Commercial Real Estate and New Federal DEI Guidelines: What to Know

So what does all this mean for commercial real estate firms, especially those with federal government contracts? Commercial Observer spoke to several attorneys with experience in these matters to get an overview of what this means for those companies. As usual, no legal advice is implied here, and you should consult your own attorneys before proceeding on these matters.

In a general sense, the Trump White House is making it clear that they want DEI, and everything associated with it, to be a thing of the past.

“We had a massive shift for DEI plans after Biden’s Order 13985, issued on Jan. 20, 2021,” said Andy Watson, shareholder, government solutions practice group leader and member of the board of directors at the law firm Maynard Nexsen. “By mid-2022, there were 90 agencies that had submitted robust DEI plans, stood up departments, and hired DEI officers. And of course, that had an effect on the private sector.”.

Executive Order 13985, the first one Joe Biden signed as president, tasked the federal government to account for racial inequities in its work. Trump rescinded that one, too.

“In the commercial real estate world, executives need to first figure out if they qualify as federal contractors,” Watson said of the new reality. “Because all contracting officers have been ordered to either modify the contracts or partially terminate those portions of contracts or pending bids, and RFPs are to be modified to eliminate any DEI requirements. It even goes so far as to potentially prohibit contractors from taking into consideration DEI efforts. We’ve gone 180 degrees. So much of the work that the government and private sector put into effect in the DEI world is being totally eradicated.”

But, while the overall intent is clear, the actual effects for business — how these new orders need to be implemented — are more nebulously defined.

For one thing, by revoking EO 11246, President Trump is eliminating requirements for government contractors to conduct audits regarding affirmative action plans with regard to the hiring of women and minorities. But contractors have also had similar requirements in place for the hiring of the disabled and military veterans, and those seem to still be in place.

“For federal contractors, their obligations under EO 11246 no longer exist,” said Zev Grumet-Morris, an associate at the law firm Duane Morris. “What still exists, though, are their affirmative action obligations under Section 503 of the Rehabilitation Act, as well as the Vietnam Era Veterans’ Readjustment Assistance Act.”

Section 503 of the Rehabilitation Act of 1973 requires government contractors with contracts or subcontracts over $10,000 to “take affirmative action … to employ qualified individuals with disabilities.” The Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA), passed in 1974, calls for employers with government contracts or subcontracts of $100,000 or more to take numerous steps to ensure fair hiring practices with regard to military veterans, including setting hiring benchmarks, and tracking and reporting the success of their efforts.

Not only are these affirmative action requirements still in place, but, according to Grumet-Morris, they are likely to remain so. While EO 11246 was itself an executive order, thereby allowing a subsequent executive order to remove it, the requirements for the hiring of veterans and the disabled are affirmed in statutes that would require acts of Congress to eliminate.

But what is a statute if no one enforces it? Grumet-Morris said that while the statutes remain, enforcement seems to be on pause.

“The new executive order states that the Office of Federal Contract Compliance Programs (OFCCP), which is the entity within the Department of Labor that has historically enforced EO 11246, Section 503 and VEVRAA, can no longer hold contractors responsible for not complying with affirmative action.

“So it’s kind of a double-edged sword,” Grumet-Morris added. “On the one hand, the executive order says nothing about Section 503 or VEVRAA. Those obligations still exist. But the OFCCP came out with a memo to their workforce explaining that they are no longer going to be auditing contractors or subcontractors with respect to EO 11246, and that as it relates to Section 503 and VEVRAA, they are placing all of those audits into abeyance. So they’re kind of just pushing the pause button on it.”

That being said, Watson believes most companies will make few changes to their compliance in that area — the law is still the law.

“Frankly, I think most of my clients are going to just continue to do what they do,” said Watson, “rather than try to rebuild or descope a plan.”

As for LBJ’s EO 11246, the initial 1965 order made it the “policy of the government of the United States to provide equal opportunity in federal employment for all qualified persons,” and to prohibit “discrimination in employment because of race, creed, color or national origin.”

While Trump’s revocation of 11246 releases companies from having to prepare affirmative action plans, Samia Kirmani, principal and co-leader of the corporate diversity counseling group at law firm Jackson Lewis, believes it may do little else.

“Speaking generally, Executive Order 11246 required covered federal contractors to prepare affirmative action plans,” Kirmani said. “But 11246 did not permit discrimination. So all the rescission of Executive Order 11246 essentially does is alleviate the obligation to do those affirmative action plans.”

Kirmani raised another interesting point. While the new executive order and subsequent attorney general memo make numerous references to “illegal DEI,” the concept of DEI itself is not necessarily well or consistently defined. One company’s actions under the diversity, equity and inclusion banner could be very different from the DEI actions of another company.

“The executive order doesn’t define illegal DEI, and it doesn’t define DEI,” said Kirmani. “So, if we’re asking what employers should be doing, they should be saying, ‘When I say DEI, this is what I mean.’ There is no global definition of DEI.”

While the words themselves refer to diversity, equity and inclusion, how a company’s approach to DEI affects its hiring practices is what will determine the legality of its actions.

“The government, or somebody who’s objecting to DEI based on an assumption that all DEI is illegal, might be thinking one thing is happening when another thing is happening,” said Kirmani. “So the question becomes: What do I mean when I’m talking about DEI, and is that lawful?”

This seems especially important given that the new rules might hold surprises for some. For example, while the attorney general’s memo clarifies that it intends to “encompass programs, initiatives, or policies that discriminate, exclude or divide individuals based on race or sex,” it does not intend to “prohibit educational, cultural or historical observances — such as Black History Month, International Holocaust Remembrance Day or similar events.”

To apply this all to real-world scenarios, including in commercial real estate, Kirmani noted that when discussing the new rules on hiring practices with clients, she might ask them to list their DEI initiatives in detail and then discuss how each one operates to ensure they comply with the new rules.

“If you’re making decisions based on protective characteristics like race or gender, then that’s problematic,” Kirmani said. “That would be in a higher- risk category.”

As for the attorney general’s memo, Watson said it’s simply too early to tell how it will or should affect operations and hiring practices for government contractors or private businesses.

“We only have two pieces of guiding information,” said Watson. “One from OPM [Office of Personnel Management] came out Jan. 21 with instructions to stand down DEI offices. And, then, within a week, we had the Department of Defense coming out with a guidance memorandum that informed contracting officers to make changes. But how it’s going to be fully rolled out, we don’t exactly know yet.”

So, while less may have changed than it appears, John Snyder, principal and co-leader of the construction and real estate industry group at Jackson Lewis, noted that because this topic is of great importance for the new administration, risks could be higher for companies, making full compliance with all of these laws and orders essential for continued operations.

“The executive order requires you, if you’re a federal contractor, to state that you’re in compliance with all applicable federal anti-discrimination laws and to certify that you’re compliant,” said Snyder. “I think that potentially opens up employers to increased investigations and enforcement, particularly under the False Claims Act. Because when they tie it to the certification and the contract, then it becomes a material part of the government’s decision to pay you.

“So, in terms of what some of our clients are doing, we’re looking at their existing policies, job descriptions and practices to make sure they’re compliant with the executive order. But if they’re abiding by Title VII [of the 1964 Civil Rights Act, which lays out anti-discrimination policies for hiring], then hopefully there’s not too much to do.”