Employment Law Daily Texas has standing to challenge EEOC Guidance on criminal background checks as final agency action
Thursday, June 30, 2016

Texas has standing to challenge EEOC Guidance on criminal background checks as final agency action

By Kathleen Kapusta, J.D. Texas has constitutional standing to challenge under the APA an EEOC Enforcement Guidance on hiring persons with criminal backgrounds because it is an "object" of the Guidance and has alleged a sufficient injury in fact—that the Guidance forces it to alter its hiring polices or incur significant costs—a divided Fifth Circuit ruled. The court also ruled the Guidance is a "final agency action" under the APA, even though the EEOC cannot directly bring an enforcement action against Texas, said the appeals court, observing that in publishing it "the EEOC has enacted a policy statement couched in mandatory language that is intended to apply to all employers." Accordingly, the court reversed the dismissal of the state’s declaratory judgment action against the EEOC for lack of subject matter jurisdiction. Judge Higginbotham, in dissent, wrote that "Texas seeks to challenge an EEOC ‘Enforcement Guidance’ document that the EEOC cannot enforce against it. This description should be enough to resolve this case" (State of Texas v. EEOC, June 27, 2016, Jolly, E.). The Guidance. In 2012, the EEOC issued the "Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964," which 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." Texas, which employs people in state agencies that do not hire convicted felons, felons convicted of particular categories of felonies, or, in some cases, individuals convicted of particular misdemeanors, sued the federal agency seeking declaratory and injunctive relief. It argued that the Guidance was a binding substantive interpretation of Title VII and thus violated the APA. Granting the EEOC’s motion to dismiss, the district court emphasized Texas’ lack of Article III standing. Standing. Reversing, the appeals court said that the EEOC effectively conceded that Texas, or any other employer subject to Title VII, was an object of the Guidance. Texas alleged several injuries that it is currently suffering because of the Guidance, including that it imposes a mandatory scheme for employers regarding hiring policies. Taking these allegations as true, the court found that the Guidance amounts to an increased regulatory burden on Texas as an employer. And while Texas argued that the Guidance preempted its laws regarding hiring bans, the court found that at the very least, it forces Texas to undergo an agency-by-agency analysis as to whether the certainty of EEOC investigations stemming from its standards overrides the state’s interest in not hiring felons for certain jobs. These injuries are sufficient to confer constitutional standing, said the court, especially considering Texas’ unique position as a sovereign state defending its existing practices and threatened authority. Final agency action. As to whether the Guidance was a final agency action for purposes of the APA, the court found that it imposes legal consequences in the sense that the EEOC has committed itself to applying it when conducting enforcement and referral actions. Moreover, said the court, "the promulgation of the Guidance is an agency action by which ‘rights and obligations’ have been determined: the agency has committed itself to following the Guidance, and has assured employers that if they conform their conduct to the Guidance’s ‘safe harbor’ requirements, they will not be deemed to be in violation of Title VII by EEOC investigators." Such an exoneration by EEOC investigators would, in turn, ensure that Texas is protected from referral of its case to the U.S. Attorney General for prosecution, and, ultimately, from a potential finding of injunctive and/or monetary liability in a DOJ-led prosecution, the court explained. While the EEOC argued that the Guidance was not a final agency action because it cannot directly bring an enforcement action against Texas, because only the U.S. Attorney General can enforce Title VII against a sovereign state, the court pointed out that "to hold that the Guidance is not ‘final agency action’ solely because of the EEOC’s limited enforcement authority with respect to a state employer is essentially to hold that there is no rule-related EEOC action against a state that is reviewable under the APA, even though the EEOC clearly can subject state employers to harms sufficient to confer Article III standing." Challenge is to Guidance itself. After distinguishing case law relied on by the EEOC, the court turned to the "major prop" of the agency’s argument: Because it has only investigatory authority over state employers, no action that it might take with respect to state employers can be "final" for the purposes of review under the APA. Although the court agreed that an agency’s decision to investigate a specific regulated entity normally does not constitute final agency action, it pointed out that Texas was not challenging the prospect of an EEOC investigation but rather was challenging the Guidance itself, which represents the legal standards the EEOC applies when deciding when and how to conduct such an investigation, and what practices may require charges. When, as here, said the court, "the agency action being challenged is the promulgation of agency rules that mandate such investigations across the entire regulated community, and provide a specific, detailed ‘safe harbor’ practice by which the regulated community may avoid adverse agency findings and eventual DOJ-led prosecution, the agency has already acted definitively by altering both its own obligations and the rights of the regulated entities it oversees." Adopting a pragmatic approach as instructed by the Supreme Court for the purposes of determining reviewability under the APA, the court found that the Guidance was a final agency action. Dissent. In dissent, Judge Higginbotham argued that while the Guidance was "a cloud on the political horizon," it inflicted no injury upon Texas. Rejecting the conclusion that Texas is the "object" of the EEOC’s action, the judge argued that there "is no doubt that the EEOC would prefer that Texas follow the Guidance, but it lacks the authority to bring a suit enforcing that preference." Moreover, he pointed out, if the Attorney General or a private citizen sues Texas, "the Guidance is entitled to Skidmore deference, at best." Noting that, as observed by the D.C. Circuit, "an injury typically is not caused when an agency merely expresses its view of what the law requires of a party, even if that view is adverse to the party," Judge Higginbotham found that this is the "typical" case.

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