DEI Rollback in the US, AGG in Germany: When Corporate Policy Collides With the Law

Marcus

Oct 30

7 min read

A call from US headquarters, an email from legal, a new corporate policy on the intranet: diversity targets get cut, mentoring programs get "opened up to everyone," the word "diversity" disappears from job profiles. For TA teams at German subsidiaries of US corporations, this hasn't been an abstract debate for months now — it's a Tuesday afternoon.

What started in Washington as a political course change lands in Munich, Frankfurt, or Zurich as an operational question: is it even permissible to carry out this instruction? And what happens if you do — or if you don't?

What's Happening in the US

The starting position can be summed up in three developments:

First, the US Department of Labor rolled back three sets of affirmative-action rules for federal contractors in summer 2026: the implementing regulations for the former Executive Order 11246 (already revoked since January 2025 anyway) lapse on October 26, 2026; under Rehabilitation Act Section 503, the 7 percent utilization goal for employees with disabilities, along with the self-identification requirement, expires on September 21, 2026; and the VEVRAA rules for veterans were also technically adjusted. The nondiscrimination obligations themselves remain in place — it's the affirmative outreach obligation that disappears.

Second, DEI is now being pursued aggressively rather than merely deregulated. Deloitte paid $21.5 million in August 2026 to settle a Department of Justice investigation — the allegation: race- and gender-based targets in hiring and promotion, color-coded progress reports, promotion goals tied to demographics. The payment came under the DOJ's Civil Rights Fraud Initiative, based on the False Claims Act — as a federal contractor, Deloitte had certified compliance with civil rights laws, and that very certification became the lever. PayPal previously paid $30 million in a similarly structured case.

Third — and this is the part that actually reaches German sites — this logic extends beyond US borders. Under Executive Order 14173, US embassies began sending letters to European companies doing business with US agencies starting in spring 2026: within five days, they were asked to certify that they "do not operate any DEI programs that violate applicable anti-discrimination law" — explicitly regardless of the company's nationality. Those who don't sign have to give reasons. Those who sign and don't comply risk a False Claims Act lawsuit, with penalties running over $28,000 per violation plus triple damages — and every single invoice to a US agency can count as its own violation.

Who's Already Folded — and Who Hasn't

The reaction from many corporations has been quick and visible. Roche scrapped its global targets for the share of women and minorities in leadership positions and renamed its "Chief Diversity Offices" toward inclusion — citing the fact that around half of revenue and a quarter of the workforce come from the US. Novartis stopped requiring diverse candidate slates for US positions. UBS cut the DEI chapter from its annual report and openly named what many companies only discuss internally: "conflicting equality requirements" across national borders. T-Mobile US, a Deutsche Telekom subsidiary, disbanded two diversity advisory boards and dropped concrete diversity targets. SAP says it is still reviewing the letters it received and their possible implications.

The trend is measurable too: according to law firm Littler's 2025 European Employer Survey Report, 69 percent of EU employers with existing DEI policies have already adjusted them because of pressure from the US, or plan to. 36 percent even cited the US policy changes as a reason for pausing or reducing US-related hiring.

What German and EU Law Actually Require

And this is where the real problem starts, because "cut diversity targets" isn't a neutral administrative decision in Germany. Two legal frameworks collide with a blanket rollback instruction from US headquarters.

The first is the gender quota for leadership positions. Listed stock corporations with parity co-determination are subject to a binding minimum representation requirement on the management board, once it has more than three members — that's not a voluntary diversity measure you can switch off by email, it's binding corporate law.

The second framework, and the more relevant one for day-to-day recruiting, is the AGG (Germany's General Equal Treatment Act) itself. Important to understand: the AGG doesn't ban diversity promotion, it regulates it. Under Section 5 AGG, "positive measures" are explicitly permitted when they aim to offset existing disadvantages faced by a group — as long as they aren't rigid and still take individual suitability into account. A mentoring program for underrepresented groups, deliberate outreach to certain target groups in sourcing, an evaluation of funnel conversion rates by characteristic: all of this is not only legal under German law, but a legally sound tool against discrimination. Cutting such a program across the board because a US corporate policy is spooked by the word "diversity" doesn't break any law — but it does abandon a tool that serves exactly the purpose the AGG pursues.

