Supreme Court Clarifies Method for Counting Employees under Title VII

The U.S. Supreme Court has adopted the "payroll" method of counting employees to determine whether an employer satisfies Title VIIs jurisdictional limit of 15 employees, rejecting a narrower method favored by employers. The decision, which reversed a ruling from the U.S. Court of Appeals for the Seventh Circuit in a case arising in Chicago, resolves a split among the federal circuits by endorsing the Equal Employment Opportunity Commission's recommended method of counting employees. Walters v. Metropolitan Educational Enterprises, Inc.

Fifteen or More Employees

Title VII of the Civil Rights Act of 1964 defines an employer for the purposes of the Act, as an entity that has "fifteen or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year." The payroll method, now adopted by the Supreme Court, counts all employees who are on the payroll for each day of a given week regardless of whether they were actually present at work each day.

The alternative, "compensation" method, which had been endorsed by the Seventh and Eighth Circuits prior to the Supreme Court's ruling, counts all salaried employees for each working day but counts hourly and part-time employees only on days when they are at work or on paid leave.

Payroll Method of Counting Employees

In its decision, the Supreme Court examined Title VII's statutory language and determined that the key issue is "whether an employer 'has' an employee on any working day on which the employer maintains an employment relationship with the employee, or only on working days on which the employee is actually receiving compensation from the employer."

Writing for the unanimous Court, and relying on the common meaning of the statutory terms, Justice Scalia concluded that "an employer 'has' an employee if he maintains an employment relationship with that individual."

Court Rejected More Complex Method

Aside from its construction of the statutory language, the Court noted that the rejected alternative method "would turn the coverage determination into an incredibly complex and expensive factual inquiry." The employer in this case, Metropolitan Educational Enterprises, Inc., had between 15 and 17 employees on its payroll for each working day for most of the year in issue, but due to having two part-time hourly employees who worked only four days per week, Metropolitan actually compensated 15 or more employees on each workday for only nine weeks of the year.

To arrive at these factual determinations, the parties had spent many months examining voluminous records to determine for each day during a two-year period how many employees were at work, how many were salaried, and how many were on paid leave.

By contrast, the payroll method allows for calculating the jurisdictional 15-employee threshold by simply knowing whether a particular employee was on the payroll during a particular time frame.

Conclusion

Employer groups have expressed disappointment in the Supreme Court's ruling, since substantial numbers of small businesses that were not covered will now be covered by Title VII. In addition, smaller businesses trying to avoid Title VII jurisdiction obviously will now have less incentive to accommodate employees who desire part-time work.