Federal contracting has its own set of rules that are somewhat different from the rules that govern federal grants, certificates, and vouchers. The contracting rules have for many decades included strong prohibitions on employment discrimination, including religious discrimination, by organizations that contract, or subcontract, with the federal government. In 2002, President George W. Bush, by executive order, added to the federal contracting rules an exemption like the Title VII religious exemption. In 2014, President Barack Obama amended the federal contracting rules to ban discrimination in employment on the bases of sexual orientation and gender identity.
Federal contracting is, in the main, used to obtain for the federal government secular goods and services: fighter planes for the Air Force, janitorial services for federal buildings, health care for veterans from private doctors and hospitals where VA services are unavailable, and so on. Yet the federal government also contracts for goods and services of keen interest to faith-based organizations: health care research, consulting on how rules of the faith-based initiative should be put into practice by a state government, religious and other services for prisoners held by the Bureau of Prisons, religious youth workers and communion supplies for military bases, and more.
Are faith-based organizations that maintain conservative sexual ethics in their hiring practices eligible for federal contracts after the change in the contracting rules? Suppose, for example, a Catholic university decides not to hire an applicant for a faculty position because that applicant, though a Catholic, is in same-sex marriage—a marriage which thus conflicts with church teachings. Can the federal government bar the university from NIH health research contracts because it discriminates in employment on the basis of sexual orientation? Or does the religious exemption cover the university’s employment policy and practice, because the policy and practice are based on Catholic teachings?
The Obama administration’s amendment to the federal contracting rules prompted the writing and rewriting of regulations and federal guidance concerning how the exemption interacts with the new nondiscrimination requirements, but without complete clarity. How the religious exemption in the contracting rules should be interpreted depends on how the Title VII religious exemption should be interpreted. With respect to alleged sexual orientation and gender identity discrimination, the federal government and the courts have not fully resolved the issue. In its Bostock decision in 2020, the U.S. Supreme Court banned job discrimination on the bases of sexual orientation and gender identity but it emphasized that the case concerned a secular employer. It stressed that the employment policies and practices of religious employers are specifically protected in various ways, but without specifying how these protections might be interpreted in a case involving a religious organization.
However the law develops, it is certain every religious organization needs to ensure that its policies, practices, and documents manifest that it is a religious organization and that its employment decisions are based on the organization’s fundamental religious beliefs.