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As modified, injunction against enforcement of EEOC criminal background check guidance in Texas affirmed

By Kathleen Kapusta, J.D.

The EEOC overstepped its statutory authority in issuing the guidance, said the appeals court, notice and comment rulemaking can’t save it, and the EEOC and Attorney General may not treat it as binding in any respect.

Affirming as modified a district court’s injunction barring the EEOC from enforcing its 2012 guidance on employers’ use of criminal records in hiring, the Fifth Circuit found the guidance was a final agency rule that it could review and that Texas had standing to challenge it. Further, the court declared, the guidance is a substantive rule subject to the APA’s notice-and-comment requirements, and the EEOC overstepped its statutory authority in issuing it. Accordingly, the court modified the injunction, which had barred the EEOC (and the Attorney General) “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,” by striking the clause “until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.” It also modified the injunction to clarify that the EEOC and Attorney General “may not treat the Guidance as binding in any respect” (State of Texas v EEOC, August 6, 2019, Smith, J.).

EEOC guidance. In 2012, the EEOC issued Enforcement Guidance 915.002: “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII.” The guidance sets out a framework for addressing both whether a hiring policy screens out a Title VII-protected group and whether a policy is consistent with business necessity.

Lone Star lawsuit. Texas sued the EEOC, seeking declaratory and injunctive relief. Certain Texas state agencies do not hire felons convicted of particular categories of felonies, or, in some cases, individuals convicted of certain misdemeanors, the state asserted, and the EEOC guidance “directly interferes with its authority to impose categorical bans on hiring felons and to be able to discretionarily reject felons for certain jobs.”

The state sought a declaration that it had the right to impose an absolute bar on the hiring of convicted felons as well as an injunction prohibiting the EEOC from enforcing the criminal background guidance and from issuing right-to-sue letters based on the guidance. Texas also contended that the EEOC violated the APA by engaging in binding rulemaking without providing notice and an opportunity to comment, and that the Commission exceeded the scope of its authority. Also, substantively, the guidance represented an unreasonable interpretation of Title VII, the state argued.

Procedural background. Concluding that Texas lacked Article III standing to sue, the district court in 2014 granted the EEOC’s motion to dismiss. However, in a June 2016 decision, the Fifth Circuit reversed, holding that Texas has constitutional standing to challenge the enforcement guidance because the state was an “object” of the guidance and it had suffered a sufficient alleged injury by being forced to alter its hiring policies accordingly. The appeals court also found the guidance constituted a final agency action for APA purposes.

The panel subsequently withdrew its opinion, vacated the judgment, and remanded so the district court could apply the Supreme Court’s decision in Unites States Army Corps of Engineers v. Hawkes Co. On remand, the district court enjoined the EEOC from enforcing the background check guidance against Texas until it complied with the APA’s notice-and-comment rulemaking requirements.

Jurisdiction. On appeal, the Fifth Circuit first addressed two jurisdictional issues, finding that the guidance was a final agency action subject to appellate review, and that Texas had standing to challenge it. In determining it was a final agency action, the court pointed out that it binds EEOC staff to an analytical method in conducting Title VII investigations, directs their decisions about which employers to refer for enforcement actions, and limits discretion respecting the use of certain evidence. It also prescribes a multi-factor framework for employers to use in designing “targeted exclusion” policies that agency personnel must presumptively follow in determining whether an employer’s felon-hiring policy violates Title VII. Moreover, it tells employers how to avoid Title VII disparate-impact liability.

Legal consequences. The EEOC argued that because it had no power to bring a Title VII enforcement action against Texas, its guidance has no legal consequences for the state. But this position, said the court, “allows the Guidance to constitute final agency action if the plaintiff is a private employer against which EEOC can bring an enforcement action, but non-final if the plaintiff is a public employer. Finality, however, cannot vary depending on who sued the agency; it depends on the rule itself.”

