Who's Counting?

Stricter Definition

Under Title VII, a company is covered if it "has 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year." That definition is ambiguous; does it mean 15 or more employees actually in the office and working or simply 15 or more employees on the payroll? In January, the U.S. Supreme Court issued a ruling that clarifies the issue.

The case involved Chicago's Metropolitan Educational Enterprises Inc., a retail distributor of educational materials. In 1990, Metropolitan declined to promote employee Darlene Walters to credit manager. Walters filed a charge with the Equal Employment Opportunity Commission (EEOC), claiming sex discrimination. Soon after, she was dismissed.

Three years later, Walters sued Metropolitan and its owner, Leonard Bieber, charging illegal retaliation. Metropolitan asked a district court judge to dismiss the suit, claiming it did not have 15 employees and thus was not covered by Title VII. When the district court agreed and dismissed the suit, Walters appealed.

The Court of Appeals affirmed the district court's decision, relying on an earlier case in which employees were counted toward the 15-employee threshold only on days when they actually worked or were paid despite being absent. When Walters appealed again, the U.S. Supreme Court agreed to decide the matter once and for all.

The court considered the implications if it endorsed the counting method Metropolitan advocated: including employees based on how many people were actually working or compensated for working that day. At the time, Metropolitan had two part-time hourly employees who normally skipped one workday each week. Only if these two were not counted would the company fall under the 15-employee threshold.

To determine how many employees were working or otherwise compensated each workday of the two-year period, the parties would have to spend 10 months poring over Metropolitan's payroll registers, time cards and other records to determine how many employees were at work, on salary, or on paid holiday, vacation or sick leave each day. The court decided that process was far too complex and endorsed a much simpler method: looking at how many employees were on the payroll each week. By that standard, Metropolitan had 15 employees on the payroll for 20 or more calendar weeks--and thus lost its case.

"This is a pretty narrow, technical ruling," says attorney and professor Wayne Eastman of Rutgers University Graduate School of Management in Newark, New Jersey. The implication, Eastman says, is if you have 15 employees who work every week but only one day a week, your company can be sued under Title VII because you have 15 employees on the payroll per week.

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This article was originally published in the May 1997 print edition of Entrepreneur with the headline: Who's Counting?.

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