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Federal Court Lets Transgender Employee Sue Employer for Transition Benefits Denial Under Title VII

Posted on: January 17th, 2017 by Art Leonard No Comments

Does a transgender employee who seeks coverage under her employer’s benefits plans for breast augmentation surgery have a legal remedy if her claims are denied? U.S. District Judge Sidney A. Fitzwater ruled on January 13 that a transgender woman employed by L-3 Communications Integrated Systems (L-3) may pursue a sex discrimination claim under Title VII of the Civil Rights Act of 1964, having alleged that she was denied such benefits because of her gender, but not under the anti-discrimination provision of the Affordable Care Act (ACA). Baker v. Aetna Life Insurance Company, 2017 U.S. Dist. LEXIS 5665, 2017 WL 131658 (N.D. Tex.).

Judge Fitzwater rejected discrimination claims against the insurance company that provides the coverage and administers the plans on behalf of the employer, finding that the ACA and President Obama’s Executive Order governing gender identity discrimination by federal contractors do not apply to this situation, and that the insurance company cannot be sued under Title VII because it is not the plaintiff’s employer. Judge Fitzwater declined to grant motions for summary judgment by either the employee or by the insurer of her claim that denial of health and short-term disability benefits violates her rights under the terms of the employee benefits plan, setting that claim down for further proceedings.

According to her Complaint filed in the U.S. District Court for the Northern District of Texas in Dallas, Charlize Marie Baker is an employee of L-3 and a participant in the company’s Health Plan and its Short-Term-Disability (STD) Plan, both of which are administered by Aetna Life Insurance Company. She began the process of transitioning in 2011, obtained a legal name change, and had her gender designation changed from male to female on all government-issued documents.  She scheduled breast implant surgery in 2015 after her doctor determined that it was medically necessary to treat her gender dysphoria.

Baker filed claims for coverage of the surgery under the Health Plan and coverage of her recovery period under the STD Plan.  She alleges that the Health Plan denied her claim to cover the surgery, because “the plan does not cover breast implants for individuals with a male birth gender designation who are transitioning to the female gender, although the plan covers individuals with a female birth designation who are transitioning to the male gender and seeking a mastectomy.”  Presumably the mastectomy would be routinely covered because the Health Plan is accustomed to covering mastectomies for female employees when their doctors state that the procedure is medically necessary.   Baker was denied STD benefits because the Plan administrator decided that surgery to treat Gender Dysphoria does not qualify as “treatment of an illness.”

In his January 13 ruling, Judge Fitzwater focused on motions by L-3 and Aetna to dismiss discrimination claims brought under Section 1557 of the ACA, the Employee Retirement Income Security Act (ERISA), and Title VII of the Civil Rights Act of 1964. Section 1557 of the ACA incorporates by reference Title IX of the Education Amendments Act of 1972, which prohibits discrimination “because of sex.”  ERISA has its own non-discrimination provision, but does not specifically ban discrimination “because of sex.”  The ERISA provision broadly prohibits discriminating against an employee to prevent them from getting benefits to which they are entitled under an employee benefit plan.  ERISA provides a vehicle for employees to sue plan administrators for the wrongful denial of benefits to which they are entitled under employee benefit plans.

None of the statutes under which Baker filed her claims explicitly prohibits discrimination because of gender identity. In resisting the motions to dismiss, she relied heavily on a regulation published by the Department of Health and Human Services last spring, providing that Section 1557 of the ACA bans discrimination because of gender identity by insurers and health care providers, tracking interpretations of Title IX by the Department of Education and the Justice Department, which in turn relied on interpretations of Title VII by some federal courts and the Equal Employment Opportunity Commission (EEOC).

Baker also relied on President Obama’s Executive Order 13672, which bans gender identity discrimination by federal contractors. Noting that L-3 is a federal contractor, Baker’s attorneys, Michael J. Hindman and Kasey Cathryn Krummel of Hindman/Bynum PC, urged the court to make “a good faith extension of existing law that the discrimination by Defendants based on her Gender Identity is also discrimination in violation of ERISA in this context and that ERISA must be read to include the prohibition of discrimination based on gender identity.”

“Baker is unable to point to any controlling precedent that recognizes a cause of action under Section 1557 [of the ACA] for discrimination based on gender identity,” wrote the judge. For one thing, he pointed out, the HHS regulation on point was to become effective on January 1, 2017, long after Baker was denied benefits, and thus was not applicable at the time of Aetna’s decision to deny the claims, and furthermore, one of Judge Fitzwater’s colleagues on the Northern District of Texas bench, Judge Reed O’Connor, has issued two rulings rejecting the argument that Title IX, which is the source of the ACA non-discrimination policy regarding sex, should be “construed broadly to protect any person, including transgendered persons, from discrimination.”

