Here is Professor Nan Hunter's summary:
First, the judge found that there was “compelling evidence that the Library’s hiring decision was infected by sex stereotypes.” On that basis, Schroer was entitled to relief under the line of cases beginning with Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), which created the sex stereotyping doctine. In that case, the Court found that Title VII was violated when a woman was denied a job after being told to wear make-up and take a course at charm school. Evidence in the Schroer trial established that the negative reaction to Schroer grew out of her not fitting gender stereotypes by virtue of her decision to change genders.
More important was the second theory: that discrimination based on gender transition is literally discrimination based on sex. Schorer’s lawyers argued, and the judge agreed, that gender identity is a component of sex and therefore discrimination based on gender identity is sex discrimination. This might sound like a simple proposition, but previous federal courts have “carved [transgender] persons out of the statute by concluding that ‘transsexuality’ is unprotected by Title VII.”
The Schroer court held that just as discrimination against converts from one to faith to another is still discrimination based on religion, so too discrimination against transgender persons is still sex discrimination. Although doubtless Congress did not have transgender persons in mind when Title VII was enacted in 1964, the court found that the plain text of the statute covers this situation.
A great day for the rights of all Americans. Let's hope it holds up on appeal -- many other jurisdictions have sought to "carve out" gender identity from Title VII protections.