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THE SMALL FIRM EXEMPTION AND THE
SINGLE EMPLOYER DOCTRINE IN
EMPLOYMENT DISCRIMINATION LAW
RICHARD C ARLSON†
I NTRODUCTION
Laws prohibiting discrimination in employment often make an exception for the small firm. Title VII,^1 which is the model for many other federal and state discrimination laws, sets a threshold for employer coverage at fifteen employees. 2 A firm employing fewer employees is exempt. As long as it employs no more than fourteen, it can refuse to hire women, Moslems, or disabled persons, and it will not be in violation of federal discrimination law. 3 If it employs as many as nineteen, but no more, it can terminate and refuse to hire anyone over the age of forty. 4 The practice of exempting small firms from employment laws began long before Title VII. Early occupational safety laws 5 and
† (^) Professor of Law, South Texas College of Law; J.D., University of Georgia; B.A., Wake Forest University. (^1) “ Title VII, ” as used in this article, means Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e–2000e-17 (2000). (^2) Id. § 2000e(b). (^3) Title VII prohibits discrimination with respect to race, color, national origin, religion, or sex, and the small employer exemption is the same in every case. With regard to race discrimination, however, another federal law undermines the effectiveness of a small employer defense. The Civil Rights Act of 1866, popularly known as § 1981, prohibits race discrimination without regard to the size of the employer. See id. § 1981. Disability discrimination in employment is prohibited by a separate law, Title I of the Americans with Disabilities Act, id. §§ 12111–12117. (^4) The Age Discrimination in Employment Act, 29 U.S.C. §§ 621–634 (2000), defines “ employer ” as person employing at least twenty employees. Id. § 630(b). (^5) See St. Louis Consol. Coal Co. v. Illinois, 185 U.S. 203, 208 (1902) (rejecting an equal protection challenge against a mine inspection law exempting mines employing no more than five employees); McLean v. Arkansas, 211 U.S. 539, 551– (1909) (rejecting a similar challenge against a law exempting mines with fewer than ten employees).
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workers’ compensation laws typically exempted small firms. 6 New Deal-era laws such as the Wagner Act 7 and Fair Labor Standards Act of 1938 ( “ FLSA ” ) 8 originally lacked small firm exemptions, but amendments and administrative practices created protective niches for small firms. 9 As a result, an exempt small firm can pay less than the statutory minimum wage, refuse to pay overtime rates, discharge union supporters, and reject collective bargaining regardless of the wishes of its employees.^10 The most popular explanation for these exemptions is that a small firm might be overwhelmed by the burden of compliance.^11 The exemption, however, relieves only the smallest of the small. An exempt firm is a fraction of the size that could qualify as small for many other regulatory or statistical purposes. The Small Business Administration, for example, regards a firm employing up to 500 employees as “ small, ”^12 but under this standard a firm could be more than thirty times too large to be exempt from Title VII. Exempt firms, therefore, tend to be the sort that provide self-employment as much as profits for their
(^6) See, e.g. , Middleton v. Tex. Power & Light Co., 249 U.S. 152, 155–57 (1919) (rejecting an equal protection challenge against a workers’ compensation law that exempted small firms); Sayles v. Foley, 96 A. 340, 344, 349 (R.I. 1916) (upholding a similar exemption). (^7) Pub. L. No. 198, 49 Stat. 449 (1935) (codified as amended at 29 U.S.C. §§ 151– 169 (2000)). (^8) Pub. L. No. 718, 52 Stat. 1060 (1938) (codified as amended at 29 U.S.C. §§ 201–219 (2000)). (^9) See infra text accompanying notes 141–156. (^10) State laws sometimes fill gaps in the coverage of federal laws, but many state laws incorporate the same exemptions and leave the same small employers outside the scope of regulation. See, e.g. , T EX. L AB. C ODE A NN. § 21.002 (Vernon 2004) (defining “ employer ” as “ a person... who has 15 or more employees ” for purposes of the Texas law against employment discrimination). Even common law tort claims that might ordinarily apply to any employer regardless of size might be preempted by a statute that suggests a legislative intent to exempt small employers from liability for facts or circumstances addressed by the statute. See, e. g ., Gottling v. P.R. Inc., 61 P.3d 989, 992–93 (Utah 2002) (tort claim based on small employer’s alleged discrimination barred by statute that exempted small employers from prohibition against discrimination). (^11) See, e. g. , Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 446–47 (2003) (noting that congressional intent to spare small firms from the high cost of compliance must be respected). (^12) See U.S. SMALL B US. A DMIN., T ABLE OF SMALL B USINESS SIZE STANDARDS MATCHED TO N ORTH A MERICAN I NDUSTRY C LASSIFICATION SYSTEM CODES (2006), available at http://www.sba.gov/size/sizetable2002.pdf; see also C HARLES B ROWN, J AMES HAMILTON & J AMES MEDOFF, E MPLOYERS L ARGE AND SMALL, 8–9 (1990) (noting that 500 employees is the cut-off most often used by the federal government when classifying large and small businesses).
