On June 14, 2016, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) unveiled its final sex discrimination guidelines governing covered federal contractors.  The OFCCP proposed changes to the rule on January 30, 2015 and the official comment period closed on April 14, 2015, following a two-week extension so that it could take comment on the Supreme Court’s pregnancy discrimination decision in Young v. United Parcel Serv., Inc.  The final rules come six months after the expected date on the fall regulatory agency but were released to coincide with the White House Council on Women and Girls first “United State of Women” summit, which was also held on Tuesday. Our coverage of that event can be found here

The final rules mark a significant rewriting of the guidelines, which were originally published in 1970, and address various intervening developments respecting sexual harassment, pregnancy leave, gender identity and sex stereotyping.  The OFCCP attempts to minimize the impact of the final rules by stating that the rules merely enshrine policies already established by the courts and other federal agencies.  However, by codifying those principles through notice and comment rulemaking and announcing them with fanfare at the White House, the Obama administration sends a clear signal that the rule change is a pillar of its domestic equality agenda.

Highlights from the New OFCCP Guidelines

The final rules mirror the proposal in many respects and the OFCCP resisted some of the EEOC’s far reaching positions.  We highlight various aspects of the final rule below.

LGBT Status:  Executive Order 13672 outlawed discrimination on the bases of gender identity and sexual orientation by federal contractions.  The final regulations, however, do not link this prohibition to per se sex discrimination.  Rather, the OFCCP limits sex discrimination to “[a]dverse treatment of an employee or applicant for employment because of that individual’s failure to comply with gender norms and expectations for dress, appearance, and/or behavior,” which includes “actual or perceived gender identity or transgender status.”  Gender identity is also covered under the new guidelines, which forbid contractors from denying employees “access to the restrooms, changing rooms, showers, or similar facilities designated for use by the gender with which they identify.”  Furthermore, contractors must not treat employees “adversely because they have received, are receiving, or are planning to receive transition-related medical services designed to facilitate the adoption of a sex or gender other than the individual’s designated sex at birth.”

Notably, the OFCCP could have added “sexual orientation” as a protected class under the sex-based discrimination theory embraced by the U.S. Equal Employment Opportunity Commission (“EEOC”) in Baldwin v. Dep’t. of Transp. The OFCCP ultimately declined to do so, concluding that relevant “Title VII law is still developing.”  This is significant, and signals a lack of consensus on adopting “sexual orientation” as a uniformly recognized protected class under federal law.  Another notable change from the proposal was the OFCCP’s decision to remove “adverse treatment based on being in a same-sex relationship” as an example of potential sex discrimination.  While the OFFCP states that this change results from those types of discriminatory behavior having been subsumed under the new section on sex-based stereotyping, it is another notable departure from the EEOC’s explicitly contrary position.

Compensation Discrimination:  The final rule forbids any “employment practice that discriminates in wages, benefits, or other forms of compensation.”  While this prohibition is somewhat generic, the textual changes from the proposal and agency’s discussion of compensation discrimination is enlightening based on the OFCCP’s recent aggressive stances on pay disparity.  First, the final rule changes the prohibition on denying “equal wages” to “discriminating in wages,” clarifying confusion implicating the Equal Pay Act.  Notwithstanding this textual change, the accompanying section-by-section analysis contains language akin to the OFCCP’s compensation review standards outlined in Directive 307.  Conspicuously absent, however, is any mention of the “pay analysis groups” which are so prominent in Directive 307.

Pregnancy Discrimination:  As the proposed rule indicated, the finalized regulations attempt to harmonize OFCCP regulations with the provisions of the Pregnancy Discrimination Act of 1978 and recent U.S. Supreme Court jurisprudence.  The guidelines provide various examples of pregnancy discrimination, including refusing to hire or firing an individual or limiting job duties based solely on pregnancy, and failing to provide health insurance for childbirth to the same extent coverage is provided for other medical expenses.  Overall, the OFCCP adopts the test from Young requiring contractors to provide pregnancy leave “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.”

Transgender Related Benefits:  The section-by-section analysis addresses the extent to which contractors must provide health insurance coverage for “transition-related services.”  First, the analysis states that “the nondiscrimination requirements of [Executive Order 11246] obligate contractors to ensure that coverage for health-care services be made available “on the same terms for all individuals for whom the services are medically appropriate, regardless of sex assigned at birth, gender identity, or record gender.” Additionally, contractors may not adopt insurance coverage that includes “categorical exclusions” regarding “all health services associated with gender dysphoria or gender transition.” The regulations, however, do not require that contractors provide coverage for all transition-related services.  Rather, “[i]f a contractor generally provides coverage for a particular treatment or service, e.g., hormone replacement or mental health care, where it is medically necessary, the contractor cannot decline to provide coverage for that same treatment when it is deemed medically necessary for a transgender individual because the treatment is related to his or her gender identity or transgender status.”

Contraception Coverage:  The OFCCP declined to include proposed language that would have required contractors’ health insurance cover contraception to the same extent that medical costs are covered for other medical conditions.  Therefore, the regulations do not explicitly require that contractors provide contraception coverage.   The retraction appears to be the result of the Supreme Court’s failure to resolve the issue in Zubik v. Burwell.  OFCCP’s position in this regard is also at odds with the EEOC’s position that failing to provide contraception coverage constitutes a violation of Title VII if the employer provides coverage for prescriptions and devices related to other, separate medical conditions.

Family Leave:  The final regulations also stress that sex-based discrimination affects men as well as women, emphasizing that family leave must be made available to mothers and fathers.  To this end, adverse treatment of a male employee who is unavailable on weekends due to caring for an infirm, elderly parent is cited as an example of potential sexual stereotyping.  So too is adverse treatment of a male employee who takes leave “to care for his newborn or recently adopted or foster child based on the sex-stereotyped belief that women and not men should care for children.”

Takeaways for Federal Contractors

The final rules do not set forth onerous new requirements for contractors. However, some of the nuances of the rule require close attention.  Contractors would be wise to consider the following:

  1. Reviewing their LGBT policies to ensure that they provide for the wide range of protections. Crafting policies related to gender identity, bathroom usage, and leave for transition-related services can be complex given the web of state and federal requirements.  Further, as the interpretative disagreement between the OFCCP and the EEOC indicates, the agencies have different interpretations related to key issues (such as whether discrimination based on being a part of a same-sex couple is specifically recognized).
  2. Revisiting insurance coverages. The new rules require that contractors look more closely at their insurance coverages related to pregnancy, contraception coverage and transition related services.  Again, the differing interpretations by the EEOC, OFCCP and courts make it difficult to determine what the exact legal requirements for contractors are as they relate to required coverages.  Rising health care costs may lead contractors to look for ways to shortcut coverage but these requirements play a role in evaluating risks related to that goal.
  3. Evaluating pregnancy and other leave policies. The requirements regarding accommodations and leave are somewhat in flux as agency practice and case law develops around exactly what is required. Going forward, contractors should evaluate their policies to see if they impose a disparate impact, or constitute disparate treatment of, pregnant workers.

The final rule becomes effective on August 14, 2016 so contractors do not have a significant period of time to ensure that their policies are compliant.