Title VII of the Civil Rights Act of 1964 prohibits employment discrimination against an individual "because of such individual's . . . sex." But many courts disagree as to what the law means. In fact, most courts still hold that gender identity and sexual orientation are not protected under Title VII. However, employers should be on the lookout for a possible policy shift.
For example, the Second Circuit found that Title VII protects sexual orientation. In that case, a skydiving instructor was fired after telling a female customer that he was gay. See Zarda v. Altitude Express, Inc., 883 F.3d 100 (2nd Cir. 2018).
Along those lines, the Sixth Circuit recently found that Title VII protects gender identity. In that case, a transgender funeral home employee was fired after telling his employer that he was transitioning from male to female. EEOC v. R.G. & G.R. Harris Funeral Homes, 884 F.3d 560 (6th Cir. 2018).
The fissure between sides on this is so deep that the Department of Justice and the Equal Opportunity Employment Commission can't even agree.
These issues are currently pending before the US Supreme Court, but there's no date set at this time. For now, tread lightly and reach out to your employment law attorney for guidance through these murky waters.