United States: OFCCP Issues Final Rule On Federal Contractor Sex Discrimination Guidelines

On June 14, 2016, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) issued a Final Rule revising sex discrimination guidelines for federal government contractors and subcontractors ("the Final Rule"), in OFCCP's own words bringing the guidelines "from the 'Mad Men' era to the modern era." The Final Rule will be effective on August 15, 2016, 60 days after publication in the Federal Register. It marks the first update to the Sex Discrimination Guidelines issued in 1970 and is largely similar to the proposed regulations from January of last year ("the Proposed Rule")—see the Duane Morris Alert, " OFCCP to Update Sex Discrimination Guidelines"—with the exception of a few revisions and clarifications. The Final Rule was issued to address the realities of today's workplaces and to align OFCCP's affirmative action regulations with current law.

The Sex Discrimination Guidelines apply to federal government contractors and subcontractors, which includes companies that provide goods or services to a federal agency, receive federal funds for a construction project or provide goods or services to another company that supplies a federal agency or receives construction funds. Any business or organization that holds a single federal government contract, subcontract or federally assisted construction contract in excess of $10,000, or that has federal contracts or subcontracts that when combined total in excess of $10,000 in any 12-month period, will be subject to requirements under one or more of the laws and regulations enforced by OFCCP.

Many of the additions and changes set forth in the Final Rule echo current law as seen elsewhere, but some provisions in the Sex Discrimination Guidelines are new. Among the more significant new changes discussed below, the revised regulations require contractors to provide childcare for men on the same terms as it is available for women and to prepare for increased scrutiny about whether male and female employees are "similarly situated" for purposes of equal employment opportunity (EEO) pay analysis. In addition, these regulations provide the first express prohibition on sex stereotyping.

Gender-Based Pay Discrimination

The Final Rule deviates from the Proposed Rule's language concerning gender-based pay discrimination. The Proposed Rule laid out a number of factors to be considered in determining if employees are "similarly situated" for purposes of EEO pay analysis, including tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty and minimum qualifications. The Proposed Rule further provided that employees may be similarly situated if they are comparable on some of these factors, even if they are not similar on others. Under the Proposed Rule, contractors would have been prohibited from paying unequal wages, benefits or any other forms of compensation to similarly situated male and female employees.

The language of the Final Rule is slightly, but importantly, different. The relevant factors to be considered in determining if employees are "similarly situated" are the same, but the Final Rule states that contractors may not engage in any employment practice that discriminates in wages, benefits or any other forms of compensation because of sex. This change makes the key distinction between equal pay for equal work and fair pay for comparable work by allowing for differences in pay based on neutral, job-related factors.

Along with disparate treatment, the Final Rule codifies the disparate impact theory of sex discrimination as it relates to compensation practices. "Disparate impact" is defined in Section 60-20.2(c) as "[e]mployment policies or practices that have an adverse impact on the basis of sex, and are not job-related and consistent with business necessity." Examples of possible violations of the prohibition on disparate impact policies include height and weight qualifications, as well as strength, agility and other physical qualifications.

Workplace Accommodations for Pregnant Employees

The Final Rule implements the Pregnancy Discrimination Act (PDA), requiring that contractors provide workplace accommodations to employees in need of such accommodations due to pregnancy, childbirth or related medical conditions in certain circumstances where a contractor accommodates other workers (e.g., disabled employees, employees with occupational injuries). Such accommodations may include extra bathroom breaks and light-duty assignments. Although the Guidelines in some ways track recently adopted legislation at the state and local levels requiring accommodations for pregnant employees, their reach is constrained by the U.S. Supreme Court's 2015 decision in Young v. UPS that among other things, recognized that the PDA does not require accommodations for pregnant employees, but requires only that pregnant employees not be treated worse than non-pregnant employees similar in their ability or inability to work.

Sex Stereotyping

Section 60-20.7 of the updated regulations prohibits sex stereotyping, stating that contractors "must not make employment decisions on the basis of sex-based stereotypes, such as stereotypes about how males and/or females are expected to look, speak, or act." Examples of employment decisions made on the basis of sex-based stereotypes follow the general rule for discrimination, and they include failing to promote a woman based on sex stereotypes about dress, harassing a man because he is considered effeminate and adverse treatment of employees because of their gender identity or transgender status. Although the Equal Employment Opportunity Commission previously has issued non-binding guidance regarding sex stereotyping, the updated Sex Discrimination Guidelines are the first prohibition of employment actions based on stereotypes about how a particular sex looks, speaks or acts, or of stereotype-based discrimination on the basis of gender identity.

Additionally, the Final Rule clarifies that adverse treatment of an employee because of gender-stereotyped assumptions about family caretaking responsibilities is discrimination. Among other things, sick leave or family leave must be equally available to mothers and fathers. Some courts already have recognized, based on Title VII and/or the PDA, that discrimination based on gender stereotypes concerning caregiving responsibilities may be protected. The Final Rule takes this a step further by prohibiting gender stereotyping in childcare, requiring childcare to be available for men on the same terms as it is available for women.

Protections for Transgender Employees

The Final Rule also wades into an area that has received considerable national attention in recent months, prohibiting covered contractors from denying transgender employees access to the restrooms and changing rooms designated for use by the gender with which they identify. The updated Sex Discrimination Guidelines list treating employees or applicants 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 as examples of disparate treatment based on sex that is prohibited. The Final Rule also bars employee benefits plans from categorically excluding coverage for all care related to gender dysphoria or gender transition because such an exclusion singles out services and treatments for individuals on the basis of their gender identity or transgender status.

Potential Exemption for Religiously Affiliated Contractors

Notably, the preamble to the Final Rule states that if the application of any requirement under the Guidelines would violate the Religious Freedom Restoration Act (RFRA), the requirement does not apply to the contractor at issue. OFCCP also notes that E.O. 11246 specifically allows religiously affiliated contractors (religious corporations, associations, educational institutions or societies) to favor individuals of a particular religion when making employment decisions. In addition, OFCCP follows Supreme Court precedent recognizing that the First Amendment to the Constitution requires a "ministerial exception" from employment discrimination laws, which prohibits the government from interfering with the ability of a religious organization to make employment decisions about its "ministers."

What This Means for Employers

The implementation of the Final Rule continues a growing trend toward increased protections for workers based on sex and gender, including pregnancy and sex stereotyping. Although the updated Sex Discrimination Guidelines may not change the existing practices of many federal government contractors and subcontractors, they are yet another indication of OFCCP's continued focus on gender issues, including but not limited to, gender-based pay discrimination. The Guidelines also serve as a timely reminder for employers to consider consulting with an employment attorney to revise and update their equal employment opportunity and leave policies, as well as their compensation systems and practices, to ensure compliance with applicable law prohibiting discrimination on the basis of sex, gender and/or pregnancy. Furthermore, as the latest in a series of employee-friendly regulations issued over the past few years, the updated Sex Discrimination Guidelines appear to reinforce the need for federal government contractors and subcontractors to be cognizant of enhanced employee legal protections that apply to them as a result of their contractor status.

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group, any of the attorneys in the Government Contracts Multidisciplinary Client Team or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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