Following President Trump’s executive orders on diversity, equity, and inclusion (“DEI”) programs, recent statements from State Attorneys General (“State AGs”) highlight that employers should prepare for increased scrutiny not only from the federal government but also state governments as well.    

President Trump Signs Two Executive Orders Calling for the End of “Illegal DEI.”

In the first two days of his second term, President Trump signed two DEI-related executive orders, representing a distinct shift from prior administrations.  On day 1, January 20, 2025, President Trump signed Executive Order 14151 (“Ending Radical Government DEI Programs and Preferencing”).  The order calls for the termination of “all DEI, DEIA [diversity, equity, inclusion, and accessibility], and ‘environmental justice’ offices and positions” within the federal government.  On the following day, President Trump signed Executive Order 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”).  This second order targets what is described as “illegal DEI and DEIA” policies and programs by the federal government, federal contractors and subcontractors, and private employers.  

The impact of this latter DEI order cannot be overstated.  Section 3 of Executive Order 14173, revokes several civil rights executive orders, including Executive Order 11246 of September 24, 1965 (“Equal Employment Opportunity”), which was originally signed by President Lyndon B. Johnson and required affirmative action plans for certain federal contractors and subcontractors.  And Section 4 of Executive Order 14173, which is titled, “Encouraging the Private Sector to End Illegal DEI Discrimination and Preferences,” asks the U.S. Attorney General and relevant federal agency heads to develop a “strategic enforcement plan,” within 120 days of the order.  This plan will identify the “most egregious and discriminatory DEI practitioners” amongst employers and propose federal enforcement efforts to rid workplaces of “illegal discrimination and preferences, including DEI,” by initiating civil compliance investigations, litigation, and other regulatory actions.  

On February 3, 2025, a multi-plaintiff lawsuit was filed in a Maryland federal court challenging the constitutionality of President Trump’s DEI-related executive orders.  The court has not yet taken action to stop enforcement of the orders.  

The Government Is Watching:  19 State AGs “Urge” Costco to “Repeal” Its DEI Programs.

In response to these DEI-related executive orders and potential action by the federal government, some companies have notably modified their DEI policies and programs, while others, like wholesale retail giant Costco have reaffirmed their DEI commitments.  Last month, Costco’s shareholders voted down a proposal to assess potential risks of the company’s DEI efforts.  Costco’s President and Chief Executive Officer Ron Vachris has been recently quoted by The Wall Street Journal as saying, regarding Costco’s commitment to DEI, “If these are the policies you see as offensive, I must tell you I am not prepared to change.”

The CEO’s comments have garnered the attention of 19 State AGs, who have signed a letter to Costco urging the national retailer to “end all unlawful discrimination imposed by the company through [DEI] policies.” The letter gives Costco 30 days to respond by “either notifying [the State AGs] that Costco has repealed its DEI policies or explain why Costco has failed to do so.” Citing Executive Order 14173, the 19 State AGs call on Costco to “do the right thing” (a reference to Costco’s motto) by “repealing its DEI policies.”

The letter, which outlines State AG efforts nationally in challenging DEI polices through lawsuits and investigations, was signed by State AGs of Alabama, Arkansas, Georgia, Idaho, Iowa, Kansas, Kentucky, Louisiana, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, and Virginia.  It represents an additional source of legal challenge employers may face, at the state level, as they evaluate their current DEI efforts. 

Responding to the Moment:  Employers Must Prepare to Navigate Multijurisdictional Challenges to DEI Programs.   
  
The Costco letter highlights that employers face multijurisdictional scrutiny of their DEI efforts, increasing the regulatory and political risks associated with maintaining certain DEI policies, whether they were recently adopted or longstanding commitments.  

Regardless of size or industry, here are some practical steps employers should consider, along with labor and employment counsel, as they evaluate their DEI efforts:

• Compile a comprehensive list of your company’s DEI policies, programs, and communications. Companies should review their DEI policies and related disclosures to ensure they match with their intended commitments and core values, as well as with the requirements of existing law.  At this time of year, many companies are already reviewing their employee compensation plans and scholarship programs; hiring policies, budget and priorities; employment agreements, labor agreements and policies; proxy statements and sustainability reports; supply chain questionnaires and guidelines; subcontractor agreements; board and employee level committee charters; and other materials that may contain DEI obligations, commitments or disclosures.  As noted by the Costco letter, public statements can draw attention by government actors to your company’s DEI programs. 
  
  
• Consider multijurisdictional sources for DEI program challenges.  For multistate and international employers, the Costco letter highlights the potential for conflicting regulatory guidance and enforcement between the jurisdictions a company, its subsidiaries and its operations may be subject, whether U.S. federal, state or local, or non-U.S. jurisdictions.  Care should be taken to understand how DEI efforts may fare in various jurisdictions and whether these efforts may draw further scrutiny of other labor and employment practices.  In addition to regulatory guidance, companies should review their DEI materials in light of the particular stakeholder priorities of their employees, customers, investors, lenders and proxy advisors, services and suppliers, and others.  Each company’s stakeholders may present different challenges, conflicts, and priorities.
  
  
• Create an informed but flexible response plan.    In Executive Order 14173, President Trump gives the U.S. AG along with relevant agency heads 120 days from the order to submit a “plan of specific steps and measures to deter DEI programs and principles” by private employers.  These details may inform employers further on what DEI efforts, if any, will survive the government’s scrutiny.  Additionally, more judicial challenges are expected to possibly delay, pause, or prevent these executive orders from continued implementation.  Employers should consider how changes may impact their position and plan.  

Our Baker Botts team will continue to monitor developments closely and keep our clients informed of any major updates. As your company navigates this changing legal landscape, our team of lawyers are here to help.  If you would like to discuss further, please contact your regular Baker Botts contact or any of the authors of this client alert.

 

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