"America's federal contracts should not subsidize discrimination against the American people," Obama declared at a White House signing ceremony.
Obama said it was unacceptable that being gay is still a firing offence in many places in the United States, and he called on Congress to extend the ban to all employers. But legislation that would extend the ban has become embroiled in a dispute over whether religious groups should get exemptions.
The president had long resisted pressure to pursue an executive anti-discrimination order covering federal contractors in the hope that Congress would take more sweeping action. The Senate passed legislation last year with some Republican support, but it has not been considered by the GOP-controlled House. Now, said Obama, "It's time to address this injustice for every American."
Mia Macy of Portland, Oregon, watched Obama's announcement in tears as an invited guest in the East Room. The military veteran and former Phoenix police detective applied to be a ballistics expert with the Bureau of Alcohol, Tobacco and Firearms as a male but was rejected after she changed her name and began identifying as a woman. She filed a successful complaint with the Equal Employment Opportunity Commission and settled a discrimination lawsuit against the government last year.
"Having a president acknowledge us for the first time in history as citizens instead of second-class citizens is just monumental," Macy said in a telephone interview. She said Obama personally thanked her for her pioneering role in a private meeting before the ceremony.
Obama had faced pressure from opposing flanks over whether he would include an exemption in the executive action for religious organizations. He decided to maintain a provision that allows religious groups with federal contracts to hire and fire based upon religious identity, but he did not grant any exception to consider sexual orientation or gender identity. Churches also are able to hire ministers as they see fit under the First Amendment's protection of religious freedom.
Objecting to his order, the U.S. Conference of Catholic Bishops called it unprecedented and said it lends the government's economic power to a "deeply flawed understanding of human sexuality" that faithful Catholics won't abide. The group said the executive order is an anomaly because it lacks even the exemption included in the Senate bill.
"In the name of forbidding discrimination, this order implements discrimination," the group said in a statement.
Obama's action came on the heels of the U.S. Supreme Court's recent ruling in the Hobby Lobby case that allowed some closely held private businesses to opt out of the federal health care law's requirement that contraception coverage be provided to workers at no extra charge. Obama advisers said that ruling has no impact on non-discrimination policies in federal hiring and contracting.
Obama said 18 states and more than 200 local governments already ban employment discrimination based on sexual orientation, as well as a majority of Fortune 500 companies. But he noted that more states allow same-sex marriage than prohibit gay discrimination in hiring.
"It's not just about doing the right thing, it's also about attracting and retaining the best talent," Obama said.
The change for federal contracting will affect some 24,000 companies with 28 million workers, or one-fifth of the U.S. workforce. Many large federal contractors already have employment policies barring anti-gay workplace discrimination. However, the Williams Institute at UCLA Law School estimates that the executive order would extend protections to about 14 million workers whose employers or states currently do not have such nondiscrimination policies.
While few religious organizations are among the biggest federal contractors, they do provide significant services, including overseas relief and development programs and re-entry programs for inmates leaving federal prisons.
Obama's signature amended two executive orders. The first, signed by President Lyndon Johnson in 1965, prohibits federal contractors from discriminating based on race, religion, gender or nationality in hiring. President George W. Bush had amended Johnson's order in 2002 to add the exemption for religious groups.
Obama added sexual orientation and gender identity to the list of protections, and ordered the Labor Department to carry out the order. Administration officials said that means the change will probably take effect by early next year.
Obama also amended an order signed by President Richard Nixon in 1969 to prevent discrimination against federal workers based on race, religion, gender, nationality, age or disability. President Bill Clinton added sexual orientation, and Obama included gender identity in his change, which took effect immediately.
Transgender workers already had some employment protections because of the EEOC ruling in the Macy case. But the law could be interpreted differently under a future commission, and the White House said Obama felt it was important to explicitly prohibit gender identity discrimination through an executive order.
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