Guy Brenner: CID is essentially a request for information. It indicates that an investigation is going on by the Justice Department and the Justice Department is requesting certain information from the target in order to continue and complete its investigation.
Terry Gerton: But it’s not part of any ongoing trial or criminal case?
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Guy Brenner: Correct. This is a preliminary stage in which the Justice Department is conducting a fact investigation that could potentially lead to some legal action.
Terry Gerton: So what’s prompting this new round of CIDs?
Guy Brenner: Well, the CIDs that we’re talking about here, to understand them, we have to go back to January, a few days into the Trump administration when an executive order was issued relating to DEI, diversity, equity, and inclusion, efforts by companies and specifically focused on federal contractors and grant recipients. And part of that effort, which was clearly aimed at dampening, let’s say, DEI efforts at businesses and companies across the country, was a provision that didn’t get a lot of attention at first. But basically told contractors and grant recipients that their compliance with federal anti-discrimination laws was a material basis for receiving federal funds and that they would be required to certify that their DEI programs didn’t violate federal anti-discrimination laws. And so what those provisions met and what we’ve seen in contracts is that the federal government is taking the position that DEI programs that violate federal anti-discrimination laws raise potential False Claims Act claims. Essentially, seeking money from the government when you are engaged in DEI programs that violate federal anti-discrimination laws is a violation of the False Claims Act. That has been deemed to be a priority of the Justice Department and they are now investigating companies to bring potential claims against them.
Terry Gerton: Is that a new nexus of these things, the False Claims Act and DEI and civil rights fraud?
Guy Brenner: It’s definitely not something that’s been a focal point of any administration to this point. And the use of the False Claims Act in order to address discrimination, in my experience, is unprecedented.
Terry Gerton: So if a contractor or a grantee receives one of these civil investigative demands, what sort of legal or financial risk are they facing?
Guy Brenner: Well, as an initial matter, you want to get counsel to help you any time you’re being investigated by the federal government, and so there will be costs associated with that. But in terms of the risks and the liabilities that could be at stake, if a False Claims Act is brought by the federal government or potentially through what’s called a qui tam relator, some individual that has information and brings the claim on behalf to the government. There are a number of potential liabilities and damages that could be faced by the company. For example, there are certain fines per violation and each payment can be considered a violation. In addition, there’s a potential discouragement of the money that was received by the contractor or the grant recipient. And there’s also attorneys’ fees and treble damages. So there can be significant liability for violations of the False Claims Act.
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Terry Gerton: I’m speaking with Guy Brenner. He’s a partner in the Labor and Employment Law Department at Proskauer Rose. The Department of Justice has incentivized whistleblower initiatives in this space as well, right?
Guy Brenner: Correct and the False Claims Act has always contained what I’ve called the bounty program, which is essentially an effort to encourage individuals with non-public information about fraud being committed on the government to come forward and essentially what those individuals are called qui tam relators, they can file claims with the government and if the government then pursues those claims based on that information they could be entitled to up to 30% of the recovery, or if the government declines and they bring it on their own, they can also receive a significant portion of whatever the damages are. And so it really is, for federal contractors and federal grant recipients, what this means, and the False Claims Act sort of efforts overall what this means is that certain violations which non-grantee and contractor employers may not find to be a significant risk because they don’t have this False Claims Act risk hovering over them. Non-government contractors, non-grantees might be OK, might feel the risk is OK because there isn’t a likelihood of litigation and if there is, the financial consequences might be minor. But when you’re a federal contractor, even a technical violation that doesn’t cause anyone any particular harm could potentially lead to a False Claims Act claim and significant liability.
Terry Gerton: So who’s most likely to get caught up in this current focus? Is it the big prime contractors? Is it subcontractors, small businesses? Is it kind of universal?
Guy Brenner: I think everyone that is a contractor or a federal grantee needs to be aware of this and needs to conduct an investigation into their DEI programs, whatever we think those are because it’s not necessarily defined, to make sure that they are not running afoul, particularly what this administration views as violations of federal anti-discrimination laws. But obviously, the larger you are as a company, the more contracts you have with the federal government, the more you rely on the federal government, though the larger the risk and the more likely you are to be facing an investigation or a qui tam relator action.
Terry Gerton: So you mentioned that it’s not quite clear what the appropriate or acceptable DEI position might be here. If you’re a contractor, how do you resolve that tension where you might be investigated but you’re not quite sure what the rules are?
Guy Brenner: Well, and the rules have changed significantly over the past few years. I think things that companies thought were acceptable legal programs, ones that prior administrations seemed to be fine with, this administration doesn’t agree with those positions. And so there is a bit of a whiplash that I’m seeing with my clients where they took certain positions and felt comfortable with them and now, based on various developments, don’t feel as comfortable with them anymore. Essentially any program that relates to race or sex or sexual orientation or any protected characteristic needs to be analyzed because we have to remember that our federal anti-discrimination laws with respect to race and gender and sexual orientation do not only protect traditionally disadvantaged groups but protect all races and all sexual orientations and all genders. And so we have to make sure that if we have any programs, no matter how well intentioned, that they cannot be characterized as discriminating against any particular group and that might be a change from what we’ve done in the past. In addition, I would suggest there’s a number of things that have come out of the EEOC and the Department of Justice providing guidance to employers that will give employers a sense of where this administration is on the question of which DEI programs could violate federal anti-discrimination laws.
Terry Gerton: Some firms may have already received one of these letters. If they haven’t, should they consider themselves off the hook or should they be watching the mail? And if they’re watching the mail, what should they be doing in the meantime?
Guy Brenner: That’s a great question. Yeah, definitely watching the mail. There isn’t a statute of limitations on bringing these CIDs. And what they should be doing is what hopefully they’ve been doing already, but if not, examining any of their DEI programs, whatever those may be, and understanding what the risks are and if necessary, making changes. And typically, get some kind of expert. Our firm has done a whole bunch of DEI analysis for our clients to let them know where those risks are and then you make your choices as to what your risk tolerance level is.
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