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some observers have suggested, small business owners of all races tend to discriminate in favor of their own race, so that minority employees in the small firm sector are disproportionately employed by minority businesses. 17 Small firms might be much less diverse than large ones. The right to claim the small firm exemption—and with it an affirmative defense against a charge of discrimination—is an important advantage for firms that qualify, and a disappointment for their applicants and employees. Not surprisingly, the issue of small firm status is frequently contested in employment discrimination cases, even though the test for exemption—a headcount of employees—might seem to be simple and straightforward. Sometimes there are issues about who counts as an employee, especially if the employer has delegated a substantial amount of work to “ independent contractors, ”^18 “ partners, ”^19 or other putative non-employees. In other cases there are issues about what entity or set of entities
likely to hire blacks. Other studies, however, show a distinct increase in the probability that an employer will hire blacks once the employer surpasses the threshold for coverage under Title VII. See supra note 15. Other possible factors include an employer’s coverage under EEO-1 reporting requirements (for a firm employing at least 100) or its coverage under affirmative action and reporting requirements for federal contractors. See William J. Carrington, Kristin McCue & Brooks Pierce, Using Establishment Size To Measure the Impact of Title VII and Affirmative Action , 35 J. HUM. R ESOURCES 503, 503–04, 514–15 (2000) (presenting data that shows Title VII influenced a transition of minority workers to large employers); Jonathan S. Leonard, The Impact of Affirmative Action Regulation and Equal Employment Law on Black Employment , 4 J. E CON. P ERSP. 47, 50–51 (1990) (noting an increase in minority employment among contractors subject to federal reporting requirements). For Hispanics, representation in a workforce is inversely related to firm size, probably because many small firms are involved in construction and agriculture, and possibly because firms in these sectors are particularly likely to rely on undocumented aliens. Nearly thirteen percent of the employees of firms employing fewer than ten are Hispanic, but only nine percent of employees of firms employing 500 or more are Hispanic. See Headd, supra , at 14, 17. (^17) See infra text accompanying notes 299–304. (^18) Richard Carlson, Why the Law Still Can ’ t Tell an Employee When It Sees One and How It Ought To Stop Trying , 22 B ERKELEY J. E MP. & L AB. L. 295, 297– (2001). (^19) See Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 442 (2003) (considering the employee status of a professional corporation’s physician shareholders, who also constituted the board of directors). The Court described a multi-factor test for determining whether owners, partners, directors and officers are employees, and it remanded the case for application of the test. See id. at 449–
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constitute the “ employer, ” a problem that is the main topic of this article. This article deals in particular with the problem of the corporate employer that is part of or consists of a family of corporations. For most purposes in the law, each corporation is a single discrete “ person, ” the basic unit as to which legal rights and duties attach. A corporation is a separate person even if it is owned entirely by another corporation, or by an individual who owns other incorporated or unincorporated enterprises. An “ employer ” can be a corporation, and in most instances the corporation and the relevant employer are one and the same. In some cases, however, the relevant employer is more or less than a single corporation. For purposes of collective bargaining law or wage and hour law an employer might be an unincorporated division of a corporation.^20 On the other hand, a corporation that is small enough standing alone for an exemption might find itself swept back into the field of coverage by the “ single employer doctrine, ”^21 which treats affiliated and interrelated corporations as if they are one entity—a “ single employer. ” Thus, an exemption for a small employer begs the question: Who is the employer? Multiple corporations might be the “ employer ” under the single employer doctrine where one corporation owns another, or where two or more corporations are owned by another entity, individual or group of individuals. If a plaintiff can prove that the affiliated corporations also operate to some degree as a single enterprise, such as by pursuing the same business, serving each other, and sharing common management and resources, then all the employees of the multi-corporate enterprise count toward the threshold for employer coverage, frequently with the result that none of the affiliated firms is exempt, no matter how small its own workforce.^22
