Attorney General Issues New Guidance to Federal Agencies Concerning its Interpretation of “Unlawful Discrimination”

Attorney General Issues New Guidance to Federal Agencies Concerning its Interpretation of “Unlawful Discrimination”

On July 29, 2025, Attorney General Pam Bondi issued new guidance to all federal agencies entitled “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination” (“Guidance”). The Guidance purports to “clarif[y] the application of federal antidiscrimination laws to programs or initiatives that may involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (‘DEI’) programs.” It declares that “[e]ntities receiving federal funds . . . must ensure that their programs and activities comply with federal law and do not discriminate on the basis of race, color, national origin, sex, religion, or other protected characteristics,” and identifies a series of “‘Best Practices’ as non-binding suggestions to help entities comply with federal antidiscrimination laws and avoid legal pitfalls.” The Guidance is the most comprehensive articulation of the Administration’s view of what constitutes unlawful DEI released since President Trump’s Executive Order, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, issued on January 21, 2025.

Though the Guidance is largely consistent with prior statements from the Administration, there are some aspects that offer new or more nuanced interpretations of federal civil rights statutes. Of note, the Guidance addresses (1) “unlawful proxy discrimination”; (2) diversity training that creates a “hostile environment”; (3) awarding contracts based on protected characteristics; and (4) “failure to maintain sex-separated athletic competitions and intimate spaces.” We highlight each below.

“Unlawful Proxy Discrimination”

The Guidance states that “[u]nlawful proxies occur when a federally funded entity intentionally uses ostensibly neutral criteria that function as substitutes for explicit consideration of race, sex, or other protected characteristics.” It asserts that such criteria “become legally problematic” when they (1) “are selected because they correlate, replicate, or are used as substitutes for protected characteristics”; or (2) “are implemented with the intent to advantage or disadvantage individuals based on protected characteristics.” The Guidance provides several examples of what the Administration views as “unlawful proxies”:

• Requiring job applicants to demonstrate “cultural competence” or “cross-cultural skills” may be unlawful proxy discrimination “if used to evaluate candidates based on race or ethnicity.”
• “A federally funded program [that] requires applicants to describe ‘obstacles they have overcome’ or submit a ‘diversity statement’ in a manner that advantages those who discuss experiences intrinsically tied to protected characteristics” constitutes unlawful proxy discrimination if it “us[es] the narrative as a proxy for advantaging that protected characteristic in providing benefits.”
• An organization’s implementation of “recruitment strategies targeting specific geographic areas, institutions, or organizations chosen primarily because of their racial or ethnic composition rather than other legitimate factors.” The federal government has not previously taken the view that a facially race-neutral policy targeting certain geographic areas for recruitment—even for purposes of increasing racial diversity—is unlawful. Indeed, the government’s position appears to conflict with existing federal law as interpreted by multiple courts.

The Guidance advises federal funding recipients to “rigorously evaluate and document whether [such criteria] are proxies for race, sex, or other protected characteristics.”

DEI Training

According to the Guidance, DEI training programs are unlawful if they “stereotype, exclude, or disadvantage individuals based on protected characteristics or create a hostile environment.” Such an “objectively hostile environment,” the Guidance states, may be created “through severe or pervasive use of presentations, videos, or other workplace training materials that single out, demean, or stereotype individuals based on protected characteristics.” The Guidance recommends that federal funding recipients “ensure trainings are open to all qualified participants,” that they “avoid segregating participants into groups based on . . . protected characteristics,” and that they not “require participants to affirm specific ideological positions or ‘confess’ to personal biases or privileges based on a protected characteristic.”

Sex-Based Selection for Contracts

As another example of “unlawful practices,” the Guidance lists a federally funded entity with “a DEI policy that prioritizes awarding contracts to women-owned businesses, automatically advancing female vendors or minority-owned business over equally or more qualified businesses without preferred group status. This includes any contract selection process that uses sex or race as a tiebreaker or primary criterion.” This example may be read to implicate subcontracting plans, including those that are included in federal contracts based on existing federal statutes.

Sex-Segregated Facilities

In what constitutes the most specific statement by the Administration on the issue since President Trump issued the Executive Order, Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government, in January, the Guidance states that permitting transgender women “to access single-sex spaces designed for females—such as bathrooms, showers, locker rooms, or dormitories” – may create a hostile work environment under Title VII of the Civil Rights Act and also runs afoul of Title IX by “denying women access to the full scope of sex-based protections in education.” The Guidance further opines that “permitting [students assigned male at birth] to compete in women’s athletic events almost invariably denies women equal opportunity by eroding competitive fairness.”

Of note, the Guidance conflicts with the holdings of multiple federal courts of appeals and several state laws prohibiting discrimination based on gender identity, including some that specifically permit transgender individuals to use private facilities, and to compete in school sponsored athletics, consistent with their gender identity. The Supreme Court has recently granted certiorari on the question of transgender women’s participation in women’s athletics.

Conclusion

We can expect significant enforcement activity reflecting the Administration’s interpretations of “unlawful discrimination” as set forth in this Guidance and for the courts to weigh in on the question of what constitutes unlawful discrimination under federal law, particularly in the areas where the Guidance conflicts with existing authority. Crowell has launched a DEI and Civil Fraud Initiative to support clients in managing the heightened risks associated with this new enforcement landscape. Our team is available to assist clients in navigating these evolving requirements and in developing robust compliance strategies to mitigate risk and ensure adherence to federal anti-discrimination laws.