On August 6, 2019, the Fifth Circuit Court of Appeals issued a panel opinion in the case of Texas v. EEOC at al., Case No. 18-10638 (5th Cir. August 6, 2019), that looks to significantly impact the way employers may choose to treat employees or applicants with criminal backgrounds.

Background

In April 2012, the EEOC issued “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII” (Guidance).  That Guidance outlines how the EEOC will assess whether an employer’s screening decisions regarding applicants with felony records has a disparate impact on EEOC-protected groups and is accordingly unlawful.  The EEOC explained the impetus for its Guidance was data demonstrating “arrest and incarceration rates are particularly high for African American and Hispanic men,” and accordingly, blanket bans on hiring anyone with a felony record could have a disparate impact on certain minority groups.  The Guidance stated, “A covered employer is liable for violating Title VII when the plaintiff demonstrates that the employer's neutral policy or practice has the effect of disproportionately screening out a Title VII-protected group and the employer fails to demonstrate that the policy or practice is job related for the position in question and consistent with business necessity.” 

Several state governmental bodies in Texas have policies prohibiting the hiring of any applicant with a felony on his or her record.  Soon after the EEOC issued its Guidance, an individual whose employment application had been rejected by the Texas Department of Public Safety filed an EEOC complaint alleging the department’s blanket ban on former felons ran afoul of the new Guidance.  Texas responded by suing the EEOC and the attorney general, arguing the EEOC’s Guidance constituted a “substantive rule,” which according to Title VII the EEOC may not issue.  Texas also requested the EEOC be prohibited from issuing right-to-sue letters to claimants alleging discrimination based on their criminal history, as well as a declaratory judgment it had the right to categorically exclude felons from state employment.

The District Court’s Opinion

The Northern District of Texas issued a mixed ruling that was appealed by both sides.  The district court “decline[d] to declare that Texas has a right to maintain and enforce its laws and policies that absolutely bar convicted felons (or certain categories of convicted felons) from serving in any job that the State and its Legislature deemed appropriate” and found, “categorical denial of employment opportunities to all job applicants convicted of a prior felony paints with too broad a brush and denies meaningful opportunities of employment to many who could benefit greatly from such employment in certain positions.”  Texas v. EEOC et al., 2018 U.S. Dist. LEXIS 30558, at *5–6 (N.D. Tex. Feb. 1, 2018).  However, the district court issued an injunction temporarily enjoining the Guidance, finding the Guidance was a substantive rule that could not be implemented before notice was provided to the public and an opportunity was given for public comment.  The district court notably did not hold that the EEOC could not in any circumstance issue a substantive rule and also refused the State of Texas’ request to enjoin the EEOC from issuing right-to-sue letters based off a claimant’s criminal history.  Ultimately, the district court’s injunction stated the following:

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.

(Id. at *7).

The Fifth Circuit’s Opinion

The Fifth Circuit’s opinion fell more solidly in favor of Texas and against the EEOC.  After first ruling the EEOC Guidance constituted a “final agency action” open to judicial review and Texas possessed standing to bring its case, the panel held the Guidance constituted a substantive rule and the EEOC had no right to issue the Guidance at all.  The injunction from the district court was retained, but the final clause limiting the injunction to the period before notice and comment could be given was removed.  The EEOC and the attorney general are permanently prohibited from enforcing the EEOC’s interpretation of the Guidance against Texas.  Because the Fifth Circuit’s opinion held the Guidance no longer affected the state of Texas, the court declined to reach the merits of the plaintiff’s request for a declaratory judgment stating it has the absolute right to lawfully exclude felons from state employment.

Impact

Although the Fifth Circuit’s injunction applies only to Texas, this opinion will undoubtedly result in widespread legal challenges to the EEOC’s Guidance on the consideration of criminal records in employment decisions.  With one circuit court having already indicated the Guidance exceeds the EEOC’s authority and the current iteration of the Department of Justice having already indicated in a brief filed in this action that it is not bound by the guidance and “disagrees in numerous respects with the Guidance’s analysis of disparate impact claims,” a wider retreat from the principles espoused by the Guidance is likely.

Still, employers should take caution when devising a policy regarding the treatment of employees or applicants with criminal records.  The applicability of the EEOC’s Guidance will likely be in flux for some time, and other laws remain which must be carefully considered when reviewing the criminal background of an employee or applicant—most notably the Fair Credit Reporting Act and state “ban the box” laws.