On April 4, 2017, an en banc decision in Hively v. Ivy Tech Community College, the Seventh Circuit became the first federal Court of Appeals to hold that Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of sexual orientation.

Title VII prohibits employment discrimination "based on race, color, religion, sex and national origin." The U.S. Equal Employment Opportunity Commission had previously held in Baldwin v. Foxx, 2015 WL 4397641 (July 15, 2015) that the statute barred discrimination on the basis of sexual orientation, and some U.S. District Courts had agreed, but no Court of Appeals had previously done so.

Other Circuits, applying the Supreme Court's 1989 decision in Price Waterhouse v. Hopkins, have held that discriminating against gay employees was a form of gender stereotyping that fell within Title VII's gender bias prohibition.But the Seventh Circuit’s analysis went beyond this indirect approach, finding that "[t]he logic of the Supreme Court's decisions, as well as the common-sense reality that it is actually impossible to discriminate on the basis of sexual orientation without discriminating on the basis of sex, persuade us that the time has come to overrule our previous cases." The majority opinion acknowledged that its interpretation exceed the intent of the drafters of Title VII, and Judge Posner in a concurring opinion explicitly supported modernizing the statute.

The Hively decision opens a split with other Circuits and raises the possibility of Supreme Court intervention following the Senate's confirmation this week of Justice Neil Gorsuch to replace Justice Antonin Scalia.

The Eleventh Circuit held in March of 2017 that sexual orientation discrimination is not prohibited by Title VII, and the Second Circuit rejected a similar claim in March, although it accepted the employee's "gender stereotype" theory. The plaintiffs in those cases might now seek en banc review.

District Courts in circuits that had previously accepted only the "gender stereotype" theory might be emboldened to apply the Seventh Circuit's reasoning. Given the general trend toward recognizing and protecting LGBT rights, including the Supreme Court's landmark gay marriage ruling in Obergefell v. Hodges, employers would be wise to closely follow the reaction to the Hively decision.

Employers in states that do not explicitly prohibit discrimination based on sexual orientation should be aware that such discrimination will likely be found unlawful under Title VII, either through the "gender stereotype" theory or potentially as a direct violation of Title VII.