Phillips 66 is headed to a federal appeals court to defend itself against transgender discrimination claims, but the Texas-based energy company won’t argue that bias based on gender identity is legal.

Phillips 66 told the U.S. Court of Appeals for the Fifth Circuit that it can win without reaching that issue, so the court called on an outside lawyer to make the case that federal law doesn’t prohibit discrimination on the basis of gender identity. The court will hear oral argument on Jan. 8.

The company’s decision to fight allegations that it discriminated against a transgender job applicant without arguing she wasn’t protected by federal law highlights corporate America’s concern about being labeled anti-LGBT. Litigating against LGBT rights to defend employment decisions runs the risk of tarnishing a company’s image, especially in an era when younger workers increasingly want to be part of a diverse workforce.

While about 20 states and the District of Columbia prohibit workplace discrimination based on sexual orientation and gender identity, legal protection under federal law remains unsettled. The U.S. Supreme Court is considering whether to take a trio of cases that could decide whether Title VII of the 1964 Civil Rights Act, which prohibits workplace discrimination based on “sex,” covers LGBT job applicants and workers.

Phillips 66 spokesman Joe Gannon declined to comment on the company’s legal strategy in the Fifth Circuit case. The company is an equal opportunity employer and its “decisions on recruitment and selection are based solely on objective and job-related criteria in line with business needs and Phillips 66 policies,” Gannon told Bloomberg Law in an email.

The company received high marks for its workplace policies in an annual report from the Human Rights Campaign, an influential LGBT rights advocacy group. The Corporate Equality Index looks at objective factors, like policies and employee benefits.

Measuring LGBT Inclusion

Phillips 66 prohibits discrimination based on sexual orientation, as do 91 percent of Fortune 500 companies. The energy company also bars gender identity discrimination, like 83 percent of the 500 highest-earning companies, according to the HRC’s equality index for 2018. Overall, Phillips 66 scored 85 out of a possible 100 points.

Corporate America’s growing support for LGBT rights can be seen in changes in the Corporate Equality Index over the years. When HRC published its first report in 2002, 4 percent of the 319 companies surveyed earned perfect scores, compared to 64 percent of the 947 companies surveyed in the most recent report.

The number of businesses voluntarily participating in the index demonstrates its credibility, Deena Fidas, director of HRC’s Workplace Equality Program, told Bloomberg Law. Companies have embraced LGBT inclusion because it’s good for business, she said.

Optics of Arguing Against Equality

Company ratings can take a hit with public stands against LGBT equality in the workplace, including litigation positions in employment cases. Saks & Co., for example, was suspended from HRC’s equality index in 2015 after it defended against an ex-employee’s workplace discrimination allegations by arguing that Title VII doesn’t protect transgender people.

Saks eventually pulled back its argument about Title VII and HRC put the company back on its index, Fidas said.

When it comes to fighting lawsuits, some corporate defendants will pursue all possible arguments that will help them win, while others look at their welfare as a whole, which includes the optics of taking certain legal positions, said Gregory Nevins, an attorney with Lambda Legal, a pro-LGBT rights group.

Perhaps Price Waterhouse would have reconsidered litigating a workplace discrimination lawsuit all the way to the Supreme Court if it knew its name would forever be associated with that case, Nevins told Bloomberg Law. In 1989, the high court ruled in Price Waterhouse v. Hopkins that Title VII prohibits discrimination based on a person’s nonconformity with gender stereotypes.

PricewaterhouseCoopers spokeswoman Megan DiSciullo declined to comment.

Title VII in the Fifth Circuit

The Equal Employment Opportunity Commission, which the Fifth Circuit allowed to participate in the Phillips 66 case, asked the court to rule that Title VII prohibits discrimination against transgender people.

With Phillips 66 declining to argue the contrary position, the court appointed Chicago-based litigator Adam Mortara of Bartlit Beck to champion that gender identity is not covered by Title VII.

Mortara told Bloomberg Law that the Fifth Circuit’s invitation marked the seventh time a court has asked him to argue in a case he otherwise wasn’t involved in. He appeared before the Supreme Court in a 2016 case about the retroactive application of a criminal sentencing decision. Mortara also argued that Title VII does not cover sexual orientation before the entire Second Circuit.

The Fifth Circuit’s consideration of Title VII’s scope stems from Nicole Wittmer’s job discrimination lawsuit against Phillips 66. Wittmer alleges that the company rescinded a job offer because she is transgender.

District Judge Lee H. Rosenthal assumed that transgender people are covered by Title VII, but threw out the lawsuit in April because she found no evidence that Wittmer’s sex or appearance played a role in Phillips 66’s decision to withdraw the job offer.

Phillips 66 told the Fifth Circuit in an August brief that Wittmer said she was employed when she interviewed, but she was not. The company also said it did not know she’s transgender when it rescinded the job offer.

The case is Wittmer v. Phillips 66, 5th Cir. App., 18-20251, Oral argument 1/8/19.