Key Point 8-09.1. Many federal employment and civil rights laws apply only to those employers having a minimum number of employees. In determining whether or not an employer has the minimum number of employees, both full-time and part-time employees are counted. In addition, employees of unincorporated subsidiary ministries of a church are counted. The employees of incorporated subsidiary ministries may be counted if the church exercises sufficient control over the subsidiary.
Some federal civil rights and employment laws apply only to employers having a minimum number of employees. To illustrate, employers must have 15 or more employees to be subject to the Americans with Disabilities Act and Title VII of the Civil Rights Act of 1964. An employer must have at least 20 employees to be subject to the federal age discrimination law. Such laws raise two important questions: (1) which employees are counted, and (2) are a parent organization and its affiliates or subsidiaries treated as a single employer? These questions will be addressed separately.
A. Which Employees Are Counted?
Which employees should be counted in determining whether or not an employer has the minimum number of employees specified by a federal employment or civil rights law? Should part-time employees be counted? Hourly workers? Temporary workers? Persons on vacation or sick leave? These laws generally require that an employer have the minimum number of employees “for each working day in each of 20 or more calendar weeks in the current or preceding year.” The United States Supreme Court has applied the “payroll method” for counting employees.67 Walters v. Metropolitan Educ. Enterprises, Inc., 117 S.Ct. 660 (1997).
Under this approach, an “employee” is any person with whom the employer has an employment relationship during the week in question. The Court explained: “Under the interpretation we adopt … all one needs to know about a given employee for a given year is whether the employee started or ended employment during that year and, if so, when. He is counted as an employee for each working day after arrival and before departure.” As a result, the Supreme Court’s decision repudiates the argument made by the church, school, and preschool that they did not meet the 15 employee requirement since less than 15 employees were employed on Saturdays and Sundays.
Case studies
- A federal appeals court ruled that the 15 employee requirement under Title VII of the Civil Rights Act of 1964 could not be met by combining the employees of a church and affiliated entity, since they were not sufficiently related organizationally.68 Sanford v. Main Street Baptist Church Manor, Inc., 449 Fed.Appx. 488 (6th Cir. 2012).
- A Louisiana court dismissed a Title VII sex discrimination claim brought against a church by a dismissed female choir director. The court noted that the church had fewer than 15 employees and therefore it was not subject to Title VII’s ban on sex discrimination.69 Steed v. St. Paul’s United Methodist Church, 1999 WL 92626 (La. App. 1999).
Tip. In summary, in determining whether an employer has 15 or more employees “for each working day in each of 20 or more calendar weeks in the current or preceding year,” each week in which an employer has an employment relationship with 15 or more employees is counted.
Tip. The Supreme Court acknowledged that self employed persons will appear on an employer’s payroll, and that they should not be counted. It clarified that in counting employees under the “payroll method,” only those persons who in fact are employees are counted.
Key Point. One church insisted it was open on Saturdays and Sundays, and that a few of its employees (mostly its ministers) worked on those days. Therefore, if the workweek is defined to include Saturdays and Sundays, then it would not have the required number of employees “for each working day” since only a few persons worked on those days. Obviously, many churches have a few employees whose duties require them to work on Saturdays or Sundays. However, since the number of employees who work on these days usually is minimal, such churches could argue that they are not covered by any civil rights law (federal or state) that applies to employers having a specified number of employees “for each working day in each of 20 or more calendar weeks in the current or preceding year.” This argument was rejected by a federal appeals court on the basis of the Supreme Court’s “payroll method” approach to counting employees.
B. Employees of Affiliated Organizations
Should the employees of an affiliated or subsidiary organization be combined with the employees of a parent organization when counting employees? That is, should the employees of a school, preschool, retirement facility, or other church affiliated ministry be combined with the employees of the church when counting employees for purposes of applying federal civil rights and employment laws? This is an important question, given the large number of churches that operate affiliated ministries.
A federal appeals court addressed these questions in an important decision.70 Equal Employment Opportunity Commission v. St. Francis Xavier Parochial School, 117 F.3d 621 (D.C. Cir. 1997).
