The US Department of Justice has reached a settlement with IBM after allegations of a False Claims Act violation due to alleged unlawful diversity, equality and inclusion programmes. The case highlights the risk that firms face when engaged in federal contracts with DEI programmes that the administration considers unlawful.
The case was brought under the False Claims Act on a “false certification” theory. As a federal contractor, IBM was required to certify compliance with anti-discrimination obligations embedded in its contracts, including Title VII and the Federal Acquisition Regulation.
The government’s position was that IBM knowingly maintained practices that breached those obligations while continuing to receive federal funds. The DOJ under the former attorney general Pam Bondi and the current acting attorney general Todd Blanche have been clear that fraud involving federal dollars is a priority for litigation and regulatory action.
IBM did not admit liability. The agreement explicitly states that the settlement is neither an admission of wrongdoing nor a concession by the government that its claims would succeed. Nevertheless, the litigation risk under the False Claims Act is significant and presumably greater than the ultimate $17m settlement. IBM’s cooperation was highlighted by the DOJ. IBM conducted an internal investigation, disclosed findings early, and modified or terminated programmes under scrutiny. That likely reduced the financial penalty and made settlement the rational outcome.
The unlawful DEI alleged by the government
The allegations focus on a consistent theme: employment decisions influenced by protected characteristics. According to the settlement, the DOJ claimed IBM engaged in several unlawful practices between 2019 and 2025.
IBM had compensation structures linked to demographic outcomes. Bonus modifiers were tied to achieving diversity targets, which meant decision-makers had incentives connected to race or sex. Hiring and promotion processes also incorporated identity factors. The use of “diverse interview slates” and similar mechanisms allegedly altered selection criteria based on race or sex.
There were also workforce-level demographic targets. Business units within IBM tracked progress against representation goals and allegedly took protected characteristics into account to meet them. This then led to restricted access to opportunities. Certain training, mentoring, and leadership programmes were limited to specific demographic groups. Each of these issues the Trump Administration has made clear through Executive Orders that they consider these unlawful. Significantly, many of these practices have been common features of corporate DEI strategies in recent years, particularly following Black Lives Matter campaigning. This IBM settlement shows firms that maintain such programmes while also being federal contractors could face False Claims Act scrutiny.
IBM agreed to pay just over $17 million, including restitution and civil penalties, within a defined period. The company receives a release from civil liability under the False Claims Act for the conduct covered, although criminal liability and other regulatory actions remain outside the scope. However IBM had already modified or ended such programmes as part of its cooperation agreement. One detail worth noting is the treatment of costs. The agreement prevents IBM from charging investigation or settlement-related costs back to federal contracts. That reinforces the FCA logic that public funds should not subsidise non-compliant conduct.
The legal framework: how DEI becomes unlawful
The IBM case sits within a broader shift in how the Trump Administration is interpreting discrimination law. The EEOC’s current approach applies a strict reading of Title VII. Employment decisions must be neutral with respect to protected characteristics. If race or sex plays any role in hiring, promotion, compensation, or access to opportunities, that may constitute unlawful discrimination.
While expanding candidate pools, outreach, and training aimed at removing barriers remain lawful, decisions that favour or disadvantage individuals because of identity create risk.
The executive orders issued in 2025 and 2026 reinforce this direction, particularly for federal contractors. They signal that DEI programmes will be assessed through the lens of equal treatment rather than equity-based outcomes.
The False Claims Act allows the government to argue that a company’s certification of compliance was false if they maintain such programmes. The DOJ has already opened a federal investigation into Nike. In February 2026, the EEOC filed an enforcement action in federal court seeking documents from Nike related to its DEI initiatives. The agency is examining whether the company discriminated against White employees through diversity targets and race-specific programs.
Also in 2026 the EEOC filed a lawsuit against Coca-Cola Beverages Northeast over a leadership event open only to female employees. According to the complaint, male employees were excluded from the event even though it provided career development opportunities and paid time away from work.
How firms can avoid the same outcome
The lesson from IBM is that design and implementation of DEI programmes sit under significant legal scrutiny.
- Employment decisions must be demonstrably neutral. That includes hiring, promotion, pay, and access to development opportunities.
- Programmes should be open to all employees, even where they aim to address underrepresentation.
- Targets can exist as aspirations or monitoring tools, though they should not influence individual decisions or compensation.
- Documentation matters. Firms need clear evidence that decisions are based on objective criteria.
- Language in policies and public disclosures should align with legal reality. Regulators are increasingly using internal and external statements as evidence.
