By Executive Order – No LGBT Discrimination

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President Obama recently signed an executive order prohibiting federal contractors and subcontractors from engaging in employment decisions based on sexual orientation and gender identity.  The President’s order amends previous executive orders regarding employment discrimination dating back to the 1960s, which were implemented to prevent racial discrimination in hiring and contracting decisions made by organizations receiving federal funding. Previously, the order prohibited employment decisions based on race, color, religion, sex, or national origin.  President Obama extended the order to include sexual orientation and gender identity.  The new order has led a number of nonprofits receiving federal funds to question if, and to what degree, they may be required to comply with these provisions.

In particular, organizations have noticed that no “religious exemption” exists for churches, other religious institutions, and other faith-based nonprofits, to the extent their religious tenets may clash with the new provisions.  Notably, the order leaves a provision intact – as signed by then-President Bush in 2002 – exempting religious organizations from the prohibition against using religion as a factor in employment decisions.  Courts have ruled that this exemption includes taking into account actions by employees or applicants that conflict with the organization’s beliefs.  This leaves a question, for example, as to whether organizations that uphold religion-based sexuality values, but receive federal funding from a contract, can terminate or refuse to hire an individual based on such beliefs. 

What does the President’s order mean for nonprofit organizations?

First, nonprofit organizations should recognize that the order currently only affects federal contractors and subcontractors and federally assisted construction contracts. If the organization does not have any such contracts, it is not affected by the President’s order. 

Second, note that most federal grants do not fall under the provisions of the order. That’s because grants are not considered federal contracts.  There is, however, a section of the underlying order amended by President Obama that affects grantees who use grant funds to construct facilities.  The provision states that all executive departments and agencies that provide grants involving construction contracts must require that grant recipients include the anti-discrimination provisions in any construction contract that is paid even in part from federal grant funds.  This does not mean that the grantee organization itself will have to incorporate the anti-discrimination provisions into its hiring policies, but it does  require its construction contractors and subcontractors to do so, which may be of concern to some religious organizations accepting such federal funds. 

Current grant programs that provide nonprofit organizations with funds for construction of facilities to house their charitable programs include Community Facility Grants from the USDA, grant programs for higher education institutions that serve low-income or minority students, and grants through the National Endowment for the Humanities, which awarded over $8 million in the 2013 fiscal year.  If organizations refuse to require their contractors and subcontractors to prohibit employment decisions based on sexual orientation or gender identity, they will not be eligible to obtain such funds for the purpose of construction.

Who else will be affected?

While most funds provided to nonprofits by the federal government have historically come from grants, some change is afoot.  For example, organizations providing support for military troops or engaging in natural disaster or other relief efforts increasingly may find that funds are available through contracts with the federal government to provide such services, rather than through federal grants.

Critics of President Obama’s order have expressed concern that it sets a disturbing precedent for future executive orders, to affect not just federal contractors and federally assisted construction contracts but also grantees in general.  This would force many organizations, which are in the best position to provide cost-effective and beneficial charitable services, to choose between accepting needed government funds and their sincerely held religious beliefs.  A further concern is that such a governmental approach could lead to other restrictions against religious institutions and other faith-based organizations, such as with respect to their tax-exempt status, which would not only impair First Amendment religious liberty interests but also lead to further declines in provision of charity.