A woman (the “plaintiff”) with multiple sclerosis claimed that she was not considered for a position as music director at a church operated school because of her disability. She filed a complaint with the Equal Employment Opportunity Commission (EEOC), which determined that she had been a victim of discrimination. The EEOC sued the church and its school, claiming that they both had violated the Americans with Disabilities Act (ADA) as a result of their refusal to “accommodate” the plaintiff’s disability, and their failure to hire her because of her disability. The church and school argued that they were not covered by the ADA since they each had less than 15 employees. The plaintiff asserted that under the so called “single employer doctrine” the court should combine the employees of the church, the school, and a preschool to come up with the required 15 employees.
Under the single employer doctrine, separate entities that represent a “single, integrated enterprise” may be treated as a single employer for purposes of meeting the 15 employee test. The plaintiff asserted that the church operated the school and the preschool, and therefore these three entities should be considered as one.
In deciding whether or not the church, school, and preschool were a “single, integrated enterprise,” a federal district court applied a four part test announced by the Supreme Court in 1965.71 Radio Union v. Broadcast Services, 380 U.S. 255 (1965).
This test focuses on the following four factors:
(1) interrelation of operations
(2) common management
(3) centralized control of labor relations, and
(4) common ownership or financial control
The court clarified that “the absence or presence of any single factor is not conclusive,” and that “control over the elements of labor relations is a central concern.” The court cautioned that a plaintiff “must make a substantial showing to warrant a finding of single employer status,” and that
there must be sufficient indicia of an interrelationship between the immediate corporate employer and the affiliated corporation to justify the belief on the part of an aggrieved employee that the affiliated corporation is jointly responsible for the acts of the immediate employer.
The court referred to an earlier federal appeals court case finding that the entities must be “highly integrated with respect to ownership and operations” in order for single employer status to be found.
The court’s analysis of each of the four factors is summarized below.
(1) interrelation of operations
The court referred to combined accounting records, bank accounts, lines of credit, payroll preparation, telephone numbers, or offices as examples of “interrelated” operations. However, it concluded that there was insufficient interrelationship between the church, school, and preschool to consider them as a single employer. It did acknowledge that the pastor signed the school’s budget, that a room in the church occasionally was used for school purposes, and that school children ate in a room that was also used by the pre-school. However, the following factors demonstrated that there was insufficient interrelationship among the three entities (church, school, and preschool) to treat them as a single employer: (1) the school had a separate budget; (2) daily operations of the three entities (church, school, and preschool) were independent; (3) hours of operation of the three entities were significantly different (preschool was open earlier and later than the school, and the church alone was open on Saturdays and Sundays); (4) each of the three entities was operated by a different staff; (5) each of the three entities had its own principal or administrator; (6) each entity had different employment contacts and practices; (7) the school was located in a different building from the church and preschool; and (8) while the schoolchildren ate lunch in a room that was also used by the preschool, they did not use the room at the same time.
(2) common management
A second factor to consider in deciding whether or not to treat separate entities as a “single employer” is the presence or absence of common management. The court noted that the “focus of this factor … is on the existence of common directors and officers.” In other words, are the directors and officers of the separate entities the same? The court concluded that this factor was not present in this case: “Here, there are separate management structures for the church, the day care center, and the school. These structures do not continuously monitor one another. The circumstances present here do not warrant a finding of common management.”
The court cautioned that common management will exist when one organization runs another organization “in a direct, handson fashion, establishing the operating practices and management practices.”
(3) centralized control of labor operations
A third factor to consider in deciding whether or not to treat separate entities as a “single employer” is the presence or absence of “centralized control of labor operations.” The court observed that “the control required to meet the test of centralized control of labor relations is not potential control, but rather actual and active control of day to day labor practices.” This test was not met, the court concluded:
The enterprises here have separate employees, directors, and employment practices. The sole way in which the church is involved with the labor practices of the school is in the final phases of hiring. Plaintiff asserts that the pastor “interviews all applicants for the school,” but plaintiff’s own exhibits contradict this assertion. Rather, the principal and assistant principal screen resumes and conduct interviews; the pastor does not become involved until the end of the process, after the principal and assistant principal have selected two or three finalists, at which point he gives his input. When there is a disagreement, the pastor makes the final decision. The entities have different administrators and distinct labor pools. Plaintiff does not present adequate evidence of day to day active control by the church of the school’s labor relations to justify a finding that the entities should be treated as a single employer.
