On December 3, 2014, the Department of Labor (DOL) issued a final rule prohibiting federal contractors from discriminating on the basis of sexual orientation and gender identity. The final rule implements Executive Order (EO) 13672, which was signed by President Obama on July 21, 2014. The final rule was effective on Wednesday, April 8, 2015, 120 days from the rule’s December 9, 2014, publication date in the Federal Register. The DOL FAQ on the final rule is available on the agency’s website.

Analogously, in recent informal guidance posted on its website, the U.S. Equal Employment Opportunity Commission (EEOC) take the position that discrimination against an individual because that person is transgender is a violation of Title VII of the Civil Rights Act of 1964 (Title VII) and such individuals may file a complaint of sex discrimination.

Executive Order 13672

EO 13672 modified EO 11246, first published in 1965, as subsequently amended, to expand discrimination protections that apply to federal contractors and directed the Secretary of Labor to prepare corresponding regulations. Specifically, EO 13672 required federal contractors to include language in new and modified contracts requiring certain actions to prevent discrimination on the basis of sexual orientation and gender identity. Previously, EO 11246 only prohibited federal contractors, who conduct more than $10,000 in business with the federal government in one year, from discriminating on the basis of race, color, religion, sex and national origin. As a result of EO 13672, sections 202 and 203 of EO 11246 were amended by substituting the phrase “sex, sexual orientation, gender identity, or national origin” for the phrase “sex or national origin” wherever the latter appears.

Final Rule

The DOL’s final rule, published in the Federal Register on December 9, 2014, updated the regulations implementing EO 11246, by making the same substitution described above wherever the phrase “sex or national origin” appears. As a result, the final rule prohibits discrimination based on, and requires federal contractors to take affirmative action to treat job applicants and employees without regard to sexual orientation or gender identity. Under the final rule, federal contractors must include an updated Equal Opportunity Clause in all new or modified subcontracts and purchase orders that prevent discrimination on the basis of sexual orientation and gender identity. As a result, no changes are required to existing contracts until those contracts are modified. Federal contractors must also ensure that such discrimination does not occur against its job applicants and employees and correspondingly update nondiscrimination language in job postings and advertisements.

EEOC Guidance

The EEOC explains on its website its position that discrimination against an individual because that person is transgender is a violation of Title VII. To enforce this position, the EEOC’s district, field, area and local offices will accept and investigate all such discrimination charges, and may counsel individuals who believe they have been discriminated against due to sexual orientation or transgender status of their right to file a complaint of sex discrimination under Title VII. As a general rule, employers with insured medical, dental or vision benefit plans insured in states where same-sex marriage is legal are required under state insurance laws to extend spousal coverage to same-sex spouses. Such state insurance law mandates, however, do not apply to self-insured plans. Thus, an employer with a self-insured plan is not required to offer coverage to same-sex spouses or to provide coverage for procedures for transgender employees (such as sex reassignment surgery). However, given the EEOC’s position and recent emphasis on insurance issues, employers can expect more Title VII discrimination claims from employees claiming they are entitled to same-sex and transgender benefit coverage.

Next Steps for Employers

The final rule is historic in nature in that it effectively requires, for the first time, certain private employers (government contractors wishing to keep their government contract) to ban discrimination based on sexual orientation and gender identity. These nondiscrimination obligations are required despite not being prohibited by Title VII of the Civil Rights Act of 1964 or the law in most states.

Federal contractors subject to the final rule must review and update their nondiscrimination language in all new and modified contracts and purchase orders, and ensure that job postings and advertisements, on and after April 8, 2015, prohibit discrimination based on sexual orientation and gender identity. Contractors will also need to review affirmative action policies for compliance with the final rule. Failure by federal contractors to comply with this rule may result in the loss of their contracts with the federal government. In addition, while it is not entirely clear, it is possible that such federal contractors will be required to offer benefits, such as medical benefits, to same-sex spouses, because failure to do so would likely constitute discrimination based on sexual orientation.

Other private employers who do not enter into contracts with the federal government will continue to have discretion—subject to other nondiscrimination laws—regarding policies on sexual orientation and gender identity and whether or not to offer coverage to same-sex spouses. For example, employers with self-insured plans are not required to offer coverage to same-sex spouses or to provide coverage for procedures for transgender employees (such as sex reassignment surgery). Likewise, employers sponsoring fully insured plans that are funded by insurance contracts issued in states that do not recognize same-sex marriage—and do not have nondiscrimination rules prohibiting discrimination on the basis of sexual orientation and gender identity—also are not necessarily required to offer coverage to same-sex spouses or to provide transgender benefits.

Thus, while the DOL guidance ensures that some protections are available for individuals on the basis of sexual orientation and gender identity, it does not ensure that all private employers will provide such protections.