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Department of Labor Issues Rule Clarifying Religious Exemptions for Government Contractors

On December 7, 2020, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued a rule clarifying the scope of the religious exemption under Executive Order 11246 (EO 11246), which requires equal employment opportunity in federal government contracting.

EO 11246, issued in 1965 and amended several times since then, prohibits government contractors from discriminating against employees on the basis of race, creed, color, national origin, sex, or religion. In 2002, President George W. Bush amended EO 11246 to add an exemption for religious organizations that parallels a similar exemption in Title VII, the federal equal employment opportunity statute that applies to both private and public sector employers. The exemption permits religious employers to take religion into account for employees whose job duties include performing religious activities, which would otherwise run afoul of Title VII’s prohibition against religious discrimination. The OFCCP’s new rule is intended to clarify the scope of the exemption in light of recent Supreme Court decisions interpreting Title VII.

Specifically, the OFCCP rule clarifies that both non-profit and for-profit government contractors may claim the religious exemption if they satisfy a three-pronged test, by showing that they: (1) are organized for a religious purpose; (2) engage in activity consistent with, and in furtherance of, that religious purpose; and (3) hold themselves out to the public as carrying out a religious purpose. For-profit contractors must also provide strong evidence that their purpose is substantially religious.

With respect to the first prong, the rule states that an organization claiming the exemption must show that its religious purpose is reflected in the organization’s foundational documents, such as its Articles of Incorporation, bylaws, mission statement, code of conduct, or other business and governance documents. To satisfy the second prong, a contractor must show that activity consistent with its religious purpose is a substantial aspect of the contractor’s operations. The contractor does not need to be engaged primarily in performing religious activities, but must show that its religious activities are a material part of its operations and are “more than occasional or half-hearted efforts.” And, the third prong requires a contractor to demonstrate that it represents itself as having a religious purpose to the public. The rule states that a contractor may satisfy this requirement by showing that its religious purpose is reflected on its website or in its publications, advertisements, letterhead, or other public-facing materials. Finally, for-profit contractors who claim the exemption must show that they have “a substantial religious commitment” and are not simply “a vehicle to facilitate profit-making or other secular ends.” 

During the rulemaking process, several commenters expressed concern that the OFCCP’s expansion of the religious exemption could permit a contractor to subject employees to adverse actions that violate the other EO 11246’s other anti-discrimination requirements. For example, several commenters stated that the new rule could allow contractors to discriminate against employees on bases other than religion, such as sexual orientation or gender identity, and justify the conduct on the contractors’ religious beliefs. In the preamble of the new rule, the OFCCP reiterated its full commitment to enforcing all EO 11246 anti-discrimination requirements.

However, the agency noted that it can be difficult to evaluate how the religious exemption should apply in situations where a contractor’s religious beliefs or practices implicate other protected classifications under EO 11246. The agency also observed that the Supreme Court has not clearly answered this question in the Title VII context. And, in cases where an employment action is motivated by religion yet also implicates a protected classification, the OFCCP stated that limiting the scope of the religious exemption could “force religious organizations to violate their sincerely held religious beliefs or to compromise their religious identity or mission.” Thus, the preamble makes clear that there may be circumstances in which the religious exemption would permit a contractor to make an employment decision at least in part based on a protected characteristic when the contractor is motivated by a sincere religious belief. Nonetheless, the OFCCP made clear that contractors may not discriminate based on race regardless of whether the contractor asserts a religious justification.

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