According to a recent decision from the Equal Employment Opportunity Commission (EEOC), discrimination by an employer against a transgender individual violates Title VII of the Civil Rights Act of 1964.  In Macy v. Holder, the EEOC held that “discrimination against a transgender individual because of her gender-nonconformity is sex discrimination, whether it’s described as being on the basis of sex or gender.”
The EEOC’s decision in Macy is consistent with decisions from several federal circuit courts.  The Eleventh Circuit Court of Appeals held that discrimination against transgender individuals violated Title VII in Glenn v. Brumby, 724 F.Supp.2d 1284 (11th Cir. 2010).  The Sixth Circuit Court of Appeals reached the same conclusion in Smith v. City of Salem, 378 F.3d 566 (6th Cir. 2004).
For employers in Minnesota, discrimination based on transgender status is also prohibited by the Minnesota Human Rights Act.
Takeaway:  Under federal and Minnesota state law, it is illegal for employers to discriminate against transgender applicants and employees.  To reduce potential liability, employers should ensure that their managers and supervisors understand the legal protections that apply to transgender individuals.