The Trump (R) Administration has launched Investigations into the use of Diversity Initiatives (DEI) in Hiring and Promotion at Major U.S. Companies, built on the Novel use of a Federal Law meant to Punish Businesses that Cheat the Government. The Civil Probes are Proceeding under the Umbrella of the False Claims Act (FCA), which has Traditionally been used to go after Contractors who Bill the Government for Work that was never Performed or Iinflate the Cost of Services Rendered. Now the Justice Department (DOJ) is Embracing the Theory that Holding a Federal Contract while still considering Diversity when Hiring, is in Effect Fraud Against the Government that Entitles it to Recoup potentially Millions-of-Dollars.
Alphabet’s Google and Verizon Communications, are among a List of Companies that have Received Justice Department Demands for Documents and Information about their Workplace Programs. Other Companies being Scrutinized come from Industries ranging from Automotive and Pharmaceuticals to Defense and Utilities, and some have Met in Person with DOJ Officials. False-Claims Investigations are commonly Initiated after a Whistleblower or an Internal Government Watchdog has Tipped the DOJ off to Alleged Fraud. The DEI Probes, however, have been spurred by Politically Appointed Officials in the Department who believe Companies with Contracts aren’t Abiding by their Obligations to the Government, if they still embrace Diversity, Equity, and Iinclusion Programs.
In a May Enforcement Memo, Deputy Attorney General Todd Blanche (R) Ordered a New Initiative that Directed the Department “to investigate and, as appropriate, pursue claims against any recipient of federal funds” who knowingly engages in Preferences that Create Benefits or Burdens Based on Race, Ethnicity, or National Origin. Blanche’s Memo said the Department would be Working to Penalize Private-Sector Companies with Government Contracts if they still have DEI Policies on the Books after Trump issued an Executive Order to End what He said are Discriminatory Race and Sex-based Preferences in Government Work. Blanche said the False Claims Act would be the “Weapon” used to go after Corporations and Schools that “continue to adhere to racist policies.”
Lawyers who Practice in the area, said it is Unusual to see the Antifraud Law used to PursueHhot-Button Conservative Policy Objectives. Lisa Dykstra, a Partner at Morgan Lewis, said Companies have been Closely Re-Evaluating their Workplace Policies in light of the Federal Government’s Stance. Dykstra said She had never seen the Government use its False-Claims Authority to Pursue concerns about Compliance with the Federal Antidiscrimination Laws. “These investigations are somewhat unique,” She said.
Healthcare Fraud is Typically the Leading Source of False Claims Act Cases. Last year, the Generic Drugmaker Teva Pharmaceuticals USA Agreed to Pay $425 million to Resolve Allegations that it Paid Patients’ Copays for a Multiple-Sclerosis Drug, while steadily Raising Prices for the Drug, causing False Claims to Medicare. There have also been Notable Cases against Defense Contractors. Raytheon Co., a Subsidiary of Virginia-based RTX, Agreed to Pay $428 million last year, to Resolve Allegations that itPprovided False Cost and Pricing Data when it Negotiated Contracts with the Defense Department.
If the Justice Department brings a False-Claims Lawsuit based on a Company’s Diversity Initiatives, it could be Difficult to Prove in Court, Legal Observers say, because the Government will have to Show that a Company made a Misrepresentation when it Secured its Government Contract and Submitted a Claim it should have known was False.
Still, the Investigations have Rattled the Corporate World, because the Financial Consequences can be Significant. If the Justice Department brings a Civil False-Claims Lawsuit and Wins in Court, Defendants Risk being Liable for Three Times the Damages the Government Ssuffered.
Several Judges have Iissued Rulings that Blocked or Limited the Government’s Requests.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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