Arbaugh v. Y & H Corp. (04-944)


Appealed from: United States Court of Appeals, Fifth Circuit

Oral argument: January 11, 2006

EMPLOYMENT LAW, TITLE VII, SUBJECT-MATTER JURISDICTION, SEXUAL DISCRIMINATION, CIVIL RIGHTS ACT, CIVIL PROCEDURE

In November of 2001, Jenifer Arbaugh brought suit against her former employer, Y & H Corporation under Title VII of the 1964 Civil Rights Act, alleging that she was discriminated against because of her sex, and was forced to resign her position as a bartender and waitress. Y & H admitted to the questions of jurisdiction and its status as an employer under Title VII. In a district court trial, a jury found for Arbaugh. Y & H then advanced the claim that the court lacked subject-matter jurisdiction to hear Arbaugh’s claim because Y & H did not have fifteen full-time employees at the time of the incident, and thus did not actually qualify as an “employer” under § 2000e(b) of Title VII. If an employer’s status is a question of subject-matter jurisdiction, as Y & H proposes, then Arbaugh’s suit would have to be dismissed even though a verdict had already been passed because jurisdiction cannot be admitted to or waived by a defendant, and a challenge to jurisdiction may be brought up at any point in the litigation, even after a verdict has been given. Arbaugh responded that the definition of “employer” is a question of merit and not of subject-matter jurisdiction. As such Y & H could have and did indeed waive the matter in its admission. The district court, after a lengthy determination of whether Y & H did qualify as an employer, ruled in favor of Y & H, and dismissed Arbaugh’s case. The Court of Appeals for the Fifth Circuit affirmed the district court’s ruling, holding that the so-called “employee-numerosity” issue is a jurisdictional question. The Supreme Court’s decision is expected to definitively determine whether the employment status of a Title VII defendant is a jurisdictional matter or one going to the merits of the case to be decided by the trier of fact. The Supreme Court will also resolve existing conflicts between and within the various circuits as to this question, and will hopefully establish a uniform standard for all plaintiffs and defendants in Title VII employment claims.

[Question(s) presented] | [Issue(s)] | [Facts] | [Discussion] | [Analysis]

Questions Presented

Section 701(b) of Title VII of the 1964 Civil Rights Act applies the Title VII prohibition against employment discrimination to employers with fifteen or more employees. Does this provision limit the subject-matter jurisdiction of the Federal courts, or does it only raise an issue going to the merits of a Title VII claim?

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Issues

Whether a defect in a claim as to the nature of “employment” under Title VII of the 1964 Civil Rights Act, which prohibits discrimination by employers with fifteen or more employees, limits the subject-matter jurisdiction of the Federal courts in hearing Title VII claims, as held by the Fourth, Fifth, Sixth, Ninth, Tenth, and Eleventh Circuits, or if it only raises an issue going to the merits of the claim, as held by the Second, Seventh, and Federal Circuits?

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Facts

Plaintiff-Petitioner Jenifer Arbaugh (“Arbaugh”) was employed by Defendant-Respondent Y & H Corporation (“Y & H”) as a bartender in Louisiana from May 2000 until February 2001. Arbaugh sued Y & H in November 2001 in Federal district court, claiming that Y & H subjected her to a “sexually hostile environment” during the time she was employed. Arbaugh v. Y & H Corporation, 380 F.3d 219, 221 (5th Cir. 2004). In an October 2002 trial, the jury found for Arbaugh and awarded her $40,000, in back-pay, compensatory, and punitive damages. Then, in November 2002, Y & H filed a motion to dismiss the case for lack of subject-matter jurisdiction—meaning the court did not have the power to hear the case at all—because Y & H claims it did not meet the definition of “employer” under Title VII. Civil Rights Act of 1964 § 701(b), 42 U.S.C. § 2000e(b) (2005).

In order to establish a suit against Y & H under Title VII, Arbaugh must demonstrate that Y & H falls under the definition of employer as found in Title VII. Title VII defines an employer as one who employs fifteen or more employees for twenty or more calendar weeks. 42 U.S.C. § 2000e(b). Employers who have fewer than fifteen employees, or who have fifteen employees for fewer than twenty calendar weeks a year, cannot be sued for sexual harassment under Title VII.

