The Sex Discrimination Act, 1984 (Cth) (SDA) allows religious schools to discriminate against staff and contractors on the basis of their sexual orientation, as well as a range of other grounds, in order to ‘avoid injury to religious susceptibilities’. These provisions are inconsistent with international human rights law - as expressed in the jurisprudence of the European Court of Human Rights - for several reasons. First, the wording is impermissibly vague. Secondly, the provisions fail to take into account that the nature of the work is relevant in determining whether a staff member is subject to a heightened duty of loyalty. Finally, the provisions do not incorporate a balancing of staff and contractors’ rights against those of the religious school. To bring federal law in to line with international human rights law the broad exemption in s38 of the SDA needs to be replaced with one that allows for a careful balancing of all rights in each individual case. The article ends by highlighting some legislative models that provide a balance between religious schools’ right to religious institutional autonomy and employees’ rights to equality, privacy and family life.