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A New Jersey appeals court ruling that transsexualism can be considered a handicap under state law has raised questions — and hackles — over the legal rights of people who change genders.

The decision, handed down by an appeals court, could set a precedent for other states and pave the way for a broader definition of laws concerning both discrimination and disability.

Critics say the ruling goes too far.

"That's stretching the idea of disability. Stretch it too far and it becomes meaningless," said Walter Olson, a senior fellow at the Manhattan Institute think tank and publisher of the Overlawyered.com Web site. "It's been a worry about disabled rights law that nobody knew where it was going to stop."

The question of whether homosexuality should be deemed a handicap has come up before, and it's a notion usually opposed by gay rights groups.

"We would not view sexual orientation as a disability," said David Elliot, communications director with the National Gay and Lesbian Task Force. "Is it a disability for straight people? I think it's offensive." He declined comment on whether gender identity is a handicap.

Addressing the case of a male doctor from Camden County, N.J., who was fired when he became a woman, the New Jersey appeals court ruled last week that transsexualism can be considered a handicap under state law and that it's illegal to discriminate against someone who changes gender.

The court overturned a trial judge's dismissal of the case of Dr. Carla Enriquez — formerly Carlos — against West Jersey Health Systems, sending it back to the lower court for trial.

"We conclude that a gender identity disorder, specifically gender dysphoria or transsexualism, is a handicap under the New Jersey Law Against Discrimination and that the LAD precludes an employer from discriminating on the basis of someone's sexual identity or gender," the appeals court's three-judge panel concluded.

Enriquez claims she was wrongfully fired in 1997 as medical director of West Jersey, a learning behavior center, after she — as Carlos — began wearing emerald-stone earrings and long hair, painting her nails and growing breasts.

The transformation, she says, was part of her medical treatment for gender identity disorder — which culminated in 1998 in a male-to-female sex-change operation. That same year, she sued her former employer for wrongful termination.

The National Gay and Lesbian Task Force's Elliot, while disputing the notion that sexuality is a handicap, did praise the New Jersey ruling for deciding it's illegal to discriminate against transsexuals — in the workplace or anywhere else.

"Civil rights law should be expanded to cover not just sexual orientation but gender identity," he said.

Some worry the New Jersey decision could further saturate an already lawsuit-ridden justice system and handcuff employers in management decisions. One critic said a line needs to be drawn about what's appropriate at the office and what's not.

"I'm going to start wearing a hula skirt to work because now I know I'm protected," said lawyer Philip K. Howard, author of The Lost Art of Drawing the Line: How Fairness Went Too Far. "It's extreme. Peculiarity is something the law shouldn't protect."

Executives of the West Jersey Health Center for Behavior, Learning and Attention approached Enriquez in early 1997 to express discomfort over her gradual transformation. Defendant John Cossa, the center's vice president, told her to "stop all this and go back to your previous appearance," according to court documents.

In June, Enriquez was diagnosed with gender identity disorder. A month later West Jersey fired her without cause, giving her 90 days written notice as required by her employment contract. The center prohibited her from writing a letter about her condition to patients and co-workers. Enriquez has since retained half her patients.

The appeals court decided she was wrongly fired because of gender issues, but said she hadn't sufficiently proven she suffered from gender dysphoria. Their ruling allows her to make the case for that in the lower court.

Sufferers of the condition, which the American Psychiatric Association calls a mental disorder, feel trapped by their biological gender. Treatment can include psychotherapy, hormone medications and a series of intensive sex-change surgeries.

Olson thinks that while laws probably need to be more sensitive, courts don't have the authority to force social awareness.

"It's all very good that society becomes more understanding, but it should not be done by the courts simply decreeing one fine day, 'We've changed the law for you,'" Olson said.

The federal Americans with Disabilities Act says transsexualism isn't a handicap. It also defines disability as an impairment that substantially limits a major life activity.

New Jersey is one of only 12 states that include gender orientation in their anti-discrimination laws. Two states, Minnesota and Connecticut, specifically ban discrimination based on gender identity.