House Bill 2: What It Does and Does Not Do (A Private Sector Business Perspective)

04.20.2016

By Zebulon D. Anderson, Kimberly J. Korando and Kerry A. Shad

H.B. 2 does not preclude private sector businesses or employers from adopting policies that prohibit discrimination on the basis of sexual orientation or gender identity nor regulate their decisions with regard to employee or public access to their bathrooms.

However, H.B. 2 does exclude LGBT persons from the state public policy against discrimination in employment and access to public accommodations, prohibit local government from enacting laws prohibiting such discrimination, and prohibit transgender persons from using public agency multiple occupancy restrooms designated for the gender to which they identify.

H.B. 2 also prohibits local government from enacting non-discrimination and other workers’ rights laws and contractor requirements. And, it bars all individuals, not just LGBT persons, from bringing law suits for violations of the state public policy against discrimination in employment and public accommodations.[1]

Here is a more in-depth look:

House Bill 2 (“H.B. 2”) was enacted in response to the City of Charlotte amending its non-discrimination ordinances relating to commercial contracts (contracts to do business with the city) and public accommodations (businesses offering goods or services to the public) to:

add marital status, familial status, sexual orientation, gender identity and gender expression to the existing list of protected characteristics; and
remove provisions that excluded restrooms and other similar facilities from the prohibition against sex discrimination.

The Charlotte ordinance was intended to prohibit discrimination against lesbian, gay, bisexual and transgender (LGBT) persons and allow transgender persons to use restrooms designated for the gender to which they identified. The expedited passage of H.B. 2, which became law on March 23, 2016, preempted the Charlotte ordinance amendments, which were to go into effect on April 1, 2016. E.O. 93, issued by Governor McCrory on April 12, 2016, did not alter H.B. 2 or its impact on private sector business and employers. A summary of H.B. 2 follows.

Public Accommodations

While federal law prohibits discrimination in public accommodations because of race, color, religion, national origin and disability, it does not prohibit such discrimination because of sex (except in a few areas such as health care programs and activities receiving Medicare, Medicaid or other federal funding, housing and credit).[2] This omission has increased the importance of state and local public accommodation laws covering sex-based discrimination, particularly with regard to persons who are or are perceived to be gay, lesbian, bisexual or transgender.

State Public Policy. H.B. 2 establishes a state public policy prohibiting discrimination in public accommodations because of race, religion, color, national origin or biological sex. A public accommodation is any place, facility, store, other establishment, hotel, or motel which supplies goods or services on the premises to the public or which solicits or accepts the patronage or trade of any person, but excludes private clubs or establishments that are not open to the public. Although H.B. 2 establishes a public policy against discrimination, it expressly states that no law suit can be brought for violation of this public policy.

By using the term “biological sex” (defined as the sex stated on a person’s birth certificate), the public policy does not prohibit discrimination because of sexual orientation or gender identity. Because H.B. 2 does not prohibit discrimination against LGBT persons and it preempts any local law on discrimination in public accommodations, no state or local law prohibiting discrimination against LGBT persons in access to public accommodations exists, or under the current law, can exist in North Carolina. Cities and counties also are prohibited from mandating or prohibiting the provision of goods, services or public accommodations as a condition of contract bidding or qualified-selection, except as otherwise required or allowed by state law. For example, a city may not require its contractors to protect LGBT persons from discrimination in access to goods, services, or public accommodations.

The bottom line effect of H.B. 2 is that although it added protection for some classes, unless covered by a federal prohibition against sex discrimination in public accommodations, businesses in North Carolina have absolute discretion to choose not to serve persons who are or are perceived to be gay, lesbian, bisexual or transgender. No religious belief is needed to justify the refusal of service—discrimination can be for any reason, including hatred and prejudice.

Private Sector Business Policies. H.B. 2 does not prohibit private sector businesses from adopting policies that prohibit discrimination on the basis of sexual orientation or gender identity nor regulate their decisions with regard to public access to bathrooms.

Private Sector Employers

State Public Policy. H.B. 2 modifies the state’s long-standing public policy prohibiting employment discrimination because of race, religion, color, national origin, age, sex or handicap,[3] by replacing the term “sex” with the term “biological sex.” By using the term “biological sex” (defined as the sex stated on a person’s birth certificate), North Carolina’s public policy does not prohibit discrimination because of sexual orientation or gender identity.

H.B. 2 also expressly states that no lawsuit can be brought for violation of this public policy. As a result, North Carolina no longer recognizes a common law claim of wrongful discriminatory discharge based on this public policy statement, and the many prior state and federal cases that held otherwise are no longer effective authority for such a proposition. With the elimination of this claim, employees will focus their employment discrimination litigation efforts on federal claims and search elsewhere in North Carolina law for public policy support for state law wrongful discriminatory discharge claims.

