Our DEI Legal Developments Spotlight discusses recent DEI-related updates impacting the private sector and federal sector developments that may provide insight into courts’ and agencies’ positions on similar issues in the private sector. While there is no shortage of developments, there still is no concrete guidance on what constitutes lawful or unlawful DEI. However, recent developments indicate that employers should watch out for these trending issues:
· “Reverse” discrimination complaints;
· “Anti-American” enforcement actions;
· Telework as a reasonable accommodation;
· COVID-19 vaccination policy challenges; and
· Continued scrutiny of race- and sex-based policies.
For links to our past timelines, see HERE. For our last edition of DEI Legal Developments Spotlight, see HERE.
KEY DEVELOPMENTS
January 22, 2026 (SBA eliminates 8(a) program’s “social disadvantage” race-based presumption): The U.S. Small Business Administration (SBA) issued policy guidance on its 8(a) business development program—which provides assistance and opportunities to “socially and economically disadvantaged” small business owners—stating that it “fully agrees” that race-based presumptions of social disadvantage are unconstitutional, that it is “finalizing regulations to eliminate the unconstitutional presumption,” and that it will administer the 8(a) program on a strictly neutral basis going forward.
Related Developments:
- A lawsuit was filed against the SBA challenging the regulation that establishes a rebuttable presumption of “social disadvantage” for members of certain racial and ethnic groups (see November 17 entry HERE);
- The U.S. Department of Transportation issued an interim final rule that removed race- and sex-based presumptions from the definitions of “socially and economically disadvantaged individual” from two federal programs (see November 17 entry HERE); and
- On January 16, 2026, U.S. Secretary of War Pete Hegseth announced the Department of Defense is initiating a comprehensive review of certain contracts awarded under the 8(a) program to root out “fraud.”
January 28, 2026 (Kansas enacts anti-transgender law): The Kansas Legislature passed SB244, which:
- Defines the term “gender” to mean biological sex at birth;
- Restricts the use of multi-occupancy private spaces in public buildings by biological birth sex;
- Imposes criminal and civil penalties for violations;
- Provides a private right of action for aggrieved individuals; and
- Mandates the reissuance of birth certificates and driver’s licenses in accordance with an individual’s birth sex.
January 29, 2026 (1st Cir. reinstates lawsuit over COVID-19 vaccine mandate): The First Circuit reversed the dismissal of a Title VII religious discrimination and retaliation lawsuit involving two employees who resigned after their employer denied their religious exemption request from the company’s COVID-19 vaccination policy. The court reiterated that “my-body-is-my-temple arguments rooted in a plaintiff’s religious beliefs are sufficient to plead the existence of a bona fide religious belief for purposes of Title VII.” In considering the plaintiffs’ adverse employment action claims, the court found that the totality of the allegations were sufficient to survive dismissal—particularly, the investigation of a plaintiff’s failure to wear a mask at an employer-sponsored event and the removal of another plaintiff from eligibility for promotions.
February 2, 2026 (3rd Cir. says “preferred zip codes” may be unlawful proxy for race): The Third Circuit ruled that a school district’s facially race-neutral admissions policy that favored students who lived in certain zip codes might be an unlawful proxy for race because it had the purpose and impact of benefiting students from certain races over others. Specifically, the school’s policy automatically admitted qualified applicants from six “preferred zip codes,” while qualified applicants from other zip codes were subject to a lottery. Other evidence that supported an inference of discrimination include:
- Public statements to evaluate all policies “through the lens of racial equity”;
- Published goals to “grow” the African-American and Hispanic student population to proportionately reflect the population as a whole; and
- Evidence that the policy was implemented the night before application deadlines with little to no opportunity for input.
This decision deepens an existing circuit split—which may eventually reach the U.S. Supreme Court—on whether facially-neutral admissions policies are an unlawful proxy. While the First and Fourth Circuits have adopted more restrictive impact frameworks—holding that “over-representation” negates impact—the Second and Third Circuits recognized that individualized harm can satisfy the impact inquiry.
February 5, 2026 (court dismisses Missouri’s challenge to Starbucks’ DEI policies): A Missouri federal judge dismissed the state’s lawsuit against Starbucks, which alleged the company’s DEI policies discriminate based on race and gender in violation of state and federal anti-discrimination laws. While the state argued that the company’s goals of filling at least 30% of corporate roles and 40% of retail and manufacturing positions with Black, Indigenous, and people of color caused white men to lose job and mentorship opportunities, the court found that Missouri failed to identify anyone that was actually harmed or disadvantaged by the policies.