(4) common ownership or financial control
A fourth factor to consider in deciding whether or not to treat separate entities as a “single employer” is the presence or absence of “common ownership or control.” The court noted that “there is common ownership of the property and the buildings in which the day care center, the church, and the school are located, and that the pastor must sign the school’s budget.” On the other hand, the court noted that the church was part of the Archdiocese of Washington, “which is the corporate entity that owns the property and the buildings. Further … the Archdiocese has ultimate control over the school’s budget.” The court cautioned that “even if the Archdiocese were a party, common ownership alone is not enough to establish that separate employers are an integrated enterprise.” The court continued:
Even though the Archdiocese, rather than the church, is the owner and locus of financial control, the church does have some intermediary supervisory power over the school. However, given (1) the Archdiocese’s ultimate control over the school’s budget, (2) the Archdiocese’s status as owner of the property and buildings, and (3) the fact that the school, the church, and the day care center have separate budgets, the court finds that this factor does not support a finding that the entities constitute a single employer. Accordingly, the court declines to apply the integrated enterprise doctrine to consolidate defendants into constituting a single employer.
The EEOC appealed the district court’s dismissal of the lawsuit. A federal appeals court for the District of Columbia reversed the district court’s dismissal of the case on the ground that there was insufficient evidence to support the court’s conclusion that the church, school, and preschool should not be treated as a single employer in applying the 15 employee requirement. Of most significance to the appeals court was the fact that the record did not reveal whether or not the church, school, and preschool were one corporate legal entity, or three separate entities. The court observed that “we cannot answer a question of utmost importance —whether the school (and the day care center) are distinct legal entities or whether they are merely parts of one legal entity —the church.”
Why was this question so important? Because the Supreme Court’s 4 factor test (discussed above) has only been applied in the context of separate legal entities. In other words, if the church, school, and preschool were a single corporate entity, with the school and preschool operating under the church’s corporate umbrella, then they presumably would be treated as a single employer for purposes of applying the 15 employee requirement. There would be no need to apply the Supreme Court’s 4 factor test. This test would be applied only if the three entities were legally distinct —that is, they were each separately incorporated. Only then would the 4 factor test be applied to determine whether or not the three entities were sufficiently related to be treated as a single employer for purposes of the 15 employee requirement.
The court conceded that “the door is at least open to apply the test to entities that have different names (a condition satisfied here)—even if they are not legally distinct (a condition that may or may not be satisfied here),” and that “leaving the door open allows the possibility that a single legal entity could … encompass divisions that are sufficiently independent of one another to warrant being treated as distinct employers within the meaning of the employment discrimination statutes.” The court added that “such cases are perhaps rare, but we see no reason to think they are nonexistent.”
The appeals court acknowledged that no other court has ever addressed the application of the Supreme Court’s 4 factor test to religious organizations:
The cases in which we have applied the [4 factor test] have all involved business corporations. We have found no cases in this circuit or elsewhere applying the test to a religious corporation. Because a religious corporation can possess unique attributes … it may be the case that even where there are multiple religious entities, aggregation (or non aggregation) of employees in employment discrimination cases should not be resolved under [this test]. Although we express no opinion on the question, we note that the question to be answered by the [trial] court on remand may be [the first time any court has addressed this question].
In summary, the appeals court’s analysis can be reduced to the following points:
1. Church with no affiliated entities. Consider only the church’s employees in applying the 15 employee test under the Americans with Disabilities Act (or any other federal discrimination law —see Table 8-6).
2. Church with one or more affiliated entities that are not separately incorporated. Many churches operate a school, preschool, retirement facility, or other ministry. If these ministries are not separately incorporated, then the church along with its affiliates ordinarily will be treated as a single employer for purposes of applying the 15 employee test under the Americans with Disabilities Act (or any other federal discrimination law —see Table 8-6). In rare cases, this conclusion may not be automatic. For example, if the affiliates have different names, and are “sufficiently independent,” then single employer status may not be automatic. Rather, the Supreme Court’s 4 factor test (discussed above) may be applied to determine whether or not the church and its affiliates constitute a single employer for purposes of applying the 15 employee test. While such a result will be rare, it is not nonexistent.