(^20) See, e. g ., American Federation of Television & Radio Artists, Washington- Baltimore Local v. NLRB, 462 F.2d 887, 888–89 (D.C. Cir. 1972) (barring a union’s picketing as a “ secondary boycott ” against a “ neutral ” division of a corporation). Similarly, the rights of some employees under the FLSA depend on the revenue generated by the employing enterprise, which may be a subpart of a larger corporation. See 29 U.S.C. § 203(r)–(s) (2000); see also The Worker Adjustment and Retraining Notification Act, id. § 2101(a)(1) (defining “ employer ” as a “ business enterprise ” employing a certain number of employees). (^21) For a more detailed history of this doctrine, see infra Part I.A–B. (^22) See Murray v. Miner, 74 F.3d 402, 405 (2d Cir. 1996) (resting application of
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specialized function in collective bargaining law. I find as a historical matter that the single employer doctrine is older and serves a much wider variety of functions than the critics suppose. In other words, the examples provided by collective bargaining law and other employment laws are not so easily dismissed as precedents for a more general application of the single employer doctrine. More importantly, the history of the single employer doctrine was a backdrop for Congress’ lively debate about the small firm exemption in the proceedings that led to Title VII. Knowing the history of the doctrine is a step toward answering the question whether Congress intended or expected the doctrine to limit the small firm exemption. Next, Part III addresses another set of arguments against the doctrine based on the perceived lack of support in the text of the statutes, particularly Title VII, and the assumed lack of other evidence of Congress’ intent to adopt the doctrine. On closer examination, I find that the congressional debates include at least some discussion of the single employer doctrine, bolstering the view that Congress was aware of the likely application of the doctrine in small firm cases. I also find that Title VII’s unusual definition of “ person ”^26 provides an important and probably purposeful link to a body of pre-existing law that included the single employer doctrine. Part IV looks at Judge Posner’s argument that application of the single employer doctrine is contrary to the purpose of the small firm exemption.^27 Judge Posner and other critics have assumed that the small firm exemption’s principle purpose is economic: to relieve very small firms of the disproportionate burden of compliance. With respect to this regulatory relief goal, I find contrary to Judge Posner that there are compelling reasons not to grant the small firm exemption to many firms that enjoy the benefits of affiliation with a larger firm or family of firms. I also find that Congress had other purposes in adopting the
(^26) See 42 U.S.C. § 2000e(a) (2000) (defining a “ person ” as “ one or more individuals, governments, governmental agencies, political subdivisions, labor unions, partnerships, associations, corporations, legal representatives, mutual companies, joint-stock companies, trusts, unincorporated organizations, trustees, trustees in cases under title 11, or receivers ” ). (^27) Papa , 166 F.3d at 940 ( “ The purpose is to spare very small firms from the potentially crushing expense of mastering the intricacies of the antidiscrimination laws, establishing procedures to assure compliance, and defending against suits when efforts at compliance fail. ” ).
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exemption, including the protection of “ personal ” relationships in the small workplace. Proper application of the single employer doctrine for purposes of statutory coverage makes it more likely that the exemption will be reserved for firms that have the needs envisioned by Congress. Part V, my conclusion, offers some observations about how the test for single employer status might be better tailored to serve its purpose as a limit on the small firm exemption.
