The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has issued a Final Rule that takes effect on August 15, 2016 (the “Final Rule”), with regard to nondiscrimination in employment on the basis of sex. Any business or organization that is a federal contractor is subject to the Final Rule. Employers should confirm whether or not they qualify as a federal contractor as, for this purpose, the threshold is quite low (more than $10,000 in a federal contract or contracts). 

Are You a Federal Contractor?

The Final Rule generally applies to any business or organization that 

• Holds a single federal contract, subcontract, or federally assisted construction contract or subcontract in excess of $10,000;

• Holds federal contracts or subcontracts that have a combined total in excess of $10,000 in any 12-month period; or

• Holds government bills of lading, serves as a depository of federal funds, or is an issuing and paying agency for U.S. savings bonds and notes in any amount.

Despite significant changes in the law, social developments, and transformation of the modern-day workplace, the OFCCP’s Sex Discrimination Guidelines have not been changed substantively since they were issued in 1970. The Final Rule aims to align federal contractors’ obligations with current law, including Title VII of the Civil Rights Act of 1964. The Final Rule addresses employment-related matters, including compensation discrimination; sexual harassment; lack of accommodations for and discrimination on the basis of pregnancy, childbirth, and related medical conditions; discrimination on the basis of gender identity and transgender status; family caregiving discrimination; and stereotypes based on gender norms. Companies should have addressed most of these issues to comply with Title VII and the proposed OFCCP rules, but should confirm compliance with labor counsel.

Those employers who are also subject to Section 1557 of the Affordable Care Act (generally, those who are principally engaged in providing or administering health services, or health insurance coverage and receive federal assistance from HHS and those who receive federal financial assistance from HHS, the primary objective of which is to fund its group health plan) should consult benefits counsel regarding the nondiscrimination and other requirements of Section 1557 and any interaction with the Final Rule.

This Alert focuses on the impact of the Final Rule on health and welfare plans. However, please note that the Final Rule includes a general prohibition against discrimination on the basis of sex with regard to the provision and administration of “fringe benefits,” which include medical, hospital, accident, life insurance, and retirement benefits; profit-sharing and bonus plans; leave; and other terms, conditions, and privileges of employment. Fringe benefits may also include dependent care assistance; educational assistance; employee discounts; stock options; lodging; meals; moving expense reimbursements; retirement planning services’ and transportation benefits.

For many federal contractors, this prohibition may affect the benefits offered under their health and welfare plans and the way in which those benefits are administered. The Final Rule’s definition of sex discrimination includes, among other things, gender identity and transgender status. The preamble to the Final Rule states that categorical exclusions of coverage for all health services related to gender dysphoria or gender transition would violate the Final Rule. In addition, when a plan determines coverage of a particular service, denials or limitations of coverage must be based on the nondiscriminatory application of neutral criteria (e.g., medical necessity, adequacy of medical documentation, and availability of a qualified provider). In other words, health care services must be made available on the same terms for all individuals for whom services are medically appropriate, regardless of sex assigned at birth, gender identity, or recorded gender.

According to OFCCP Sex Discrimination FAQs, federal contractors are not required to collect any information about employees’ gender identity or transgender status. In addition, a contractor may not ask any employees to prove their gender identity or transgender status.

Below are examples of potential compliance issues under the Final Rule:

• Where a transgender individual who identifies as one gender seeks coverage for a medically appropriate sex-specific health care service for another gender, and the health plan denies coverage of that service. For example, if a participant identifies as transgender male and could benefit medically from treatment for ovarian cancer, mammograms, ob-gyn visits, or other sex-specific services, and the health plan denies coverage based on the participant’s identification as transgender male.

• Where transgender individuals seek certain treatments related to their gender identity or transgender status when it is deemed medically necessary, and the health plan declines to provide coverage for such treatment when it generally provides coverage for that same treatment where medically necessary (e.g., hormone replacement treatment or mental health care).

• A health plan has an explicit exclusion of coverage for all health services relating to gender dysphoria or gender transition. For example, if a transgender individual seeks hormone replacement treatment and the health plan denies coverage on the basis of the individual’s transgender status.

• A health plan asks transgender participants for documentation that it does not request from other participants under similar circumstances.

Federal contractors should contact insurance providers and third-party administrators to review the health benefits provided by their welfare plans, and should consult with benefits counsel to confirm that plans are in compliance with the Final Rule. In particular, federal contractors should:

• confirm that there are no categorical exclusions of coverage relating to gender dysphoria or gender transition;

• inquire into treatment for sex-specific services that may affect transgender individuals, as well as any treatment relating to gender dysphoria and gender transition; and

• amend their plans and adjust administration of the affected plans to comply with the Final Rule.

Federal contractors should also review the Final Rule with parties responsible for administering welfare plan benefits, particularly those who administer the claims and appeals process, so that their plans will be administered in a nondiscriminatory manner in accordance with the Final Rule, effective August 15, 2016.

The OFCCP recognizes the difficulties with implementing changes to comply with the Final Rule. As such it will consider good faith progress to take steps to change benefits policies and practices in this area in analyzing whether enforcement action is appropriate, particularly in the period immediately following the Final Rule’s effective date.