For almost a decade, United Airlines has based its policy on reassigning disabled employees on an employer-friendly 2000 decision by the U.S. Court of Appeals for the Seventh Circuit. But on Friday the Seventh Circuit overturned both its 2000 decision and a ruling it issued for United just six months ago, handing a defeat to Morgan Lewis & Bockius and highlighting a circuit split over the scope of the Americans with Disabilities Act.

Siding with the U.S. Equal Employment Opportunity Commission, the appellate court concluded that the ADA requires employers to reassign newly-disabled workers to vacant positions for which they are qualified. The Seventh Circuit had previously ruled in 2000 and in March 2012 that the ADA contains no such requirement, but the EEOC convinced the court to reverse itself in light of a 2002 decision by the U.S. Supreme Court. Friday’s 11-page ruling is a loss for United, and it’s also bound to impact other employers facing claims under the ADA.

The case emerged out of a “competitive transfer” policy that United adopted in 2003 for workers unable to perform their jobs due to disability. Under the policy, United gave disabled employees “priority consideration” when they applied for new jobs within the company; if two equally qualified candidates applied, the disabled applicant seeking accommodation got the job. But reassignment wasn’t guaranteed, and in practice disabled United employees seeking reassignment sometimes lost out to other applicants perceived by United as more qualified.

One such worker was Joe Boswell, who worked as an airport mechanic for United in San Francisco for over a decade until a brain tumor forced him to seek medical leave. When he returned to work, he applied for reassignment to several different job openings but was rejected every time. After failed settlement talks, the EEOC brought suit on behalf of Boswell and a class of similarly situated United employees in 2009 in U.S district court in San Francisco.

United turned to Morgan Lewis, which got the case transferred to Chicago, where United is headquartered. U.S. District Judge Judge Harry Leinenweber then tossed the case in 2010, writing that his hands were tied by the Seventh Circuit’s 2000 holding in EEOC v. Humiston-Keeling Inc. that competitive transfer policies don’t violate the ADA.

The EEOC appealed to the Seventh Circuit, arguing that Humiston-Keeling was overruled by a 2002 Supreme Court decision, United States Airways Inc. v. Barnett. That case involved a US Airways cargo handler who hurt his back on the job. He was transferred to the mail room, but US Airways later forced him to give the mail room job to another employee with seniority. The high court ruled 5-4 that US Airways acted properly in giving its seniority system precedent over the ADA. However, Justice Sandra Day O’Connor wrote in dicta in her concurring opinion that, when there is a vacant position for which the disabled employee-applicant is qualified, the employer has an obligation under the ADA to transfer the employee. That holding seemed to cast doubt on the Seventh Circuit’s ruling in Humiston-Keeling.

Back in March a three-judge panel of the Seventh Circuit affirmed Leinenweber’s dismissal of the case, but invited the EEOC to file a petition for en banc rehearing so that the entire Seventh Circuit could consider whether Humiston-Keeling remained good law. After circulating the original ruling to the full court, the same three-judge panel has now reversed course without even waiting for a rehearing.

“While we understand that this may be a close question, we now make clear that Humiston-Keeling did not survive Barnett,” Circuit Judge Richard Cudahy wrote for the panel. “We reverse and hold that the ADA does indeed mandate that an employer appoint employees with disabilities to vacant positions for which they are qualified, provided that such accommodations would be ordinarily reasonable and would not present an undue hardship to that employer.” The court remanded the case to Leinenweber so that he can assess whether United would face such “undue hardships.”

We reached out to Morgan Lewis partner Nina Stillman to ask whether United intends to appeal Friday’s ruling to the Supreme Court. Stillman referred all calls to United’s press office, which didn’t immediately respond. The issue of “competitive transfer” policies under the ADA has been begging for Supreme Court review for years. The D.C. Circuit and Tenth Circuit have sided with the EEOC, while the Eighth Circuit ruled in a 2007 case called Huber v. Wal-Mart Stores Inc. that the policies are legal. The Supreme Court actually granted cert in the Huber case in December 2007, but it dropped case after the parties settled out-of-court.