Spotlight on EDI risk for UK employers with US operations

As you may have noticed, across the Atlantic workplace EDI has become a legal flashpoint. In the US President Trump has put diversity programmes firmly in the firing line, framing them as unlawful preferences and linking them to federal fraud enforcement. That’s a very different approach to the UK, where EDI remains a government priority. Labour is advancing its planned Equality (Race and Disability) Bill, now moving forward after public consultation, which will require large employers to publish ethnicity and disability pay gaps and extend equal pay protections. 

For UK-based multinationals, this split in approach creates a real compliance headache. Policies designed to meet new obligations here  such as mandatory reporting or broader equal pay protections may sit uneasily with US rules that view the same initiatives as discriminatory or even fraudulent. That tension means HR teams cannot simply apply a single global EDI framework; they have to tailor policies carefully to each jurisdiction to avoid legal and financial exposure.

For the US, the turning point came in January, when the White House issued an executive order requiring federal contractors and grant recipients to certify that they do not operate unlawful EDI programmes. That order made clear that funding from Washington is conditional on those certifications being true and accurate. Soon after, the Department of Justice launched its Civil Rights Fraud Initiative, warning that false diversity certifications could be treated as False Claims Act violations, with the same penalties as fraudulent billing or procurement claims. That means employees and even private citizens can now bring whistleblower lawsuits against their employers, alleging that EDI practices amount to fraud.

What makes this more than a legal technicality is the potential scale of the fallout. The False Claims Act allows for treble damages and hefty penalties, and because whistleblowers can share in the recovery, there is a strong incentive for claims to be brought. That combination makes EDI a live compliance risk for any business with US operations, one that can quickly turn into a multimillion-dollar liability if global policies aren’t adapted for the American market.

So, the tension for UK multinationals is obvious. Here, aspirational diversity targets are commonplace and even expected. But in the US any target that looks like a quota, or any programme limited to women or minority groups, could be seen as discriminatory and even fraudulent. For HR teams, the challenge is how to reconcile those two worlds in a single global EDI strategy.

So, let’s get a view on this. Cara Crotty, a partner at Constangy based in Columbia, South Carolina. She co-chairs the firm’s EDI and contractor compliance practice groups and advises employers across the US on these very issues. First question, how has this come about?

Cara Crotty: “Well, President Trump rescinded Executive Order 11246 which for umpteen years had required federal contractors to do the same type of diversity goals. Contractors were required to analyse their workforce demographics and set placement goals where females or minorities were underrepresented. All of that was done, however, in compliance with Title VII of the Civil Rights Act which prohibits employers from making employment decisions based on race or gender or other protected characteristics. So even under the rubric of the Executive Order where contractors were analysing placement goals, it was always unlawful for US employers to set quotas or have preferences based on protected characteristics and so with the shift in the public sentiment, and the political environment, we're seeing those EDI-related policies become more closely scrutinized by both private individuals and employees as well as the federal government. So any type of EDI initiative that suggests some type of preference for an individual based on a protected characteristic can violate federal law in the US.”

Joe Glavina: “Here in the UK, Cara, it’s quite common for multinationals based here to apply global EDI targets. For example, ‘30% of senior leaders should be from underrepresented backgrounds by 2026.’ We see that a lot.

Cara Crotty: “Yes, and many employers were doing the same thing here in the US, especially around 2020 after the George Floyd movement here which really brought forth social justice issues. But the problem in the US is that type of goal can be interpreted or considered to be a quota or a preference and then it’s going to violate federal law that prohibits the use of race or gender or other protected characteristics in making decisions. So certainly from a from a global perspective, that's something to keep in mind, that in the US we want to make sure our targets are defensible, if we if we set them, that they're not tied to a specific time frame and that they're based on objective, reasonable measures. So that's another thing I think that could be relevant for global employers. As I mentioned a second ago, it used to that federal contractors were required to set goals for females and minorities, but those goals were based on very specific Information, objective information about census data based on where they were located, where they recruited from, and the types of jobs that they had. So having a global diversity goal in the US could be considered problematic because what demographic is it based on? So it might not have the same objective basis as the goals that federal contractors set.”

