Lawsuit Challenges Racial + Ethnic ‘Social Disadvantage’ Presumption in SBA and Other Federal Supplier Diversity Programs

Takeaways

• Federal contractors and other businesses could be affected by a new lawsuit seeking to invalidate a Small Business Administration (SBA) regulation that creates a rebuttable presumption of “social disadvantage” for designated racial and ethnic groups.
• Multiple statutes and regulations incorporate this SBA presumption into federal programs such as the SSBCI and the ICDF that support “socially and economically disadvantaged” individuals. U.S. District Courts have enjoined use of the presumption in three federal programs, finding that it violates the Constitution’s Equal Protection Clause.
• After previously defending the presumption, the Department of Justice now takes the position that the presumption is unconstitutional.

Related links

• SBA regulation 13 CFR § 124.103
• Solicitor General Letter to Congress

Article

On Nov. 17, 2025, Revier Technologies, Inc. and Young America’s Foundation (YAF) filed a lawsuit in the U.S. District Court for the Eastern District of Louisiana seeking to invalidate the Small Business Administration (SBA) regulation that establishes a rebuttable presumption of “social disadvantage” for members of designated racial and ethnic groups. 13 C.F.R. §124.103(b)(1).

The lawsuit (Revier Technologies, Inc., et al. v. U.S. Small Business Administration, et al., No. 2:25-cv-02328) alleges the presumption violates the Constitution’s Equal Protection Clause because it is based on racial classifications that do not pass the strict scrutiny test established by the U.S. Supreme Court. The two programs challenged in the lawsuit, the State Small Business Credit Initiative (SSBCI) and the Department of Homeland Security Intelligence and Cybersecurity Diversity Fellowship (ICDF), each incorporate the SBA definition of “socially and economically disadvantaged,” including the presumption.

A wide range of federal, state, and local government programs address socioeconomic disadvantage by providing assistance in key areas such as contracting, income, housing, nutrition, healthcare, and education.

In general, a person is socially disadvantaged if they have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities.

An individual is deemed economically disadvantaged if their ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.

Most federal programs adopt the SBA presumption by reference. Individuals who do not qualify for the presumption may demonstrate social disadvantage by a preponderance of the evidence.

Standing to Sue

Revier asserts standing to challenge the SSBCI program because it was denied small business investment capital offered through the SSBCI program because its owner is White and, thus, does not benefit from the presumption.

YAF asserts associational standing on behalf of members who have been denied the ability to apply for the cybersecurity fellowship on equal footing because they are White and, therefore, do not qualify for the presumption.

Courts Have Found SBA Presumption Violates Equal Protection Clause

The plaintiffs cite three recent U.S. District Court decisions that have found the SBA regulatory presumption violates the Equal Protection Clause and have enjoined application of the presumption to the specific programs at issue on those cases. Revier and YAF seek invalidation of the regulation itself.

Permanent injunctions had been applied to the SBA 8(a) program in Ultima Services Corp. v. U.S. Dep’t of Agriculture, et al., No. 2:20-cv-00041 (E.D. Tenn. July 19, 2023), and the Minority Business Development Agency (MBDA) Business Center Program in Nuziard v. MDBA, No. 4:23-cv-00278 (N.D. Tex. June 5, 2023). The Biden Administration did not appeal either decision.

A preliminary injunction was imposed against use of the presumption with respect to the Department of Transportation’s Disadvantaged Business Enterprise (DBE) program in Mid-America Milling, et al. v. U.S. Dep’t of Transportation, et al., No. 3:23-cv-00072 (E.D. Ky. Sept. 23, 2024). In that case, the federal government under the new administration elected to forgo appeal and entered into an agreement with the plaintiffs to end the case with an admission that the presumption is unlawful. Minority business associations that had intervened in the case are seeking to continue defense of the presumption, arguing the proposed stipulation of dismissal is not a true settlement, since the federal government has simply “switched sides.” Briefing on the intervenors’ argument is scheduled through December.

In addition, Solicitor General D. John Sauer has formally notified Congress that DOJ has determined the presumption is unconstitutional with respect to the DBE program and DOJ will no longer defend it. Presumably, DOJ will take the same position with respect to the presumption as applied to other federal programs.

Next Steps

• Federal contractors with requirements to provide opportunities to small disadvantaged businesses (SDB) and businesses with contracts covered by the federal DBE program should monitor challenges to the program and ensure compliance with any regulatory changes.
   
• Companies should review their contracts and programs to determine if any incorporate the SBA social disadvantage presumption. As Revier Technologies highlights, the presumption impacts a variety of programs, including but not limited to, federal contracts.

Jackson Lewis attorneys can assist with any aspect of compliance and answer questions regarding the law’s provisions or applicability to your business. For assistance, please contact your Jackson Lewis attorney.