I. OVERVIEW : THE SMALL FIRM EXEMPTION, THE SINGLE EMPLOYER DOCTRINE, AND PAPA
A. The Small Firm Exemption
Small firms are exempt from Title VII because the Act defines “ employer ” as a “ person... who has fifteen or more employees. ” Whether an employer is exempt under this rule depends strictly on the number of its employees. An exempt employer might engage in any business in any industry. It might generate less than a million dollars in revenues, or it might generate hundreds of millions in revenues. It might employ unskilled laborers or clerical workers, or it might employ highly skilled computer software engineers, doctors or lawyers. No matter what its business, revenues or types of employees, it is exempt from Title VII and the other major federal anti- discrimination laws as long as it never exceeds the threshold number of employees. Qualification for a small firm exemption might have been based on other measures. The FLSA, for example, grants a partial exemption to small “ enterprises ” based on revenue.^28 Counting dollars of revenue is no more arbitrary a test of size than counting heads. A firm that wants to know whether it is exempt in any particular year, however, can more easily know or predict the size of its workforce than its revenue, and it can more easily avoid crossing a threshold based on workforce size. Moreover, Title VII was preceded by, and modeled after, two decades of state civil rights laws and at least a century of other employment regulations that often granted exemptions based on
(^28) See 29 U.S.C. § 203(s)(1)(A)(ii) (2000) (including only those enterprises “ whose annual gross volume of sales made or business done is not less than $500,000 ” ).
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agency or an individual plaintiff seeking to overcome a small firm defense might argue in favor of combining the workforce of the nominal employer with the workforces of affiliated corporations to reach a total in excess of the threshold for coverage. This argument depends on the viability and applicability of the single employer doctrine, also known as the “ integrated enterprise ” doctrine. 35 The idea of treating multiple entities as a single employer is not limited to issues in collective bargaining or discrimination law. One finds variations of the doctrine across the board in employment law, and beginning long before Title VII or the Wagner Act. The proponent of the doctrine is usually an employee or enforcement agency seeking to extend statutory coverage or extend certain employer duties to multiple entities, but an employer can also benefit from some variations of the doctrine. In workers’ compensation law, for example, a corporation affiliated with an injured employee’s nominal employer might claim to be one and the same employer, in order to assert the employer’s “ exclusive remedy ” defense.^36 In collective bargaining law, two or more corporations might assert the single employer doctrine to support their proposal for a bargaining unit combining employees of both corporations, in order to dilute a union’s strength and make it more difficult for the union to organize employees. In brief, the prevailing version of the single employer doctrine in discrimination and collective bargaining law regards a group of persons—usually multiple corporations—as a single
(^35) See, e. g ., E QUAL E MPLOYMENT OPPORTUNITY C OMMISSION, EEOC C OMPLIANCE MANUAL § 2(III)(B)(1)(a)(iii)(a) (2000), available at http://www.eeoc.gov /policy/docs/threshold.html#2-III-B-1-a-iii-(a) [hereinafter EEOC C OMPLIANCE MANUAL] ( “ An integrated enterprise is one in which the operations of two or more employers are considered so intertwined that they can be considered the single employer of the charging party. ” ). (^36) See, e.g. , Hall v. Fanticone, 730 A.2d 919, 920 (N.J. Super. Ct. App. Div. 1999); Sweeney v. City of New York, 4 Misc. 3d 834, 836–38, 782 N.Y.S.2d 537, 542– 43 (Sup. Ct. Kings County 2004) (holding that whether vessel owner was plaintiff’s employer for purposes of limiting liability under maritime workers’ compensation act was question of fact); cf. Clark v. United Techs. Auto., Inc., 594 N.W.2d 447, 453 (Mich. 1999) (remanding case for determination of whether “ economic realities ” supported treating owner and his corporation as a single employer of plaintiff, for purposes of the exclusive remedy defense); Gunderson v. Harrington, 632 N.W.2d 695, 701–02 (Minn. 2001) (holding that owner who was “ alter ego ” of the corporation he owned was entitled to assert exclusive remedy defense against employee of the corporation).