Joe Glavina: “In the UK, the idea of a whistleblower suing over a diversity programme would certainly raise eyebrows. Why is it such a risk in the US?”

Cara Crotty: “Well before January of this year, I would have thought it wasn't much of a risk in the US either but President Trump issued an Executive Order on his second day in office that requires recipients of federal funds, such as federal contractors, and grantees, and many colleges and universities, to certify that they do not have illegal EDI programmes and accompanying that certification is an acknowledgement that their receipt of federal funding is conditioned on their compliance. So if a contractor has EDI policy that violates federal law, that that is discriminatory, then certainly there's a potential for a False Claims Act because they're falsely certifying to the government that they are in compliance and that can create significant liability for that company. In addition, the Department of Justice has started a Civil Rights Fraud Initiative which expressly encourages employees and other private citizens to blow the whistle on companies and their employers if they believe that they have illegal EDI practices in place. So it incentivises individuals to bring those claims either directly to the government, or to file their own lawsuits. We're also seeing conservative activist groups being very active in pursuing claims against organisations that they believe have unlawful discriminatory practices. So companies need to be mindful. It’s not just the federal government, but the private sector is pursuing claims for illegal EDI and that can certainly result in more whistleblower actions going forward.”

Joe Glavina: “We often hear that global EDI frameworks should be universal but your message, Cara, is to avoid that approach. What practical advice would you give UK firms with US operations?”

Cara Crotty: “I think they need to look very closely at EDI goals that would apply to their US entities and that are publicly expressed as being the initiative of the US entity because that could certainly focus attention and potentially bring liability to the US entity if those practices equate to illegal EDI. Illegal EDI has not been expressly defined by the federal government; it wasn't defined in President Trump's Executive Order. We do have federal agencies coming out with guidance. The Department of Justice issued a memo just recently giving examples of the types of actions of employers, and recipients of federal funds, that it believes would be illegal discrimination, or illegal EDI, and so it's a good tool for any entity with US operations to review to see if any of the existing policies or practices could be considered problematic by the government.”

Joe Glavina: “So is the advice to HR teams, Cara, to review policies urgently and, ideally, conduct an audit?”

Cara Crotty: “Yes that definitely, I think, would be step number one. Look at all of your practices and procedures from an employee's entire life cycle. You want to look at your recruitment practices, hiring practices and selection including during the employment process and history through to employee termination to see if there are potential practices that involve protected characteristics. You want to make sure you're not conditioning any term, condition, or privilege of employment, on a protected characteristics like race or gender. For example, a training programme, a scholarship programme, all of those types of things are viewed as problematic by the government and so the risk definitely is coming from both the federal government that is scrutinizing employer actions, as well as the private sector which has been very active in suing entities on behalf of their membership. So conservative activist groups are suing employers on behalf of their members alleging discriminatory practices are violating the law. So I think UK firms with US operations should definitely review all of their employment practices and procedures for potential issues with EDI and illegal preferences. I do want to say that not everything EDI-related is unlawful in the US. There are still many organisations that are embracing their diversity, equity and inclusion policies and practices so it's not necessarily that we need to throw everything out, but we should just be taking a close view to make sure that none of those initiatives are either advantaging groups because of a protected characteristic, or disadvantaging groups because of that.”

Joe Glavina: “Clearly this applies to federal contractors, Cara, but does it also apply to the private sector?”

Cara Crotty: “Yes, most of it actually does. Title VII of the Civil Rights Act applies to all employers in the US that have 15 or more employees and it prohibits making employment decisions based on protected characteristics. A lot of the focus has been on entities that are doing business with the federal government, but the memo from the Department of Justice that I just mentioned does also include Title VII as the basis for its legal authority. So I think these principles do apply to all employers and it's not just federal contractors or grantees that should be concerned.”

If your organisation has US operations it is important that HR teams are alive to these risks. Clearly, navigating the contrast between UK and US rules requires specialist advice on the American side and Cara and her team at Constangy are very well placed to help with that so please do make contact if you need help. Her details are there on the screen for you.