H.B. 2 preempts any local law on employment discrimination, which means there can be no local laws prohibiting discrimination against LGBT persons in private sector employment. Cities and counties also are prohibited from regulating or controlling contractor’s employment practices as a condition of contract bidding or qualified-selection, except as otherwise required or allowed by state law. For example, a city may not require its contractors to protect LGBT persons from discrimination in employment.

Because H.B. 2 does not prohibit discrimination against LGBT persons and it prohibits local government from doing so, there is no state or local law in North Carolina prohibiting private sector employment discrimination against LGBT persons. Although H.B. 2 gives private sector employers in North Carolina absolute discretion to choose not to employ persons who are or are perceived to be gay, lesbian, bisexual or transgender (and no religious belief is needed to justify the refusal of employment—it can be for any reason, including hatred and prejudice), federal law may render such discrimination illegal.

Federal employment law increasingly is being interpreted by federal agencies to prohibit discrimination because of sexual orientation or gender identity and to require that employees be allowed to use the restrooms and facilities of the gender to which they identify. See Baldwin v. Department of Transportation, EEOC Appeal No. 0120133080 (EEOC July 15, 2015) (discrimination on the basis of sexual orientation is unlawful sex discrimination under Title VII); Lusardi v. Department of the Army, No. 0120133395, 2015 WL 1607756 (EEOC April 1, 2015) (holding that restriction of transgender female employee from using the multiple occupancy women’s restroom was direct evidence of sex discrimination in violation of Title VII); OSHA, Best Practices, A Guide to Bathroom Access for Transgender Workers (“All employees, including transgender employees, should have access to restrooms that correspond to their gender identity…. no employee should be required to use a segregated facility apart from other employees because of their gender identity or transgender status.”); U.S. Department of Labor, Office of Federal Contract Compliance Program, Frequently Asked Questions E.O. 13672 Final Rule (covered federal contractors “must ensure that their restroom access policies and procedures do not discriminate based on the sexual orientation or gender identity of an applicant or employee. In keeping with the federal government’s existing legal position on this issue, contractors must allow employees and applicants to use restrooms consistent with their gender identity.”)

Private Sector Business Policies. H.B. 2 does not prohibit private sector employers from adopting policies that prohibit discrimination on the basis of sexual orientation or gender identity nor regulate their decisions with regard to employee access to bathrooms.

Public Agencies

In addition to the prohibitions against local regulation of discrimination in employment and public accommodation (described above),[4] H.B. 2 affects public agencies (branches of State government and political subdivisions, including county and local government, the University of North Carolina and North Carolina Community College System) in two other respects:

Local governments and other political subdivisions of the State cannot require employers to institute any policy or practice affecting amounts of wages, hours, benefits (including leave), payment of wages, or child labor. For example, local governments may not require private sector employers to:

pay a minimum wage higher than the state mandated rate (currently $7.25);
provide sick leave; and
ensure a certain level of hours of work to employees.

There are limited exceptions to the applicability of this provision, e.g., local governments remain free to regulate, compensate and control their own employees (including adopting non-discrimination policies applicable to their own employees provided that they are not otherwise in conflict with State law) and certain economic development programs and community development block grants, programs and activities are unaffected.

All multiple occupancy bathrooms and changing facilities in public schools and public agencies must be designated for and used only by individuals based on their biological sex (defined as the sex stated on the person’s birth certificate). Consequently, transgender persons may not use the facility with which they identify unless the facility corresponds with their biological sex.

Effect on public elementary and secondary schools. Public elementary and secondary schools (including charter schools) must require that every multiple occupancy bathroom and changing facility “designated for student use” be designated for and used only by students based on their biological sex. Biological sex is “[t]he physical condition of being male or female” which is “stated on a person’s birth certificate.”

Accommodations (e.g., single occupancy facilities or controlled use of faculty facilities) are permitted upon request due to special circumstances, provided that they do not result in use of the facilities by students of the opposite biological sex.

Some exceptions allow entry of persons of the opposite biological sex for custodial or maintenance purposes, to render medical assistance, to accompany a student needing assistance (authorized school employee or volunteer, caregiver or parent only), to receive assistance in using the facility, to accompany a person other than a student needing assistance, and for temporary designation of the facility for use by the person’s biological sex. The statute does not specify what a “temporary designation” would entail.

Effect on public agencies. Public agencies (branches of State government and political subdivisions, including county and local government, the University of North Carolina and North Carolina Community College System) must require that every multiple occupancy bathroom and changing facility be designated for and used only by persons based on their biological sex. As elsewhere, biological sex is defined as male or female which is stated on a person’s birth certificate.

