Executive Order 14398

If you followed inclusion in BigLaw last year, you already know the big picture: a handful of firms were targeted directly by executive orders, some fought back in court and won, others settled with commitments around pro bono work and policy changes, and the rankings shifted accordingly. A different, more mechanically aggressive order signed this March is in motion right now, and it isn't about law firms at all—it's about their clients.

What Executive Order 14398 Does

Executive Order 14398, "Addressing DEI Discrimination by Federal Contractors," signed March 26, 2026, works through a different lever than last year's orders: government contracts themselves. The order calls DEI activities "not only unethical and often illegal, but also cause[ing] inefficiencies, waste, and abuse within entities that engage in such practices."

The mechanism is that within 30 days of the order, agencies were required to insert a clause into federal contracts, subcontracts, and "contract-like instruments" at every tier, under which a contractor agrees it "will not engage in any racially discriminatory DEI activities"—defined narrowly as disparate treatment based on race or ethnicity, not the broader "DEI" catch-all used in earlier orders. The clause's sixth provision reads that the contractor must recognize that compliance "[is] material to the Government's payment decisions for purposes of section 3729(b)(4) of title 31, United States Code"—the False Claims Act. That sentence means a contractor found in violation isn't just at risk of losing a contract, it's potentially exposed to FCA liability, which allows for treble damages and can be brought by private whistleblowers.

The scale of that exposure is substantial. According to a press release from Maryland's Attorney General, the federal government itself estimates the order could affect as many as 640,000 contracts and subcontracts nationwide, including more than 160,000 contracts held by over 34,000 unique vendors.

How This Affects Law Firms

The 2025 executive orders targeted law firms directly, as employers and as entities the administration wanted to make an example of. EO 14398 barely touches firms in that sense. Instead, it lands on their clients—universities, defense contractors, healthcare systems, and technology vendors that hold federal contracts and now have to certify their DEI programming doesn't cross into "racially discriminatory" territory or risk losing the contract entirely, on top of potential FCA exposure.

For firms, that shift changes the substance of the work. This is now a live, fast-moving compliance and litigation question for government contracts, regulatory, and labor and employment practice groups. It's simultaneously a genuine burden for clients trying to figure out what "racially discriminatory DEI activities" actually excludes, and a growth area for the lawyers being asked to answer that question under a tight deadline.

The Pushback

The order hasn't gone unchallenged, and the two lawsuits against it are arguing different things.

The first, filed April 20, 2026 by the National Association of Diversity Officers in Higher Education alongside two minority trade associations, argues the order is unconstitutional on First Amendment grounds. Per Ogletree Deakins' coverage of the complaint, the plaintiffs allege the order "asserts a legal and moral premise that is fundamentally flawed" and remains "overbroad and imprecise" even with its narrower definition, sweeping in lawful discussions of race, academic research, and mentorship programs alongside anything genuinely discriminatory. Absent an injunction, the complaint warns, contractors "will be forced to choose between chilling their constitutionally protected expression and risking the loss of federal funds or even criminal prosecution."

The second lawsuit, filed June 10, 2026 by a coalition of 19 states and the District of Columbia, takes an entirely different approach. Rather than challenging the order's constitutionality, it argues under the Administrative Procedure Act that federal agencies rolled it out improperly—skipping the notice-and-comment process normally required before major regulatory changes, and leaving contractors with contract language too vague to actually comply with.

The Issue Is Unsettled

In February 2026, the Fourth Circuit vacated a lower court's injunction against an earlier, related DEI certification requirement—but per the same Ogletree analysis, the appellate court's reasoning was narrow, focused specifically on certification language requiring compliance with existing antidiscrimination law, and the court explicitly left room for future as-applied challenges if officials misinterpret that law to punish protected expression. In other words, the ruling didn't invalidate the administration's broader enforcement approach.

That distinction matters. A win on narrow certification language doesn't necessarily predict how a court will treat EO 14398's more sweeping FCA materiality clause, or the states' entirely separate procedural argument. Two different lawsuits, built on two different legal theories, could plausibly reach two different results.

The Bottom Line

EO 14398 is a mechanically different, more enforceable instrument than the executive orders from last year, and it's already being enforced—new contracts have carried the clause since late April—while two separate lawsuits argue over whether it should be. Given that both lawsuits are still pending and the Fourth Circuit has already shown its reasoning can cut narrowly, this is a story worth checking back in on.