February 6, 2026 (government ends DEI-related conditions on educational funds): The administration ended a lawsuit filed by several states—including New York, New Jersey, and California—challenging a U.S. Department of Education (DOE) directive that required state and local education agencies to certify agreement and compliance with the DOE’s interpretation of DEI or risk losing federal funds (see April 25 entry HERE). The parties agreed that the now-vacated directive “creates no obligation, responsibility, or condition” on the states.
Related Development: This development follows the government’s withdrawal of its appeal in a separate case challenging the same directive, in which the court ruled that the DOE violated the constitution by issuing guidance deeming certain types of DEI to be unlawful and conditioning federal funds on certification of compliance (see August 14 entry HERE).
February 6, 2026 (4th Cir. vacates injunction blocking anti-DEI EOs): The Fourth Circuit issued a final opinion vacating a preliminary injunction that blocked key parts of anti-DEI EOs 14173 and 14151 (see HERE). The decision allows the government to enforce the following provisions:
- Termination Provision: Directs federal agencies to terminate all “equity-related grants or contracts.”
- Certification Provision: Requires federal contractors and subcontractors to certify their compliance with all federal anti-discrimination laws for False Claims Act purposes, and that they do not operate programs “promoting DEI” that violate any federal anti-discrimination laws.
- Enforcement Threat Provision: Requires federal agencies to submit recommendations to enforce federal civil rights laws and take “appropriate measures” to end “illegal discrimination and preferences, including DEI” in the private sector.
The court found the plaintiffs lacked standing to challenge the Enforcement Threat Provision because it focuses on internal executive matters (i.e., government processes and reporting), and while plaintiffs had standing to challenge the Termination and Certification Provisions, they were unlikely to succeed on the merits of a facial challenge because both provisions survive constitutional scrutiny, as written.
In its decision the court made clear that it addressed only the constitutionality of the provisions as written and not as enforced and noted that plaintiffs could later bring a challenge if the government’s enforcement “misinterprets federal antidiscrimination law.” Notably, in his concurring opinion Chief Judge Albert Diaz recognized the government’s acknowledgment that “there is ‘absolutely’ DEI activity that falls comfortably within the confines of the law.” Judge Diaz concluded his opinion by offering the following advice to those disappointed by the court’s decision: Continue your critical work. Keep the faith. And depend on the Constitution, which remains a beacon amid tumult.
Related Development: On January 30, 2026, the Seventh Circuit heard oral arguments in the government’s appeal of an April 14 nationwide preliminary injunction barring the U.S. Department of Labor from enforcing the Certification Provision (see October 30 entry HERE). While the government stated there are lawful DEI programs—including “educational, cultural, or historic observances that celebrate diversity”—it did not elaborate on what constitutes “unlawful DEI.”
February 6, 2026 (anti-abortion groups challenge MI civil rights law): Two Michigan-based anti-abortion groups filed a complaint against several state officials alleging recent changes to the state’s civil rights law force “religious and pro-life groups to employ and associate with persons who do not share or live by . . . the organizations’ beliefs” in violation of the First and Fourteenth Amendments. The groups state that by redefining “sex” discrimination to include “the termination of a pregnancy,” the law requires them to hire those with pro-abortion views, restricts them from explaining their pro-life requirements, and requires them to offer abortion coverage in their insurance plans. The groups seek declaratory and injunctive relief barring enforcement of the challenged provisions against them.
February 9, 2026 (EEOC ends quest for BigLaw DEI-related info): The U.S. Equal Employment Opportunity Commission (EEOC) ended a lawsuit (see April 15 entry HERE) challenging the agency’s March 17 letters to 20 BigLaw firms seeking information about the firms’ DEI-related practices and personal information about employees and applicants (see HERE). In the stipulation of dismissal, the EEOC stated that the responses were voluntary, “that compliance was not mandatory, and that most law firms did not provide any of the requested information.”
Related Development: On February 16, 2026, two law professors sued the EEOC seeking documents related to the agency’s March 17 letters and law firm “settlement agreements” resulting from the letters (see April 15 entry HERE). The plaintiffs seek an order to compel the agency to produce the documents requested.
