Texas v. EEOC: Sound and Fury Signifying Nothing?

By Joe Murray

On Aug. 6, 2019, the 5th Circuit rocked the EEOC by permanently enjoining the use of the 2012 EEOC Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions under Title VII of the Civil Rights Act of 1964 (“Conviction Guidance”) as binding in any respect. Texas v. EEOC, 2019 U.S. App. LEXIS 23498 (5th Cir. Aug. 6, 2019). While at first glance this opinion appears significant—and some commentators have positioned this case as a win for employers, does this injunction really matter outside of Texas or the 5th Circuit?

In Texas v. EEOC, Texas argued that the EEOC lacked the power to issue the Conviction Guidance since it was “an unlawfully promulgated substantive rule.” Under Title VII, the EEOC has the power to issue procedural regulations implementing Title VII but cannot issue substantive rules. A procedural regulation is “primarily directed toward improving the efficient and effective operations of an agency,” while a substantive rule “supplements a statute . . . or otherwise effects a substantive change in existing law or policy.” Mendoza v. Perez, 754 F.3d 1002 (D.C. Cir. 2014). To determine if a rule is substantive, the 5th Circuit looks to whether an agency intends to bind its staff to a legal position or create safe harbors that protect private entities from adverse action. The 5th Circuit found that the Conviction Guidance met these criteria because it bound “EEOC staff to an analytical method in conducting Title VII investigations and directs their decisions about which employers to refer for enforcement actions” and told “employers how to avoid Title VII disparate-impact liability” under two circumstances. Once the 5th Circuit found the Conviction Guidance was a substantive rule, it upheld the district court’s injunction with a modification to make the injunction permanent[1] and stated that the “EEOC and the Attorney General may not treat the Guidance as binding in any respect.”

So, what is the real effect of this opinion? Its immediate effect is to allow employers to argue that the EEOC lacks a basis for making a cause finding based on an employer’s criminal background check policy alone—the EEOC must do its homework and develop the statistical evidence to support a disparate-impact claim. This is a significant positive for employers, especially smaller employers who lack the resources or wherewithal to defend against an EEOC’s finding of discrimination based on an alleged violation of the Conviction Guidance. But this opinion doesn’t stop the EEOC from using the Conviction Guidance to influence, but not control, its decisions and pressure employers to settle charges during the conciliation process. Further, for employers outside the 5th Circuit there is no remedy if the EEOC continues to use the Criminal Guidance as binding guidance except to litigate.[2] Even the decision’s most immediate effect is not as pronounced as employers could hope.

And I’m not sure the opinion will have any other meaningful effect. It will have virtually no effect on litigating disparate-impact claims based on a criminal background check policy. A cursory Lexis search found 12 cases mentioning the Criminal Guidance. Only one, Mandala v. NTT Data, Inc., 2019 U.S. Dist. LEXIS 119832 (W.D.N.Y. July 17, 2019), used the Criminal Guidance as part of the reasoning in its decision, and in that case, the court found that the Criminal Guidance and the use of general population statistics was insufficient to support a claim of disparate impact. Even before Texas v. EEOC, the Conviction Guidance had not had any meaningful effect on litigation; plaintiffs still must meet the required evidentiary burden to prove a disparate-impact claim.

Finally, this decision is seven years too late to have any meaningful effect on employers’ policies. Most employers have already changed their policies and practices to conform to the safe harbors in the Conviction Guidance or at least reviewed their policies to justify blanket bans. It is unlikely employers will now reverse these policy changes after having been in effect for so long.[3] Further, state and local laws are turning the principles of the Conviction Guidance into law: 35 states and over 150 local governments have adopted “ban the box” policies. Some jurisdictions are going further by implementing “fair-chance legislation,” which delays criminal background checks until after a conditional job offer is made and requires an employer give an employee an opportunity to explain any criminal conviction.

While on first read the 5th Circuit’s Texas v. EEOC decision appears important, in the end it is likely to have very little effect on employers, at the EEOC, and in litigation.