The Legal Risks of Scaling Back Inclusion Programs: What Employers Should Know in 2025

As companies reassess their Diversity, Equity, and Inclusion (DEI) programs in response to shifting regulations and corporate strategies, they must be aware of the legal risks associated with scaling back inclusion initiatives.

While some organizations opt to reduce or eliminate DEI efforts due to political and financial considerations, they may face compliance challenges, discrimination claims, and reputational damage.

This article explores key legal risks and provides strategies for mitigating exposure while maintaining inclusive workplace policies.

Legal Risks of Reducing DEI Initiatives

1. Increased Workplace Discrimination Claims

According to the Equal Employment Opportunity Commission (EEOC), workplace discrimination claims have increased in recent years, particularly in cases related to race, gender, and disability (EEOC, 2023).

Employers that scale back DEI efforts may inadvertently create hostile work environments or fail to address bias, leading to higher risks of legal complaints and lawsuits.

• In 2022, a major tech company settled a $10 million discrimination lawsuit after reducing internal DEI policies, highlighting the legal exposure companies face when rolling back inclusion commitments (EEOC, 2022).

2. Compliance with Federal and State Regulations

Several federal and state laws require affirmative action and equal employment opportunity measures. Employers should be cautious when scaling back DEI programs to ensure they remain compliant with:

• Executive Order 11246, which mandates federal contractors to engage in affirmative action hiring (Department of Labor, 2023).

• California SB 826, which requires public companies to meet board diversity requirements (California Secretary of State, 2023).

• New York Corporate Diversity Disclosure Law, mandating that businesses provide transparency about leadership diversity (New York State Senate, 2023).

Failure to comply with these laws could result in fines, contract losses, and reputational damage.

3. Increased Investor and Stakeholder Scrutiny

Investors and stakeholders increasingly expect companies to prioritize Environmental, Social, and Governance (ESG) factors, including workplace diversity.

A Harvard Business Review (2019) report found that investors are more likely to support organizations with strong DEI commitments (Harvard Business Review, 2019). Companies that scale back DEI efforts risk losing investor confidence and may face public backlash.

• A 2022 report by the Government Accountability Office (GAO) found that companies failing to meet equal opportunity standards risk losing government contracts, which can amount to millions in lost revenue (GAO, 2022).

4. Negative Impact on Talent Acquisition and Retention

Scaling back DEI programs may also harm an employer’s ability to attract and retain top talent.

According to Glassdoor’s 2019 Diversity & Inclusion Workplace Survey, 76% of job seekers consider workplace culture and inclusivity as deciding factors when evaluating potential employers (Glassdoor, 2019).

• Companies that reduce DEI efforts risk higher turnover rates, lower employee engagement, and difficulty attracting diverse talent pools.

How Employers Can Mitigate Legal Risks While Adjusting DEI Programs

To navigate these challenges, employers should take a proactive approach to workplace inclusion while ensuring legal compliance:

1. Conduct a Legal Audit – Review company policies and ensure they align with federal and state regulations.

2. Maintain Inclusive Leadership Training – Equip managers with bias awareness and fair hiring practices to prevent discrimination claims.

3. Emphasize Skills-Based Hiring – Instead of reducing DEI programs, shift toward a skills-first hiring approach to maintain diverse hiring pools.

4. Engage Legal Counsel – Consult employment law professionals to ensure policy changes do not violate anti-discrimination laws.

5. Communicate Transparently – Provide clear messaging to employees, stakeholders, and investors about the company’s long-term inclusion commitments.

Conclusion

Scaling back inclusion programs without legal due diligence can expose businesses to discrimination lawsuits, compliance violations, and reputational risks.

While companies may face pressure to adjust DEI strategies, maintaining an inclusive workplace remains essential for talent retention, investor confidence, and long-term business success.

By taking a strategic and legally compliant approach, organizations can balance changing DEI commitments with workplace fairness and legal protection.

For Employers

• Assess your current DEI strategies and ensure compliance with federal and state regulations.

• Implement legal audits and inclusive leadership training to mitigate risks.

• Engage stakeholders and communicate transparently about diversity commitments.

For Job Seekers

• Research prospective employers' DEI commitments and review workplace culture reports.

• Seek companies that demonstrate fair hiring and inclusion practices.

• Understand workplace policies to advocate for fair treatment.

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We are committed to supporting both employers and job seekers in fostering equitable and inclusive workplaces.

If you have any questions or need assistance, feel free to Contact Us Here. Our dedicated support team is ready to help!

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• Why Inclusive Workplaces Matter More Than Ever: Addressing Common Misconceptions

• From Policy to Action: How Companies Can Maintain Inclusive Workplaces Beyond DEI Mandates

• What’s Next for Workplace Inclusion? How Companies Can Rebrand Their Initiatives Without Saying "DEI"

Sources & References

• Equal Employment Opportunity Commission. (2023). Workplace Discrimination Trends & Compliance Guidance.

• Department of Labor. (2023). Executive Order 11246 & Affirmative Action Requirements.

• California Secretary of State. (2023). SB 826 - Board Diversity Requirements.

• New York State Senate. (2023). Corporate Diversity Disclosure Law.

• Government Accountability Office. (2022). Federal Contractor Compliance & Equal Opportunity Standards.

• Glassdoor. (2019). Diversity & Inclusion Workplace Survey.

• Harvard Business Review. (2019). The Investor Revolution: ESG & Corporate Inclusion Commitments.