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The Fifth Circuit held recently that the State of Texas had standing to sue the Equal Employment Opportunity Commission (“EEOC”) over the Commission’s “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII” (the “Guidance”) issued in April 2012, which warned employers that blanket policies against hiring felons could disproportionately exclude minorities and thus be deemed discriminatory. Texas originally sued the EEOC in late 2013 seeking an injunction against enforcement of the Guidance and a declaratory judgment that state agencies be allowed to maintain their policies, as instituted under state law, barring categories of convicted felons from state employment. In its complaint, the State also claimed that the EEOC’s Guidance improperly preempted state law. The lower court granted the EEOC’s motion to dismiss on grounds that Texas lacked standing to sue the EEOC because the Commission cannot bring an enforcement action against the state for failing to comply with the Guidance. The lower court also held that the EEOC Guidance did not constitute a “final agency action” under the Administrative Procedure Act (“APA”), and thus the Guidance was not subject to judicial review.

The Fifth Circuit reversed the lower court’s decision, holding that Texas, as an “object” of the Guidance, had sufficiently alleged injury and thus established standing to sue the EEOC because “[r]egardless of whether the Guidance actually preempts Texas’ laws regarding hiring bans, the Guidance does, at the very least, force Texas to undergo an analysis, agency by agency, regarding whether the certainty of EEOC investigations stemming from the enforcement Guidance’s standards overrides the state’s interest in not hiring felons for certain jobs.” The Fifth Circuit also held that the guidance qualified as a “final agency action” under the APA, finding that the Guidance “imposes ‘legal consequences’ in the sense that the EEOC has committed itself to applying the Guidance when conducting enforcement and referral actions,” and further that the Guidance “is an agency action by which ‘rights and obligations’ have been determined. . . .” The Fifth Circuit rejected the EEOC’s argument that the Guidance was not a final agency action, stating, “Holding that the Guidance is not ‘final agency action’ simply because the EEOC cannot bring an enforcement action against Texas directly would stand for the proposition that whether a blanket agency rule is “final agency action” turns on the identity of the class of plaintiffs, instead of the nature, character, and effect of the rule in and of itself.”

Although Texas brought this case in the context of its state agencies’ hiring practices, the Fifth Circuit’s opinion sheds some light on how EEOC guidance or similar agency directives may be challenged in the future or in other settings. The Guidance itself is also important for private employers to consider when drafting their hiring policies, regardless of whether Texas prevails in its suit against the EEOC in the future.