Since the EEOC first ruled in 2012 that discrimination based on transgender status constitutes sex discrimination in violation of Title VII, the EEOC has continued to expand protections for transgender employees, finding that intentional misuse of a transgender employee’s new name and pronoun may represent sex-based harassment and/or discrimination (decision available here); that an employer’s failure to revise its records pursuant to changes in gender identity may violate Title VII’s prohibition on sex discrimination (decision available here); and that an employer’s restrictions on a transgender employee’s ability to use a common restroom which corresponds to the employee’s gender identity constitutes unlawful disparate treatment (decision available here). The EEOC was recently dealt its first significant setback, however, in a federal court decision which reflects the growing tension between the anti-discrimination laws and religious liberty in the workplace.

In EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. (decision available here), the EEOC alleged that a funeral home in Michigan wrongfully terminated its funeral director, who presented as male when first hired, after she notified the owner and operator of the funeral home by letter that she was transitioning to a transgender female, would be undergoing sex reassignment surgery while on vacation, and would be presenting as a woman upon her return. Notably, the funeral home enforced a dress-code policy under which male employees were required to wear a pants-suit with a necktie and female employees were required to wear a skirt-suit. It is undisputed that the former funeral director intended to comply with this policy and wear a skirt-suit upon her return to work. Two weeks after receipt of her letter, however, the owner/operator fired the funeral director, stating, “This is not going to work out.”

The EEOC alleged that the funeral home’s termination of the funeral director on the basis of her transgender status and/or because she did not conform to the funeral home’s sex- or gender-based preferences, expectations, or stereotypes was unlawful under Title VII. Importantly, the EEOC further argued that the funeral home was required by Title VII to permit the funeral director to dress as a female in accordance with her gender identity.

In response, the funeral home invoked the federal Religious Freedom Restoration Act (“RFRA”), arguing that the EEOC was unlawfully enforcing Title VII in a manner that would force the funeral home to violate its sincerely held religious beliefs. Employers may recall RFRA from the 2014 Hobby Lobby decision, in which the Supreme Court held that closely held for-profit companies with sincerely held religious beliefs could lawfully deny contraception to employees. Under RFRA, the government is prohibited from substantially burdening a person’s exercise of religion unless the government can show that the burden (1) serves a compelling governmental interest and (2) is the least restrictive means of doing so. Here, the owner/operator of the funeral home testified that he was a practicing Christian who believed that a “person’s sex is an immutable God-given gift”; as a result, permitting employees to dress in a manner inconsistent with their biological sex would violate his sincerely-held religious beliefs.

In a lengthy decision, the court first rejected the EEOC’s position that transgender status or gender identity are protected classes under Title VII. The court did recognize, however, the validity of the EEOC’s sex-stereotyping theory of the case, finding that the funeral home could not lawfully terminate the funeral director simply because she did not conform to its sex/gender stereotypes as to work clothing. Nevertheless, the court dismissed the case against the funeral home, finding that (1) it was protected by RFRA, and (2) that the EEOC’s application of Title VII was not the “least restrictive means” of eliminating sex stereotypes. The court observed, for instance, that the EEOC could have sought to enforce a gender-neutral dress-code policy.

Given the complexity of the issues discussed herein, what should employers take away from this decision?

As a preliminary matter, employers with sincerely held religious beliefs should be wary of relying on this decision in making employment decisions. As the court noted, RFRA applies only to the government; it does not apply in cases brought by private individuals. It is therefore unlikely that this case would have been dismissed if the funeral director – rather than the EEOC – had commenced the lawsuit.

Although some courts may be reluctant to view transgender status and gender identity as protected classes under Title VII, transgender employees may nonetheless be protected by Title VII’s well-established prohibition on employment decisions based on sex- or gender-based preferences, expectations or stereotypes. Additionally, a growing number of states and municipalities are enacting laws which explicitly protect transgender employees. Therefore, if only as a practical matter, employers nationwide should consider transgender employees as members of a protected class.

Sex-specific dress codes and grooming policies are likely unlawful. Indeed, the court explicitly rejected the funeral home’s defense that its enforcement of its sex-specific dress code – which requires males to wear a pants-suit with a tie and females to wear a skirt-suit – could not constitute impermissible sex stereotyping under Title VII. Employers are therefore advised to review their policies in light of this decision.

This is a dynamic area of law, and employers are likely to face an increasing number of suits from both the EEOC and private litigants regarding the rights of LGBT employees. Akerman attorneys are monitoring these trends closely and are available to provide counseling or training on any of the topics discussed herein.