3. Church with one or more affiliated entities that are separately incorporated. Many churches operate a school, preschool, retirement facility, or other ministry. If these ministries are separately incorporated, then the Supreme Court’s 4 factor test (discussed above) is applied to determine whether the church along with its affiliates should be treated as a single employer for purposes of applying the 15 employee test under the Americans with Disabilities Act (or any other federal discrimination law —see Table 8-6).
The appeals court sent the case back to the district court for further proceedings to determine whether or not the church, school, and preschool were a single entity or three separate legal entities, and “whether to aggregate the employees of these entities in order to determine the number of employees defendants actually had.” The district court began its opinion by observing:
A determination that these entities are divisions of a corporation has two implications. First, it suggests that defendants are not proper parties to the lawsuit because case law reflects that unincorporated divisions of a corporation lack the capacity to sue or be sued. Second, assuming defendants can be sued, it leads to the conclusion that the employees of the church, the school, and the [preschool] should be aggregated for the purpose of the [15] employee requirement.72 Equal Employment Opportunity Commission v. St. Francis Xavier Parochial School, 77 F.Supp.2d 71 (D.D.C. 1999).
While the church and school were unincorporated divisions of a corporation (the Archdiocese of Washington), the EEOC insisted that they were “sufficiently autonomous” from the Archdiocese to render them “suable entities.” The court disagreed. The Archbishop of Washington is a “corporation sole,” meaning that the office itself is a perpetual corporation. The Archdiocese is made up of all of the Catholic parishes and related facilities within its jurisdiction. Although the Canon Law of the Roman Catholic Church views each parish as a separate entity for religious purposes, the parishes are not separately incorporated under civil law. The church that operated the school in this case is a parish within the jurisdiction of the Archdiocese, and it operates independently of other parishes within the jurisdiction. The Archdiocese owns all of the parish’s property, and exerts varying degrees of control over different aspects of the parish’s operations. As to financial matters, the Archdiocese maintains control over the parish’s budget by requiring the parish to submit an annual financial report on all of its operations and to undergo periodic financial audits. Although the Archdiocese does not oversee the parish’s daily expenditures, its approval is required for any expenditure exceeding $10,000. As to personnel matters, the Archdiocese appoints the pastor and, through the Archdiocese’s personnel director, helps to determine the staffing of other priests assigned to work at the parish. The Archdiocese also influences other parish personnel decisions, such as the hiring of the school’s teaching staff, by providing guidelines on appropriate hiring criteria.
The EEOC insisted that the church and school could be sued because the Federal Rules of Civil Procedure permit “unincorporated associations” to be sued. The court disagreed, noting that the church and school were not separately incorporated but rather were “unincorporated divisions of a corporation.” The court continued:
[As such] their presence in this case triggers a line of precedent holding that unincorporated divisions of a corporation lack legal capacity to be sued. … The rationale for this precedent is, above all, pragmatic, as an unincorporated division does not possess separate assets; all of its assets are owned by the corporation. Thus, “[u]nless the organization is liable there can be no levy of execution against the division’s assets, and if the organization is not liable none of its assets can be used to satisfy the judgment.”
The court disagreed with the contention of the EEOC that the church and school were “unincorporated associations,” noting that it was “unaware of any reason to treat a division of a corporation in this manner.” It explained:
Although the term “unincorporated association” has not been defined uniformly under federal law, the definitions propounded by courts are substantially identical. … While all of these definitions describe an unincorporated association as a collection of persons working together for a common objective, they also describe it as an entity operating without a corporate charter. The court finds this latter characteristic determinative of whether an unincorporated division of a corporation meets the definition of an unincorporated association. Unlike unincorporated associations… a division of a corporation does operate with a charter —the charter of the larger corporation. Although the division is not separately incorporated, it is still governed by the terms of the corporate charter and still enjoys corporate status because it is a unit of the larger corporation. Thus, the court concludes that the federal law definition of an unincorporated association does not encompass an unincorporated division of a corporation.
