The state of Texas challenged the guidance, arguing that it directly interfered with its authority to impose categorical bans on hiring felons and the ability to discretionarily reject felons for certain jobs. Seeking declaratory and injunctive relief, the lawsuit alleged that the agency violated the Administrative Procedure Act (APA), as the guidance was promulgated without notice and comment rulemaking.

On cross motions for summary judgment, a federal court judge enjoined the EEOC from enforcing the guidance against Texas “until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.”

The EEOC appealed but the Fifth Circuit upheld the injunction, with a slight modification. The federal appellate panel first determined that the guidance was a final agency action subject to its review and that Texas had standing to challenge it.

“The Guidance indicates that it binds EEOC staff to an analytical method in conducting Title VII investigations and directs their decisions about which employers to refer for enforcement actions,” the panel wrote. “It also limits discretion respecting the use of certain evidence, mandating that evidence of a racially balanced workforce cannot overcome a showing of disparate impact. And by broadly condemning ‘[a] policy or practice requiring an automatic, across-the-board exclusion from all employment opportunities,’ the Guidance leaves no room for EEOC staff not to issue referrals to the Attorney General when an employer uses a categorical felon-hiring ban.”

Legal consequences thus flow from the guidance, the court said, which also determines rights and obligations, making it a final agency action the court had jurisdiction to review.

Texas was able to establish its standing by alleging multiple injuries, the panel added: The state faces the possibility of investigation by the EEOC and referral to the U.S. Attorney General for enforcement proceedings if it fails to align its laws and policies with the guidance, as well as a procedural injury for the deprivation to protect its right via the APA’s notice and comment procedures.

Having determined that it had jurisdiction to consider the case, the Fifth Circuit found that the guidance was a substantive rule subject to the APA’s notice and comment requirement, a conclusion that “follows naturally from our holding that the Guidance is a final agency action.”

But the injunction issued by the district court implied that the guidance could stand if the EEOC went through the process of notice and comment rulemaking, the court said, despite the fact the agency lacks the authority to promulgate substantive rules implementing Title VII.

Therefore, the panel modified the injunction 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 also clarified that the EEOC and the Attorney General “may not treat the Guidance as binding in any respect.”

To read the opinion in Texas v. Equal Employment Opportunity Commission, click here.

Why it matters: The Fifth Circuit opinion appears to be the death knell for the EEOC’s guidance. Not only did the panel affirm the injunction, it modified the language to remove the possibility that the agency could legalize it by complying with the notice and comment procedures of the APA and explicitly stated that the guidance is not binding “in any respect.”