DOJ’s $17 Million False Claims Act Settlement With IBM: Proof-of-Concept for Potential DEI Whistleblower Suits

The requirement to comply with Title VII is ubiquitous in federal contracts (as it applies to firms with 15 or more employees), and the settlement represents the vanguard of potential enforcement actions and whistleblower suits that challenge diversity, equity, and inclusion (DEI) practices. 

Since the beginning of the Trump Administration, the DOJ has telegraphed its intent to use the FCA to combat perceived discrimination under DEI practices. Federal contractors and grant recipients that have not already done so should carefully assess their DEI-related policies, programs, and practices in light of this heightened enforcement posture and the growing risk of whistleblower suits. 

The ‘Covered Conduct’ 

The settlement resolves government allegations that IBM violated its obligation to comply with anti-discrimination requirements of Title VII of the Civil Rights Act of 1964. As a federal contractor, IBM is required to certify that it does not discriminate against employees or applicants for employment because of race, color, national origin, or sex and that it will take steps to ensure that applicants and employees are treated without regard to those characteristics. 

The United States contends that IBM certified compliance in its federal contracts with these requirements while knowingly maintaining practices that discriminated against employees during employment and applicants for employment because of race, color, national origin, or sex, and failed to treat employees during employment without regard to race, color, national origin, or sex. In addition, the United States contends that IBM allocated costs to its federal government contracts relating to these practices and sought payment and reimbursement under its federal government contracts for such costs. The United States contends that the “Covered Conduct” included:

• Bonus Compensation for Achieving “Diversity”: The government alleges that IBM adjusted pay, bonus, and other compensation to cause employees to take race, color, national origin, or sex into account when making employment decisions, including by tying bonus compensation to achieving diversity targets.

• Diverse Interview Slates: The government alleges that IBM took race, color, national origin, or sex into account as part of decisions to hire, transfer, or promote through the use of “diverse interview slates,” “diverse sourcing,” and other related employment practices, including by altering interview eligibility criteria based on race, color, national origin, or sex. 

• Demographic Goals: The government alleges that IBM developed race and sex demographic goals for business units and took race, color, national origin, or sex into account when making employment decisions to achieve progress toward those demographic goals. 

• Restricted Training and Development Programs: The government alleges that IBM offered certain training, partnerships, mentoring, leadership development programs, educational opportunities or resources, and similar opportunities only to certain employees, with eligibility, participation, access, or admission limited on the basis of race, color, national origin, or sex. 

IBM denies that it engaged in the covered conduct alleged by the United States.

Cooperation Credit and Settlement Terms

IBM received credit under the DOJ’s Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters for cooperation provided during the investigation. Notably, despite this cooperation credit, the damages multiplier exceeded 2x. 

Multipliers in FCA settlements reflect myriad factors during the settlement process. Without more detail, it is not possible to discern the basis for the agreed-to value. 

Key Takeaways From the IBM Settlement

1. The IBM Settlement Is a Proof-of-Concept for Would-Be Relators and Relator Counsel. As we have seen in many areas of FCA enforcement activity, the success of one legal theory of FCA liability in obtaining a generous settlement amount can have the effect of incentivizing whistleblowers and their counsel to bring copy-cat claims. The stakes for government contractors and grant recipients in maintaining inclusive employment practices just got higher. And, sustaining such actions will become easier over time, as federal contracts begin to include the new no-disparate-treatment clause required under Executive Order (EO) 14398.

2. The Law Has Not Changed. Racial and sex-based quotas and unlawful preferences in hiring and promotions have been illegal since the enactment of Title VII of the Civil Rights Act of 1964. Companies that are scrupulous in evaluating employees based on individual merit may continue to do so. And, President Trump’s executive orders should not have the legal effect of halting programs that are specifically designed to remedy ongoing discrimination that are codified in statute, like the Environmental Protection Agency’s Disadvantaged Business Enterprise Program. If there are questions, however, companies should contact legal counsel to ensure their policies comply with anti-discrimination law. Where policies, procedures, and practices remain permissible, a decision to amend or eliminate them may nonetheless be advisable given political, reputational, and company culture considerations. 

3. US Supreme Court Precedent. The Supreme Court, in Students for Fair Admissions v. President and Fellows of Harvard College, recognized the validity of diversity and inclusion interests. In his opinion for the majority, Chief Justice John Roberts described the defendants’ diversity-related interests as “worthy” and “commendable.” In his concurring opinion, Justice Brett Kavanaugh made clear that “governments and universities still ‘can, of course, act to undo the effects of past discrimination in many permissible ways that do not involve classification by race.’” The IBM settlement underscores dramatically, however, the need to review every program and initiative through the skeptical frame of possible FCA enforcement. 

4. Prior Legal Challenges to IBM. The investigation of IBM did not arise in a vacuum. Although the settlement agreement lacks any of the characteristic provisions that would indicate the involvement of a whistleblower, IBM has found itself increasingly under scrutiny for its employment practices since 2024. In June of 2024, the state of Missouri sued IBM, claiming it was giving preference to certain races during the hiring process and that it retaliated against managers who refused to participate in the discriminatory practices. In August of 2024, a white former employee sued the company alleging he was fired by managers who were fulfilling racial quotas. In January 2025, the Heritage Foundation issued a proposal for IBM shareholders to vote to end DEI during an upcoming shareholder meeting. Activist Robby Starbuck challenged IBM’s diversity policies in February of 2025, and in April he announced that the company had “eliminated DEI and woke policies.” The same day, IBM notified employees that it would be disbanding its DEI department and Diversity Council, ending its allyship campaign and training, would no longer participate in the Human Rights Campaign workplace index, and would no longer encourage employees to recognize preferred pronouns. 

5. The IBM Settlement Is Just a Start. Close scrutiny of DEI initiatives is a priority of the current Administration. EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” revoked EO 11246, a 1965 directive that required federal contractors to maintain affirmative action programs. The new EO requires contractors to certify they do not operate DEI programs that violate federal anti-discrimination laws. On May 19, 2025, then-Deputy Attorney General Todd Blanche issued a memo instructing DOJ attorneys to use the FCA to file claims against recipients of federal funds if they promote DEI policies the Administration deems unlawful. And, EO 14398, “Addressing DEI Discrimination by Federal Contractors,” prohibits federal contractors and subcontractors from engaging in “racially discriminatory DEI activities,” defined as “disparate treatment based on race or ethnicity” in recruitment, hiring, promotions, contracting, and programs. With all of this energy, a FCA settlement arising from DEI-related conduct, like the IBM settlement, was inevitable. 

Conclusion

The IBM settlement is a watershed event in the use of the FCA to target what the Administration views as discriminatory DEI practices. Federal contractors, subcontractors, and grant recipients that have not already done so should promptly review their DEI-related policies, programs, and practices to ensure that they can withstand scrutiny — and make adjustments where necessary.