Since the Supreme Court decided Price Waterhouse v. Hopkins 18 years ago, it has been well established that Title VII's protections against gender discrimination also encompass sexual stereotypes. An employer violates Title VII by punishing employees for failing to conform to sex stereotypes, including stereotypes regarding dress and appearance. For example, it is illegal for an employer to take action against an male employee for having feminine mannerisms, or against a female employee who is too macho or aggressive.
Recently, in Schroer v. Billington (as reported here by CCH), the federal district court for the District of Columbia permitted a male-to-female transsexual job applicant to continue her Title VII sex discrimination case against the Library of Congress. The Library withdrew is job offer for a research position after Schroer disclosed that he was under a doctor's care for gender dysphoria, and that consistent with the treatment, he would present at work as a woman, change his name, and dress in traditionally female clothing. Schroer claimed discrimination based on a failure to comply with the Library's sex stereotypical notions about women's appearance and behavior, and not on her status as a transsexual. Because the claim was grounded on a failure to conform to sexual stereotypes, it fell under Title VII.
In so ruling, the D.C. Court followed the lead of the Sixth Circuit in Smith v. Salem, which, as far as a I know, the only other case to recognize such a cause of action. Smith v. Salem not only protected the transsexual plaintiff because of sexual stereotyping, but also based on a rationale that Title VII's reference to "sex" encompasses biological differences between men and women. The Court in Schroer, though, differentiated between Smith v. Salem's two different legal theories. Based upon the recent legislative wrangling over the Employment Non-Discrimination Act of 2007, it rejected the latter. It relied upon the ENDA's legislative history, which took out protections for gender identity (i.e., transsexual and transgender individuals) (see House approves law to protect gay workers).
The difference is not merely one of semantics. Schroer concerned a motion to dismiss - that is, did the complaint state a legally recognized cause of action? The case will now continue to discovery and a likely Motion for Summary Judgment. The key issue in the case will be whether the Library rescinded the job offer because of her transsexual status, or because of sexual stereotypes. Only the latter will be permitted to go to a jury under Title VII. As the ENDA's Congressional debates illustrate, Title VII does not protect the former, nor will it, at least in the foreseeable future.