Also rejected was the EEOC’s contention that legal consequences flow from Title VII, not the guidance. But the guidance dictates how EEOC must assess claims of Title VII disparate-impact liability targeting employers with felon-hiring policies, the court observed, it does not merely comment on a single employer’s practices; “it tells EEOC staff and all employers what sort of policy is lawful.” Accordingly, the court found it was a final agency action that it had jurisdiction to review.

Standing. Next the court found that because Texas was the object of the guidance and has suffered multiple injuries as a result, it had constitutional standing to sue the EEOC and Attorney General. The guidance explicitly states that it applies to state employers and it deems unlawful the hiring practices of multiple Texas agencies by rejecting across-the-board felon hiring screens. Further, it warns the state that it will “consistently” be able to show that its current policies for hiring police officers, game wardens, school teachers, and youth corrections officers are lawful under Title VII only if it abandons those policies and adopts one of two procedures authorized by the guidance.

Thus, the court pointed out, Texas “has opted to express certain values by excluding felons from many positions of public employment, and the Guidance imposes a regulatory burden on Texas to comply with the Guidance to avoid enforcement actions and, consequently, pressures it to abandon its laws and policies.”

Further, assuming Texas is correct on the merits of its claim that the guidance was promulgated in violation of the APA, the court found that violation undercuts Texas’s concrete interest, as a sovereign state, in maintaining compliance with its laws. “The Guidance consequently encourages employers, to avoid liability, to deviate from state law when it conflicts with the Guidance.”

Injuries traceable to guidance. Texas’s injuries, said the court, were also fairly traceable to the EEOC’s promulgation of the guidance as it, not Title VII, condemns the state’s felon-hiring policies and pressures Texas to change its law and policies or be referred to the Attorney General by the EEOC.

Time of filing. Rejecting the EEOC’s assertion that the Attorney General is not bound to enforce the guidance and “there is no material probability that the [Attorney General] would seek to enforce the Guidance at all,” the court noted that in identifying an injury that confers standing, courts look exclusively to the time of filing. “Thus, that DOJ recently changed its position and no longer shares the Guidance’s views on disparate-impact liability and criminal-record hiring policies does not impact our standing analysis. We focus, instead, ‘on whether the party invoking jurisdiction had the requisite stake in the outcome when the suit was filed.’” Accordingly, the court found that the state’s injuries were also traceable to the Attorney General.

Mootness. As to whether Texas’s claims against the Attorney General were moot considering the DOJ’s new position, the court noted that there was no direct evidence the Attorney General has committed not to honor referrals from EEOC based on the guidance, or that Texas otherwise could not reasonably expect its injury to recur.

Scope of injunction. Turning to the scope and phrasing of the injunction, while Texas argued that the EEOC lacked power to promulgate the guidance at all, the EEOC contended that the court’s injunction was impermissibly vague and overbroad because it failed to specify whether it bars the EEOC and the Attorney General from enforcing the guidance as such, or from enforcing the interpretation of Title VII embodied in the guidance. Agreeing with Texas that the guidance is a substantive rule subject to the APA’s notice-and-comment requirement and that EEOC thus overstepped its statutory authority in issuing it, the appeals court pointed out that while the district court held that the guidance was a substantive rule it did not deem it “necessary to the adjudication of the claims” to reach the issue whether EEOC lacked authority to promulgate a substantive rule.

Modified. “The injunction, however, implies the answer, given that it would permit the Guidance to stand if it went through notice-and-comment rulemaking—a process used to promulgate substantive rules,” wrote the court. Because it was a substantive rule, and the text of Title VII and precedent confirm that EEOC lacks authority to promulgate substantive rules implementing Title VII, the court modified the injunction by striking the clause “until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.”

Finally, as to the EEOC’s assertion that the injunction equivocates whether “the EEOC and Attorney General are barred from enforcing the Guidance as such[] or are barred from enforcing an interpretation of Title VII that is embodied in the Guidance,” the appeals court modified the injunction to clarify that the EEOC and the Attorney General may not treat it as binding in any respect.