I've just read the decision that is being appealed:
www.leagle.com/decision/infco20180307120
I think* WoLF have got it wrong.
The case, as far as I can tell, does not hinge on whether Stephens is considered to be male or female. The argument (aside from the bulk of the ruling that is to do with whether a religious exception should apply) is that Stephens has a Title VII case because the funeral home should not be imposing sex stereotypes:
discrimination against transgender persons necessarily implicates Title VII's proscriptions against sex stereotyping. As we recognized in Smith, a transgender person is someone who "fails to act and/or identify with his or her gender" — i.e., someone who is inherently "gender non-conforming." 378 F.3d at 575; see also id. at 568 (explaining that transgender status is characterized by the American Psychiatric Association as "a disjunction between an individual's sexual organs and sexual identity"). Thus, an employer cannot discriminate on the basis of transgender status without imposing its stereotypical notions of how sexual organs and gender identity ought to align. There is no way to disaggregate discrimination on the basis of transgender status from discrimination on the basis of gender non-conformity, and we see no reason to try.
and ...
Because an employer cannot discriminate against an employee for being transgender without considering that employee's biological sex, discrimination on the basis of transgender status necessarily entails discrimination on the basis of sex — no matter what sex the employee was born or wishes to be.
So Stephens might be arguing that Stephens should be allowed to follow the female dress code because Stephens is a woman but that is not an argument this decision relies on.
Both sides rejected a suggestion to just have a gender neutral dress code as a 'less restrictive means' of achieving equality because the funeral home would still be unhappy with other aspects of Stephens' presentation:
Neither party endorses the district court's proposed alternative, and for good reason. The district court's suggestion, although appealing in its tidiness, is tenable only if we excise from the case evidence of sex stereotyping in areas other than attire ... The record thus compels the finding that Rost's concerns extended beyond Stephens's attire and reached Stephens's appearance and behavior more generally.
My understanding is that sex specific dress codes are legal as long as they don't place an unequal burden on male and female employees, however I don't understand how this is compatible with the prohibition on sex stereotyping.
While the judgment does not consider the legality of sex specific dress codes, it does rule that the clothing allowance rules of the funeral home may be discriminatory - male employees get suits provided, until Stephens' complaint women had to buy their own clothes and now get a smaller allowance than the men (this is all academic because the funeral home say they have had no female employees since the 1950s) - and that this can be considered as a claim arising from the original complaint. Therefore the decision would appear to endorse Stephens' right to follow the female dress code as well as to be gender non-conforming in other ways.
So just following the arguments in this decision - even though the legality of sex specific dress codes is expressly not considered - if Stephens can wear the female dress code as part of not following sex stereotypes then surely so can any other male employee. And vice versa for female employees wanting to adopt the male dress code. If Stephens wins, sex specific dress codes can be legally challenged.
It's a confusing clusterfuck of a decision precisely because the legality of the dress codes are not being considered and neither is Stephens' claim to actually be a woman.
While I think WoLF have got this wrong I think the behaviour of Brennan and others at the demo was absolutely disgraceful.
*I am happy to be corrected on this because I am not even a pretend lawyer and am not all that familiar with US law.