Effective March 31, 2023, OFCCP rescinded the Trump administration’s Final Rule, Implementing Legal Requirements Regarding the Equal Opportunity Clause’s Religious Exemption (Final Rule). The Final Rule was issued in December 2020, during the waning days of the Trump administration. While the text of OFCCP regulation, 41 C.F. R. 60-1.5(a)(5) (OFCCP religious exemption), was not changed by the Final Rule, the Final Rule did add 1) a new paragraph with definitions to terms used in the religious exemption under Executive Order 11246 (E.O. 11246), and 2) a new rule of construction applicable to the religious exemption. The recission of the Final Rule follows OFCCP’s March 1, 2023 recission of Directive 2018-03, which contained the legal interpretations and policies reflected in the Final Rule.

The recission of the Final Rule adds no new language or requirement to OFCCP regulations. OFCCP acknowledged in FAQs that a request for a religious exemption would be evaluated in consultation with the Solicitor of Labor and Department of Justice because such request may implicate the Religious Freedom Restoration Act, and potentially, the First Amendment.

Regardless of the recission of the Final Rule, any dispute between competing rights – protected religious rights and other protected characteristics under E.O. 11246 – ultimately would be resolved not by OFCCP but by the courts.

The Religious Exemption Under 41 C.F.R. 60-1.5(a)(5)

The religious exemption under EO 11246 and OFCCP regulation 41 C.F.R. 60-1-5(a)(5) provides that:

Contracts with religious entities. Section 202 of Executive Order 11246, as amended, shall not apply to a Government 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 by such corporation, association, educational institution, or society of its activities. Such contractors and subcontractors are not exempted or excused from complying with the other requirements contained in this Order.

The religious exemption in E.O. 11246 is based on the religious exemption in Title VII of the Civil Rights Act of 1964, as amended, (Title VII) and was incorporated in E.O. 11246 by President George W. Bush in 2002. Under Title VII, the scope of the exemption has been interpreted to permit a qualifying religious organization to prefer the employment of individuals of a particular religion to perform the work of the religious organization. As indicated by the plain text of the exemption in E.O. 11246, the scope of the religious exemption is limited by the second sentence of the exemption, which prohibits discrimination in employment on the basis of other protected characteristics, which include race, sex, and national origin.

The Final Rule

OFCCP statements in the Final Rule described contractors interested in the religious exemption as a “small minority” stating that “[f]or the vast majority of contractors, OFCCP does not expect this rule to affect their operations or OFCCP monitoring and enforcement.” The 49-page Final Rule addressed the issues raised by the changes contained in the Final Rule. The changes implemented by the Final Rule sought to provide “broad protection of religious exercise, to the maximum extent permitted by the U.S. Constitution and law, including the Religious Freedom Restoration Act of 1993, as amended, 42 U.S.C. 2000bb et seq.” In short, the Final Rule attempted to define, in the broadest context, the parameters of the religious exemption and the religious organizations to which the exemption applies, exempting religious employers that are also federal contractors from the anti-discrimination and affirmative action requirements of E.O. 11246.

In the Final Rule, OFCCP conceded the difficulties in defining such parameters, acknowledged the contrasting tests used by the various federal courts of appeals to determine whether an organization qualifies as exempt, and among a number of important changes, derived its own test to determine eligibility for the exemption.

Religious Exemption as Interpreted by OFCCP Post-Recission

The rescission of the Final Rule, abrogated changes by the Final Rule, which were never enforced by OFCCP. In a February 28, 2023 post on the Department of Labor blog, OFCCP described the recission as a return to “longstanding policy in place for more than 17 years to determine applicability of the religious exemption by applying established case law and principles to facts…” of the case.

With regard to the scope of the exemption, OFCCP takes the position that qualified employers “may make decisions about whether to employ individuals based on acceptance of and adherence to religious tenets.” However, the exemption “does not permit a qualifying employer to discriminate on the basis of race, color, sex, sexual orientation, gender identity, or national origin, even if such discrimination is religiously motivated” or “due to a sincere religious belief.” Unlike the Final Rule, which described the intent of interpreting the religious exemption to the broadest extent possible, OFCCP used more proscriptive terminology, stating that the religious exemption is restricted to employers for which their purpose and character are “primarily religious.”

OFCCP FAQs also acknowledge that federal contractors’ invocation of a religious exemption would likely implicate the Religious Freedom Restoration Act, and OFCCP would consider the exemption request based on the facts in consultation with the Solicitor of Labor and Department of Justice. Similarly, OFCCP will adopt the same procedures if a request for a religious exemption implicates the First Amendment.

Takeaway for Federal Contractors

Based on the practice of most human resource departments of federal contractors, the potential conflict between rights protected by the religious exemption and other protected rights under E.O. 11246 arise infrequently, if at all. To the extent that such a conflict would arise, it is reasonable to expect that OFCCP would weigh the competing rights in conformity with Title VII case law. While OFCCP would construe the scope of the exemption more narrowly than under the Final Rule, the interplay of the exemption, Title VII, E.O. 11246, the Religious Freedom Restoration Act, and potentially the First Amendment ultimately would result in protracted litigation in federal court.