February 11, 2026 (EEOC/OPM issue guidance on telework as reasonable accommodation): The EEOC and Office of Personnel Management (OPM) issued a joint technical assistance document to federal employers addressing telework as a reasonable accommodation for employees with disabilities. The guidance intends to assist agencies in identifying when the accommodations must be granted or continued; when the accommodations may be rescinded, modified, or denied; and how to effectively implement the accommodations. The guidance states that telework can be a reasonable accommodation if it:
- Enables applicants with disabilities to participate in the application process;
- Enables employees with disabilities to perform the essential functions of their job; or
- Enables employees with disabilities to enjoy equal benefits and privileges of employment as other employees without disabilities.
Related Developments:
- The OPM issued a memo to federal employers providing “guidance concerning the roles of leave and workforce flexibilities . . . as religious accommodations and the responsibilities of supervisors in facilitating these arrangements.”For details, see July 16 entry HERE.
- The U.S. Department of Justice (DOJ) issued an advisory memo on religious liberty protections for federal employees under Title VII, stating that “situational telework can and should be used as a form of religious accommodation.” For details, see September 18 entry HERE.
February 13, 2026 (government sues Harvard for race-related admissions data): The government sued Harvard alleging the institution unlawfully withheld information necessary to determine whether it continues to discriminate in its admission process by using race as a “negative factor.” The government stated that Harvard produced thousands of pages of documents last May but has yet to provide the requested applicant-level admissions data. The government stated that the suit is meant solely to compel Harvard to produce race-related admissions documents and neither seeks monetary damages nor threatens revocation of funding.
February 18, 2026 (EEOC sues Coca-Cola for “reverse” discrimination): The EEOC filed a “reverse” discrimination lawsuit against Coca-Cola Beverages Northeast, Inc. accusing the company of violating Title VII by excluding male employees from an employer-sponsored event. The EEOC alleges the company privately invited female employees to a two-day trip and networking event during which they were excused from work duties and paid their normal salary and wages, while male employees received no such invitation. EEOC Acting General Counsel Catherine L. Eschbach stated that excluding one protected class of employees from an employer-sponsored event is a violation of Title VII that “the EEOC will act to remedy through litigation when necessary.”
February 23, 2026 (DOJ obtains settlement over anti-American job postings): The DOJ announced a settlement with a Virginia-based company that allegedly posted artificial intelligence-generated job advertisements that included language restricting consideration to certain foreign applicants (H-1B, OPT, or H-4 visa holders). Among other things, the company agreed to:
- Pay a civil penalty of $9,460;
- Refrain from discriminating against individuals based on citizenship status or national origin in the recruitment, hiring, and firing processes;
- Post the DOJ’s “If You Have The Right to Work” poster;
- Revise existing policies or propose new policies to prohibit unlawful discrimination based on citizenship status, immigration status, or national origin in the recruiting, hiring, and firing processes;
- Train appropriate personnel on compliance with the Unfair Immigration-Related Employment Practices Act; and
- Refer applicants and employees who complain of discrimination to the DOJ’s worker hotline and website, and advise them of their right to file a charge with the DOJ.
February 23, 2026 (AZ bill seeks to deter DEI policies): The Arizona House of Representatives passed HB2135, which would allow employees to seek statutory damages of at least $100,000 against any covered entity that violates a state or federal law prohibiting DEI policies, including those that are “known and practiced as DEI, critical race theory or anti-racism” or “any other form of race or sex stereotyping or . . . race or sex scapegoating.”
February 26, 2026 (EEOC letter warns Fortune 500 of DEI initiatives): The EEOC announced it issued a letter to the chief executive officers, general counsel, and board chairs of the nation’s 500 largest employers to remind “corporate leaders of their obligations under Title VII, including with respect to employment policies, programs and practices labeled as ‘DEI’ or other euphemisms.” EEOC Chair Andrea Lucas noted “the widespread adoption of DEI in the Fortune 500” and “urge[d] Corporate America to reject identity politics as its solution to society’s ills.”
