Biden Administration Retracts Trump Era Federal Exemption

By: Marianna J. Michael

Since the passage of Title VII of the Civil Rights Act of 1964, federal contractors have enjoyed a faith-based carve-out exempting them from compliance with certain anti-discrimination obligations. Though Title VII prohibits employment discrimination on the basis of race, color, religion, sex, or national origin, the act included an accommodation for religious employers and religious educational institutions. The accommodation permitted those groups to take religion into account for employees performing religious activities. Traditionally, the courts applied a nine-factor test established in LeBoon v. Lancaster Jewish Community Center Association, 503 F.3d 217, 226 (3d Cir. 2007) to determine whether a religious organization was entitled to the exemption. These factors included:

• whether the entity operates for a profit;
• whether it produces a secular product;
• whether the entity’s articles of incorporation or other pertinent documents state a religious purpose;
• whether it is owned, affiliated with or financially supported by a formally religious entity such as a church or synagogue;
• whether a formally religious entity participates in the management, for instance by having representatives on the board of trustees;
• whether the entity holds itself out to the public as secular or sectarian;
• whether the entity regularly includes prayer or other forms of worship in its activities;
• whether it includes religious instruction in its curriculum, to the extent it is an educational institution; and
• whether its membership is made up by coreligionists.

Federal contractors enjoyed a broader accommodation under the Trump Administration. Directive 2018-03 expanded the accommodation in two primary ways. First, the rule broadened definitions for the terms “particular religion,” “religion,” “religious corporation, association, educational institution, or society,” and “sincere,” which expanded the exemption’s application. It also expanded the exemption’s reach to employers that were “legally constituted as a for-profit enterprise yet infused with a religious purpose.” Second, the rule broadened the exemption’s application, stating that the rule “shall be construed in favor of a 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.” The final rule went into effect on January 8, 2021.

This exemption expansion faced many critiques, including its discriminatory impact on minority groups, such as the LGBTQ community; the appearance of taxpayer-funded discrimination; and the increased confusion regarding the religious exemption’s application. The Biden Administration published a rescission on March 1, 2023, which reinstated the Office of Federal Contract Compliance Programs’ nine-factor LeBoon test.

The rescission of the broadened exemption could open some federal contractors up to liability. Federal contractors need to be aware of whether the exemption applies to them or not, and if not, to ensure that their current policies and procedures adhere to Title VII. We recommend that federal contractors review their policies and contact us with any questions.