The Justice Department told North Carolina that the state's new bathroom ordinance violates the civil rights of transgender people.
In a letter sent to North Carolina, the department alleged that the law reflected a "pattern or practice of discrimination against transgender state employees." It further accused both the governor and the state of posing resistance to the "full enjoyment of Title VII rights by transgender employees of public agencies."
Title VII of the Civil Rights Act is a protection granted to employees against discrimination on the basis of sex.
The bathroom law passed by North Carolina required people to use bathroom in conformity with their birth gender.
The department gave him until Monday to take back or stop the ordinance.
The state may be in jeopardy of losing hundreds of millions in federal funding if it continues to uphold the bathroom law.
"Please advise the Department, therefore, no later than close of business on May 9, 2016, whether you will remedy these violations ... by confirming that the State will not comply with or implement H.B. 2, and that it has notified employees of the State and public agencies that ... they are permitted to use bathrooms and other facilities consistent with their gender identity," Vanita Gupta, a top civil rights lawyer at the department wrote in the letter.
Governor Pat McCrory gave an official response to the Justice department on his website, saying that they will be deciding on the matter in the next few days.
"A claim by the Obama administration charges that one part of House Bill 2, which requires state employees in public government buildings and students in our universities to use a restroom, locker room and shower facility that match their biological sex, is now in violation of federal law. The Obama administration has not only staked out its position for North Carolina, but for all states, universities and most employers in the U.S.," McCrory said.
"The right and expectation of privacy in one of the most private areas of our personal lives is now in jeopardy. We will be reviewing to determine the next steps," he added.
North Carolina became the first state in the US to pass a law prohibiting transgender people to use bathroom that does not align with the sex listed on their birth certificates.
"This is no longer just a North Carolina issue, because this conclusion by the Department of Justice impacts every state, every university and almost every employer in the United States of America," McCrory was quoted as saying by The Washington Post.
The law was opposed many major organizations such as the NBA which decried it as being discriminatory. Businesses including Paypal also protested against the law. Singer Bruce Springsteen cancelled his North Carolina tour over the law touted as anti-LGBT by opponents.
However, the state regulators have maintained that the law preserves privacy of individuals, and is not intended to discriminate.
