What does the Executive Order of January 21, 2025, mean for small businesses?

With the recent shift in U.S. leadership, several policy changes have already taken effect, with more expected in the near future. On January 21, 2025, the president issued an Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” This order revoked the Equal Opportunity ORDER but did not impact the Equal Opportunity ACT, which remains in place and would require congressional or Supreme Court action to alter. 

So, what does this mean for small businesses? To understand the impact, let’s first clarify what is meant by “Merit-Based Opportunity” as well as to explain the key differences between the Equal Opportunity ORDER and the Equal Opportunity ACT. 

• Merit-Based Opportunity - As outlined in the recent executive order, emphasizes hiring, promotions, and employment decisions that are based strictly on an individual's skills, qualifications, experience, and performance, while not taking into account any demographic factors such as race, gender, or other protected characteristics as the basis of those decisions.  This approach seeks to ensure that all employees and job candidates are evaluated and advanced based on objective, job-related criteria, enforcing a commitment to fairness and equal opportunity without preferential treatment. 

• Equal Opportunity ORDER - Refers to executive orders issued by the President that establish workplace protections against discrimination. Recent orders have reinforced diversity, equity, and inclusion (DEI) efforts, ensuring federal contractors and businesses receiving federal funds follow fair hiring and employment practices. 

• Equal Opportunity ACT - Is a broader legal framework (such as the Civil Rights Act amendments) that prohibits discrimination in employment based on race, color, religion, sex, or national origin. This applies to most businesses and ensures fair hiring and workplace practices. 

KEY ASPECTS OF THE EXECUTIVE ORDER:  

• Prohibition of Certain DEI Practices: The order aims to eliminate what it identifies as "illegal preferences and discrimination" in employment and education, targeting specific DEI initiatives that may grant advantages based on race, gender, or other protected characteristics.  

• Emphasis on Merit-Based Systems: It promotes a return to merit-based hiring and advancement, discouraging practices that consider demographic factors in decision making processes.

IMPLICATION FOR SMALL BUSINESSES:  

• Policy Reassessment: Businesses, especially federal contractors, may need to review and potentially modify their DEI programs to ensure they do not conflict with the new directives. 

• Legal Compliance: There is an increased focus on adhering strictly to non discrimination laws without implementing practices that could be interpreted as preferential treatment. While protected classes are not to be part of the decision to promote, hire or terminate being in a protected class also cannot be the basis for an exclusionary decision either. 

COMPLIANCE STEPS (RECOMMENDED): 

1. Review any DEI Initiatives: Assess current DEI policies to identify elements that may be  considered preferential under the new order. 

2. Consult HR and/or Legal Counsel: Engage with experts to understand the implications  of the Executive Order on your business practices. 

3. Update Training Programs: Ensure that employee training emphasizes merit-based  decision-making and strictly adheres to non-discrimination principles. 

4. Monitor Regulatory Guidance: Stay informed about further guidance or regulations that may arise from this Executive Order to remain compliant. 

   
   

By taking these steps, small businesses can align their practices with the latest federal directives while maintaining fair and equitable treatment for all employees.