Binary Thinking During the Gender Revolution? You Might Need Employment Practices Liability Insurance

Binary sex identity (male or female) and traditional gender stereotypes are no longer the norm, as highlighted in National Geographic’s recent Gender Revolution issues and documentaries.¹Employers now may find their employees more visible as transgender², gender fluid³, homosexual⁴ or non-gender-conforming. The fight for equal pay and opportunity championed by the women’s rights movement is now expanding to include lesbian, gay, bisexual and transgender (LBGT) people. Social conditions and the law continue to evolve, bringing more of these rights within the protection of Title VII⁵ and other legal mandates prohibiting discrimination on the basis of “sex.” 

As a corollary, the number of claims for wrongful discrimination, hostile workplace, actual or constructive termination, and other employment practices is steadily increasing, as are the amounts spent by employers responding to such claims. Just one claim can easily cost over $100,000 to defend, while a class action lawsuit can rack up more than $1,000,000 in defense fees and costs. 

Employment Practices Liability Insurance (EPLI) covers claims against employers by employees and government agencies for wrongful employment acts or practices, including discrimination and harassment.⁶ EPLI is available to an employer as part of a liability package or as a standalone policy.⁷ The premium and the deductible may represent a substantial investment by the employer, but if a claim is made, the insurer’s payment of the defense expenses shows a good return on that investment regardless of the outcome of the claim.

One legal issue generating numerous lawsuits, which cost employers thousands of dollars and hours, is whether discrimination based on sexual identity or orientation comes within Title VII’s prohibitions against discrimination based on sex. The U.S. Supreme Court almost 20 years ago held that discrimination “based on a person’s gender-non-conforming behavior is impermissible discrimination” under Title VII. Price Waterhouse v. Hopkins, 490 U.S. 228, 250-251 (1989) (firm’s failure to promote a woman is actionable if based in part on gender stereotyping about aggression). Courts then proceeded to enforce equal treatment of women and men, frequently disallowing differential dress codes and other distinctions, but many courts refused to extend that protection to LGBT people, especially gay men. Among those courts, the Third Circuit in Prowel v. Wise Business Forms, Inc., 579 F.3d 285 (3rd Cir. 2009) remanded the case for a jury trial on whether the gay male plaintiff was harassed for deviating from gender stereotypes or for his sexual orientation, since Title VII prohibits the first but not the second; the Sixth Circuit in Vickers v. Fairfield Medical Center, 453 F.3d 757, 763 (6th Cir. 2006) dismissed a gay man’s claim of workplace mistreatment by co-workers because it was not based on any workplace requirement to meet male stereotypes and expressly refused to read Title VII to encompass sexual orientation as a prohibited basis for discrimination; and the First Circuit in Higgins v. New Balance Athletic Shoe, Inc., 194 F.3d 252, 258-9 (1st Cir. 1999) found a gay male employee’s “wretchedly hostile” work environment lamentable but not actionable under Title VII, since it was due to his sexual orientation.  

Some courts were willing to find protection for transgender individuals, perhaps because it was easier to tie their claims to gender stereotyping. The Third Circuit in Glenn v. Brumby, 663 F.3d 1312, 1316 - 1318 (11th Cir. 2011) held that discrimination against a transgender person for failure to conform to gender stereotypes was actionable under Title VII, which that court read to prohibit firing plaintiff employee due to a sex reassignment. The Sixth Circuit allowed a firefighter who was discriminated against for expressing a female appearance to state a claim under Title VII in Smith v. City of Salem, 378 F.3d 566, 574 (6th Cir. 2004), explaining:

. . . an employer who discriminates against women because, for instance, they do not wear dresses or makeup, is engaging in sex discrimination because the discrimination would not occur but for the victim’s sex. It follows that employers who discriminate against men because they do wear dresses and makeup, or otherwise act femininely, are also engaging in sex discrimination, because the discrimination would not occur but for the victim’s sex.

The debate over the reach of Title VII continues. In 2015, the U.S. Equal Employment Opportunity Commission (EEOC) formally adopted the position that “sexual discrimination” includes discrimination based on sexual orientation and gender identity.⁸ Baldwin v. Foxx, 2015 EEOPUB LEXIS 1905, 116 FEOR (LRP) 2, EEOC (IHS) 120133080 (U.S. EEOC Appeal No. 0120133080, Agency No. 2012-24738-FAA-03, July 16, 2015) (EEOC held that prohibited sex-based considerations encompassed discrimination against lesbian, gay, and bisexual individuals). The EEOC then successfully argued when suing an employer for harassment of a gay employee that “(1) [Mr.] Baxley was targeted because he is a male, for had he been female instead of a male, he would not have been subject to discrimination for his intimate relationships with men; (2) [Mr.] Baxley was targeted and harassed because of his intimate association with someone of the same sex, which necessarily takes Baxley’s sex into account; and (3) [Mr.] Baxley was targeted because he did not conform to his harasser’s concepts of what a man should be or do.”  EEOC v. Scott Medical Health Ctr., P.C., 2016 U.S. Dist. LEXIS 153744, at *13 (W.D. Pa. Nov. 4, 2016).  The Judge agreed, stating:

The Court views this as the same argument articulated in three different ways, with the singular question being whether, but for Mr. Baxley’s sex, would he have been subjected to this discrimination or harassment. The answer, based on these allegations, is no. The Court holds Title VII’s “because of sex” provision prohibits discrimination on the basis of sexual orientation. Accordingly, the EEOC’s Complaint stating that Mr. Baxley was discriminated against for being gay properly states a claim for relief. The Court sees no meaningful difference between sexual orientation discrimination and discrimination “because of sex.”  [Id. at *13-14.]

