DOJ Announces First FCA Settlement Resolving Title VII Discrimination Allegations

Last week, the Department of Justice (“DOJ”) announced a more than $17 million settlement with IBM to resolve allegations that the company violated the FCA by defying “anti-discrimination requirements as set forth in Title VII.”  This is the first settlement to emerge from the DOJ’s Civil Rights Fraud Initiative, on which we previously reported here and here.  Unveiled May 19, 2025, the Initiative aims to use the FCA to pursue claims against federal funding recipients that allegedly violate civil rights laws via “racist preferences, mandates . . . and activities”—including where those violations occurred in the context of companies operating diversity, equity, and inclusion programs.  Notably, as we reported here, the Deputy Assistant Attorney General of DOJ’s Commercial Litigation Branch, Brenna Jenny, used an address at the Federal Bar Association’s Qui Tam Conference last February to stress DOJ’s commitment to enforcement premised on such discrimination.

The settlement agreement resolves claims based on allegations that IBM knowingly submitted false claims and false statements to the United States as a result of the company’s violation of Title VII requirements “incorporated into its federal contracts” and “the Federal Acquisition Regulation, including at FAR clause 52.222-26.”  IBM allegedly certified compliance with these requirements in its federal contracts.  DOJ appears to have advanced an implied certification theory—because IBM’s contracts likely contained no express certification of compliance with such anti-discrimination mandates (e.g., FAR 52.222-26, entitled “Equal Opportunity,” is generally incorporated into federal contracts by reference but does not include a standalone certification of compliance).

The settlement covered the following allegedly discriminatory practices:

• Taking race, color, national origin, or sex into account in hiring and promotion—including via “diverse interview slates” and altering interview eligibility.
• Compensation incentives that caused employees to take race, color, national origin, or sex into account when making employment decisions.
• Developing race and sex demographic goals.
• Offering training, mentoring, leadership development, and education opportunities or resources to only certain employees—with eligibility limited by race, color, national origin, or sex.

IBM also allegedly “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 use of the term “allocated costs” suggests that the settlement amount may have been calculated on the basis of single damages for indirect costs (overhead) allocated to IBM’s federal contracts for these practices during the period covered by the settlement agreement.

Under Justice Manual section 4-4.112, “Guidelines for Taking Disclosure, Cooperation and Remediation into Account in False Claims Act Matters,” IBM was “credited” with “cooperation” that included:

• Disclosing “facts early that were relevant to the government’s investigation” and gathered during IBM’s independent investigation.
• Providing “information to assist in the determination of damages and penalties.”
• Taking voluntary remedial measures, including terminating and/or modifying various programs, policies, or other activities.

Under the settlement agreement, IBM admitted no liability and denied that it engaged in the at-issue conduct.

The settlement agreement is available here.  DOJ’s announcement is available here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.