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 ...