A somewhat surprising decision in favor of the State of Texas was handed down from the Fifth Circuit Court of Appeals on June 27, 2016, which held that (i) Texas had standing to challenge the Equal Employment Opportunity Commission’s (EEOC) Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 (the Guidance) and (ii) the Guidance is a “final agency action” for the purposes of the Administrative Procedures Act (APA). State of Texas v. EEOC, No. 14-10949, Fifth Circuit Court of Appeals (June 27, 2016).

The Fifth Circuit reversed and remanded the case to the district court, noting that the district court had erred in its ruling that Texas did not have constitutional standing to challenge the Guidance under the APA. The court stated that the EEOC erroneously combined the question of standing under Article III with the question of “final agency action” under the APA. The two inquiries do engage similar concerns, but the standing analysis is ultimately separate from the question of whether “final agency action” exists within the meaning of the APA. 

History

In April of 2012, the EEOC issued its Guidance. This Guidance strongly implies that businesses should not have blanket rules that disqualify individuals from employment based on criminal history information, reasoning that such blanket rules have a disparate impact on individuals in certain protected categories. The Guidance further encourages businesses to engage individuals with criminal history information in individualized assessments, whereby the business considers additional information in order to consider individuals on a case-by-case basis instead of utilizing blanket scoring guidelines.

In November of 2013, the State of Texas was the first to challenge the EEOC’s Guidance when it filed suit against the agency seeking to enjoin enforcement of the Guidance and arguing that the Guidance conflicts with state laws that do not allow businesses to hire certain individuals with criminal histories for certain jobs. The EEOC filed a motion to dismiss the action under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. The U.S. District Court for the Northern District of Texas granted that motion on August 20, 2014 (finding Texas lacked standing to maintain its suit). Texas appealed that decision to the Fifth Circuit, which reversed and remanded .

Texas Has Constitutional Standing

The Fifth Circuit concluded that Texas does, in fact, have standing to challenge the Guidance. Beginning its standing analysis, the Fifth Circuit concluded that the State of Texas, as an employer, is an “object” of the challenged Guidance because the Guidance has a regulatory effect on all employers that conduct criminal background checks (including state agencies), and therefore Texas has presumptive constitutional standing to challenge it. This is significant because, as an object of the Guidance, Texas need not be the subject of an enforcement action by the EEOC in order to establish the “concrete injury” required for standing. Instead, to show concrete injury, Texas sufficiently alleged that the Guidance forces it to alter its hiring policies or incur significant costs, and that such an increased regulatory burden satisfies the injury-in-fact requirement. Texas further asserted that the Guidance effectively forces Texas to change its state laws by overriding the state’s interest not to hire felons for certain jobs. Based on these considerations, the Fifth Circuit held, Texas has standing to challenge the Guidance.

The EEOC’s Enforcement Guidance Is a “Final Agency Action” Under the APA

The Fifth Circuit also found the Guidance is “final agency action”—making it subject to challenge—because it is an action “by which rights or obligations have been determined, or from which legal consequences will flow.” According to the Fifth Circuit, the Guidance suggests that its provisions are to be taken as conclusive, and offers only two safe harbor provisions where employers will consistently meet a “job related and consistent with business necessity” defense built into the Guidance. Consequently, if a Texas policy were to not fall within one of the two noted safe harbor provisions listed in the Guidance, Texas would be at risk for an enforcement action and possible liability.

Further, the Guidance is what EEOC staff will use with respect to virtually all public and private employers when making enforcement-related decisions. This is an important point because Texas is not simply challenging the prospect of an investigation by the EEOC, but rather is challenging the Guidance itself, which represents a set of standards the EEOC applies when deciding when and how to conduct such investigations and what practices may require charges; such standards constitute an agency determination in its final form. In publishing the Guidance, “the EEOC has enacted a policy statement couched in mandatory language that is intended to apply to all employers.” At no point during the litigation did the EEOC contend that it does not intend to follow the guidance to its full extent when carrying out its duties. 

It is important to note that this decision does not examine or opine on whether the Guidance is a valid exercise of the EEOC’s enforcement authority. 

Dissent

Circuit Judge Patrick E. Higginbotham disagreed with the Fifth Circuit majority because, he wrote, the State of Texas seeks to challenge an Enforcement Guidance that the EEOC lacks the ability to enforce against it. He first noted that Congress did not give the EEOC the power to sue state agencies or employers; rather, the EEOC “shall refer” cases to the U.S. attorney general, who may then bring a civil action against the state agency in the appropriate federal district court. In other words, any challenge to the employment practices of a state employer can proceed only upon the decision of the attorney general, and the attorney general is not bound to comply with the Guidance. This, Judge Higginbotham argued, “underscores the lack of a concrete controversy” between Texas and the EEOC. Judge Higginbotham then noted that Texas’s challenge to the statute is not ripe because of the uncertainty that the Guidance will ever be enforced against it. “The Guidance does not carry any consequences for any party,” Judge Higginbotham wrote; “[t]o the contrary, it merely expresses the EEOC’s view of the law, or the position it may take in future enforcement actions.” 

Employer Implications

Since the case has been remanded to the district court for further proceedings, the outcome is not yet conclusive. We do not anticipate the EEOC will let up with any of its enforcement actions against employers that allegedly violate the Guidance. We will continue to provide updates to this case as the proceedings continue in the district court. 

All federal and state background check requirements are summarized in Ogletree Deakins’ O-D Comply: Background Checks and O-D Comply: Employment Applications subscription materials, which are updated and provided to O-D Comply subscribers as the law changes.