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employer if the facts show (1) common ownership or financial control,^37 (2) common management, 38 (3) centralized control of labor relations, and/or^39 (4) interrelation of operations. 40 The test is far from mathematically precise. Some degree of common ownership appears to be a premise of most descriptions of the doctrine in the context of employment discrimination law, but the EEOC advocates a more aggressive view, 41 and some variations of the doctrine in collective bargaining and wage and hour law can apply to separately owned firms. 42 For reasons I explain in the course of this article, I take a more limited view that separately owned and organized entities merely doing business together cannot be a single employer for purposes of coverage under discrimination law, even if their operations become closely integrated or interrelated. In order for two private firms 43 to be a
(^37) E.g. , Murray v. Miner, 74 F.3d 402, 404 (2d Cir. 1996); Evans v. McDonald’s Corp., 936 F.2d 1087, 1089 (10th Cir. 1991); Baker v. Stuart Broad. Co., 560 F.2d 389, 392 (8th Cir. 1977). (^38) Murray , 74 F.3d at 404; Evans , 936 F.2d at 1089; Baker , 560 F.2d at 392. (^39) Murray , 74 F.3d at 404; Evans , 936 F.2d at 1089; Baker , 560 F.2d at 392. Whether the test should be stated in the disjunctive or conjunctive is one of many issues about the test. In most forums, the requirements for application of the doctrine can be satisfied with something less than proof of all four factors. See generally EEOC C OMPLIANCE MANUAL, supra note 35 ( “ All of the factors should be considered in assessing whether separate entities constitute an integrated enterprise, but it is not necessary that all factors be present, nor is the presence of any single factor dispositive. ” ). (^40) See Baker , 560 F.2d at 392 (listing several cases that “ hold that the standard to be employed to determine whether consolidation of separate entities is proper are the standards promulgated by the National Labor Relations Board: (1) interrelation of operations, (2) common management, (3) centralized control of labor relations; and (4) common ownership or financial control ” ); Evans , 936 F.2d at 1089. (^41) See EEOC C OMPLIANCE MANUAL, supra note 35 (taking the position that the doctrine applies when “ the operations of two or more employers are... so intertwined that they can be considered the single employer ” ) (emphasis added). It does not appear, however, that the EEOC or any other party has successfully asserted the doctrine in a reported case without common controlling ownership. The best case for application of the doctrine without common ownership might be where nonprofit institutions are not “ owned ” but are subject to common government or financial control. A few courts have entertained application of the doctrine in such cases. See, e. g ., Tatum v. Everhart, 954 F. Supp. 225, 229–30 (D. Kan. 1997) (finding that separately-incorporated nonprofit organizations were not a single employer). (^42) See infra text accompanying notes 154–155, 190–193. (^43) Title VII’s rules of coverage require the same headcount of employees for public employers as for private firms. The prevailing view, however, is that the single employer doctrine does not apply to public entities. See Sandoval v. City of Boulder, 388 F.3d 1312, 1323 & n.3 (10th Cir. 2004) ( “ Absent some indication that the state’s decision was motivated by a desire to circumvent the civil rights laws or other laws, principles of comity counsel federal courts not to be too quick to erase
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effectively piercing the corporate veil and dissolving the legal separation between two corporate entities or between a corporation and its owner. The alter ego doctrine, for example, includes consideration of many of the same factors as the single employer doctrine, but it includes proof of the owners’ intent to evade the law by separate incorporations.^48 Even if the alter ego doctrine is used for a limited purpose in a particular proceeding, the implications of a finding of intent to evade the law or to defraud employees and their representatives could have farther- reaching implications. In contrast, the single employer doctrine does not require or imply any wrongful intent on the part of the entities that comprise the employer. A finding of single employer status does not necessarily taint the separateness of the affiliated corporations for any other purpose. The EEOC’s official position in this regard is more aggressive. According to the Commission, the single employer doctrine can impose financial liability on all the affiliated corporations based on the discriminatory act of any one of them.^49 For reasons I explain in the course of this article I take a more limited view, that proof of the requirements for single employer status for purposes of coverage would not necessarily justify piercing the corporate veil for purposes of liability without additional circumstances. The doctrine serves its most important role in discrimination law simply by denying an exemption to firms that do not really fit within Congress’ likely idea of the exempt class. Whether the doctrine has other proper functions in employment discrimination law is a separate issue.
