US sends letter to companies in Portugal to abandon diversity policies

The US government has sent letters to companies in Portugal that supply it with goods and services informing them that they must abandon their diversity, equity and inclusion (DEI) programmes, in accordance with the executive order signed in January by Donald Trump. The sending of the letters was confirmed to ECO by the US embassy in Lisbon and, according to the international press, similar letters were sent to companies in other European Union countries, such as France and Belgium.

“The US embassy in Portugal is carrying out a standard global review of contracts, which applies to all suppliers and beneficiaries of US government grants. This process includes a request for certification to ensure compliance with US anti-discrimination laws”, an official source at the embassy told ECO.

At the heart of this contract review process is the executive order signed on 21 January by US President Donald Trump to “end unlawful discrimination and restore merit-based opportunities”.

According to this order, “critical and influential” institutions in US society, including the federal government itself, large companies, financial institutions and institutions of higher education have adopted “dangerous, degrading and immoral preferences based on race and sex” under DEI programmes, which “may violate civil rights”.

The document signed by Donald Trump also argues that these DEI programmes weaken the “national unity” of the United States, since they “deny, de-credit and undermine traditional American values of hard work, excellence and individual achievement”, while favouring a “corrosive” system based on identity. In other words, for Trump, any programme that promotes diversity, equity and inclusion clashes with meritocracy and is therefore a form of discrimination.

On the basis of these arguments, the President of the United States immediately ordered an end to all discriminatory and “unlawful preferences, mandates, policies, programmes, activities and regulations” in the departments and agencies of the US administration.

But it didn’t stop there. Donald Trump also ordered all agencies under his control to enforce US civil rights and to combat “illegal” IED policies and programmes in the private sector.

Thus, in the executive order in question, it was established, on the one hand, that each contract would include a clause in which the parties involved recognise that complying with these rules on diversity is “essential to the payment decisions” of the US government.

And, on the other hand, that it would be mandatory to include a clause requiring the contractors not to operate programmes promoting diversity, equity and inclusion “that violate federal anti-discrimination laws”.

According to the international press, on the basis of this executive order, Donald Trump’s administration has been sending letters to various companies in the European Union (particularly in France and Belgium), warning them that they must now comply with the new diversity rules.

And the US embassy in Lisbon confirmed to ECO that it has sent similar letters to companies operating in Portugal that have contracts with the US government. However, the embassy doesn’t specify how many letters were sent, nor does it reveal which companies were targeted.

On the other hand, when asked about the penalties that will be applied if companies fail to comply with the executive order, the US embassy in Lisbon told ECO that no checks will be made, apart from asking contractors to self-certify their compliance with the rules in question.

Portuguese suppliers between silence, ignorance and concern

ECO has questioned several Portuguese companies with contracts with the US government, but there seems to be a cloak of silence around this issue.

The records of the Federal Procurement Data System, where contracts signed between US public entities and any service provider are listed, reveal that among the companies with contracts registered there in the last year alone are organisations such as Vodafone Portugal, Fidelidade, a Mota-Engil company, a Galp company, Caetano Automotive, CTT, Allianz Portugal, Meo or the law firm Rui Pena, Arnaut & Associados (now CMS Portugal).

ECO asked these and other organisations if they had received the letter sent by the US embassy and what they were going to do about it. The overwhelming majority of companies simply didn’t reply, and some even claimed not to have received any communication.

One of the organisations that regularly works with US public entities – and which did not receive the letter – admitted that the issue was off the company’s radar and is causing concern. This is because this and other companies have been developing robust IED programmes, also because many of their partners require it, and are now in a complex situation: maintain business with US public entities or risk losing business with other partners and abandoning a path to sustainability in which they believe?

But what are these contracts, anyway?

There are mainly three blocks. The first relates to services provided to the US embassy in Lisbon itself, which it naturally buys locally. There’s everything here, from Vodafone’s telecoms services to gardening work or Allianz’s health insurance, as well as CMS’s legal support services.

A second large block are contracts in the Azores, related to the presence of the Lajes Base, with various local suppliers, such as security guards, cleaning staff, transport services and even a funeral parlour. But also Galp Açores, which sells fuel to the base.

And there is a third, more general block, which includes, for example, the contractual relationship between Fidelidade and the US Air Force, based on insurance cover. Or Meo’s provision of services to the Defence Information Systems Agency (DISA) or, before that, to the Air Force.

Whoever doesn’t comply with the rules won’t be accepted as a supplier?

In theory, the United States have no right to force EU companies to end their diversity, equity and inclusion programmes.

But in practice, and since it is a question of “determining the conditions under which it is possible for companies to supply goods or services to the US administration”, they can impose rules. This was explained to ECO by José Luís Cruz Vilaça, the partner responsible for the European Union Law, Competition and Foreign Investment practice area at Antas da Cunha Ecija. “If you don’t comply with the rules, you won’t be accepted as a supplier”, emphasises the lawyer.

On this side of the ocean, there have been many calls for IED policies in favour of a more sustainable and equal future, which now puts European companies “in a dilemma”. On the one hand, they have the European Union’s guidelines. On the other, there’s the risk of “losing the market for the purchase of products or services by the US administration”, says the Antas da Cunha Ecija partner.

“Basically, it’s a political issue, where the logic of power and law oppose each other. The governments of the member states and the institutions of the European Union will eventually be called upon to intervene and, if necessary, to retaliate. European companies must essentially mobilise to obtain the support of these institutions”, stresses José Luís Cruz Vilaça.

But not all lawyers share this view. Márcia Martinho da Rosa, of MMR Legal Services, argues that “these letters are not binding, since in the European Union these companies are governed by the international treaties of each state, EU law, namely European regulations and directives”. “It is inconceivable that the US should interfere in this matter as far as the Member States are concerned”, she points out.

Luís Couto, a partner at SPCB Legal, is between these two positions and explains that, firstly, it is necessary to determine which legal system will regulate the contractual relationship established between European companies and the US government.

“If the legal transaction concluded with the US administration is governed by Portuguese or Community law, it is not possible to impose the “executive order” in question. A different situation applies to legal transactions which, due to the application of the conflict rules, are governed by US law. In this case, it is possible to impose this condition on contracts with suppliers of goods and services,” he explains.