On June 15, 2016, the Department of Labor’s Office of Federal Contract Compliance Programs (the “OFCCP” or the “Agency”) issued a final rule updating its sex discrimination guidelines prohibiting covered federal contractors from engaging in sex discrimination in employment pursuant to Executive Order 11246, “Discrimination on the Basis of Sex” (“Final Rule”). The guidelines at 41 C.F.R. Part 60-20 had not been substantively revised since 1970. According to OFCCP, the intent of the final rule, now renamed is to ensure that it aligns with current Title VII case law and the EEOC’s interpretation of Title VII sex discrimination issues. The OFCCP removed certain controversial provisions that were contained in the proposed rule. See previous client alert on proposed rule. The Final Rule, however, generally adopts employee-friendly interpretations of the law in some key areas in which there is conflicting Title VII case law across federal courts, including extending the prohibition of sex discrimination to include gender identity, transgender status, and sex stereotyping, and the rule will not be free from controversy.

The Final Rule, which takes effect on August 15, 2016, is organized into eight sections. The key aspects of the rule include:

General Prohibition on Sex Discrimination (§ 60-20.2)

The Final Rule sets forth the general prohibition against sex discrimination in employment while also highlighting specific examples of potential violations. It is unlawful for a contractor to discriminate against any employee or applicant on the basis of sex. The term “sex,” according to the Final Rule, includes but is not limited to, pregnancy, childbirth, or related medical conditions, gender identity, transgender status, and sex stereotyping. See Final Rule, 81 Fed. Reg. 39108, 39167 (June 15, 2016) (to be codified at 41 C.F.R. pt. 60-20). Of course, Title VII prohibits discrimination based on “sex,” but as written, it does not expressly include gender identity or transgender status. The EEOC now interprets Title VII protections against sex discrimination to include gender identity and sexual orientation. Because Executive Order 11246 was previously revised to expressly identify “sexual orientation” as a prohibited basis of discrimination, see Implementation of Executive Order 13672 Prohibiting Discrimination Based on Sexual Orientation and Gender Identity by Contractors and Subcontractors, 79 Fed. Reg. 72985 (Dec. 9, 2014) (to be codified at 41 C.F.R. pts. 60-1, 60-2, 60-4, 60-50) and our previous client alert on the LGBT Executive Order, OFCCP found it unnecessary to add the term “sexual orientation” to the guidelines, noting that this area of Title VII law is still developing and that it would consider issuing further guidance as appropriate. The guidelines do add “sex stereotyping” to the list of protected categories and provide examples in section 7 of the guidelines, discussed below.

The Final Rule provides a non-exhaustive list of examples that OFCCP states would constitute unlawful, sex-based discriminatory practices under the theories of disparate treatment and disparate impact. Flexible work arrangements, the practice of “steering,” and assignment of workplace facilities, including restrooms, changing rooms, showers, or similar facilities, are some examples. When providing time off and flexible work arrangements, contractors should be careful not to treat men and women differently. As for restrooms, the guidelines continue to require that facilities be available to members of both sexes. See 81 Fed. Reg. at 39167. Additionally, OFCCP states that contractors must permit employees to access a restroom or other related facility that is consistent with the employee’s gender identity. In response to comments urging the OFCCP to prohibit contractors from segregating single user restrooms, the Agency stated that providing sex-segregated, single-user facilities is not sex discrimination as long as transgender employees may use the facilities consistent with their gender identity. See id. at 39122. Thus, the OFCCP recommends—but does not require—that contractors create single-user, sex-neutral facilities for their employees. See id. at 39169.

Sex as a Bona Fide Occupational Qualification (§ 60-20.3)

The Final Rule defines a narrow exception to the general rule against sex discrimination. Under this exception, contractors may make hiring or employment decisions on the basis of sex when sex is a “bona fide occupational qualification” for the job (“BFOQ”). This defense, which is identical in language to the BFOQ defense under Title VII, is not new. The regulation has merely been updated to consolidate prior multiple references to the BFOQ defense into one focused provision. The Final Rule does not provide examples of a valid BFOQ. Instead, the OFCCP states that it follows Title VII principles, consistent with the EEOC’s view that the BFOQ exception should be “interpreted narrowly.” 81 Fed. Reg. at 39125.

Discriminatory Compensation (§ 60-20.4)

The Final Rule states plainly that “[c]ompensation may not be based on sex” and “contractors may not engage in any employment practice that discriminates in wages.” 81 Fed. Reg. at 39167. The inclusion of this subject is no surprise given that the gender pay gap has been a centerpiece of President Obama’s agenda since he entered office and signed the Lilly Ledbetter Fair Pay Act. Notably, OFCCP eliminated the term “equal wages” from the Final Rule and replaced it with “discriminates in wages,” explaining that “equal wages” could be interpreted as a reference to the Equal Pay Act, which OFCCP does not enforce, and may create confusion about the applicable legal frame work. Id. at 39126.

