Executive Summary: On Tuesday, August 6, 2019, the United States Court of Appeals for the 5th Circuit held that the Equal Employment Opportunity Commission’s (“EEOC”) Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII (“the Guidance”) is unlawful in the state of Texas. (See State of Texas v. Equal Employment Opportunity Commission, et al., August 6, 2019). The court agreed with the State of Texas that the EEOC and the Attorney General cannot treat the EEOC’s Guidance as binding in any way. The court concluded that the Guidance is a final agency action because it determines rights and obligations and legal consequences can flow from it. Thus, the EEOC went outside of its statutory authority when it issued the Guidance.

Background

The Guidance was issued by the EEOC in April 2012 in response to data suggesting blanket bans on hiring individuals with criminal backgrounds affects minorities at a disproportionate rate. The Guidance states that an employer may defend against an EEOC charge alleging its policy of considering criminal records in the hiring process disparately impacts minorities under Title VII by showing that the policy is job-related and necessary for the business. The Guidance listed two circumstances by which an employer can prove that its policy is job-related and necessary for business: “(1) by establishing a validated, multi-factor screening system per the Uniform Guidelines on Employee Selection Procedures standards; or (2) by developing a targeted screen . . . and then provid[ing] an opportunity for an individualized assessment for people excluded by the screen.” The Guidance prohibits any policies that create an automatic across-the-board employment exclusion because such an exclusion does not take into consideration the dangers of certain crimes or the risks in certain positions.

Shortly after the Guidance was issued, a Texas individual who was rejected for a job with the Department of Public Safety filed a charge with the EEOC challenging Texas’s policy of not hiring felons. The individual argued that the policy had a disparate impact in violation of Title VII. Texas then sued the EEOC and the Attorney General, arguing that the “EEOC’s rule purports to limit the prerogative of employers, including Texas, to exclude convicted felons from employment.” Texas further argued that it would have to choose between violating state and local laws that prohibit the hiring of convicted felons as troopers, jailers, and school teachers, or ignoring the EEOC’s rule and risk the consequences for non-compliance. Texas brought a claim under the Declaratory Judgment Act (“DJA”) asking for a declaration that it be allowed to enforce its laws that bar the hiring of convicted felons for certain positions. Texas also sought an injunction stating that the EEOC and Attorney General cannot enforce the interpretation of Title VII as it appears in its Felon-Hiring Rule or issue right-to-sue letters under the rule. Texas also brought another claim under the Administrative Procedure Act (“APA”) asking the court to set aside the EEOC’s guidance. Texas argued that the Guidance exceeded the EEOC’s power under Title VII, was “promulgated without notice and comment in violation of the APA,” and was “substantively unreasonable.”

The district court issued an injunction stating: “Defendants EEOC and the Attorney General of the United States (in any enforcement action against the State of Texas) are ENJOINED from enforcing the EEOC’s interpretation of the Guidance against the State of Texas until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.”

After addressing several procedural questions, the Fifth Circuit agreed with the State of Texas that the Guidance is a substantive rule that is subject to the APA’s notice-and-comment requirement. Therefore, the court concluded that the EEOC lacks authority to issue substantive rules that implement Title VII. Thus, the court modified the injunction issued by the district court to strike the clause “until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.” The Fifth Circuit declined to consider Texas’s DJA claim.

Bottom Line for Employers

Since the EEOC exceeded its authority to make rules under Title VII, the Guidance is inapplicable in the state of Texas.