Quick Hits
- On September 17, 2026, eight states (California, Colorado, Illinois, Maryland, Massachusetts, New Jersey, New York, and Wisconsin) prevailed on summary judgment in their lawsuit challenging the Education Department’s February 5, 2025, internal directive mandating the termination of federal education grants involving DEI-related programming. The court vacated the directive in its entirety and declared it unlawful. State of California et al. v. U.S. Dep’t of Education et al., No. 25-CV-10548-AK (D. Mass. Sep. 17, 2026).
- The court found the directive arbitrary and capricious on four grounds and contrary to three independent sources of law, including the governing grant statutes, the General Education Provisions Act’s (GEPA) notice-and-comment requirement, and the Uniform Guidance’s limits on post-award terminations.
- The ruling joins a growing line of federal court decisions blocking anti-DEI funding actions and reinforces the compliance uncertainty facing employers that hold federal grants or contracts.
Background
On January 21, 2025, President Trump issued Executive Order 14173, directing federal agencies to remove references to DEI from grant procedures and to terminate DEI-related mandates. A week later, Executive Order 14190 directed the secretaries of education, defense, and health and human services to develop a plan for eliminating federal funding tied to “discriminatory equity ideology” in K–12 schools.
On February 5, 2025, Acting Secretary of Education Denise Carter issued an internal directive titled “Eliminating Discrimination and Fraud in Department Grant Awards,” instructing all Education Department personnel to review new, pending, and issued grants and to terminate those deemed inconsistent with the administration’s priorities. The directive identified DEI as programming that could constitute discriminatory practices, but did not define “DEI,” did not provide examples of prohibited activities, and was not subject to notice-and-comment rulemaking.
Seven Education Department personnel conducted the reviews over roughly one week. Within two weeks, the Education Department terminated 104 of 109 TQP and SEED grants, more than $600 million, while flagging topics such as cultural responsiveness, anti-racism, social-emotional learning, systemic privilege, and racial justice. As of June 2, 2025, none of the grantees who filed objections had received a response.
The eight plaintiff states, California, Massachusetts, New Jersey, Colorado, Illinois, Maryland, New York, and Wisconsin, collectively held more than forty active TQP and SEED grants totaling over $250 million, funding teacher recruitment, training, and retention in high-need and underserved school districts. The grants were slated to flow to universities, school districts, and nonprofits.
The Court’s Reasoning
The court found the directive unlawful on two independent grounds under the Administrative Procedure Act (APA) and declined to reach the states’ constitutional claims.
First, the directive was arbitrary and capricious. The court identified four defects:
- The directive failed to define “DEI” or explain what it prohibited. The Education Department terminated grants involving anti-racism, social-emotional learning, and “Family and Community in the Classroom,” and defense counsel acknowledged at oral argument that the directive reached practices that do not violate civil rights law, such as affirmative action.
- The directive reversed the Education Department’s longstanding promotion of DEI-related programming through competitive-preference priorities published in the Federal Register, without acknowledging the change or engaging with the evidence that supported the prior approach.
- The Education Department did not weigh the reliance interests of states and institutions that had built infrastructure, hired personnel, and developed programs in reliance on multi-year grants and published priorities.
- The Education Department did not consider the obvious alternative of providing grantees with notice and an opportunity to cure, even though its own regulations and Title VI and Title IX contemplate less drastic measures before funding is discontinued.
Second, the directive was contrary to law on three grounds:
- The TQP, SEED, and GEPA statutes impose substantive requirements on grantees to recruit diverse educators, serve underserved populations, and ensure equitable access. The directive treated those very objectives as grounds for termination.
- The Education Department bypassed GEPA’s notice-and-comment requirement for rules with binding legal effect on education funding.
- Adopting the reasoning of New Jersey v. OMB, the court held that the Uniform Guidance does not authorize terminations based on agency priorities adopted after an award was made.
Scope of Relief
The court vacated the directive in its entirety and declared it unlawful. Rejecting the Education Department’s argument that relief should be limited to the plaintiff states, the court held that APA vacatur operates on the policy itself and is not party-restricted. The court denied a permanent injunction as duplicative, noting that preclusion principles give the states a basis to challenge any replacement directive.
Why This Matters for Employers
The case involves education grants, but three aspects of the court’s reasoning carry over to employers in any federal funding relationship.
- Vagueness. The court’s finding that the Education Department never defined “DEI” echoes a problem employers have faced since the executive orders were issued: the administration’s policies have not drawn a clear line between lawful and unlawful DEI-related programs, hiring practices, and workforce policies. Multiple federal decisions, including the U.S. Department of Agriculture (USDA) ruling and rulings in other Education Department challenges, have now found that vagueness fatal under the APA.
- Reliance interests. The court credited the concrete investments institutions made in recruiting pipelines, training programs, mentoring, and professional development based on existing priorities and multi-year grants. That reasoning applies to any employer-grantee that has built workforce programs around federal funding.
- Post-award termination limits. The Uniform Guidance holding applies government-wide. Any federal agency that has relied on 2 C.F.R. § 200.340(a)(4) to terminate grants based on priorities adopted after the award faces the same constraint, including agencies that fund workforce development, public health, and social services programs run by employers. The GEPA notice-and-comment holding is education-specific, but the principle that agencies cannot use internal directives to effectively repeal published rules with binding effect is consistent with what courts have found in the USDA case and federal contractor cases.
However, the Uniform Guidance holding may have a short shelf life. On May 29, 2026, the Office of Management and Budget (OMB) published a proposed rule that would rewrite § 200.340 to expressly authorize “discretionary termination” based on program goals, agency priorities, or the national interest” as they exist at the time of the termination.” OMB had targeted an October 1, 2026, effective date, but Congress included a provision in the Continuing Resolution (Section 157) that delays implementation of the proposed rule through December 11, 2026. The proposed rule is also expected to face its own legal challenges.
The court’s ruling does not restore individual grant awards already terminated under the directive. Those claims must be filed with the Court of Federal Claims. The Education Department’s separate June 2025 Guidance governing continuation awards remains in effect under a different regulatory authority (34 C.F.R. § 75.253). The Education Department could appeal.
This ruling is part of a pattern. Courts have blocked anti-DEI funding actions at the Education Department, the USDA, and in the federal contractor space. But the administration is working to change the rules that produced those losses, and the next round of litigation will test whether those changes hold up.
Ogletree Deakins’ Diversity, Equity, and Inclusion Compliance Practice Group, Government Contracting and Compliance Practice Group, Higher Education Practice Group, and Workforce Analytics and Compliance Practice Group will continue to monitor developments and will provide updates on the Diversity, Equity, and Inclusion Compliance, Government Contracting and Compliance, Higher Education, and Workforce Analytics and Compliance blogs as additional information becomes available.
This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.
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