State v. Equal Employment Opportunity Commission

          Appeals from the United States District Court for the Northern District of Texas

          Before SMITH, WIENER, and ELROD, Circuit Judges.

          JERRY E. SMITH, CIRCUIT JUDGE

         Texas sued the Equal Employment Opportunity Commission ("EEOC") and the Attorney General ("Defendants"), challenging EEOC's guidance on employers' use of criminal records in hiring. Texas alleged that guidance constituted an unlawfully promulgated substantive rule and sought to enjoin its enforcement. The state also asked for a declaration per the Declaratory Judgment Act ("DJA") that it could lawfully exclude felons from state employment. The district court dismissed for want of jurisdiction, but a different panel of this court reversed. Texas v. EEOC (Texas I), 827 F.3d 372 (5th Cir. 2016). That panel, however, withdrew its opinion and remanded so the district court could apply United States Army Corps of Engineers v. Hawkes Co., 136 S.Ct. 1807 (2016), in the first instance. Texas v. EEOC (Texas II), 838 F.3d 511 (5th Cir. 2016) (per curiam).

         On remand, considering cross-motions for summary judgment, the district court dismissed Texas's DJA claim but enjoined defendants from enforcing EEOC's guidance against Texas until EEOC complies with the notice-and-comment rulemaking requirements of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553. We modify the injunction and affirm it as modified.

         I.

         A.

         In April 2012, EEOC issued "Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII" ("the Guidance").^[1] Citing data suggesting that blanket bans on hiring individuals with criminal records disproportionately impact minorities, the Guidance declares,

With respect to criminal records, there is Title VII disparate impact liability where the evidence shows that a covered employer's criminal record screening policy or practice disproportionately screens out a Title VII-protected group and the employer does not demonstrate that the policy or practice is job related for the positions in question and consistent with business necessity.

         Guidance at 9. The Guidance also describes how EEOC will assess whether considering criminal records in hiring decisions has a disparate impact on protected groups. Notably, the Guidance concludes that "[n]ational data . . . supports a finding that criminal record exclusions have a disparate impact based on race and national origin [and] provides a basis for the Commission to further investigate such Title VII disparate impact charges." Id. at 10.

         The Guidance details how an employer may show that its policy is job-related and consistent with business necessity and thus may defend against a charge that its criminal-record policy gives rise to disparate impact liability under Title VII. The Guidance provides that "[a]n employer's evidence of a racially balanced workforce will not be enough to disprove disparate impact." Id. Instead, an employer "needs to show that [its criminal-record hiring] policy operates to effectively link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position." Id. at 14.

         The Guidance presents "[t]wo circumstances in which [EEOC] believes employers will consistently meet the 'job related and consistent with business necessity' defense": (1) by establishing a validated, multi-factor screening system per the Uniform Guidelines on Employee Selection Procedures standards or (2) by "develop[ing] a targeted screen . . . and then provid[ing] an opportunity for an individualized assessment for people excluded by the screen." Id. (emphasis added). Significantly, the Guidance condemns any "policy or practice requiring an automatic, across-the-board exclusion from all employment opportunities" because it "does not focus on the dangers of particular crimes and the risks in particular positions." Id. at 16.^[2]

         "All entities covered by Title VII are subject to [the Guidance's] analysis," id. at 27 n.2-including "state[] and local governments," id. at 3. The Guidance was "issued as a part of the Commission's efforts to eliminate unlawful discrimination in employment screening, for hiring or retention, by entities covered by Title VII, including private employers as well as federal, state, and local governments." Id. (emphasis added).^[3] And the Guidance stresses that it should be followed by "employers considering the use of criminal records in their selection and retention processes"; "individuals who suspect that they have been denied jobs or promotions, or have been discharged because of their criminal records"; and "EEOC staff who are investigating discrimination charges involving the use of criminal records in employment decisions." Id.^[4]

         Although the scope of the Guidance is purportedly broad, EEOC has limited rulemaking and enforcement power with respect to Title VII. It may issue only "procedural regulations" implementing Title VII and may not promulgate substantive rules. See 42 U.S.C. § 2000e-12(a); see also EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 257 (1991). And despite that EEOC can bring civil enforcement proceedings against private employers for violating Title VII, it may only investigate state employers.^[5] The Attorney General is the only federal government entity or person who may directly sue state employers to enforce Title VII. Both EEOC and the Attorney General, however, may issue aggrieved individuals "right-to-sue" letters, allowing those persons to sue a state employer for violating Title VII. See 42 U.S.C. §§ 2000e-5(f), 2000e-6.

         B.

         By state law and the policies of individual state agencies, Texas has long excluded persons with felony convictions-or at least those convicted of specified categories of felonies-from many public jobs. The Texas Department of Public Safety and the Texas Department of Aging and Disability Services, for instance, categorically exclude all convicted felons from employment. Texas schools and the Texas Juvenile Justice Department, moreover, categorically exclude applicants convicted of specified felonies.

