OFCCP's Proposed Religious Exemption Revisions Explained

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Where the personal rights and freedoms of one individual or a group of individuals conflict with those of another, those interests must be balanced to determine which must prevail. The balance between religious freedom and employment nondiscrimination is currently being re-examined and refined by the federal courts and the issues are, in a word, complicated.
 
Some inaccurate and misleading reporting has been circulating regarding a recent proposal by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) regarding revisions to the agency’s regulations implementing Executive Order (E.O.) 11246, specifically the religious exemption to the Equal Opportunity Clause for federal contractors. Here we intend to cut through the hyperbole and provide an objective view into what is (and is not) contained in the OFCCP’s proposed revisions, and what those revisions might (and might not) mean for federal contractor employers and employees.
 
The Equal Opportunity Clause in question, codified at 41 C.F.R. § 60-1.4 prohibits federal contractor employers holding qualifying federal contracts from discriminating against employees or applicants for employment on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin. This provision is almost identical to the nondiscrimination mandate found in Title VII of the Civil Rights Act of 1964, as amended. As we will see, the key difference is that Title VII does not explicitly include sexual orientation or gender identity as protected classes.
 
From its inception, Title VII allowed “religious employers” to take religion into account for employees performing “religious activities,” despite the prohibition against considering religion when making employment decisions. In other words, in certain circumstances, the religious freedom interest of a “religious organization” must prevail over the individual’s interest in nondiscrimination on the basis of religion.
 
Longstanding guidance by the Equal Employment Opportunity Commission (EEOC), the independent federal agency that enforces the Civil Rights Act, articulates two “types” of religious exemption: the “religious organization” exemption; and the “ministerial” exemption.
 
Under the religious organization exemption, institutions whose “purpose and character are primarily religious” are allowed to give employment preference to members of their own religion. Here the exemption is broadest in scope as it applies to all positions, but still narrow in application as it is restricted to “religious organizations.”
 
For example, federal courts found that the religious organization exemption did not apply to a mining equipment manufacturer that operated for profit and was not affiliated or supported by a church, even though the company openly espoused religious doctrine by, among other things, enclosing Gospel tracts in outgoing mail, printed Bible verses on its commercial documents, financially supported religious organizations, and conducted a weekly devotional service. EEOC v. Townley Eng. & Mfg. Co., 859 F.2d 610, 618 (9th Cir. 1988), cert. denied, 489 U.S. 1077 (1989).
 
In contrast, federal courts found that the religious organization exemption did apply to an educational institution that was founded as a theological institution, received seven percent of its annual budget from the Baptist convention, and was recognized by both the IRS and the Department of Education as a religious educational institution. EEOC v. Kamehameha Sch., 990 F.2d 458, 461-63 (9th Cir.), cert. denied, 510 U.S. 963 (1993).  

 …the religious organization exemption cannot be used to justify engaging in racially discriminatory hiring…
Note that even when the religious organization exemption applies, it only applies to hiring and discharge, does not apply to the terms, conditions, or privileges of employment such as wages and benefits, and discrimination on the basis of any other protected characteristic is still prohibited. So, for example, the religious organization exemption cannot be used to justify engaging in racially discriminatory hiring by asserting that a tenet of its religious beliefs is to not associate with people of other races.
 
The ministerial exemption is not actually based on the text of the statute. Rather, it is based on the First Amendment principle that government regulation of church administration, including the appointment of clergy, impedes the free exercise of religion and constitutes “impermissible government entanglement.” Accordingly, federal courts have held that clergy members generally cannot bring claims under federal employment discrimination laws, including Title VII, the Age Discrimination in Employment Act (ADEA), the Equal Pay Act, and the Americans with Disabilities Act (ADA).
 
The ministerial exemption is much narrower than the religious organization exemption. It only applies to employees who perform essentially religious functions such as engaging in church governance, supervising religious order, or conducting religious ritual, worship, or instruction. However, the ministerial exemption does have its limits. For instance, a religious organization may not pay women less than men even if the organization’s policy is in accordance with its religious beliefs.
 
Over time, Congress has, among other things, broadened the definition of “religion” and added educational institutions to the list of entities eligible for the exemption. In 1978, the DOL imported Title VII’s religious exemption into its regulations implementing E.O. 11246 (see 41 C.F.R. § 60-1.5(a)(5)) and in 2002, President George W. Bush amended the underlying E.O. to expressly include Title VII’s religious exemption. Accordingly, Title VII and E.O. 11246 are closely tied with regard to providing a limited exemption from nondiscrimination provisions on religious grounds.
 
Recent developments in Supreme Court case law and the priorities of the current White House administration have compelled the OFCCP to propose revisions to the agency’s existing regulations regarding the scope and application of the religious exemption to align with current interpretations of Title VII. In many ways, if enacted, that is exactly what the OFCCP’s proposal would do. At the same time, however, the OFCCP’s proposal also distances the agency from federal jurisprudence where appropriate, and highlights the differences between Title VII as enforced primarily by the EEOC (and interpreted by the EEOC and the federal judiciary), and the Executive Order that is both interpreted and enforced by the OFCCP (where the agency’s determinations are rarely reviewed by the federal courts).
 