C. An Example of the Doctrine and Its Critics: Papa v. Katy Industries, Inc. Not very long after Congress enacted Title VII, federal courts
(^48) See Kilpatrick Bros., Inc. v. Poynter, 473 P.2d 33, 41–42 (Kan. 1970) ( “ [T]he doctrine of alter ego fastens liability on the individual who uses a corporation merely as an instrumentality to conduct his own personal business, such liability arising from fraud or injustice perpetrated not on the corporation but on third persons dealing with the corporation. Under it the court merely disregards corporate entity and holds the individual responsible for his acts knowingly and intentionally done in the name of the corporation. ” ). (^49) The EEOC also takes the view in its Compliance Manual that if two firms constitute a “ single employer, ” an administrative charge against one is a charge against the other, and that “ relief can be obtained from any of the entities that form part of the integrated enterprise. ” See EEOC C OMPLIANCE MANUAL, supra note 35.
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held in a number of cases that the single employer doctrine does limit the small firm exemption.^50 Judicial support for the doctrine appeared to build through the 1980s and early nineties,^51 and the EEOC currently takes a particularly strong position in favor of the doctrine.^52 Lately, however, some courts have questioned whether the single employer doctrine is appropriate for questions of coverage under the discrimination laws. A recent example of judicial resistance to the doctrine is Papa. 53 In Papa , Judge Posner wrote for a panel of the U.S. Court of Appeals for the Seventh Circuit that rejected the single employer doctrine for purposes of the small firm exemption under Title VII, the Americans with Disabilities Act ( “ ADA ” ), and the Age Discrimination in Employment Act ( “ ADEA ” ). 54 The better rule, Judge Posner and other critics say, is the one that serves for most other purposes: A corporation stands alone as a person and as an employer, provided its owners do not give cause to pierce the corporate veil.^55 Papa was not the first occasion for a federal court to question whether the doctrine properly limits the small firm exemption. An initial problem for the courts has been the perceived lack of text in the discrimination statutes to support an exception to the usual rule that each corporation is a separate person. In Lusk v. Foxmeyer Health Corp ., 56 for example, Judge Jolly of the Fifth Circuit wrote that the ADEA’s definition of “ employer ” (which is modeled after the Title VII definition) “ plainly contains no basis ” for treating separately incorporated entities as one.^57 The court’s dissatisfaction with the single employer doctrine might have been aggravated by the particular application proposed by the plaintiff, which was to pierce the corporate veil and extend
(^50) See infra notes 206–211 and accompanying text_._ (^51) See, e. g ., Armbruster v. Quinn, 711 F.2d 1332, 1337 & n.5 (6th Cir. 1983), overruled by Arbaugh v. Y & H Corp., 126 S. Ct. 1235, 1242 (2006) (noting the increasing adoption by district courts of the doctrine’s four-part test). (^52) See EEOC C OMPLIANCE MANUAL, supra note 35. (^53) Papa , 166 F.3d 937, 940 (7th Cir. 1999), cert. denied , 528 U.S. 1019 (1999) (noting that the doctrine is not helpful in resolving certain issues because “ the test was not custom-designed for answering exemption questions under the antidiscrimination laws ” ). (^54) See id. at 939, 943. (^55) See id. at 940–41. (^56) 129 F.3d 773 (5th Cir. 1997). (^57) See id. at 777.