Finally, the religious character of the corporation involved in this case does not remove the normal prohibition on suing unincorporated divisions of a corporation. Although [the EEOC] cites to cases in which religious organizations were sued for violating employment discrimination laws, these cases do not suggest that the nature of an incorporated religious entity is such that its unincorporated divisions have the legal capacity to be sued. Nor is there any reason to fragment the legal status of an incorporated religious entity in this manner.
The court referred to an earlier federal appeals court decision.73 F.E.L. Publications, Ltd. v. Catholic Bishop of Chicago, 754 F.2d 216 (7th Cir. 1985).
In the F.E.L. Publications case, the question before the court was whether a plaintiff could recover against a Bishop for interfering in the plaintiff’s business relationship with one of the parishes in the Chicago Archdiocese. The Catholic Bishop of Chicago is organized as a “corporation sole” under Illinois law and, as such, owned all of the property in the Archdiocese. The court held that the plaintiff could not recover damages because “the parishes within the Archdiocese are not legal entities separate and independent from the Catholic Bishop, but are subsumed under the Catholic Bishop.” This case “makes clear that an incorporated religious organization constitutes a single legal entity, and that unincorporated divisions of that organization lack any independently recognized legal status. Because the Archdiocese of Washington is incorporated as a corporation sole and holds title to all Archdiocese assets, its unincorporated divisions also lack any independently recognized legal status.”
As a result, the court dismissed the EEOC’s lawsuit against the church and school on the ground that they were divisions of a corporation and lacked the capacity to be sued.
This case suggests that an unincorporated division or department of a church or denomination cannot be sued individually. As a result, a lawsuit brought against such an entity should be dismissed. Of course, a plaintiff may be able to amend the lawsuit to include the church or denominational corporation as the defendant, but this will not always be possible because of the passage of time.
Case studies
- A church with 10 employees is accused of violating the federal age discrimination law by not hiring a job applicant who is 60 years old. Since the church does not have 20 employees, it is not subject to the federal age discrimination law (see Table 8-6).
- Same facts as the previous case study, except that the church operates a preschool that has 12 employees. The preschool is not separately incorporated. Since the preschool has no separate legal existence, the church and preschool probably will be treated as a “single employer” for purposes of applying the 20 employee test under the federal Age Discrimination in Employment Act (or any other federal discrimination law —see Table 8-6). This means that the 10 church employees and 12 preschool employees are combined, and therefore the 20 employee requirement is met. In rare cases, this conclusion may not be automatic. For example, if the affiliates have different names, and are “sufficiently independent,” then single employer status may not be automatic. Rather, the Supreme Court’s 4 factor test may be applied to determine whether or not the church and its affiliates constitute a single employer for purposes of applying the 20 employee test. While such a result will be rare, it is not nonexistent. This test focuses on the following four factors: (1) interrelation of operations; (2) common management; (3) centralized control of labor relations; and (4) common ownership or financial control. In applying this test, the absence or presence of any single factor is not conclusive, and “control over the elements of labor relations is a central concern.” A plaintiff “must make a substantial showing to warrant a finding of single employer status,” and “there must be sufficient indicia of an interrelationship between the immediate corporate employer and the affiliated corporation to justify the belief on the part of an aggrieved employee that the affiliated corporation is jointly responsible for the acts of the immediate employer.” This example assumes that the church is engaged in commerce. Finally, note that one court has cautioned that “the cases in which we have applied the [4 factor test] have all involved business corporations. We have found no cases … applying the test to a religious corporation. Because a religious corporation can possess unique attributes … it may be the case that even where there are multiple religious entities, aggregation (or non aggregation) of employees in employment discrimination cases should not be resolved under [this test].”74 Equal Employment Opportunity Commission v. St. Francis Xavier Parochial School, 117 F.3d 621 (D.C. Cir. 1997). See also Sanford v. Main Street Baptist Church Manor, Inc., 2009 WL 4167938 (E.D. Ky. 2009).
