What Obama's Order Banning Gay Discrimination Means for Businesses Many entrepreneurs may be surprised to learn that federal laws have not addressed sexual-orientation or gender-identity bias inside private companies.

On Monday, President Barack Obama signed an executive order that makes it illegal for the federal contractors and subcontractors to discriminate on the basis of sexual orientation or gender identity. This amends Executive Order 11246, first issued in 1965, which prohibits federal contractors and subcontractors from discriminating against an employee or applicant for employment because of the person's race, color, religion, sex or national origin.

The executive order requires the Department of Labor to issue regulations, which may be published early next year. And those requirements will apply to any contracts signed after the effective date, set by the department.

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Why did the president issue the order?

Many entrepreneurs and employees alike may be surprised to learn that federal law does not prohibit private employers from discriminating against applicants or employees based on sexual orientation or gender identity. Although federal law does not prevent private employers from discriminating on the basis of sexual orientation or gender identity, the Equal Employment Opportunity Commission has taken the position that discrimination based on gender identity is a form of gender stereotyping.

For 20 years, Congress has failed to pass a bill that would have provided this protection, the Non-Discrimination in Employment Act. Last year, the Senate passed the measure 64-32 with bipartisan support. But some legislators in the House blocked a vote on the measure.

Individual states have filled the gap. Eighteen states plus the District of Columbia prohibit discrimination based on sexual orientation. Fifteen states include gender identity in their measures, too. It is hard to deny that there's a certain geographic pattern, apparent to anyone reviewing a map.

Two hundred or more cities and local jurisdictions have enacted nondiscrimination ordinances in this area. Of course, some of these local laws are in states that already prohibit discrimination against lesbians and gay, bisexual and transgender people.

But except in locales with LGBT ordinances, discrimination based on sexual orientation and gender identity does not violate the law in the majority of states. This produces some contradictory scenarios.

For example, same sex marriage is lawful in Pennsylvania. But outside of certain counties in that state, an employee who requests same-sex benefits could be fired for doing so, since Pennsylvania does not protect private-sector employees from discrimination based on sexual orientation and gender identity.

So the executive order provides legal protection to some individuals who otherwise would have none. Indeed, it is estimated that about 20 percent of the workforce provides services to the federal government as the employee of a contractor or subcontractor.

In this regard, the government is simply catching up to the business world. Ninety-one percent of Fortune 500 companies prohibit discrimination on account of sexual orientation, according to USA Today. This is not simply an equality issue. It is a hard-core business issue.

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Discrimation adds up to bad business.

Any kind of discrimination, whether it's based on race, sex, religion or sexual orientation, is bad business. Here's why: Discrimination deprives employers of the full range of talent in a community. No employer can afford to exclude talent based on factors unrelated to performing the job.

Individuals in different groups often have different connections in the business world. Discriminating against employees of any group narrows the pool of potential customers and clients, too.

Recognizing the differences in who individual employees are can bring differences in perspective. And these differences in perspective often result in greater innovation and creativity in meeting the needs of customers and clients.

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But not all are happy with Obama's move.

In particular, some in the religious community had lobbied for a religious exemption.

The executive order does not have any exemption for religious organizations. This is in contrast to the proposed bill, known by the acronym ENDA, which does include an exemption for religious organizations.

Litigation on this issue is inevitable, particularly in light of the Supreme Court's recent decision concerning Hobby Lobby.

The potential scope of the Hobby Lobby decision is far from clear. Exceptions to federal rules may apply to small, closely held corporations that operate in accordance with their religious principles.

But aside from potential religious exemptions, the executive order will extend protections from discrimination on the basis of sexual orientation and gender identity to employees of federal contractors and subcontractors in the majority of states where no such legal protection exists. Individuals in those states, however, still will have no protection unless they work for a covered contractor or subcontractor or they happen work in a community with a nondiscrimination ordinance. But this story is far from done.

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What steps should employers take?

In the interim, federal contractors, subcontractors as well as employers in states or local jurisdictions that prohibit discrimination based on sexual orientation and gender identity should do the following:

1. Make sure that these protected factors are specifically referenced in their equal employment opportunity policy.

2. Train managers on discrimination and harassment as applied to these protected factors.

3. Take corrective action if an employee or even a nonemployee engages in discriminatory or hostile conduct with regard to these factors. To see and ignore is to condone.

Even those companies that are not federal contractors or subcontractors that operate in a jurisdiction where there are no legal prohibitions on discrimination relative to sexual orientation or gender identity may wish to do all the above.

A company's nondiscrimination pledge should state that the organization will not "unlawfully discriminate" as opposed to saying it "will not discriminate." That way, a strong message of inclusion is sent without creating a document that might have quasi-contractual significance.

An employer doesn't want to discriminate against someone based on their sexual orientation or gender identity. But if someone alleges that the business has done just that and the jurisdiction does not provide legal protection, the owner will want to be able to say that the company promised to do no more than the law requires.

Yes, it is possible to do the right thing and at the same time minimize legal exposure.

This article is not legal advice and should not be construed as applying to specific factual situations.

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