It gets more critical when the cut goes beyond mere restraint and tips into its opposite: an instruction to remove certain candidates from a long-list already in use, an internal directive to stop factoring diversity targets into internal ranking, or wording in a job posting that visibly excludes a particular group. The AGG is neutral as to technology and direction: it protects not only against disadvantaging minorities, but equally against disadvantage created by a hasty overcorrection. An instruction to "stop specifically reaching out to women" ends up being the same kind of case as an instruction to "specifically reach out to more women" — both are only permissible if they stay within the narrow limits the AGG sets out.

The third framework gets overlooked the most in public debate: co-determination. Under Section 87(1) No. 1 of the Works Constitution Act (BetrVG), the works council has co-determination rights on questions of workplace order and employee conduct, and under Section 95 BetrVG even a hard consent requirement for selection guidelines.

A diversity policy that influences hiring or promotion criteria will, as a rule, be exactly such a selection guideline. Anyone who scraps it overnight without involving the works council, because US headquarters wants it that way, risks not primarily an AGG proceeding, but a genuine co-determination conflict — with the possibility that the works council stops the measure via the conciliation committee.

Whose Instruction Applies?

Legally, the answer is unambiguous, even though it's rarely spoken out loud in corporate day-to-day life: a US corporate policy doesn't override German labor and corporate law. The German subsidiary is an independent employer within the meaning of the AGG, regardless of where the parent company is headquartered or what certifications it has given to US authorities.

Anyone who cuts a DEI measure that was legally grounded under Section 5 AGG, and in doing so creates a de facto disadvantage, is liable in Germany — invoking a corporate instruction offers no defense under labor law.

For TA and HR leaders, that creates an uncomfortable but solvable task: not to take a political position, but to legally classify the corporate directive before translating it into process.

A Quick Look Across the Border

Because internationally active mid-sized companies and corporate subsidiaries outside Germany are reading along too: the starting position is similar, but not identical.

Austria has an Equal Treatment Act (Gleichbehandlungsgesetz) closely related to the AGG, including its own gender quota for listed companies — anyone there who implements a US corporate directive verbatim runs into practically the same trap as in Germany.

Switzerland has no general anti-discrimination law for private employment relationships, but it does have a Gender Equality Act and a growing number of companies that have publicly communicated voluntary diversity targets. Quietly dropping those targets is less likely to trigger a lawsuit, but just as likely to create a reputational problem — and anyone recruiting into the EU from Switzerland, or part of a group with a German or EU structure, ends up facing the AGG logic anyway, via the detour of the corporate policy.

What TA Teams Can Do

Check whether the instruction is even binding. An email from US headquarters isn't a source of law. Before implementing anything, clarify whether it's a non-binding recommendation or a formal corporate policy — and who in the organization carries legal responsibility for the German implementation.
Involve the works council early, as soon as a change touches selection guidelines or assessment criteria. It costs time, but it saves exactly the conflicts that would otherwise escalate months later.
Distinguish between a target quota and a positive measure. Rigid quotas are legally trickier than flexible, qualification-based support measures under Section 5 AGG — in practice, both often get lumped together.
Document what's changing and why. If a mentoring program is discontinued, the reasoning should be traceable and discrimination-neutral — not "because headquarters says so," but backed by your own, reviewed decision.
Separate language changes from substantive ones. Removing the word "diversity" from a job posting changes nothing about the legal situation. Changing a selection practice does.

Bottom Line

The DEI rollback in the US is a political signal with real legal consequences — but those consequences don't automatically stop at the American border where they're meant to. For TA teams at German subsidiaries, that means: don't pass the corporate policy through verbatim, run it through the filter of the AGG, the gender quota, and co-determination instead — and when in doubt, take your own legal framework more seriously than the mood at headquarters.

Sources

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