Accommodations (e.g., single occupancy facilities) are permitted upon request for special circumstances provided that they do not result in use of the facilities by persons of the opposite biological sex.

Some exceptions allow entry of persons of the opposite biological sex for custodial or maintenance purposes, to render medical assistance, to accompany a person needing assistance, accompanying caregiver for minor under age of 7, and for temporary designation of the facility for use by the person’s biological sex. The statute does not specify what a “temporary designation” would entail.

Multiple Occupancy Bathrooms and Changing Facilities In N.C. After Passage Of H.B. 2.

Prior to H.B. 2, use of multiple occupancy bathrooms and changing facilities was not regulated and left to the discretion of the facility operator; however, North Carolina indecent exposure law (outlawing the exposing of private parts to a person of the opposite sex in a public place, N.C. Gen. Stat. §14-190.9) and trespass (which has been held to outlaw unauthorized entry to changing facilities, N.C. Gen. Stat. § 14-159.12) could apply to unauthorized entry and conduct in these facilities.

Following passage of H.B. 2, use of a facility will vary depending on whether it is in a state public school or public agency facility, a federal agency facility or a private business facility. The rules may also vary on whether the user is an employee of the facility. For example:

In a state public agency facility, a “Female” designated multiple occupancy bathroom would be accessible to:

biological females (all persons whose birth certificate indicates “female,” including transgender men (biological females))[5];
biological males (regardless of whether they identify as male or female) entering per the various exceptions, e.g., for custodial, maintenance, or inspection purposes, to render/receive assistance, or during a temporary designation of the facility as a male facility); and
pursuant to the federal government’s current interpretation of federal law, transgender women (biological males) employees, students (in all schools receiving federal financial assistance), and patients (in facilities receiving Medicare or other federal financial assistance).

In a private business facility, a “Female” designated multiple occupancy facility would be accessible:

by members of the public (biological or transgender), as determined by the owner in its discretion; provided that, where applicable, owner discretion will be superseded by federal law; and
pursuant to the federal government’s current interpretation of federal law: transgender women (biological males) employees (only if employer is covered by federal law), students (only in schools receiving federal financial assistance), patients (only in facilities receiving Medicare or other federal financial assistance).

Legal Challenges

On March 28, 2016, a civil action was filed in the United States District Court for the Middle District of North Carolina challenging H.B. 2 as violating the 14th Amendment of the United States Constitution. The plaintiffs are three North Carolina residents (a transgender male employed at the University of North Carolina at Chapel Hill, a transgender male student at the University of North Carolina at Greensboro, and a lesbian employed at North Carolina Central University), the American Civil Liberties Union of North Carolina and Equality North Carolina. The civil action asserts that the law violates the rights of transgender, gay, lesbian and bisexual persons.

In addition to the pending constitutional challenge, the law may face challenges from the federal government. The U.S. Department of Justice and U.S. Department of Education assert that barring a student from the restrooms and changing facilities that correspond to the student’s gender identity constitutes unlawful sex discrimination under Title IX. On April 19, 2016, the Fourth Circuit Court of Appeals held that, as it relates to restroom access by transgender persons, the Department of Education’s interpretation is controlling authority. G.G. v. Gloucester County School Board, No. 15-2056 (4th Cir. April 19, 2016). Ultimately, the issue likely will be decided by the U.S. Supreme Court.

It remains to be seen whether H.B. 2 will remain the law. If you have questions about the information covered in this article or would like to discuss other employment-related issues, please contact Zebulon D. Anderson, Kimberly J. Korando or Kerry A. Shad.

[1] H.B. 2 does not preempt claims brought under the North Carolina Persons with Disabilities Protection Act.

[2] See, e.g., Section 1557 of the Affordable Care Act, U.S. Department of Health and Human Services, Notice of Proposed Rulemaking Nondiscrimination in Health Programs and Activities (“When providing services, including access to facilities, covered entities must provide individuals with equal program access on the basis of sex, and are required to treat individuals in a manner consistent with their gender identity.”)

[3] The public policy applies to employers who regularly employ 15 or more employees.

[4] A unit of local government or other political subdivision of the State may adopt non-discrimination policies applicable to its own employees provided that they are not otherwise in conflict with State law.

[5] Under H.B.2, transgender men with access to the female multiple occupancy bathroom would include, among others: (i) a person whose sex assigned at birth was female, who has completed sex reassignment surgery to male and has fully transitioned to a male identity, but who has not (or cannot) under the law where the birth certificate was issued change his birth certificate to male; and (ii) a person whose sex assigned at birth was female who has undergone medical treatment to alter secondary sex characteristics (e.g., growth of facial and body hair, deepening voice, increased muscle mass) without sex reassignment surgery and who is known by family, friends and coworkers as a man and lives in accordance in all respects with a male gender identity.