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Most states have no employment protection for transgender discrimination; that is, an employee can be fired or not hired merely for being transgender. Last year, the U.S. Senate voted to extend the Employment Non-Discrimination Act's protections to gender identity or sexual orientation; the House hasn't acted yet.
Nevertheless, is transgender employment discrimination a thing? And can it subject your company to liability?
Price Waterhouse and Gender Nonconformity
As "The Simpsons'" Reverend Lovejoy has opined, "Short answer, 'yes' with an 'if.' Long answer, 'no' with a 'but.'" Which is to say only that the answer is murky.
Federal law on the matter is half-developed. In Price Waterhouse v. Hopkins, the respondent alleged that the partners at Price Waterhouse rejected her application for partnership because she didn't dress or act "femininely" enough. The Supreme Court found that discrimination based on non-adherence to gender stereotypes violated Title VII of the Civil Rights Act.
At least three circuits courts since -- the Sixth, Ninth, and Eleventh -- have applied the reasoning of Price Waterhouse to transgender employees, on the theory that those employees were discriminated against for their failure to adhere to stereotypical norms of their perceived gender.
In 2012, the EEOC -- citing the Eleventh Circuit case Glenn v. Brumby -- concluded that transgender discrimination was indeed "sex discrimination" under Title VII -- but the Supreme Court, which is where the buck stops in terms of statutory construction of federal laws, has never made this determination. The EEOC's determination, though a step in the right direction, isn't the same as a federal statute or a Supreme Court case stating unequivocally that transgender discrimination is against the law.
Not a Nice Place to Work, Anyway
Even if your company doesn't have any transgender employees (that you know of!), the issue is still problematic for retaining talent. Employees with a left-leaning political viewpoint may not want to work for a company that's hostile to transgender employees or has no policy explicitly forbidding discrimination against them. Notably, a 2011 Center for American Progress poll showed that 73 percent of voters supported protecting gay and transgender people from workplace discrimination.
On balance, it's good to have an express policy prohibiting transgender discrimination. It provides more predictability in the absence of firm laws, and it puts everyone on notice what the company's values are.