On December 7, 2020, the Office of Federal Contract Compliance Programs issued a Final Rule codifying an expansion of the agency’s exemption from Executive Order 11246’s nondiscrimination requirements for federal contractors who are religious corporations, associations, educational institutions, or societies.  The new rule, which goes into effect on January 8, 2021, defines certain key terms in a way that provides a broader scope of exemption than recognized by the EEOC under Title VII’s corresponding religious exemption.

The pre-existing religious exemption in OFCCP’s regulations provided that certain of Executive Order 11246’s non-discrimination obligations did not apply to a contractor or subcontractor “that is a religious corporation, association, educational institution, or society, with respect to the employment of individuals of a particular religion to perform work connected with the carrying on . . . of its activities.”  OFCCP’s Final Rule provides definitions of the previously-undefined terms “religious corporation, association, educational institution, or society” and “particular religion” that broadens the scope of the exemption.

The new rule implements a four-part test for contractors to establish that they are a religious entity within the scope of the exemption. Contractors must establish that they:

• Are organized for a religious purpose, as typically shown by the entity’s governing documents (i.e., articles of incorporation, bylaws, or a mission statement);

• Hold themselves out to the public as carrying out a religious purpose;

• Engage in activity consistent with, and in furtherance of, the religious purpose; and

• Either (1) operate on a non-profit basis, or (2) present strong evidence that the entity’s purpose is “substantially religious.”

The new regulation instructs that an organization’s satisfaction of these standards is to be measured by reference to the organization’s own sincere understanding of its religious tenets, and that religious entities may, but are not required to, be affiliated with a house or worship or composed of individuals sharing the same religious tradition. The regulation’s comments make clear that OFCCP should defer to the contractor’s view that an activity has religious meaning, providing the example of a drug rehabilitation center that sincerely believes that its work is a form of ministry.

Although the regulation itself refers to an exemption “with respect to the employment of individuals of a particular religion,” OFCCP’s new definition of “particular religion” broadly construes the exemption.  The exemption applies not only to a particular employee’s religion, but also to the employee’s “acceptance of or adherence to sincere religious tenets as understood by the employer as a condition of employment,” even if the employee is not a member of the employer’s particular sect.

Finally, the Final Rule adds a rule of construction provision to OFCCP’s regulations requiring that they be construed in favor of a broad protection of religious exercise.

Even as expanded by the Final Rule, the religious exception will likely be inapplicable to the bulk of contractors, and does not fully exempt even religious contractors from OFCCP’s requirements. In addition, religious contractors will remain subject to other federal, state, or local non-discrimination laws not enforced by OFCCP that may not provide the same exemption. Nonetheless, contractors who believe they may qualify for the exemption should work with counsel to review its requirements and ensure they have documentary evidence clearly demonstrating the organization’s compliance with each of the four requirements for the contractor to obtain religious status under the regulation.