Y & H is a small employer that operates a restaurant, “The Moonlight Café.” See Arbaugh, 380 F.3d at 221. Counting undisputed employees (such as waitpersons and kitchen staff), Arbaugh, the delivery drivers, the owners of the restaurant, and the wives of the owners, Y & H has at least fifteen employees. See id. In its motion to dismiss, Y & H claimed that the drivers were independent contractors, see id.,and the owners and their wives were directors/shareholders of the corporation, see id. at 230, and thus did not count as “employees” under Title VII. Arbaugh claimed that the delivery drivers, owners, and the owners’ wives should be considered employees, thus making Y & H liable. See id. at 225.

Upon Y & H’s motion to dismiss, the district court had to decide whether or not the issue of employment was a jurisdictional requirement—one that defined the ability of the court to take up the case at all—or if it was a question on the merits, which the court would determine through the usual processes of discovery and trial after it had taken up the case. This issue is paramount because the district court could grant Y & H’s motion only if the matter of employment is a jurisdictional requirement, which can “neither be waived nor created by consent and may be raised at any time.” Brief for Petitioner at 4. However, if employment is an issue on the merits, then the time has passed for Y & H to make such a claim because Y & H had long-waived its contention of employment in the original jury trial.

The district court determined that in the Fifth Circuit, where Louisiana sits, the issue of employment is a jurisdictional requirement, meaning Y & H’s motion to dismiss was valid. The district court then went on to find that the drivers were independent contractors and not employees, mainly because of the lack of control Y & H had over how the drivers operated their vehicles and ran their delivery routes. Further, the district court found that neither the owners nor their wives were considered employees. On these findings, the district court found for Y & H and dismissed Arbaugh’s claim.

Arbaugh appealed the district court’s decision to the Court of Appeals for the Fifth Circuit claiming that cases should not be summarily dismissed in which jurisdiction and merits are difficult to differentiate, and that other Federal Circuits have ruled that employment should be an issue on the merits. Arbaugh, 380 F.3d at 219. However, the Court of Appeals, along with several other Circuit Courts, found the question of employment to be a jurisdictional requirement. Id. at 224. The Court of Appeals subsequently held that the drivers, owners, and wives were not employees under Article VII, and affirmed the district court’s dismissal of Arbaugh’s case. Id. at 230-231.

Arbaugh then appealed to the Supreme Court. Because the various Courts of Appeals are split on the question of whether employment should be a jurisdictional requirement or an issue on the merits, the Supreme Court granted certiorari, and is anticipated to make a final ruling on the issue.

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Discussion

Title VII was enacted to prohibit discrimination in employment on the basis of race, color, religion, sex, and national origin. 42 U.S.C. § 2000e-2. An employee who is discriminated against may bring an action under Title VII for monetary damages. The purpose for liability under the Act is to dissuade employers from engaging in unlawful employment discrimination. Arbaugh is significant as it goes primarily to the question of how high at least one barrier will be for plaintiffs seeking to sue employers under Title VII.

Small companies and their employees, who represent the parties in typical Title VII claims, will be among those most affected by the Court’s decision in this case. Many cases will be unambiguous. Large corporations with hundreds or thousands of employees will undoubtedly qualify as “employers” under the Act, and very small employers, such as a company that has never hired more than five workers, will unquestionably fall outside of the qualification. However, as with the parties in this case, an ambiguity exists for small employers who approach the fifteen-employee threshold, and yet have full-time workers who may qualify as independent contractors, part-time directors, owners, and spouses or other close relations who may have a stake in the business ventures.

If the Supreme Court affirms the Fifth Circuit’s decision, employees seeking to sue under Title VII may be subject to a higher barrier in order to establish their claims. In threshold cases, the number of “employees” as defined under Title VII may be very hard to determine, and it is questionable whether a potential defendant would be particularly cooperative in aiding in any of plaintiff’s pre-trial investigation. See Brief for Petitioner at 31 (claiming five months of discovery were needed to establish the number of employees Y & H actually had). Such a ruling would establish a shield for employment discrimination defendants by making it more difficult for them to be sued. However, if the Court overrules the Fifth Circuit and determines that the number of employees is to be determined on the merits, then such threshold cases could be as easily initiated as those clearly falling within or without the statutory minimum numbers. Any complex determinations of employer status would be saved as factual issues to be determined in the course of the lawsuit. Such a ruling would sharpen the litigation sword for plaintiffs by reducing the requirements needed to get into court.

