DOJ’s Second Civil Rights Fraud Initiative Settlement Signals Increased False Claims Act Scrutiny of DEI-Related Employment Practices for Federal Contractors

The Department of Justice (DOJ) has announced a $21.5 million False Claims Act (FCA) settlement with Deloitte under its Civil Rights Fraud Initiative, reinforcing the government’s focus on diversity, equity, and inclusion (DEI) practices tied to federal contracts. The case follows a similar settlement with IBM and offers one of the clearest views yet into DOJ’s enforcement theories regarding DEI-related employment policies. Notably, the action was brought by a private relator, highlighting the growing role whistleblowers may play in future DEI-related FCA cases. The settlement serves as another reminder for organizations receiving federal funding to evaluate potential FCA risks associated with DEI initiatives.

Key Takeaways

• Second Civil Rights Fraud Initiative Settlement: DOJ reached a $21.5 million settlement with Deloitte, following its April 2026 settlement with IBM, signaling continued enforcement activity targeting DEI-related practices under the False Claims Act.
• Allegations Focused on DEI Employment Practices: Relator and the government alleged Deloitte used race- and sex-based workforce goals, considered demographic targets in hiring and promotions, incorporated such goals into performance evaluations, and offered certain development opportunities based on race or sex.
• Insight Into DOJ Enforcement Approach: Although Deloitte denies the allegations, the settlement includes detailed descriptions of the alleged conduct at issue, offering guidance on the types of DEI-related practices that may attract FCA scrutiny in future cases.
• Growing Whistleblower Risk: The case was initiated by the American Alliance for Equal Rights, which received 20% of the recovery, underscoring the potential for private relators to drive future FCA actions involving DEI programs.

Yesterday, the Department of Justice announced a $21.5 million settlement with Deloitte to resolve allegations that Deloitte’s DEI-related practices violated antidiscrimination clauses in its federal contracts in violation of the False Claims Act. This is the second settlement announced under DOJ’s Civil Rights Fraud Initiative, following a $17 million settlement with IBM in April. Unlike the IBM settlement, the underlying complaint in the Deloitte case was brought by a relator – American Alliance for Equal Rights – which received $4.3 million, or 20% of the settlement. The Deloitte settlement covers conduct from January 1, 2017, through August 20, 2026—a longer time period than the IBM settlement, which covered conduct from January 1, 2019 through April 2026. Deloitte also settled with the State of Indiana for the same alleged conduct from 2019 through 2026 for $1.2 million, with relator again receiving 20% of the recovery.

Relator and the United States alleged that Deloitte engaged in the following practices, and that the company allocated costs to its federal government contracts, and sought payment and reimbursement under its federal government contracts, for costs associated with these practices:

• Setting “non-public race and sex-based workforce composition goals for business units” and distributing monthly demographic goals to each business unit where “representation or advancement towards the goal was highlighted in green, yellow, or red depending on whether the goal was exceeded”;
• Evaluating partners, principals, and managing directors in part based on “their contributions to helping Deloitte achieve its workforce composition goals,” which was reflected in those employees’ self-evaluations;
• Taking demographic goals into account when making hiring and promotion decisions;
• Setting demographic goals for the staffing of federal contracts; and
• Offering training, mentoring, and career development with eligibility limited on the basis of race or sex.

Similar to the IBM settlement, while Deloitte denied all allegations, the Deloitte settlement indicates that Deloitte was credited under DOJ’s Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters, Justice Manual Section 4-4.112 for cooperating. But the Deloitte settlement agreement is notable for containing more specific allegations regarding the covered conduct, which provides a useful window into DOJ’s enforcement theories in this area. The settlement provides several quotes describing the demographic targets and their intended purpose. For example, certain employees allegedly “cited as evidence of their high performance . . . ‘increas[ing] the total number of Black professionals by at least 11 and Hispanic/Latinx professions [sic] by at least 31 in the West region,’” and Deloitte’s National DEI Office allegedly noted that Deloitte’s demographic goals were “‘intended to drive behavior change.’” These specific allegations provide a roadmap for potential future investigations and litigations, but still leave open questions about how alleged damages ought to be calculated when the United States received the benefit of its bargain or how engaging in DEI activities is material to the underlying contract.

Notably, in the Deloitte settlement, the United States specifically reserved and did not release “[a]ny currently pending or future charges filed with the Equal Employment Opportunity Commission (EEOC) . . . . This includes charges which may allege the same covered conduct described in this Agreement.” The IBM settlement does not contain such a reservation of rights. Thus, the settlement does not appear to release any potential lawsuits from the EEOC and/or employees for the alleged conduct at issue.

The Deloitte settlement highlights DOJ’s commitment to the Civil Rights Fraud Initiative. Meanwhile, the presence of a relator, while unsurprising, raises the specter of private whistleblowers bringing or having already brought similar actions that are still under seal. This particular relator is also notable, as it is an organization whose stated purpose is to challenge “distinctions and preferences made on the basis of race and ethnicity” – the organization has brought a number of discrimination lawsuits in recent years, and it is now using the FCA as a tool to pursue its mission. Organizations that receive federal funding and maintain DEI initiatives should anticipate additional DEI enforcement actions and consider efforts to assess current FCA risks.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Tristan Morales, an O'Melveny partner licensed to practice law in the District of Columbia and California; Amanda M. Santella, an O’Melveny partner licensed to practice law in the District of Columbia and Maryland; Elizabeth Arias, an O’Melveny counsel licensed to practice law in California; Hannah E. Dunham, an O'Melveny counsel licensed to practice law in California and the District of Columbia; and Marni Robinow, an O’Melveny counsel licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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