Lucas further emphasized the agency’s “exhaustive efforts” to “restore evenhanded enforcement of civil rights laws” for all Americans and “underscore[d] the EEOC’s commitment to fully utilize all statutory tools to fulfill the Commission’s mission—from education and compliance efforts to the administrative enforcement process and litigation.” The letter reminds recipients that the agency is “the Equal Employment Opportunity Commission, not the Equitable Employment Outcomes Commission.”
Related Development: On March 4, 2026, former EEOC officials responded in an open letter to Fortune 500 companies expressing concern that “recent efforts by the EEOC may discourage [them] from engaging in lawful efforts to promote [DEI].” The former officials urged the companies not to pull back from DEI efforts and sent the following reminder:
“Lawful DEI efforts support your compliance responsibilities under Title VII, making them vital to effective risk management. Without these efforts, you may be more vulnerable to discrimination charges and lawsuits. Such programs also support your key business and talent objectives. Retreating from practices that advance equal opportunity is not the prudent or safe choice — it is an unnecessary risk.”
February 26, 2026 (EEOC approves transgender bathroom access restrictions): The EEOC voted 2-1 to approve a federal sector decision holding that Title VII permits federal employers to maintain single-sex bathrooms and similar intimate spaces, and exclude transgender employees from opposite-sex facilities. The ruling overturns agency precedent dating back to a 2015 decision that supported bathroom access corresponding to gender identity and found that such denial could contribute to a hostile work environment.
March 2, 2026 (USSC blocks CA gender privacy law): The U.S. Supreme Court issued a ruling blocking California from enforcing a policy that prevents schools from notifying parents about their child’s gender transition efforts and requires schools to use a child’s chosen name and pronoun regardless of the parent’s wishes. The court found that the policy likely triggers strict scrutiny because “they substantially interfere with the ‘right of parents to guide the religious development of their children’”; that it likely will not survive strict scrutiny because the “policies cut out the primary protectors of children’s best interests: their parents”; and that denying the parents’ constitutional rights during the appellate process constitutes irreparable harm.
March 2, 2026 (EEOC settles COVID-19 vaccine religious accommodation lawsuit): The EEOC settled a religious accommodation lawsuit alleging a health care provider denied an employee’s religious exemption request from its mandatory COVID-19 vaccination policy, “rejecting her sincerely held religious belief that receiving vaccines is inconsistent with God’s will, and despite the information she provided in support of her position.” The employer previously granted the employee’s religious exemption request for the flu vaccine but denied an exemption from the COVID-19 vaccine requirement. Under the two-year consent decree, the company agreed to:
- Pay $150,000 to the employee;
- Refrain from discriminating and retaliating against employees based on their religion;
- Adopt and implement a new policy addressing religious accommodation requests; and
- Provide religious accommodation training to appropriate personnel, including all managers and supervisors.
March 6, 2026 (3rd Cir. reinstates “reverse” discrimination NJLAD case): The Third Circuit reinstated a race-based “reverse” discrimination lawsuit against the Borough of Bergenfield, in which plaintiff—a white male—alleged he was denied a promotion in favor of an Arab-Muslim male in violation of the New Jersey Law Against Discrimination (NJLAD). Among other things, plaintiff claims that the town stated plaintiff did not “look like the people in the town” and that it was “important to have a minority department head[.]”
While the district court granted summary judgment to the town in September 2024, the panel reversed citing the U.S. Supreme Court’s June 2025 Ames v. Ohio Department of Youth Services decision (see HERE)—which struck down the background circumstances test for “majority” group plaintiffs under Title VII—finding material factual disputes that must be resolved at trial. Although the panel recognized that the state supreme court has yet to address the effect of Ames on the NJLAD, it predicted the court would rely on Ames to strike down the state’s version of the background circumstances rule.
Employer Takeaways
As courts and agencies continue to issue guidance on what is permissible, what is required, and what is prohibited with respect to DEI initiatives, employers can ensure compliance with federal, state, and local anti-discrimination laws by taking the following steps:
- Conduct a DEI legal risk audit to ensure all employees are afforded equal opportunities;
- Schedule training for Executives, Board Members, and Managers on DEI Legal Issues to keep your team up-to-date on the DEI legal landscape; and
- Stay tuned for forthcoming installments of our DEI Legal Developments Spotlight.
If you have any questions related to any developments or their impact on your organization, or would like to conduct an audit of your organization’s efforts to ensure all employees and applicants are afforded equal opportunity in the workplace, please reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100 or 619.292.0515.