The government will also be affected by the Court’s decision, as state government's serve as employers/defendants, and the Federal Government acts as both plaintiff and defendants in Title VII cases. See Brief for the United States as Amicus Curiae Supporting Petitioner at 1. The Federal Government has a particular interest because the Court’s decision may extend farther than just Title VII claims because many statutes and regulations have similar or corresponding requirements and similar definitions of “employers.” See id. Because the Federal Government’s various commissions and agencies administrator Title VII and other statutes, the Government’s primary interests lie in protecting employees and in the consistent reading and interpretation of its laws.

Lower Federal courts will also be impacted by the Court’s decision in this case. Primarily, a split exists between several Circuits as to whether the employer definition is jurisdictional or an issue on the merits, with the Second, Third, Seventh, Eleventh, and D.C. Circuits purportedly holding the issue as non-jurisdictional. See Brief for Respondent at 3. The Court’s pending ruling is anticipated to establish a unified standard for all Federal courts on the question of how to address the employer qualification question in Title VII claims. This in turn will affect anyone involved in Title VII employment discrimination cases. Regardless of which direction the Court moves, the decision will most likely result in more consistent procedures to determine an employer’s status of claims.

As with many Supreme Court decisions, the full implications of the decision may be expansive. Title VII covers not only the current question of sexual discrimination, but also discrimination based on race, color, religion, and national origin. The Court’s holding in Arbaugh will apply to all types of Title VII employment claims. Furthermore, it may likely affect how employment or other qualifications are treated in actions outside of Title VII, including claims under the Americans with Disabilities Act and the Family and Medical Leave Act. See Brief for the United States as Amicus Curiae Supporting Petitioner at 1.

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Analysis

Arbaugh argues that the Civil Rights Act of 1964 § 701(b), 42 U.S.C.A. § 2000e(b) (2005) does not affect a court’s determination of subject-matter jurisdiction. Rather, Arbaugh argues that the Civil Rights Act of 1964 § 706(f)(3), 42 U.S.C.A. § 2000e-5(f)(3) (2005) establishes subject-matter jurisdiction in the Federal courts. Brief for Petitioner at 7. This section states that, “Each United States district court and each United States court of a place subject to the jurisdiction of the United States shall have jurisdiction of actions brought under this subchapter.” 42 U.S.C.A. § 2000e-5(f)(3). Arbaugh likens Title VII’s “brought under” language to the inclusive “arising under” language found in 28 U.S.C. § 1331, which establishes Federal question jurisdiction stating that, “The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” Brief for Petitioner at 14 (emphasis added). Thus, Arbaugh argues that if a plaintiff claims that defendant’s actions violated Title VII, jurisdiction is established in the Federal courts, without looking any further than section 706(f)(3) to establish jurisdiction. Id.

Arbaugh argues that the number of individuals a defendant employs goes to the merits of the claim, and should only be decided by the court or jury after jurisdiction is established in the Federal courts. Id. at 15. Arbaugh notes that there are twelve other definitions contained in section 701, and cites Zipes v. Trans World Airlines, 455 U.S. 385 (1982).  In Zipes, the Supreme Court rejected a defendant’s contention that another provision of Title VII, section 706(e), could limit jurisdiction. Section 706(e) required that a timely charge be filed with the EEOC. The Supreme Court stated that, “The provision specifying the time for filing charges with the EEOC appears as an entirely separate provision, and it does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts.” Id. at 393-94.  Section 706(f)(3) does not limit jurisdiction to cases where the defendant employees fifteen or more individuals. 42 U.S.C.A. § 2000e-5(f)(3). Further, like section 706(e), section 701(b) appears separately from 706(f)(3) and says nothing about jurisdiction. Thus, it appears that there is a certain degree of validity in Arbaugh’s assertion that the lower court was in error when it gave section 701(b) jurisdictional meaning.

