In Texas v. EEOC, the United States Court of Appeals for the Fifth Circuit ruled that the Equal Employment Opportunity Commission exceeded its authority when it issued a guidance that limited criminal background checks in hiring. The ruling is a major blow to the EEOC and its ability to weigh in on the use of criminal background checks.

The EEOC guidance at issue stated that Title VII prohibits employers from evaluating a job applicant on his or her criminal background under a “disparate impact” theory of liability because it disproportionately affects African-Americans and Hispanics. Statistically, those groups have higher rates of arrest and criminal conviction. Under the guidance, employers must assess each applicant’s criminal record and evaluate the nature and gravity of the offense, the amount of time since the conviction and the relevance of the offense to the job being sought.

The State of Texas challenged the restriction, contending that the EEOC enacted the rule without first satisfying the Administrative Procedure Act’s (APA) notice-and-comment requirement. The United States District Court for the Northern District of Texas agreed with Texas and stopped the EEOC from enforcing the guidance until it complied with the APA. On appeal, the Fifth Circuit found that the EEOC overstepped its bounds and has no authority to make the Title VII interpretation. As such, the EEOC cannot enforce the criminal background check guidance.

Texas also petitioned for the right to deny convicted felons from holding certain state jobs, but the district court sided against the state. The court ruled that the felon ban paints too broad a brush and denies meaningful opportunities of employment to many who could greatly benefit from it. While the Fifth Circuit sided with Texas on the injunction issue, the appellate court declined to rule on this matter. The Fifth Circuit said the appeal request was moot because the challenged guidance was no longer in effect.

Employers should carefully evaluate this ruling and monitor further developments. Further, employers that conduct background checks should also continue to abide by the various requirements imposed by the Fair Credit Reporting Act, state background check laws and state “ban the box” laws.