Recent reporting by prominent organizations have characterized the OFCCP’s proposal as being “aimed at” allowing employers to, for example, fire LGBTQ employees or unwed pregnant women on religious grounds. Such statements are a gross misrepresentation of the OFCCP’s proposal and have no basis in the proposal itself, the OFCCP’s statements about the proposal, the agency’s history of enforcing employment nondiscrimination with a religious exemption, or established case law or other interpretations.
 
For one thing, it is important to note that Title VII does not expressly prohibit discrimination on the basis of sexual orientation or gender identity. The EEOC has held that discrimination on those bases is “sex discrimination” under Title VII, but federal appellate courts are split. The 1st, 6th, 7th, 9th, and 11th Circuit Courts of Appeal have upheld the EEOC’s interpretation while the 10th Circuit disagrees (the 2nd, 3rd, 4th, 5th, and 8th Circuits have not weighed in). One question now before the Supreme Court is whether or not Title VII’s prohibition against discrimination on the basis of “sex” should be interpreted to include sexual orientation and/or gender identity.
 
If the Supreme Court decides that it does, LGBTQ employees will be protected from discrimination on the basis of “sex” under Title VII, and sex discrimination is still prohibited under the religious organization exemption. The ministerial exemption would likely allow LGBTQ discrimination in hiring and firing, but that exemption is very narrow and would not apply to the vast majority of people we tend to think of when talking about “employees.”
 
If the Supreme Court decides that it does not, the effect on federal contractors is less clear because here Title VII and the Executive Order diverge in an important way. Where there is no explicit LGBTQ protection in Title VII (it must be “read-in” to the statute), the Executive Order does explicitly prohibit discrimination on the basis of sexual orientation or gender identity, and no further interpretation is necessary. If the Supreme Court holds this way and the OFCCP is again instructed to “align” its regulations with Title VII jurisprudence, there is no aligning to be done because even though Title VII and the Executive Order are closely tied, on this particular issue they are different and the Supreme Court’s holding does not apply. Nonfederal contractor employees might not be protected from discrimination based on their LGBTQ status, but federal contractor employees would.
 
With regard to pregnancy discrimination, the analysis is virtually the same. The Pregnancy Discrimination Act (PDA) amended Title VII to include pregnancy discrimination as constituting “sex” discrimination, and the OFCCP enforces the Executive Order accordingly. But here, there is no question regarding pregnancy discrimination before the Supreme Court that could lead to a change.
 
So, what would the OFCCP’s proposal actually do? On its face, not much. The OFCCP proposes to add definitions to several terms already used in existing laws and regulations such as “religion,” “particular religion,” “religious corporation, association, educational institution, or society,” “exercise of religion,” and “sincere.” By and large, these proposed definitions are taken directly from other, relevant legislation and/or established federal court jurisprudence. Some modifications are made to allow for clearer guidance and easier interpretation by largely non-lawyer agency staff, but none appear to be creating new law.
 
For example, the proposed definition of “religious corporation, association, educational institution, or society” does not change the criteria for determining whether or not an entity is a “religious organization” for exemption purposes. It is meant to clarify that corporations, associations, educational institutions, societies, schools, colleges, universities, and other institutions of learning can qualify as a religious organization, consistent with current law and interpretations. But they must still demonstrate that the entity was organized for a religious purpose, hold itself out to the public as carrying out a religious purpose, and exercise religion consistent with and in furtherance of a religious purpose.
 
The contours of the OFCCP’s definitions and potential ramifications are legitimately debatable and all should be encouraged to read the OFCCP’s proposal for themselves. It is chock full of background information and citations to relevant statutes and case law on which the agency relies. But to earmark the OFCCP’s proposal as a dramatic sea change in the religious exemption as we have known it for the past half century is, at the least, premature.
 
The most alarming proposal for skeptics of the agency’s intent is the paragraph the OFCCP proposes to add to its regulations establishing a rule of construction that provides for “the broadest protection of religious exercise permitted by the Constitution and laws.” That proposed provision is the result of a direct instruction from the White House reflecting current policy and priorities. Baking that policy directly into the OFCCP’s regulations would make it harder for the agency to shift, if or when the political winds change. And it is hard to say how that proposed provision would impact the agency’s enforcement policy in practical terms.
 
It is worth noticing, however, the number of times in the OFCCP’s proposal that the agency takes pains to note that the religious exemption has never been and still is not a license to discriminate on other bases. Often, the agency provides specific examples such as the intersection of religion and sex or race, and sends strong signals that the agency is on guard for “sham” claims of religious freedom as pretext to commit unlawful discrimination.
 
The largest effect of the OFCCP’s proposal could very well end up lying in the coverage of the proposal itself. The religious exemption under the Executive Order is a relatively obscure one and, according to the OFCCP, not often invoked, much less recognized. The proposal and discussions of it serve to remind federal contractor employers of its availability and could lead to a spike in organizations claiming the exemption. But written all over the OFCCP’s proposal is the agency’s intention to closely, but respectfully, scrutinize such claims and continue to methodically evaluate them as they always have.
 
The OFCCP’s proposal is available on the Federal Register website.