This provision does not impose any new obligations on federal contractors. Contractors have long been prohibited from engaging in pay discrimination and have been subject to the Executive Order 11246 regulatory requirement to perform analyses of their compensation systems to determine whether there are any sex, national origin, or race-based disparities. Id. at 39125. In this section, the Final Rule identifies specific examples of discriminatory pay practices, with the stated aim of helping contractors assess compliance.

The section specifies that contractors are prohibited from “pay[ing] different compensation to similarly situated employees on the basis of sex.” Id. at 39167. The foundational step of any compensation evaluation is the formation of groups of employees who are similarly situated. OFCCP says there is no magical formula to defining similarly situated employee groups. The Final Rule identifies several factors that may be relevant to this determination, however, including “tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty, [and] minimum qualifications,” but ultimately clarifies that the process is “case-specific.” Id. OFCCP notes that the definition is “identical” to that contained in its Directive 307, which likewise adopted a flexible, fact-specific approach to identifying similarly situated employees and evaluating pay disparities. Id. at 39127.

The rule explicitly and separately states that compensation discrimination claims can also be premised on a disparate impact theory. See id. at 39167-8. Accordingly, contractors are prohibited from implementing compensation practices that have an adverse impact on the basis of sex and are not job-related and consistent with business necessity. Additionally, the Final Rule provides that a contractor violates the rule any time it pays wages, benefits, or other compensation that is the result in whole or in part of the application of any discriminatory compensation decision or other practice. See id. at 39128-9. Although the section-by-section analysis reiterates that OFCCP enforcement actions arising from compliance evaluations are not subject to a statute of limitations, OFCCP added language identical to that contained in the Lilly Ledbetter Fair Pay Act clarifying that OFCCP enforcement actions arising from individual complaint investigations contain a 180-day statute of limitations. See id. at 39129.

Discrimination on the Basis of Pregnancy, Childbirth, or Related Medical Conditions (§ 60-20.5)

The Final Rule incorporates the well-established legal principles that “[d]iscrimination on the basis of pregnancy, childbirth, or related medical conditions, including childbearing capacity, is a form of unlawful sex discrimination” and “[c]ontractors must treat people of childbearing capacity and those affected by pregnancy, childbirth, or related medical conditions the same for all employment-related purposes.” 81 Fed. Reg. at 39168.

This section addresses two specific categories of protections that flow from the fundamental protection of pregnancy and pregnancy-related conditions under Title VII, accommodation and leave, and clarifies that liability for the failure to satisfy these accommodation and leave obligations can proceed on both disparate treatment as well as disparate impact theories.

As to accommodation, OFCCP states that the Final Rule is consistent with the EEOC’s revised guidance in response to the Supreme Court’s decision in Young v. UPS, 135 S. Ct. 1338 (2015). The accommodation provision directly reflects the holding in Young as it prohibits contractors from denying alternative job assignments, modified duties, or other accommodations to employees who are unable to perform some of their job duties because of pregnancy, childbirth, or related medical condition where (1) the contractor denies such accommodations only to employees affected by pregnancy, childbirth, or related medical conditions; (2) the contractor provides such accommodations to other employees whose abilities or inabilities to perform their job duties are similarly affected and the denial of accommodations imposes a significant burden on employees affected by pregnancy, childbirth, or related medical conditions; or (3) intent to discriminate on the basis of pregnancy, childbirth, or related medical conditions is otherwise shown. 81 Fed. Reg. at 39168.

As to the issue of leave, the Final Rule prohibits contractors from denying family, medical, or other leave or providing it differently on the basis of sex. It obligates contractors to provide job-guaranteed medical leave, including paid sick leave, for employees’ pregnancy, childbirth, or related medical conditions on the same terms that medical or sick leave is provided for medical conditions that are similar in their effect on employees’ ability to work. This section clarifies that the protections extend to both genders, also requiring job-guaranteed family leave for male employees on the same terms that family leave is provided for female employees. Id.

OFCCP removed certain provisions of the proposed rule in light of comments and unsettled case law in federal courts regarding certain issues. For example, it did not retain the provision taken from the PDA requiring employers to provide health insurance benefits for an abortion exception or the provision requiring employer-provided health insurance to cover contraception to the same extent that medical costs are covered for other medical conditions. See id. at 39129-30.

Other Fringe Benefits (§ 60-20.6)

The Final Rule expands on the general prohibition of sex discrimination by stating that contractors may not discriminate on the basis of sex with regard to fringe benefits. 81 Fed. Reg. at 39168. If a contractor wishes to deny or limit fringe benefits to certain employees, that decision must be based on the nondiscriminatory application of neutral criteria. Under no circumstances, however, may the cost of providing a benefit to one sex or the other be used as a reason for providing unequal benefits to members of both sexes. Id. at 39136.

The term “fringe benefits” is defined in the section, but can generally be understood as referring to the health benefits, retirement benefits, and bonus plans offered by contractors to their employees. This is the same definition of “fringe benefits” used in the EEOC Guidelines on sex discrimination. OFCCP makes clear that contractors must ensure that their health insurance plans are offered to their employees in a manner that does not discriminate on the basis of sex, including gender identity or transgender status. The analysis of this section discusses how discrimination in benefits on the basis of gender identity or transgender status may arise in two different types of scenarios—first, transgender individuals may be denied coverage because of their gender identity or because they are enrolled as one gender where the care is generally associated with another gender, and second, where plans have explicit exclusions for services associated with gender dysphoria or gender transition. Id. at 39135-6.

