The decision encompasses a number of cases, but the most prominent was that of Aimee Stephens, a trans woman from MI who was sacked by her longtime employer, Harris Funeral Homes, because she had transitioned from living as a man to living as a woman.
In a blow to the administration of President Donald Trump, the court ruled by six votes to three that Title VII of the Civil Rights Act of 1964, which outlaws discrimination against employees because of a person's sex, also covers sexual orientation and transgender status.
The landmark ruling will extend protections to millions of workers nationwide and is a defeat for the Trump administration, which argued that Title VII of the Civil Rights Act that bars discrimination based on sex did not extend to claims of gender identity and sexual orientation.
"Today we must decide whether someone can be fired simply for being homosexual or transgender", the court said. "The answer is clear", Gorsuch wrote for the majority.
As Gorsuch wrote, "it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex".
In R.G. & G.R. Harris Funeral Homes, Aimee Stephens was sacked after she told her employee she planned to live and work full-time as a woman. He was joined by Chief Justice John G. Roberts Jr. and Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan.
Likewise, Justice Gorsuch said that Aimee Stevens would have continued to have the position as a funeral director at Harris Funeral Homes if Stevens were male, but lost the job for being female.
The decision was hailed by many Democratic leaders, including Pete Buttigieg, the former Army officer and mayor who became the first openly gay person to run for the Democratic presidential nomination.
Alito also warned in his dissent that the court's ruling could lead to unintended consequences such as the use of bathrooms based on one's gender identity, perhaps leading to "serious psychological harm" to women who have survived sexual assault. Trans rights advocate Carter Brown said if the Supreme Court ruled in favor of workplace protections, it would still require a cultural shift before trans people truly felt safe at work.
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A rainbow flag shown here flying outside the Supreme Court in Washington, DC on June 26, 2015 after its historic decision on gay marriage.
And it comes even though the court has grown more conservative.
Conservative Justices Samuel Alito, Clarence Thomas and Brett Kavanaugh dissented from the ruling.
Lesbian, gay, bisexual, and transgender rights activists, as well as Democratic politicians and several major businesses, had been demanding that the court spell out that the community was protected by the law.
Two other plaintiffs did not live to see the ruling.
Donald Zarda, a skydiving instructor from NY who died in a skydiving accident in 2014, said he was dismissed after joking with a female client with whom he was tandem-diving not to worry about the close physical contact because he was "100% gay".
"The document that the court releases is in the form of a judicial opinion interpreting a statute, but that is deceptive", Alito wrote.
The court faces another test in its next term, which starts in October, in a case pitting LGBT rights against religious rights involving Philadelphia's decision to bar a Catholic organization from participating in the city's foster care program because the group will not place children with same-sex couples. The administration and the employers argued that Congress did not intend for Title VII to protect gay and transgender people when it passed the law.