WHO IS AN EMPLOYEE? LET US COUNT THE WAYS
When employees sue their employer
under Title VII, the Americans with Disabilities Act (ADA), the Age
Discrimination in Employment Act (ADEA) or the Family Medical Leave Act (FMLA),
a preliminary issue arises regarding the number of employees working for an
employer.
This question can be crucial because
each of these federal statutes sets a threshold number of employees. If this
threshold is not met, the statute does not apply to that employer. The question
also is significant in the context of compensatory and punitive damage caps
under Title VII. The number of employees determines the size of the damage cap.
How to count employees under these statutues as well as the significance of the employee count
will be discussed.
Title VII and the ADA both define
employer as “a person engaged in an industry affecting commerce who has fifteen
or more employees for each working day in each of twenty or more calendar weeks
in the current or preceding calendar year.” ADEA uses the same language and so
does
Title VII’s
compensatory and punitive damage caps also are based on the number of
“employees in each of 20 or more calendar weeks in the current or preceding
calendar year.” Under Title VII, employers with up to 100 workers may be liable
for combined compensatory and punitive damages up to $50,000. The cap is
$100,000 for employers with 101 to 200 employees, $200,000 for those with 200
to 500 employees and $300,000 for more than 500.
In light of the nearly identical
definitions, employees are counted in the same manner for each of the federal
statutes.
Who’s an employee?
While the question might initially
appear straightforward, the inquiry actually is quite nuanced, and the definition of employee in the relevant federal statutes do
not provide much guidance. For example, Title VII defines an employee as “an
individual employed by an employer.” ADEA similarly says “any employer.” Case
law has provided insight as to whether independent contractors, partners,
directors, shareholders and high-level officers are considered employees under
those statutes.
As an initial matter, independent
contractors are not counted as employees under federal anti-discrimination
statutes. The analysis for determining whether a person is considered an
employee or an independent contractor will not be addressed here.
In smaller businesses, whether
directors, partners or shareholders are counted as employees is not as
straightforward. The U.S. Supreme Court recently resolved a split between the
circuits regarding this issue. Some circuits relied only on the corporate form
to determine if shareholders/owners are de facto partners and thus not
employees. Other courts looked beyond the formal organizational structure and
considered factors relevant to the pertinent relationship and the
organization’s economic realities. A key factor considered by those courts was
the extent to which the shareholder “manages, controls
and owns the business.” See Devine v. Stone, Leyton
& Gersham, 100 F.3d 78; Fountain v. Metcalf, Zima
& Co., 925 F.2d 1398; EEOC v. Dowd & Dowd, 736 F.2d 1177.
In its April 22 decision in
Clackamas Gastroenterology Associates, P.C. v.Wells,
the Supreme Court considered whether doctors engaged in a medical practice as
shareholders and directors of a professional corporation are to be counted as
employees for purposes of the
Six factors from the EEOC Compliance
Manual provided a standard for determining the extent of control: (1) “whether
the organization can hire or fire the individual or set the rules and
regulations of the individual’s work”; (2) “whether and, if so, to what extent
the organization supervises the individual’s work”; (3) “whether the individual
reports to someone higher in the organization”; (4) “whether and, if so, to
what extent the individual is able to influence the organization”; (5) “whether
the parties intended that the individual be an employee, as expressed in
written agreements or contracts”; and (6) “whether the individual shares in the
profits, losses, and liabilities of the organization.” If the person exerts
control as defined by these factors over her/his employment, that person is not
an employee for the purposes of federal anti-discrimination statutes.
Affiliated/parent company
Another question arises when an
employer is a parent, subsidiary, associated or affiliated with another
company: Are employees of the related company counted with those of the directly
employing company in determining whether the threshold number of employees has
been met?
In determining whether a parent,
subsidiary, associated or affiliated company should be consolidated with the
employer, courts apply on a case-by-case basis the “single enterprise” test
established by the National Labor Relations Board. The four factors are: (1)
the interrelation of operations; (2) common management; (3) centralized control
of labor relations; and (4) common ownership or financial control. If a
majority of these four factors is found, the entities will be considered a
single enterprise and employees of both entities will be counted in determining
whether the threshold number of employees has been met.
The 3rd U.S. Circuit Court of
Appeals in NLRB v. Browning-Ferris, 691 F2d 1117, applied a “joint employer”
test in determining whether to consolidate two entities for counting employees.
The joint employer test allows worker of two employers to be combined when both
employers exert significant control over employees, as shown by shared control
over supervision, payroll and personnel issues. This was the case in
Browning-Ferris because the company shared with brokers the right to hire and
fire drivers, decide compensation, approve drivers and directly controlled the
day-to-day supervision of drivers, work hours and the drivers’ Browning-Ferris
uniforms.
If a subsidiary is wholly owned and
the parent exercises control over its employment decisions, the entities will
be considered integrated. Nonetheless, even wholly owned subsidiaries are
considered separate for counting employees if the subsidiary makes its own
employment decisions. Hassel v. Harmon Foods, 455 F.2d 199.
An important issue in determining
the number of employees is the treatment of part-time and temporary employees.
Workers are considered employees on all workdays they’re on the payroll. In Walters v.Metropolitan Educ. Enterprises, Inc., 19
Thus, in considering whether a part-time
or temporary worker should be counted, the only relevant questions are when the
employee was hired and when the employee left. The worker is counted as an
employee for each working day between arrival and departure.
Another question is when should the
number of employees be counted — at the time of trial, when the complaint is
filed or when the alleged discriminatory act occurred? While all the statutes
indicate employees are to be counted “in the current or preceding calendar
year,” this language alone is not clear. Courts have interpreted “current year”
to mean the year the discriminatory act occurred. Thus, the relevant years to
be considered are the year in which the alleged discrimination occurred and the
preceding year. The phrase calendar year is Jan. 1 to Dec. 31, not any 12 month
period selected by the employer. In light of the definition of calendar year,
an employer may be subject to the federal statutes even if it did not have the
threshold number of employees at the time the discriminatory act was alleged to
have occurred.
To understand the significance of
the calendar year, consider Musser v. Mountain View Broadcasting, 578 F.Supp. 229. At the time the plaintiff was fired on Jan. 5,
the defendant did not employ, and at no prior time had employed, 15 or more
workers. The plaintiff ’s complaint alleged a
violation of Title VII. Defendant moved to dismiss, arguing it was not an
employer under Title VII.
However, after the plaintiff was
fired, the employer expanded its workforce, employing 15 people for at least 20
weeks during that year. As the plaintiff was fired in the same calendar year,
the defendant met the 15 employee minimum and was subject to Title VII. If the
plaintiff had been fired six days earlier, in December, the defendant’s motion
to dismiss would have been successful.
When the alleged discriminatory acts
occur in more than one calendar year, courts will look at a number of years in
determining whether the threshold requirement has been met. The number of
employees in three, four or more different calendar years might be considered
where the alleged discriminatory actions occurred over years. As long as the
threshold minimum number of employees is satisfied for any one of the years,
the federal anti-discrimination statutes apply.
Whether representing
plaintiff-employees or defendant-employers, determining the number of workers
is a critical step in evaluating an employment discrimination lawsuit. Entire
claims can be dismissed or damages caps set based on the number of employees.
Eugene
Huang is a partner of Wiley, Malehorn and Sirota in
Reprinted with
the permission of New Jersey Lawyer© May 12, 2003