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jurisdiction, and one important jurisdictional limit is the small firm exemption. Judge Ambro believed that allowing complainants to overcome the small firm exemption by invoking the single employer doctrine would be inconsistent with the exemption’s purpose: “ to spare small companies the considerable expense of complying with the statute’s many-nuanced requirements. ”^65 Uncertainty about the viability of the single employer doctrine was an opportunity for Judge Posner to offer his own analysis of the problem in Papa. In Papa , Judge Posner argued that the courts should completely reject the single employer doctrine, or at least to confine it to collective bargaining law. 66 Papa was a consolidation of two cases in which employer defendants asserted that they were too small to be considered “ employers ” under federal employment discrimination laws. 67 In the first case, James Papa sued two affiliated corporations—a parent company and the subsidiary that employed him—for alleged age and disability discrimination. 68 Papa lost his job with the subsidiary after the parent became unhappy with the subsidiary’s poor financial performance and ordered the subsidiary to close certain manufacturing operations.^69 Closing these operations required layoffs, including the elimination of Papa’s job, but it was the subsidiary and not the parent that selected Papa in particular for layoff. 70 When Papa charged age and disability discrimination, the subsidiary asserted the small
address any case in which a labor dispute might have an impact on commerce. See infra text accompanying notes 123–144, 150–154. (^65) Nesbit, 347 F.3d at 85. (^66) Id. at 940–43. (^67) Id. at 939. (^68) Id. Mr. Walsh’s age discrimination claim was based on the Age Discrimination in Employment Act, 29 U.S.C. §§ 621–634 (2000). His disability discrimination claim was based on the Title I of the Americans with Disabilities Act, 42 U.S.C. §§ 12111–12117 (2000). Each of these acts defines “ employer ” as a “ person ” who employs a minimum number of employees. See 29 U.S.C. § 630(b) (at least twenty employees); 42 U.S.C. § 12111(5)(A) (at least fifteen employees). (^69) Papa , 166 F.3d at 939; Reply Brief of Plaintiff-Appellant at 11–12, Papa , 166 F.3d 937 (No. 98-2009). (^70) Papa , 166 F.3d at 939; Reply Brief of Plaintiff-Appellant, supra note 69, at 9–
- In the lower court proceedings Papa evidently argued that the parent directed the selection of employees for layoff, but the district court found otherwise, and its finding was not contested on appeal. See Papa v. Katy Indus., Inc., No. 95-C-5290, 1998 WL 142390, at *3 (N.D. Ill. Mar. 25, 1998).
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firm defense.^71 Evidently, the subsidiary had employed too few employees to meet the twenty employee threshold of the ADEA or even the fifteen employee threshold of the ADA. But the parent corporation, which controlled the subsidiary through an intermediate corporate shell, owned many other subsidiaries collectively employing more than a thousand employees.^72 The companion case, EEOC v. GJHSRT, Inc. , presented similar features. The EEOC sought relief for Richard Mueser for alleged retaliation in violation of Title VII.^73 Mueser’s nominal employer, GJHSRT, employed too few employees to qualify as a covered employer, but the EEOC also named Frederick Transport Group, Inc., a holding company that owned GJHSRT and other subsidiaries. The EEOC alleged that the entire family of corporations constituted a single employer with more than enough employees to overcome the small employer defense.^74 Both cases offered a plausible basis for the single employer doctrine. Each nominal employer was a member of a family of corporations wholly owned by a parent or holding company, thus satisfying the “ common ownership ” factor as to any of the affiliated corporations. In each case, there was at least some evidence of the second factor: common management. In Papa , the parent and subsidiary were governed by the same officers and directors, and the subsidiary’s managers reported directly to the president of the parent company.^75 In GJHSRT , the parent and subsidiary shared the same president, and two individuals who were primary shareholders served on both boards of directors. 76 As for the third factor, centralized labor management relations, the evidence showed that the respective parent companies pooled the workforces of their subsidiaries, including the employer subsidiaries, into common employee benefit plans, and to some degree they provided centralized administration of payroll.^77
(^71) Papa , 166 F.3d at 939. (^72) Id. ; Reply Brief of Plaintiff-Appellant, supra note 69, at 12. (^73) Papa , 166 F.3d at 939. (^74) Id. ; see also Brief of Defendants-Appellees at 1–2, Papa , 166 F.3d 937 (No. 98- 2185). (^75) Papa , 166 F.3d at 939; Brief of Plaintiff-Appellant at 7–8, Papa , 166 F.3d 937 (No. 98-2009). (^76) Papa , 166 F.3d at 939; Brief of Defendants-Appellees, supra note 74, at 17–
(^77) Papa , 166 F.3d at 939; Brief of Plaintiff-Appellant, supra note 75, at 10–13;
