In the first-of-its-kind ruling last week, the Fifth Circuit held that the EEOC’s investigators and lawyers cannot rely on its “Enforcement Guidance on Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII” to bring enforcement actions. Finding that the guidance amounted to a substantive rule, the Fifth Circuit panel determined that the guidance overstepped EEOC’s authority to force the State of Texas to consider hiring convicted felons to state-wide positions.  The decision on its face confirms the general principle that EEOC does not have the authority to engage in rulemaking on substantive discrimination laws and was limited to a specific injunction.  However, the decision could have far-reaching consequences for the EEOC’s various substantive guidelines.

The guidance at issue, which was issued in 2012, states that “[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.” After learning of a complaint to the EEOC, Texas determined that the guidance placed it in the impossible position of determining whether it should violate many of its state and local laws forbidding consideration of convicted felons for positions or conduct the individualized assessments required under the EEOC’s guidance. As such, Texas filed suit seeking to enjoin enforcement of the guidance and a declaration that its hiring policies could lawfully exclude felons from consideration.

The district court enjoined the EEOC and Attorney General from enforcing the guidance until it complied with the notice and comment requirements under the Administrative Procedures Act.  But the Fifth Circuit went even further. The panel analyzed the law under the Administrative Procedures Act to determine whether EEOC’s guidance was a “binding” rule and, as such, took on the qualities of the substantive rule. (When Congress created the EEOC, it intentionally allowed the agency to promulgate procedural rules but did not extend substantive rulemaking authority to the EEOC.)¹ Finding that the guidance was essentially a substantive rule, the circuit court determined that even if the EEOC engaged in notice and comment rulemaking (which is generally required for substantive rules), it would not cure the deficiencies in the guidance. Thus, the court removed the “until” language and let the injunction stand.

This case stands out from previous cases addressing the EEOC’s substantive versus procedural authority. Although the Supreme Court has reiterated that the EEOC is not authorized to issue substantive rules as regulations, it has not taken issue with the EEOC issuing interpretive guidance.  Indeed, on occasion, the Court has afforded the EEOC’s interpretive guidance some level of deference depending on the level of persuasiveness on a given issue. The Fifth Circuit’s determination that application of interpretive guidance can be enjoined at the onset appears at odds with how courts have traditionally treated such guidance. The real impact of this ruling remains to be seen as it is unknown whether other courts will adopt this approach.

We will continue to monitor these developments as they could have an impact on employers. While additional agency actions often burden employers and raise the cost of doing business, many employers welcome guidance by the EEOC as a means to set policy and interpret many complex areas of the law. This decision could put such reliance in flux. Stay tuned for further developments.

____________________________

¹ A procedural regulation is “primarily directed toward improving the efficient and effective operations of an agency” while a substantive rule “supplements a statute” or “effects a substantive change in existing law or policy.”