race, color, national origin, or sex into account when making employment decisions. IBM allegedly, among other things, used a “diversity modifier” that tied bonus compensation to the achievement of demographic targets.
- Taking race, color, national origin, or sex into account as part of decisions to hire, transfer, or promotion. IBM allegedly used “diverse interview slates,” “diverse sourcing,” and other related practices, including altering interview eligibility criteria based on race, color, national origin, or sex, when identifying candidates for hiring, transfer, or promotion.
- Developing race and sex demographic goals for business units. IBM allegedly developed race and sex demographic goals for business units and took race and sex into account when making employment decisions in furtherance of those goals.
- Exclusionary Programs. IBM allegedly offered certain training, mentoring, leadership development programs, and educational opportunities only to certain employees, with eligibility, participation, access, or admission limited on the basis of race or sex.
The DOJ further alleged that IBM “allocated costs to its federal government contracts relating to these practices” and sought payments from the government for these costs.
The scope of the settlement is notable, as it extends beyond race, and includes sex and national origin discrimination. This is important because Trump’s Executive Order 14398 seemingly focused on race and ethnicity-based DEI claims. The settlement dispels the notion that race and ethnicity will be the administration’s sole focus.
The settlement makes clear that IBM contested the claims against it, with the company denying the claims and making no admission of wrongdoing.
The approximately $17.1 million settlement amount reflects a single damages figure of approximately $8.2 million with a 2x multiplier routinely used in FCA settlements. The amount appears to reflect a cooperation credit for cooperating with DOJ’s investigation, including making early factual disclosures, assisting in the calculation of damages and penalties, and voluntarily terminating or modifying the programs and practices at issue.
What Employers Should Do Now
The IBM settlement is not a directive to abandon workplace inclusion, but it demands careful evaluation of how DEI-related programs are structured and implemented.
Conduct a Privileged Compliance Review. Employers should engage counsel to conduct a privileged review of all DEI-related policies, programs, vendor agreements, and any AI systems, documents, or prompts used for HR and other business purposes to ensure compliance with current interpretations of anti-discrimination laws. This includes evaluating diverse interview slate practices. The settlement draws a clear line on the use of diverse interview slates that create different standards, criteria, or outcomes for applicants based on race or gender. Employers maintaining such programs should carefully review them and consider whether they can withstand scrutiny under the administration’s enforcement framework.
Ensure Robust Compliance Controls. Employers should implement policies and processes to monitor and promptly address compliance concerns, including subcontractor compliance given the new reporting obligations set forth in the March 2026 executive order.
Private Employers Should Not Be Complacent. While the IBM settlement centers on federal contractor obligations, it signals broader scrutiny of race- and sex-conscious program design. Exposure extends beyond the federal contracting context, and private employers should review their programs for vulnerability to reverse discrimination claims and ensure that public communications about DEI efforts align with actual practices. Public communications could be the basis for qui tam actions or other proceedings going forward.
If you have questions about how this settlement may affect your organization’s DEI programs or compliance certifications, please contact your Hinckley Allen Labor & Employment or White Collar & Government Enforcement attorney.
This article is for informational purposes only and does not constitute legal advice.
