Arbaugh has practice consequences for employment discrimination lawyers
By Susan G. Gainey Most employment law attorneys previously believed that holding a small business with less then 15 employees liable under Title VII was impossible, pursuant to the definition of “employer” in Title VII. However, the Supreme Court recently ruled that a plaintiff can recover from an employer with fewer than 15 employees under Title VII if the employer fails to object to the lawsuit in a timely manner. Arbaugh v. Y & H Corp., d/b/a The Moonlight Café, 546 U.S. ___, 126 S.Crt. 1235 (2006). Attorneys defending small businesses against a Title VII claim need to be aware that the claim that their client is not an “employer,” pursuant to the terms of the statute, can be waived if it is not raised early enough in the litigation.
The Supreme Court’s decision arose from a lawsuit filed by a former employee of a small business. Jenifer Arbaugh brought a Title VII sexual harassment action in federal court against her former employer, Y & H Corporation. Ms. Arbaugh, a bartender and waitress at the Moonlight Café in New Orleans, claimed that she was forced to quit her job because of sexual harassment by her supervisor. Ms. Arbaugh filed suit against the café’s owner, Y & H corporation, alleging a Title VII cause of action with jurisdiction arising under 28 USC §1331, as well as Louisiana state law claims that where subject to supplemental jurisdiction. Y & H admitted the jurisdictional allegations, but denied the factual contentions and merits of the claim. The case was tried to a jury and the jury returned a verdict in favor of Ms. Arbaugh for $40,000.
The district court judge entered judgment on the jury’s verdict. Two weeks after the district court entered judgment on the jury verdict, Y & H moved to dismiss the entire action for lack of federal subject-matter jurisdiction. For the first time since the litigation began, Y & H asserted that it had less than 15 employees and, therefore, did not meet the definition of “employer” pursuant to Title VII. Apparently, there was a question as to whether delivery drivers and the wives of the co-owners of the café were actually employees for the corporation.
The district court considered the motion and dismissed the lawsuit. The district court noted that it was “unfair and a waste of judicial resources” to raise the issue so late in the case, but dismissed the lawsuit because the judge believed that employee-numerosity requirement was jurisdictional. The district court believed, basically, that it never had jurisdictional authority to hear the case in the first place. The U.S. Court of Appeals for the Fifth Circuit agreed and affirmed the district court’s decision.
The Supreme Court granted certiorari because there was a split in the lower courts on this issue. Six federal appeals courts treated the 15-employee minimum as jurisdictional. Five others disagreed and treated the employee minimum as an issue of the factual merit of the Title VII claim.
On February 22, 2006, the Supreme Court unanimously sided with Ms. Arbaugh and reversed the Fifth Circuit’s decision (Justice Alito took no part in the decision). In the opinion by Justice Ginsburg, the Court held that “the threshold number of employees for application of Title VII is an element of a plaintiff’s claim for relief, not a jurisdictional issue.” Id. at 1238.
In reaching this conclusion, the Court began its analysis with a discussion of the jurisdictional framework of Title VII and 28 U.S.C. §1331. The Court noted that neither the jurisdiction-conferring provisions of Title VII nor 28 U.S.C. §1331 addresses the minimum number of employees an employer must have in order to be subject to federal court jurisdiction. Rather, the numerosity threshold appears in the “Definitions” section of Title VII. See 42 U.S.C. § 2000e(b). As such, Justice Ginsburg determined, after discussion, that Congress did not intend the 15-employee restriction to be jurisdiction; rather the restriction was non-jurisdictional in character. Id. at 1245. Justice Ginsburg said it was up to Congress to make the employee-numerosity requirement jurisdictional if Congress so chooses.
The Court then looked at the fact that a motion to dismiss for want of subject matter jurdisdiction may be raised at any state in the litigation, by a party or the court, even after trial and/or an entry of judgment, pursuant to Fed. Rule Civ. Proc. 12(b)(1). Conversely, an objection that a complaint “fails to state a claim upon which relief can be granted,” filed pursuant to Rule 12 (b)(6), may not be filed after trial. Fed. Rule Civ. Proc. 12(h)(2). Id. at 1240. The Court determined that because the issue of the threshold number of employees for application of Title VII is an element of a plaintiff’s claim for relief, not a jurisdictional issue, the issue can not be raised post-verdict.
Justice Ginsburg also observed that, unlike a jurisdictional question, which can be resolved by a court pursuant to a Rule 12(b)(1) motion, a disputed issue as to an element of the plaintiff's claim for relief is often a jury question. The Court stated that “if subject-matter jurisdiction turns on contested facts, the trial judge may be authorized to review the evidence and resolve the dispute on her own. If satisfaction of an essential element of a claim for relief is at issue, however, the jury is the proper trier of contested facts.” Id. at 1244 (citations omitted).
The Arbaugh case has important practice consequences for employment discrimination lawyers. First, obviously, attorneys for small business employers should assert as soon as possible the defense that the business does not meet the definition of “employer” under Title VII, but not later than the end of trial. If small business employers fail to raise this defense at the early stages of litigation, the employer may waive the defense. Second, small businesses may be subject to extensive litigation and discovery costs before the business can obtain a dismissal on the simple fact that Title VII does not apply to the business. Third, although Arbaugh is a Title VII case, the logic of the ruling will likely affect other federal antidiscrimination statutes with employee-numerosity requirements, including the Americans with Disabilities Acts (applies to employers with 15 or more employees), the Age Discrimination and Employment Acts (applies to employers with 20 or more employees) and the Family and Medical Leave Act (applies to employers with 50 or more employees).
Finally, disputed factual issues as to definitional terms may not be resolved until a motion for summary judgment, if at all. Plaintiffs' lawyers may argue that such questions should go to the jury, resulting in juries deciding disputes over definitional provisions in the federal employment discrimination statutes, a troublesome prospect for many employers. Ultimately, the lesson of Arbaugh, is for employment discrimination attorneys to ensure that the defense of failing to meet the employee-numerosity requirements is asserted as soon as possible in the litigation.
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