Labor Department Issues New Rule Expanding Religious Exemption For Federal Contactors

Last week the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) released its Final Rule titled “Implementing Legal Requirements Regarding the Equal Opportunity Clause’s Religious Exemption.” Although this rule may have a short life due to the impending change of administration, it has the potential for far-reaching implications for federal contractors. The new regulations are effective January 8, 2021.

This new rule relates to Executive Order 11246, which generally prohibits federal contractors from engaging in discrimination.  However, it also mirrors a provision in Title VII of the Civil Rights Act that allows religious organizations to show a preference for “individuals of a particular religion” in keeping with the organization’s religious identity. Thus, the primary focus of the new rule is to clarify how employers with federal contracts might claim the exemption when defending their preference for employees of a particular religion or those who observe a particular religious tenet.

The Final Rule provides new definitions of key terms used in the OFCCP religious exemption:

“Religion”

The Final Rule defines “religion” in a manner that is “not limited to religious belief but also includes all aspects of religious observance and practice.” Thus, an employer may claim entitlement to the religious exemption due to their observances of religious practices without having to be scrutinized regarding the extent of their religious beliefs or whether their beliefs line up word-for-word with a particular religious denomination.

“Religious Corporation, Association, Educational Institution, or Society”

The Final Rule abandoned an earlier proposal that the religious exemption could be invoked only by a non-profit organization.  Now, an organization can claim the exemption if that organization:

  • is organized for a religious purpose;
  • holds itself out to the public as carrying out a religious purpose;
  • engages in activity consistent with, and in furtherance of a religious purpose; and
  • is either a non-profit or is able to present other strong evidence that it has a substantially religious purpose.

The Rule specifically states that “whether an organization’s engagement in activity is consistent with, and in furtherance of, its religious purpose is determined by reference to the organization’s own sincere understanding of its religious tenets.” The entity need not have a house of worship nor must it be supported by or affiliated with a religious tradition.

The Final Rule also provides some hypothetical examples to help organizations better understand the parameters of this new rule.

Example 1: The Candlestick Maker

A closely-held for-profit company makes and sells metal candlesticks and other decorative items. The company’s mission statement does not address religion, but most of the company’s customers are churches and synagogues, but the federal government also purchases some of the company’s wares for diplomatic events. The company regularly confers with religious leaders to ensure that its products meet applicable religious specifications, regularly runs advertisements in religious publications, and donates a portion of sales to charities run by its religious customers.

Does this company qualify as a religious organization exempt from compliance with federal non-discrimination laws? No, this company’s purpose is secular, not religious, as evidenced by the lack of reference to religion in its mission statement. Moreover, the company does not hold itself out to the public or its customers as a religious entity. Also, because it is a for-profit company, it would need to satisfy a high showing to prove its religious status, which it cannot do.

Example 2: Chaplains Incorporated

A non-profit organization contracts with the federal government to provide chaplains to military and law-enforcement organizations around the country. The organization’s purpose as set forth in its articles of incorporation is to provide religious services to individuals of its same faith and to educate others about the faith. The organization regularly communicates with its employee regarding ways to promote the faith in the workplace and the handbook makes several references to maintaining a “Christian atmosphere where the Spirit of the Lord can guide the organization’s work.

Does this organization qualify for the religious exemption? Yes, says the Final Rule. Clearly, the organization has a religious purpose and mission, and holds itself out to its employees and the public as a religious institution.

Example 3: The Kosher Caterer

This small catering company, owned by two Hasidic Jews, specializes in Kosher meals, and primarily services synagogues for special community events. The federal government contracts with the company to provide kosher meals for conferences. The company’s employees are not exclusively Jewish, but they do receive instruction in Kosher food preparation. The company’s mission statement says that it is committed to fulfilling a religious mandate to strengthen the Jewish community by enabling Jewish people to fully participate in public life through providing Kosher meals for events. On its website, the company states that it seeks to “honor G-d.” The company donates to various local Jewish charitable projects and its advertisements prominently feature Jewish imagery and text.

Does this company qualify for the religious exemption? Yes. Despite the fact that it is a for-profit company, it clearly has a religious purpose, and its main business is providing a service in keeping with a religious practice. The company also trains its employees in certain religious practices, which are central to the service it provides.

Example 4: The Artifact Collector

This for-profit business collects and sells religious, cultural, and archeological items, including to the federal government, who occasionally purchases items for research or decoration. Most of the business’s customers are private collectors or museums. Its mission statement states that its purpose is to “curate the world’s treasures to perpetuate its historic, cultural, and religious legacy.” The business’s marketing and advertising materials display pictures of religious artifacts as well as other cultural and artistic pieces.

Does this business qualify for the religious exemption? No, says the Final Rule. It is not a religious organization, and the business does not appear to have a religious purpose. While it holds itself out as a company dealing in religious objects, these appear to be a minor part of its collection, and do not convey a particular religious identity overall. This is especially true given that it is not a non-profit corporation.

Bottom  Line

While this Final Rule provides some clarity regarding the religious exemption for federal contractors, its impact may be significantly curtailed by a new administration less inclined to provide leeway to religious organizations than the current administration.  In the interim however, this rule sheds some light on the parameters of a highly fact-specific exemption analysis.