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contrast with the some other jurisdictions, however, the Seventh Circuit lacked decisive precedent for adopting the doctrine in an employment discrimination case.^86 Nor was Judge Posner persuaded by the Supreme Court precedents applying the doctrine in the collective bargaining setting. Like Judge Ambro in Nesbit , Judge Posner conceded that “ there is an argument ” that collective bargaining law requires a single employer doctrine, 87 but he was unenthusiastic towards the doctrine for any purpose. The doctrine’s four factors, he argued, were vague, unweighted, and frequently pointed in opposite directions. 88 The Supreme Court had sanctioned the doctrine only for collective bargaining law, 89 and the doctrine was properly confined to that purpose. Transplanted to employment discrimination law, the single employer doctrine would frustrate the goal of the small firm exemption, which was “ to spare very small firms from the potentially crushing expense of mastering the intricacies of the antidiscrimination laws, establishing procedures to assure compliance, and defending against suits when efforts at
sensitive to the bearing of context on the proper formulation of rules of affiliate liability ” ). (^86) Judge Posner discounted dicta in earlier decisions of the Seventh Circuit that appeared to endorse the doctrine. Id. at 939–40. None of the earlier Seventh Circuit decisions involved a successful assertion of the single employer doctrine in an employment discrimination case. In two Seventh Circuit cases, Sharpe v. Jefferson Distrib. Co. , 148 F.3d 676 (7th Cir. 1998), and Rogers v. Sugar Tree Prods, Inc ., 7 F.3d 577 (7th Cir. 1993), the court found the facts insufficient to require reversal of district court findings that separately incorporated entities did not constitute single employers. Sharpe , 148 F.3d at 678–79; Rogers , 7 F.3d at 581–82. In a third Seventh Circuit case, EEOC v. Illinois , 69 F.3d 167 (7th Cir. 1995), the court reversed a district court judgment that treated the State of Illinois as the real employer of teachers employed by local public school districts. Id. at 170–72. In an opinion written by Judge Posner, the court rejected the EEOC’s argument that the relationship between the State and the school districts was analogous to that of a single employer/integrated enterprise. Judge Posner wrote that, “ The principle that animates the [single employer] doctrine is not limited to the technical relation of parent to subsidiary corporation, ” but he found the facts insufficient to support a single employer claim. Id. at 171. (^87) Papa , 166 F.3d. at 940, 942. Judge Posner cited two situations involving a possibly appropriate application of the single employer doctrine: where the combined operations of integrated firms might satisfy the NLRB’s discretionary jurisdictional standards, and where an appropriate bargaining unit of employees might include employees of separately incorporated firms in an integrated enterprise. Id. at 942. (^88) Id. at 940. (^89) Id. at 942–43; see S. Prairie Constr. Co. v. Local No. 627, International Union of Operating Engineers, 425 U.S. 800, 801–04, 806 (1976) (per curiam); Radio & Television Broadcast Technicians Local Union 1264 v. Broad. Serv. of Mobile, Inc., 380 U.S. 255, 256–57 (1965) (per curiam).
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compliance fail. ”^90 Judge Posner explained at some length why it might be good policy to exempt small firms from these burdens and why the single employer doctrine is inconsistent with this policy. 91 Judge Posner’s policy and economic arguments are examined in greater detail in Part IV of this article. Although Judge Posner rejected the notion that the single employer doctrine should be used to extend employer coverage, he offered three situations in which a corporate employer’s affiliation with another corporation might justify aggregating the two entities’ combined workforces. The first was where the facts would support piercing the corporate veil to make one corporation liable for the debts of the other, according to traditional principles. 92 The second was where an enterprise had “ split itself up into a number of corporations, each with fewer than the statutory minimum number of employees, for the express purpose of avoiding liability under the discrimination laws. ”^93 The third was where the parent or other affiliated corporation actually took the action about which the plaintiff complained, such as by ordering the employer subsidiary to adopt an unlawful policy or to discharge a particular employee for unlawful reasons.^94 In other words, Judge Posner would not treat separate entities as a single employer for purposes of coverage, unless a court would be justified in extending liability to both entities under traditional principles (excluding the single employer doctrine). Neither of the cases before the court in Papa included facts sufficient to justify disregard of separate incorporation based on the three scenarios envisioned by Judge Posner. 95 Thus, the Seventh Circuit upheld the lower courts’ dismissal of the plaintiffs’ claims based on the small firm exemption defense.^96 The position of Judge Posner and others who reject the single employer doctrine in employment discrimination law can be summarized as follows. First, the NLRB invented the single employer doctrine to serve special purposes in the law of collective bargaining, and the doctrine’s function in collective
(^90) Papa , 166 F.3d at 940. (^91) Id. at 940–42. (^92) Id. at 940–41. (^93) Id. at 941 (emphasis added). (^94) Id. (^95) Id. at 942. (^96) Id. at 943.