The EEOC is currently appealing a district court decision allowing an employer to fire a previously satisfactory employee who changed gender and then wanted to change work apparel to conform to the employer’s dress code (men must wear pants, and women, skirts).  EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., 2016 U.S. Dist. LEXIS 109716 (E.D. MI, Case No. 14-13710, Aug. 18, 2016); http://www.slate.com/blogs/xx_factor/2017/02/14/eeoc_continues_fight_against_trans_discrimination.html. The district court found the dress code to be impermissible sex discrimination under Title VII and recommended that the EEOC seek a gender-neutral dress code for the business (i.e., allowing women to wear pants). But the court then held that the employer was entitled to an exemption from Title VII under the federal Religious Freedom Restoration Act (“RFRA”), applying the standards set by the U. S. Supreme Court in Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751, 573 U.S. ___ (2014). The court dismissed the lawsuit without restoring the transgender employee’s job or granting her any relief. Note that RFRA does not apply when the employee individually sues in a private action; it only applies to government actions. Also, the ACLU is seeking to intervene in the pending appeal of this lawsuit on behalf of the employee. 

Private lawsuits under Title VII also present these issues.  In Hively v. Ivy Tech Community College, --- F.3d ---, 2017 U.S. App. LEXIS 5839 (7th Cir. en banc, No. 15-1720, April 4, 2017), after a rehearing by the full panel of judges, the majority in a series of opinions held that discrimination based on sexual orientation is a prohibited form of discrimination based on sex, but three judges dissented, arguing at length that this impermissibly expands the statute beyond its original intent.  This case may well go before the U.S. Supreme Court, where some commentators expect the dissent to be endorsed now that Judge Gorsuch has joined the bench. 

On March 23, 2017, a federal district court in Pennsylvania ruled that a former employee could maintain a Title VII action against Hartford Fire Insurance Co. because she was treated derisively by her supervisor for “being lesbian” when in fact she was heterosexual (married and living with her husband) but was perceived at work as gay due to her haircut, style of dress and tattoo.  Ellingsworth v. Hartford Fire Ins. Co., 2017 U.S. Dist. LEXIS 42061 (E.D. Pa. Mar. 22, 2017).  The court explained,  

Calling a female employee a “dyke,” ridiculing her publicly for “dressing like a dyke,” and forcing her to peel back her clothing to show her coworkers her “lesbian tattoo” is not only offensive and inappropriate—it is prohibited by Title VII. This is the case regardless of whether or not Ms. Ellingsworth is or is not actually gay. The fact of the matter is this: the complaint clearly conveys that Ms. Ellingsworth did not conform to Ms. Ferrier’s idea of how a woman should look, act, or dress. Ms. Ferrier was her supervisor and her bias determined the conditions of Ms. Ellingsworth’s employment. As a woman, Ms. Ellingsworth is necessarily a member of a protected class. According to the complaint, even after plaintiff placed her employer on notice, nothing was done.  [Id. at *13-14.]

On March 10, 2017, a three-judge panel in the Third Circuit split on this issue. The two male judges remanded the case to allow the plaintiff, a lesbian security guard, to amend her complaint to show that the unquestioned discrimination was due to her failure to conform to gender stereotypes and not due to her sexual orientation. The dissenting judge, a woman, echoed the quotes above and explained that discrimination based on sexual identity or orientation is a form of gender stereotyping banned by Title VII. Evans v. Georgia Regional Hospital, -- F.3d --, 2017 U.S. App. LEXIS 4301 (11th Cir., March 10, 2017). In a Texas federal court, Baker sued her employer and its health benefits administrator, alleging improper discrimination on the basis of gender identity due to denial of coverage when her doctor ordered breast augmentation surgery after she was diagnosed with gender dysphoria, despite that mastectomies for female to male gender dysphoria were covered. Baker v. Aetna Life Ins. Co., 2017 U.S. Dist. LEXIS 5665 (N.D. TX, Jan. 13, 2017). The court dismissed the Title VII claim against Aetna because it was not the plaintiff’s employer. The court let stand, however, the plaintiff’s claim against her employer for intentional gender discrimination under Title VII. All of these cases consumed large amounts of time and money just to establish whether or not the claim could move forward.

The recognition of LGBT people’s rights continues to be debated in courtrooms as well in legislatures and the media. The much-publicized question of access to bathroom facilities is one example of the societal changes confronting employers and employees that may lead to litigation. The complications added when an individual is gender-fluid or gender-neutral have yet to reach the courts, but will eventually.

Claim prevention is difficult. An employer must follow fluctuating federal and state law, plus local requirements. Employers in San Francisco, for example, must follow local minimum-wage rules in addition to California’s constitutional discrimination and privacy protections, all different from federal statutory mandates. Federal policy on the interpretation and enforcement of employment-related laws is expected to change under the new administration, which is reducing federal regulation and enforcement while calling for more state activity in this arena.  This may result in an increase in private actions by employees as administrative support becomes unavailable to them.  

These cases illustrate how an employer may be liable for its illegal treatment of its employees under Title VII and also how an employer may incur substantial expenses even if its behavior is ultimately found legal. An employer may have separate liability for allowing a hostile work environment, for constructive termination, or for negligent infliction of emotional distress. With the Gender Revolution underway, the prudent business should seriously consider not only its policies to protect LGBT employees but also whether Employment Practice Liability coverage is right for them.