- Same facts as the previous case study, except that the preschool is separately incorporated. The Supreme Court’s 4 factor test is applied to determine whether the church along with its affiliates should be treated as a single employer for purposes of applying the 20 employee test under the federal Age Discrimination in Employment Act (or any other federal discrimination law —see Table 8-6). This test focuses on the following four factors: (1) interrelation of operations; (2) common management; (3) centralized control of labor relations; and (4) common ownership or financial control. In applying this test, the absence or presence of any single factor is not conclusive, and “control over the elements of labor relations is a central concern.” A plaintiff “must make a substantial showing to warrant a finding of single employer status,” and “there must be sufficient indicia of an interrelationship between the immediate corporate employer and the affiliated corporation to justify the belief on the part of an aggrieved employee that the affiliated corporation is jointly responsible for the acts of the immediate employer.” This case study assumes that the church is engaged in commerce. Finally, note that one court has cautioned that “the cases in which we have applied the [4 factor test] have all involved business corporations. We have found no cases … applying the test to a religious corporation. Because a religious corporation can possess unique attributes … it may be the case that even where there are multiple religious entities, aggregation (or non aggregation) of employees in employment discrimination cases should not be resolved under [this test].”75 Id.
- A federal court in New York ruled that a local church and denominational agency could be sued for the sexual harassment of a church employee by two pastors. The denominational agency argued that it was not an employer under Title VII and as a result could not be liable for the pastors’ acts of sexual harassment. The plaintiff argued that the denominational agency could be liable, even if it did not directly hire or employ her, under the so called “joint employer” doctrine if it “controlled certain aspects of her employment with the church, including her compensation, privileges, terms, and conditions.” The court concluded: “There is well established authority under this theory that, in appropriate circumstances, an employee, who is technically employed on the books of one entity, which is deemed to be part of a larger singlemployer entity, may impose liability for certain violations of employment law not only on the nominal employer but also on another entity comprising part of the single integrated employer. Under the single employer doctrine, also known as the joint employer theory, an employee, formally employed by one entity, who has been assigned to work in circumstances that justify the conclusion that the employee is at the same time constructively employed by another entity, may impose liability for violations of employment law on the constructive employer, on the theory that this other entity is the employee’s joint employer. In assessing whether a joint employer relationship exists, courts generally look for evidence of (1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control.” The court noted that the denominational agency had offered no evidence disproving the elements of the single employer theory. On the other hand, the plaintiff testified that she was directed to perform duties by the denominational agency; that she attended training offered by the denominational agency; that she participated in the denominational agency’s group plan health insurance; and that the denominational agency controlled aspects of her compensation, hours, and job duties. These allegations were sufficient, with no contrary evidence from the denominational agency, to raise questions regarding common ownership and control between the employing church and denominational agency. As a result, the court declined the denominational agency’s request to dismiss the claims against it.76 Krasner v. Diocese, 431 F.Supp.2d 320 (E.D.N.Y. 2006).
Title VII of the Civil Rights Act of 1964 prohibits employers engaged in interstate commerce and having at least 15 employees from discriminating in any employment decisions on the basis of race, color, national origin, gender, or religion. Some courts have ruled that the 15 employee requirement is jurisdictional, meaning that a court does not have the legal authority to resolve a Title VII case involving an employer with fewer than 15 employees. As a result, an employer can raise the “less than 15 employees” defense at any time, even after a court renders a judgment. Other courts have ruled that the 15 employee requirement is not jurisdictional, but rather is simply a requirement for a Title VII claim. Under this interpretation, the “less than 15 employees” defense must be asserted in an employer’s response to a lawsuit or it will be waived.
In 2006 the United States Supreme Court ruled that the 15 employee requirement under Title VII is not jurisdictional, but rather is a requirement of a Title VII claim. As a result, it is waived if not raised in response to a lawsuit. It found no language in Title VII making this a jurisdictional requirement that can be raised at any time, and concluded that “when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as non jurisdictional in character.”
Tip. Some federal employment laws apply only to employers having a specified number of employees. According to the Supreme Court’s recent decision, churches that are sued for violations of any of these laws must assert in their answer to the original lawsuit the “affirmative defense” that they have fewer than the required number of employees. A failure to do so will constitute a waiver of this defense.77 Arbaugh v. Y & H Corporation, 126 S.Ct. 1235 (2006).