Today’s Department of Labor proposed rule answers some, but not most, of the important questions left by the Department’s December regulation prohibiting discrimination by Federal contractors on the basis of sexual orientation and gender identity. Importantly, the proposed rule implements Macy v. Holder and makes clear that transgender employees must have access to restroom and other sex-segregated facilities consistent with their gender identity, and explicitly prohibits adverse actions against employees based on the fact of their transition from their sex designated at birth.

However, many questions remain. Perhaps the most important relates to employer-provided health insurance. While the proposed rule explicitly discusses several prohibited employment practices with respect to gender identity, the section concerning “other fringe benefits” such as health insurance is comparatively sparse. The proposed rule provides only that “it shall be an unlawful employment practice for a contractor to discriminate on the basis of sex with regard to fringe benefits.” The preamble is clear; discrimination on the basis of sex includes discrimination on the basis of gender identity. That would presumably mean that insurance contracts with clauses categorically excluding “services, drugs, or supplies related to sex transformation” would be unlawful employment practices under the proposed rule. The snag, of course, is that the above example language is present in over 95% of contracts for health insurance for Federal employees, including the single health insurance plan covering approximately 63% of Federal employees.

While it is difficult to imagine the Department of Labor declaring that the U.S. Office of Personnel Management is engaged in an unlawful employment practice, that is nonetheless the conclusion compelled by the proposed rule. It remains to be seen whether the Department of Labor will address this issue directly or will simply chose to quietly delay action in order to give OPM yet more time to come into compliance with its obligation to no longer discriminate on the basis of sex in its insurance contracts.