However, Y & H responds that the Court looked to the legislative history in evaluating the jurisdictional aspects of section 706(e). Y & H notes that the United States in its amicus brief acknowledges that the legislative history refers to the section as jurisdictional. Brief for Respondent at 17; Brief for the United States as Amicus Curiae Supporting Petitioner at 6.

In the lower courts, Y & H relied on precedent for its argument that failure to establish that the defendant employed fifteen individuals deprived the Federal court of jurisdiction. However, because the Circuits are split over the question presented in this case, Y & H further developed their argument. Y & H maintains that Title VII simply does not regulate its business, and, therefore, there must be a lack of subject-matter jurisdiction. In making this argument, Y & H claims that when Congress enacted Title VII, it did not intend to grant jurisdiction to Federal courts over businesses like the Y & H Corporation. Brief for Respondent at 7. Y & H also asserts that the Supreme Court’s section 701(b) jurisprudence supports their argument that if a defendant does not meet the minimum employee requirement, there is a failure of jurisdiction. Id. at 5.

Y & H cites EEOC v. Commercial Office Products Company, 486 U.S. 107 (1988), amongst others, to support its claim. In Commercial Office Products, a plurality of the Supreme Court said that “Title VII does not give the EEOC jurisdiction to enforce the Act against employers of fewer than 15 employees…”  Brief for Respondent at 12. However, as the United States in support of the Petitioner points out, this statement can be distinguished because it speaks to administrative jurisdiction, rather than the subject-matter jurisdiction of the Federal courts. Id. at 13. Further, Y & H cites Hishon v. King & Spalding, 467 U.S. 69 (1984), where the Court said in a footnote that Congress could expressly grant complete immunity from Title VII coverage, and that Congress did just that when it “expressly exempted small businesses, i.e., those with less than 15 employees, from Title VII, thus granting such complete immunity.” Id. at 13. While none of the cases lead to a clear answer to the question presented in this case, these cases lend some support to Y & H’s contention that Congressional intent should be studied in order to answer the jurisdictional question.

Y & H accepts Arbaugh’s argument that whether or not a defendant violated Federal law goes to the merits of a case. Brief for Respondent at 18; Brief for Petitioner at 15. However, Y & H astutely notes that it is not a violation of Federal law for a defendant to have fewer than 15 employees, and, therefore, the question of how many employees a defendant has does not go to the merits of the case. Brief for Respondent at 18.

Further, Y & H contends that to accept Arbaugh’s approach to the numerosity requirement would thwart effective administration of Title VII. Brief for Respondent at 19. While Arbaugh claims that leaving the factual determination of how many employees a defendant have would “derogate the statutory right to a jury trial in a manner Congress is unlikely to have foreseen or intended,” Y & H counters by saying that if Congress was dissatisfied with judges making this factual determination, Congress could have clarified Title VII to reflect any dissatisfaction. Brief for Respondent at 20; Brief for Petitioner at 24. Perhaps Y & H’s most convincing argument is that Congress intended section 701(b) to be jurisdictional because Congress did not wish to expose small businesses with less than fifteen employees to the expensive and protracted litigation that would ensue if the employee numerosity issue were decided at trial. Brief for Respondent at 29.

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Conclusion

In this case, the Supreme Court must decide whether the question of how many employees a defendant has in a Title VII claim is to be determined by the court as a jurisdictional question at the outset of the case, or whether it is to be determined at trial. Petitioner Arbaugh argues that the statute and case law is clear in showing that section 701(b) is not jurisdictional in nature, but rather that it is a complicated factual question to be determined at trial. Respondent Y & H Corporation maintains that Congress intended 701(b) to be jurisdictional, mainly to avoid exposing small businesses to protracted and expensive litigation. If the Supreme Court decides that section 701(b) is jurisdictional in nature, then any small business, regardless of whether it is able to eventually prove that it is excluded from Title VII because it has fewer than 15 employees, will not be able to raise the employee numerosity issue to avoid being brought to trial in a Title VII claim.

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Authors

Prepared by: Kenn Hwang and Aseem Gupta

Additional Sources

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