June 20, 2016
Last week, the U.S. Department of Labor issued a final rule to revise its sex discrimination guidelines for federal contractors. The rule updates the Department’s Office of Federal Contract Compliance Programs’ (OFCCP) interpretation and enforcement of Executive Order11246, which prohibits federal contractors from discriminating in employment on the basis of race, color, religion, sex, sexual orientation, gender identity or national origin. The final rule was published in the Federal Register on June 15, 2016 and will become effective on August 15, 2016.
This is the first time the Department’s sex discrimination regulations have been substantively updated since they were first promulgated in 1970, and the revisions are intended to clarify the Department’s interpretation of the requirements of Title VII of the Civil Rights Act of 1964 and to harmonize that reading with recent guidance from the U.S. Equal Employment Opportunity Commission. 
The revised regulations make several significant changes to the current rules, including, among others:
First, the revised regulations explicitly define sex discrimination to include discrimination on the basis of (but not limited to) "pregnancy, childbirth, or related medical conditions; gender identity; transgender status; and sex stereotyping."  Under the revised regulations, a contractor may not make any distinction on such bases in recruitment, hiring, firing, promotion, compensation, hours, job assignments, training, benefits, or other terms, conditions or privileges of employment unless such distinction is a "bona fide occupational qualification" that is reasonably necessary to the normal operation of a contractor’s particular business or enterprise.  The new rule also provides a non-exhaustive list of fourteen scenarios that would constitute unlawful discriminatory practices, including gender distinctions with regard to the availability of flexible work arrangements and denying transgender employees access to restrooms or similar facilities designated for use by the gender with which they identify. 
In addition to including "sex stereotyping" in the definition of "sex," the new regulation also includes a new section (§ 60-20.7) regarding employment decisions made on the basis of sex-based stereotypes, such as stereotypes about how males and/or females are expected to look, speak, or act. Pursuant to this new section, contractors will be prohibited from treating employees adversely based on their actual or perceived gender identity or transgender status, or on the basis of their dress, including wearing jewelry, make-up, or high heels.
Second, the revised regulation includes a new section regarding sex discrimination in compensation.  Although this new section does not create new obligations for contractors, it does provide specific examples of discriminatory practices to assist in compliance assessment. For example, the revised regulation expressly states that contractors may not pay different compensation to similarly situated employees on the basis of sex and identifies several objective factors relevant to the determination of similarity, including tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty, and minimum qualifications. Likewise, contractors may not implement compensation practices that have an adverse impact on the basis of sex and are not both job-related and consistent with business necessity. Nor can contractors discriminate on the basis of sex with regard to fringe benefits.
Third, the revised regulation introduces a new section protecting against pregnancy bias.  Under the new rule, discrimination on the basis of sex also includes discrimination on the basis of "pregnancy, childbirth, or related medical conditions," such as pregnancy-related high blood pressure, lactation, and symptoms such as back pain or other complications requiring bed rest. The OFCCP takes the position that such discrimination can result from the contractor’s failure to make appropriate accommodations under this or other laws or regulations or from a disparate impact resulting from the contractor’s policies or procedures. The new rule also forbids a contractor from providing employees with health insurance that does not cover hospitalization and other medical costs for pregnancy, childbirth, and related medical conditions to the same extent that such coverage is included for other medical conditions. 
Fourth, the new regulations make clear that harassment on the basis of sex constitutes a violation of Executive Order 11246.  Harassment could include unwelcome sexual advances, offensive remarks about a person’s sex, and any other conduct that (1) is made a term or condition of an individual’s employment (explicitly or implicitly), (2) the submission to or rejection of which is used as the basis for employment decisions, or (3) has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment.
Finally, the new regulations provide a list of "best practices for contractors."  These practices include: avoiding the use of gender-specific job titles; designating single-user restrooms and similar facilities as sex-neutral; and providing broad accommodation policies that include light or modified job duties or other reasonable accommodations to employees who are unable to perform some of their job duties because of pregnancy, childbirth, or related medical conditions. Notably, however, these best practices are not required by the regulations.
The Department also made clear that the final rule is not intended to alter a contractor’s obligations under any other OFCCP regulations.
 U.S. Dep’t of Labor, Office of Federal Contract Compliance Programs, Discrimination on the Basis of Sex ("Final Rule"), FR Doc. 13806, 125 (filed June 14, 2016) (to be codified at 41 C.F.R. part 60-20), available at http://federalregister.gov/a/2016-13806.
The following Gibson Dunn lawyers assisted in the preparation of this client alert: Jason C. Schwartz, Thomas M. Johnson, Jr. and Ryan Stewart.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following members of the firm’s Labor and Employment practice group:
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Karl G. Nelson – Partner, Dallas (214-698-3203, email@example.com)
Eugene Scalia – Partner, Washington, D.C. (202-955-8206, firstname.lastname@example.org)
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Katherine V.A. Smith – Los Angeles (213-229-7107, firstname.lastname@example.org)
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