         Soon after EEOC issued the Guidance, Texas received notice that an individual who had been rejected for a Department of Public Safety job had filed a complaint with EEOC, challenging Texas's no-felon hiring policy as having a disparate impact in violation of Title VII. Texas, in turn, sued EEOC and the Attorney General, contending that "EEOC's rule purports to limit the prerogative of employers, including Texas, to exclude convicted felons from employment." Texas averred that it had to choose either to "violate state and local laws that prohibit the 'individualized assessments' that EEOC requires and consider convicted felons for hire as Troopers, jailers, and school teachers-or [to] . . . ignore the EEOC's rule and risk an enforcement action."

         Texas brought one claim under the DJA, 28 U.S.C. §§ 2201-2202 ("Count One"), and another under the APA, 5 U.S.C. § 702 ("Count Two"). In Count One, Texas asked for "a declaration of its right to maintain and enforce its laws and policies that absolutely bar convicted felons (or particular categories of convicted felons)" from specified jobs. Texas also asked for an injunction that EEOC and the Attorney General "cannot enforce the interpretation of Title VII that appears in its Felon-Hiring Rule, nor . . . issue right-to-sue letters pursuant to that rule." In Count Two, Texas urged the court to set aside the Guidance, contending that the Guidance exceeded EEOC's power under Title VII, was promulgated without notice and comment in violation of the APA, and was substantively unreasonable.

         The district court dismissed for want of subject matter jurisdiction, but a divided panel reversed. Texas I, 827 F.3d 372. The panel majority held that Texas had Article III standing to challenge the Guidance, id. at 380, and that the Guidance was a final agency action eligible for judicial review under the APA, id. at 387-88. Judge Higginbotham dissented, contending that the controversy did not satisfy "Article III's demand of ripeness, injury, and adversarial engagement." Id. at 388. Judge Higginbotham also maintained that the Guidance was not a final agency action. Id.

         The panel withdrew its opinion, vacated the judgment, and remanded. Though the Supreme Court had announced Hawkes before the panel issued Texas I-and the panel applied Hawkes in Texas I-the district court had not had a chance to apply Hawkes in the first instance. Texas II, 838 F.3d 511. Noting that this court had remanded another case "relat[ing] closely to the issue that the Supreme Court decided in Hawkes," the panel did the same. Id.^[6]

         On remand, the district court denied Defendants' renewed motion to dismiss for lack of jurisdiction, largely adopting the reasoning in Texas I. Following cross-motions for summary judgment, the court dismissed Texas's DJA claim, "declin[ing] to declare that Texas has a right to maintain and enforce its laws and policies that absolutely bar convicted felons (or certain categories of convicted felons) from serving in any job the State and its Legislature deems appropriate." The court also "decline[d] to enjoin the EEOC from issuing right-to-sue letters."

         Regarding the APA claim, the district court granted Texas's motion for summary judgment in part and denied Defendants' motion. The court held "that the Guidance . . . is a substantive rule issued without notice and the opportunity for comment." The court thus enjoined EEOC and the Attorney General "from enforcing the EEOC's interpretation of the Guidance against the State of Texas until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule." The court did not reach the questions whether EEOC has the power to promulgate a substantive rule interpreting Title VII or whether the Guidance was substantively unreasonable.^[7] EEOC appealed, and Texas cross-appealed.

         II.

         First we must decide two jurisdictional issues: Whether the Guidance is a final agency action that we may review^[8] and whether Texas has standing to challenge the Guidance. We review de novo whether the district court had jurisdiction.^[9] We begin with whether the Guidance is a reviewable final agency action because that analysis contextualizes the standing inquiry. The APA allows judicial review only of a "final agency action, "^[10] meaning an action that (1) "mark[s] the consummation of the agency's decisionmaking process" and (2)"by which rights or obligations have been determined, or from which legal consequences will flow."^[11] The Supreme Court has "long taken" a "'pragmatic' approach . . . to finality, "^[12] viewing "the APA's finality requirement as 'flexible.'"^[13]

         Defendants do not dispute that the Guidance is "the consummation of [EEOC's] decisionmaking process." Bennett, 520 U.S. at 178 (internal quotation marks and citation omitted). Reviewability vel non of the Guidance thus turns on the second Bennett prong-whether "rights or obligations have been determined" by it, or whether "legal consequences will flow" from it. Id.

         (citation omitted).

         A.

