DOJ Secures First False Claims Act Settlement Targeting “Illegal DEI”

On April 10, 2026, Acting Attorney General Todd Blanche announced that IBM agreed to pay $17,077,043—inclusive of civil penalties— to resolve allegations that it violated the False Claims Act (FCA) by failing to comply with anti-discrimination requirements in IBM’s federal contracts.

As discussed in our prior Legal Updates on the Department of Justice’s use of the False Claims Act (FCA) to investigate federal contractors’ diversity, equity, and inclusion (“DEI”) programs, and on the March 2026 Executive Order imposing new anti-DEI contract clauses, the enforcement risk we identified has now materialized in a landmark resolution. The government’s settlement with IBM is the first secured under the DOJ’s Civil Rights Fraud Initiative, launched in May 2025, and provides the best evidence to date of the specific employment practices that DOJ considers actionable under its FCA enforcement theory and how the DOJ may pursue enforcement.

Notably, the settlement’s covered conduct period extends back to January 2019—well before the second Trump Administration’s DEI-related executive orders and the Civil Rights Fraud Initiative—signaling that DOJ is prepared to use the FCA to scrutinize contractors’ historical DEI programs and practices retroactively, not merely to enforce prospective compliance obligations.

A Roadmap for Compliance in DOJ’s View

The DOJ’s allegations against IBM identify a specific set of practices that federal contractors should treat as high risk going forward. The government alleged that IBM took race, color, national origin, or sex into account when making employment decisions in the following ways.

Diversity modifiers tied to compensation: The government alleged that IBM used a “diversity modifier” that tied executives’ bonus compensation to achieving demographic targets. According to the DOJ, this practice effectively created financial incentives for managers and executives to make personnel decisions based on protected characteristics rather than merit.

Diverse interview slates and altered hiring criteria: The DOJ alleged that IBM used “diverse interview slates” as a method of taking race, color, national origin, or sex into account in employment decisions and altered interview criteria based on race or sex “through the use of ‘diverse interview slates,’ ‘diverse sourcing’ and other related employment practices.” 

Demographic goals for business units: The government alleged that IBM developed race- and sex-demographic goals for business units, and took race and sex into account when making employment decisions to achieve progress toward those goals.

Restricted-access training and development programs: Finally, the DOJ alleged that IBM offered certain training, partnerships, mentoring, leadership development programs, and educational opportunities only to certain employees, with eligibility, participation, access, or admission limited on the basis of race or sex.

These categories of alleged misconduct closely track the enforcement priorities that Deputy Assistant Attorney General Brenna Jenny identified in her February 2026 remarks at the Federal Bar Association’s Qui Tam Conference, where she indicated that DOJ investigations were focused on programs that pressure supervisors to make race-based hiring and promotion decisions, tie compensation to demographic goals, and restrict access to training and development opportunities based on race or sex. The IBM settlement confirms that DOJ is prepared to translate those priorities into actual enforcement actions with significant financial consequences.

IBM’s Cooperation and Remedial Measures

The settlement acknowledged that IBM took “significant steps” entitling it to credit for cooperating with the government’s investigation. IBM also received credit for making early factual disclosures, assisting in the calculation of damages and penalties, and voluntarily terminating or modifying the programs and practices at issue. Notably, IBM did not admit liability, and the settlement expressly stated that it was “neither an admission of liability by IBM nor a concession by the United States that its claims are not well founded.” 

The cooperation credit IBM received is consistent with existing DOJ policy regarding voluntary self-disclosure and remediation in FCA matters, and it suggests that contractors facing similar scrutiny may benefit from engaging early and proactively with the government’s investigation rather than adopting a purely adversarial posture.

Parallel Civil Litigation: Dill v. IBM

It bears noting that IBM’s FCA settlement does not exist in a vacuum. IBM has also faced private civil litigation challenging substantially the same employment practices. In Dill v. International Business Machines Corp., a former IBM senior managing consultant alleged that IBM systematically discriminated against white male employees and terminated him to further the company’s diversity quotas based on race and sex.

On March 26, 2025, the US District Court for the Western District of Michigan denied IBM’s motion to dismiss, holding that “Dill has alleged sufficient facts to support the elements of a ‘reverse discrimination’ claim, namely, background circumstances and an adverse employment action motivated by Dill’s race or gender.” The court found it significant that the plaintiff alleged IBM’s CEO had set specific percentage targets for the racial and gender composition of the workforce and implemented a system of financial incentives to reward executives who achieved those targets. The court further noted that IBM’s stated reason for the plaintiff’s termination—having a low-utilization rate—was not unusual, with the same situation allegedly applying to more than half of employees in the plaintiff’s division, suggesting pretext.

The case settled in mid-2025 on undisclosed terms. Nonetheless, the court’s ruling on the motion to dismiss is instructive. It demonstrates that the types of DEI-related practices at issue—particularly tying compensation to demographic goals and using diversity metrics in employment decisions—can give rise not only to FCA liability in the government contracting context but also to viable Title VII claims brought by individual employees in private litigation.

Key Takeaways for Federal Contractors

The IBM settlement establishes concrete enforcement benchmarks and should prompt federal contractors to take the following steps to avoid inadvertent exposure to DOJ scrutiny:

Audit compensation structures: Any program that ties manager or executive compensation, bonuses, or performance evaluations to the achievement of demographic diversity targets presents acute risk. The IBM settlement identifies this practice as a principal area of concern. Contractors should evaluate whether such programs exist and, if so, whether they should be modified or discontinued.

Review hiring and promotion practices: Demographic goals for hiring managers of business units, and any practice that alters hiring or promotion criteria based on protected characteristics, should be carefully reviewed with counsel. While aspirational targets may be defensible in certain contexts, programs that apply race- or sex-based criteria in actual employment decision-making carry significant risk. Some policies requiring diverse slates for hiring or promotion purposes may draw extra scrutiny.

Evaluate access to training and development programs: Programs that restrict eligibility for training, mentoring, leadership development, or educational opportunities on the basis of race or sex are squarely within DOJ’s enforcement crosshairs. Contractors should ensure that all employees have equal access to these programs regardless of demographic characteristics.

Prepare for contract modifications: Contractors should anticipate that contracting officers will begin incorporating the new anti-DEI clause mandated by Executive Order 14398 into solicitations, new awards, and existing contracts through modifications. Contractors should understand their obligations under this clause and ensure that their internal contract administration practices and compliance programs are aligned accordingly.

Consider the benefits of cooperation: The IBM settlement’s recognition of cooperation credit underscores that contractors who proactively identify, disclose, and remediate potentially problematic practices may be in a stronger position to negotiate favorable outcomes with DOJ. Contractors should consider conducting privileged internal reviews and engaging counsel to assess their exposure.

Monitor private litigation exposure: As the Dill v. IBM litigation illustrates, certain DEI programs and practices can also give rise to private Title VII and Section 1981 claims. The Supreme Court’s unanimous decision in Ames v. Ohio Department of Youth Services (June 2025)—which eliminated the “background circumstances” requirement that imposed a heightened evidentiary standard on claims by majority-group plaintiffs in Title VII claims—has further lowered the barrier to bringing reverse discrimination suits. Contractors should assess their exposure on both the government enforcement and private litigation fronts.

A previously-theoretical FCA enforcement risk has become a concrete reality, and federal contractors now have a clear set of practices that DOJ has identified as objectionable, a significant settlement figure that illustrates the financial stakes, and a rapidly evolving regulatory framework—including the new contractual obligations under Executive Order 14398—that will only intensify scrutiny of diversity-related programs. Contractors should act promptly to evaluate programs and position themselves to manage this rapidly evolving risk.