As we reported last year, the Office of Federal Contract Compliance Programs (OFCCP) planned to issue a Final Rule updating its sex discrimination regulations for federal contractors and subcontractors for the first time since the 1970s. In doing so, sex discrimination prohibitions for federal contractors have been modernized to include discrimination on the bases of sex, pregnancy, childbirth, pregnancy-related medical conditions, gender identity, transgender status and sex stereotyping. Notably, sexual orientation was excluded from the definition.

The Final Rule amends regulations implementing Executive Order 11246, which prohibits discrimination by federal contractors on sever bases, including sex. The Final Rule applies only to companies that are contractors and subcontractors of a covered federal contract (totaling $10,000 or more over a 12-month period). The Final Rule includes mandatory provisions targeted at prohibiting modern issues of sex discrimination, as well as some advisory “best practices.”

The Final Rule takes effect on Aug. 15, 2016. Federal contractors and subcontractors should take note of the following changes:

• Definition of “because of sex”: The Final Rule updates the definition of discrimination “because of sex” to include gender identity, transgender status, and sex stereotyping.
• Fair Pay: The Final Rule requires “fair pay practices” where differences in compensation for similarly situated employees are based on legitimate gender-neutral factors —not necessarily requiring equal pay—and OFCCP may deem employees to be similarly situated where all (or just some) of the following are comparable: tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty, minimum qualifications and other objective factors.
• Pregnancy discrimination and accommodation: Contractors must not discriminate against their employees or applicants because of pregnancy, childbirth or related medical conditions (including lactation), and must accommodate employees—such as with extra breaks or modified-duty assignments—in circumstances where accommodations are provided for employees with occupational injuries or disabilities (this is not unlike what is required by federal law for all employers).
• Caregiver discrimination: Contractors may not treat male and female employees or applicants differently based on stereotypical assumptions surrounding caregiving responsibilities, such as assuming one gender over the other to be a primary caregiver, or awarding mothers more flexible workplace arrangements than fathers based on this assumption.
• Transgender protections: Contractors may not discriminate against employees or applicants because they identify with a different gender than their birth gender or no gender at all.
• Transgender bathroom use: Contrary to recent state and local laws and debates, contractors must allow transgender employees to use gender-differentiated facilities—such as bathrooms, showers and similar facilities—consistent with the gender with which the employees identify.
• Access to benefits: Contractors must provide equal contributions to fringe-benefit plans on behalf of male and female employees, even if the cost of benefits is greater for members of one sex than for members of the other sex.
• Dress codes and stereotyping: Contractors must consider the failure to conform to gender norms and expectations for appearance, dress, or behavior, actual or perceived transgender status or gender identity and caregiver responsibilities to be forms of sex discrimination.

The Final Rule reflects current case law interpretations of “because of sex” from Title VII of the Civil Rights Act. “Sexual orientation” was not included in the Final Rule definition; however, Executive Order 13672 (amending Executive Order 11246) now includes “gender identity” and “sexual orientation” as protected statuses for federal contractors and subcontractors.

The preamble of the Final Rule makes clear that, with regard to the restroom debate, non-transgender co-workers’ fears, ignorance or prejudice about transgender individuals are not valid reasons for denying access to restrooms consistent with their gender identity. OFCCP likened the current transgender bathroom debate to 1950s and 1960s racially-segregated restrooms and water fountains. OFCCP declined to prohibit sex-specific, single-user restrooms, but it suggests in Appendix A that designating sex-neutral, single-user restrooms is a “best practice.” In addition, categorical exclusions of coverage for all care related to gender dysphoria or gender transition are not permitted because they are facially discriminatory against those who are transgender. Decisions on coverage must be made on a case-by-case basis based on factors other than gender identity.

The Final Rule is the first statute or regulation to prohibit sex stereotyping. For example, contractors may not discriminate against a female employee because she does not wear feminine enough clothing, hairstyle or jewelry. Likewise, male employees not conforming to sex stereotypes about males are protected. This stereotyping protection also applies to transgender employees who do not conform to their birth gender.

Contractors are prohibited from offering fewer weeks of “paternity” leave than “maternity” leave because doing so is based on sex. Family leave must be made available to men on the same terms as it is available to women. Paid leave is not required, but if paid leave is provided, it must be provided to both men and women.

The Final Rule also explains its prohibition on disparate impact based on sex. Those examples include:

• Height weight qualifications that are not job-related
• Physical requirements that are not job related
• Testing, interviews, apprenticeship programs, training programs or other selection procedures that are not job related or consistent with the Uniform Guidelines on Employee Selection Procedures
• Word of mouth hiring or “tap on the shoulder” promotions
• Insufficient family or medical leave, except where job-related and consistent with business necessity

The Final Rule also provides that any application of the Final Rule that would violate the Religious Freedom Restoration Act and other similar protections shall not be required and that religiously-affiliated contractors may still favor individuals of a particular religion. The Final Rule does not affect the applicability of the “ministerial exception” under the First Amendment. OFCCP’s original proposed rule included a requirement to provide health insurance that paid for abortions or medical care where the life of the mother would be endangered if the fetus were carried to term and where medical complications have arisen from an abortion and to cover contraception to the same extent that medical costs are covered for other medical conditions. After controversy and comment from the contractor community, that requirement was removed from the Final Rule.

Finally, OFCCP included an appendix of “best practices” that are not necessarily legally required but demonstrate a good affirmative action employer:

• Use gender-neutral titles (avoid “foreman” and “lineman”)
• Designate single-user restrooms, changing rooms, showers and similar single-user facilities as gender-neutral
• Provide broad accommodations for pregnancy and childbirth
• Provide flexible time off policies
• Encourage men and women to engage in caregiving
• Do not assume that women are more likely to engage in caregiving and avoid fostering an environment where these assumptions are made
• Foster an environment where all employees feel safe and welcome and are treated fairly

Contractors and subcontractors should update their EEO, discrimination, harassment, accommodation, dress code and leave policies; examine any selection procedures; review compensation practices; and consider training managers on harassment and discrimination (including stereotyping) in advance of the August 15th effective date. While benefits updates are technically required for full compliance, contractors are expected to make good faith progress toward updates. However, permitting a benefits renewal and open enrollment period to pass without making changes will not be good faith progress.

Thanks to Kristen Lawrence, Summer Clerk, for her research assistance with this blog.