Employment Decisions Made on the Basis of Sex-based Stereotypes (§ 60-20.7)

The Final Rule prohibits contractors from making employment decisions on the basis of sex-based stereotypes (e.g., expectations of how men or women should look, speak, or act). The Final Rule provides four sample categories of potential discrimination on the basis of sex-based stereotypes:

  • Adverse treatment of an employee or applicant due to failure to comply with gender norms and expectations for dress, appearance, or behavior. In addition to the examples of discriminating against women for not wearing make-up, or against men for acting effeminately, the Final Rule specifically identifies adverse treatment based on sexual orientation where that discrimination is based on gender stereotypes. 81 Fed. Reg. at 39168. Unsurprisingly, some commenters opposed including the example of adverse treatment based on sexual orientation, arguing that Title VII does not prohibit discrimination on that basis. Declining to remove the example, OFCCP noted that the section does not address sexual orientation per se, but instead addresses a form of sex-stereotyping that certain federal circuit courts recognize. OFCCP’s position is that the case law in the area of sexual orientation discrimination is still developing and Executive Order 13672 already explicitly prohibits all types of sexual orientation discrimination. Id. at 39137-8.
  • Adverse treatment of an employee or applicant because of their actual or perceived gender identity or transgender status. Id. at 39168. OFCCP also rejected requests to expressly include protections for people who are perceived as being in a same-sex relationship, because consistent with EEOC guidance, many courts already interpret Title VII to protect those perceived as belonging to a protected class, and the issue of whether sexual orientation is protected by Title VII remains unresolved. Id. at 39139.
  • Adverse treatment of a female employee or applicant because she does not conform to a sex stereotype about women working in a particular job, sector, or industry. Id. at 39168. OFCCP added this example to the Final Rule because OFCCP has encountered steering discrimination in its compliance reviews, and this kind of sex-stereotyping was not fairly represented in the other enumerated examples. Id. at 39138-9
  • Adverse treatment of an employee or applicant based on sex-based stereotypes about caregiver responsibilities. Prohibited discrimination in this category includes: adverse treatment of a woman based on an assumption that she has caretaking responsibilities that would interfere with work; adverse treatment of a man for taking leave to care for a child based on the belief that women should care for children, not men; denying opportunities to a mother based on a well-intentioned belief that she should not or would not work long hours; and adverse treatment of a man who is unable to work overtime or weekends because he cares for an elderly father, based on stereotypes that men should not have such responsibilities. Id. at 39168-9.

Harassment and Hostile Work Environments (§ 60-20.8)

The Final Rule prohibits harassment on the basis of sex. The section replicates the EEOC Guidelines on sexual harassment nearly verbatim. The Final Rule lists three broad circumstances under which unwelcome sexual advances, requests for sexual favors, offensive remarks about a person’s sex, and other verbal or physical conduct of a sexual nature constitute sexual harassment:

  • When submission to such conduct is made either explicitly or implicitly as a term or condition of an individual’s employment.
  • When submission to or rejection of such conduct is used as the basis for employment decisions affecting an individual.
  • When such conduct has the purposes of effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment.

See 81 Fed. Reg. at 39169.

The prohibition on harassment because of sex includes harassment based on gender identity, transgender status, pregnancy, childbirth, or related medical conditions. The Final Rule also prohibits harassment that is “not sexual in nature but that is because of sex or sex-based stereotypes.” Id. OFCCP explained that it recognizes and follows the principles established by the Supreme Court’s Title VII opinions on liability issues. Id. at 39140.

Best Practices and Takeaways for Contractors

The Final Rule includes a short appendix of best practices for contractors. 81 Fed. Reg. at 39169. Because the Final Rule generally aligns with existing Title VII and PDA precedent and EEOC interpretations, as well as Executive Orders, most contractors are already compliant with the Final Rule’s requirements. However, contractors should review their employment policies, practices, and trainings to comport with them. Specifically, contractors should take the following steps:

  • Ensure that their general policy regarding equal employment opportunity or anti-discrimination clarifies that managers may not make employment decisions based on sex stereotyping.
  • Revisit their harassment, dress code/grooming, bathroom usage, accommodation, and leave policies to ensure that they provide for the broad range of LGBT, pregnancy-related, and sex-stereotyping protections under the Final Rule.
  • Consider separate policies or practices to address gender identity/transgender or pregnancy-related issues (including accommodations and leave).
  • Look more closely at their insurance policies to determine whether they contain sufficient coverages or raise gender identity-issues.
  • Consider training on these issues.

Finally, contractors should be aware that employees can file individual complaints with OFCCP and OFCCP can seek remedies, such as debarment, which are not available to the EEOC. OFCCP will also be focusing on these additional obligations during compliance reviews.