On August 21, 2016, Judge O’Connor issued a preliminary injunction against the enforcement of Title IX by the federal government in gender identity cases, and he issued a similar preliminary injunction on December 31, 2016, against the enforcement of the HHS regulation in gender identity cases under the ACA. The government appealed the August 21 ruling to the 5th Circuit Court of Appeals in Houston, and announced it would similarly appeal the December 31 ruling.  Whether those appeals will be pursued or dropped after the change of administration on January 20 is a decision for the new attorney general and secretaries of education and health.  In both of those cases, O’Connor concluded that the plaintiffs were likely to prevail on their claim that Title IX (and by extension the ACA) does not ban gender identity discrimination.

Many federal courts are grappling with the question whether federal laws and regulations banning discrimination “because of sex” should apply to gender identity or sexual orientation discrimination, but there is no consensus yet among the appellate courts. The Supreme Court has a case pending on the gender identity issue under Title IX, but it has yet to be scheduled for argument.  The closest the appeals courts have come are decisions finding that “sex stereotyping” violates Title VII and perhaps by extension other sex discrimination laws, based on a 1989 ruling by the Supreme Court in Price Waterhouse v. Hopkins.  Some courts have used the “sex stereotyping” theory to protect transgender employees in Title VII cases.  However, Judge Fitzwater was correct in observing that as of now there is no “controlling precedent” supporting Baker’s claim that gender identity discrimination, as such, violates Section 1557 of the ACA.  For this judge, a “controlling precedent” would be one coming from the 5th Circuit, which has appellate jurisdiction over federal trial courts in Texas, or the Supreme Court, and expressly addressing the issue.

Baker sought to argue that “the ‘effect’ of E.O. 13672 seems to be little more than to clarify the issue left somewhat ambiguous in Section 1557 that discrimination against transgender persons under this law is prohibited.” She argued that when the ACA was enacted in 2010, some courts had already relied on Price Waterhouse v. Hopkins to find gender identity discrimination covered by Title VII.

Fitzwater found “two fallacies” in this argument. “First,” he wrote, “the Fifth Circuit has not extended Hopkins’ Title VII reasoning to apply to any statute referenced in Section 1557,” and cited Judge O’Connor’s August 21 ruling in support of this point.  “Second, Baker is relying on an Executive Order to clarify what she characterizes as a ‘somewhat ambiguous’ legislative act.”  This was not enough to satisfy Fitzwater, who granted the motions to dismiss the ACA discrimination claim.

Aetna also moved to dismiss Baker’s ERISA claim, contending that ERISA does not ban gender identity discrimination in the administration of employee benefit plans. Fitzwater agreed with Aetna, finding that “as Baker acknowledges, this claim is not currently recognized.  It is for the Congress, not this court, to decide whether to create in ERISA a protection that the statute does not already provide.”  And because the court had already rejected her argument under Section 1557, it would not rely on that ACA provision as a basis for finding a right under ERISA.

Turning finally to the motions to dismiss the Title VII claim, Judge Fitzwater rejected Baker’s argument that Aetna should be liable to suit for sex discrimination under Title VII as an “agent” of L-3 in administering the benefits plans. Fitzwater pointed to 5th Circuit precedents holding that Title VII does not apply in the absence of an employer-employee relationship.  Baker argued that in the EEOC Compliance Manual there is a suggestion that an insurance company administering an employer’s benefit plans is acting as the employer’s agent, “but the EEOC Compliance Manual does not have the force of law,” wrote Fitzwater.  “And this circuit recognizes an agency theory of employer liability only if the alleged agent had authority ‘with respect to employment practices,’” which Baker did not allege.

However, at long last Fitzwater reached the only claim that he refused to dismiss in this opinion: Baker’s allegation that the denial of coverage for her surgery and recovery period under the benefits plans provided by her employer constituted sex discrimination by the employer in violation of Title VII. L-3 argued that Baker had failed to allege that she suffered an adverse employment action based on her gender, but, wrote Fitzwater, “The Court disagrees.”

“Baker plausibly alleges that she was denied employment benefits based on her sex,” he wrote. “She asserts that L-3 ‘engaged in intentional gender discrimination in the terms and conditions of employment by denying her a medically necessary procedure based solely on her gender,’” that the company’s “conduct constitutes a deliberate and intentional violation of Title VII,” and that this conduct “has cause [her] to suffer the loss of pay, benefits, and prestige.”  This was enough, concluded Fitzwater, to allow her Title VII claim against her employer to continue.  Interestingly, his opinion does not explore explicitly whether Title VII applies to gender identity discrimination claims as such, and makes no mention of the EEOC’s 2012 decision to that effect, choosing to treat this as purely a sex discrimination, presumably on the basis that Baker would have been covered for the procedure had she been identified female at birth, so clearly in that sense the denial was because of her sex.

Thus, at this point Baker continues to have a claim under ERISA against Aetna, based on her allegation that Aetna’s refusal to cover her procedure and recovery period violated the terms of the benefits plans, and a sex discrimination claim under Title VII against her employer, based on her allegation that the employer’s benefit plan discriminated against her because of her sex.