         Courts consistently hold that an agency's guidance documents binding it and its staff to a legal position produce legal consequences or determine rights and obligations, thus meeting the second prong of Bennett. "The primary distinction between a substantive rule"-which is, by definition, a final agency action^[14]-"and a general statement of policy . . . turns on whether an agency intends to bind itself to a particular legal position."^[15]

         Whether an action binds the agency is evident "if it either appears on its face to be binding[] or is applied by the agency in a way that indicates it is binding."^[16] Courts have looked for mandatory language to determine whether an agency's action binds it and accordingly gives rise to legal consequences. In some cases, "the mandatory language of a document alone can be sufficient to render it binding."^[17]

         Similarly, actions that retract an agency's discretion to adopt a different view of the law are binding. "[I]f a statement denies the [agency] discretion in the area of its coverage[, ] then the statement is binding, and creates rights or obligations." Texas, 809 F.3d at 171 (alterations omitted) (quoting Gen. Elec., 290 F.3d at 382). Put differently, "where agency action withdraws an entity's previously-held discretion, that action alters the legal regime, binds the entity, and thus qualifies as final agency action."^[18] That withdrawal of discretion distinguishes a policy statement-which leaves the agency "the discretion and the authority to change its position . . . in any specific case" and "does not seek to impose or elaborate or interpret a legal norm"-from a final agency action. Synchor, 127 F.3d at 94.

         Another indication that an agency's action binds it and thus has legal consequences or determines rights and obligations is whether the document creates safe harbors protecting private parties from adverse action. "When the language of the [agency] document is such that private parties can rely on it as a norm or safe harbor by which to shape their actions, it can be binding as a practical matter." Cohen, 578 F.3d at 9 (internal quotation marks and citation omitted). Hawkes is illustrative. There, the Court held that jurisdictional determinations ("JDs") made by the U.S. Army Corps of Engineers regarding the applicability of the Clean Water Act ("CWA") to different tracts of land were final agency actions. The Court noted that when the Corps issued a "negative" JD, the landowner was assured that he would be free from CWA enforcement actions for five years. Hawkes, 136 S.Ct. at 1814. But if the Corps found that a tract was subject to the CWA-and thereby issued an "affirmative JD"-the landowner would be denied the benefits of a negative JD. In other words, the issuance of JDs produced "legal consequences," giving plaintiffs a safe harbor or not.

         That the agency's action binds its staff or creates safe harbors demonstrates that legal consequences flow from it, even when the agency lacks authority to promulgate substantive regulations implementing the statute it administers. What matters is whether the document "ha[s] practical binding effect" such that "affected private parties are reasonably led to believe that failure to conform will bring adverse consequences." Gen. Elec., 290 F.3d at 383 (internal quotation marks and citation omitted).^[19]

         B.

         Defendants do not dispute that the Guidance binds EEOC, and for good reason. The Guidance indicates that it binds EEOC staff to an analytical method in conducting Title VII investigations and directs their decisions about which employers to refer for enforcement actions. It also limits discretion respecting the use of certain evidence, mandating that evidence of a racially- balanced workforce cannot overcome a showing of disparate impact. And by broadly condemning "[a] policy or practice requiring an automatic, across-the-board exclusion from all employment opportunities," Guidance at 16, the Guidance leaves no room for EEOC staff not to issue referrals to the Attorney General when an employer uses a categorical felon-hiring ban.

         Those characteristics are comparable to the ones in Natural Resources Defense Council v. EPA, 643 F.3d 311 (D.C. Cir. 2011). There, the court held that an EPA guidance was a final agency action because it withdrew agency employees' discretion to refuse to find state emission-control plans non-compliant with EPA air quality standards on particular grounds. Id. at 319-20. The Guidance here similarly tells EEOC staff that across-the-board limitations are unlawful and forbids staff from considering certain evidence-that of a balanced workforce-when deciding whether an employer has satisfied Title VII's requirements.

         The Guidance also prescribes a multi-factor framework for employers to use in designing "targeted exclusion" policies that agency personnel must presumptively follow in determining whether an employer's felon-hiring policy violates Title VII. Guidance at 14, 17-18. That corresponds to Appalachian Power Co. v. EPA, 208 F.3d 1015, 1022 (D.C. Cir. 2000), holding that a guidance document requiring agency staff to use a multi-factor analysis in deciding whether a regulated entity's activity complied with governing law was a final agency action.

         The Guidance, moreover, tells employers how to avoid Title VII disparate-impact liability. It describes "[t]wo circumstances in which the Commission believes employers will consistently meet the 'job related and consistent with business necessity' defense." Guidance at 14. Those "safe harbors" are, admittedly, not so definite as is the effect of JDs in Hawkes, nor are the consequences of failing to abide by the Guidance as severe as the penalties threatened in Hawkes. But viewing the finality of the Guidance flexibly and pragmatically, as we are bound to do, the Guidance affects "the field of potential plaintiffs" in a way that carries legal consequences and dictates employers' rights and obligations. Hawkes, 136 S.Ct. at 1814. The Guidance is "binding as a practical matter" because "private parties can rely on it as a norm or safe harbor by which to shape their actions." Cohen, 578 F.3d at 9 (citation omitted). In fact, the Guidance explicitly declares that it is intended to be a play-book for employers to use to avoid liability, and it describes "best practices" for employers. Guidance at 3; see id. at 25 (listing "Employer Best Practices"). Further, it is supposed to be ...