In Employment Law, Sometimes 1+1 = 15
Posted at Arkansas Employment Law by M. McClure on 08/07/2009

Small employers are often relieved to hear that they are not governed by Title VII because they have fewer than 15 employees. Also, the Family Medical Leave Act only applies to employers with at least 50 employees. But, an employer can inadvertently reach these numbers when more than one company is owned and managed by the same entity. 

A recent case from an Arkansas federal district court demonstrates that courts will look at all related companies to determine whether an employer has 15 employees and is subject to the requirements of Title VII.  Hardy v. Town of Perla Water Ass'n.  One company plus another company could equal 15 employees.

In the Hardy case, an employee sued the Town of Perla Water Association and the Mayor of Perla for racial discrimination, hostile work environment, and retaliation under Title VII. Because the Perla Water Association had only six employees, the court looked at whether the company should be combined with the City of Perla to determine whether the company was an employer under Title VII.

The court in Hardy first set out the factors to consider when combining to two private companies for Title VII purposes: 1) interrelation of operation, 2) common management, 3) centralized control of labor relations, and 4) common ownership or financial control.  FMLA regulations set forth the same test to determine whether two companies should be combined to determine whether an employer has 50 employees and is governed by the FMLA. 29 C.F.R. 825.104(c)(2). 

The Hardy court rejected this test because the town of Perla was a public entity rather than a private entity.  Instead, the court looked for "indicia of control," which includes the authority to hire, transfer, promote, discipline, or discharge, establish work schedules, direct work assignments, and the obligation to pay. The court found indicia of control between the two entities, but excluded volunteer fire fighters and city council members from the count, leaving too few employees to create Title VII liability.  Therefore, the employee's claims were dismissed under Title VII. 

Bottom Line:  The Hardy case demonstrates that a court will look past corporate structure when determining the number of employees for Title VII purposes.  Employers should be particularly concerned about related companies that could be combined to group more than 50 employees, and therefore, become subject to the FMLA. Conduct that will create liability under Title VII is usually pretty offensive and careful employers, even those with fewer than 15 employees, take steps to avoid that conduct in their workplaces.  But, the FMLA requires employers to provide job-protected leave to qualifying employees, along with specific notifications, which most employers would not do if they were not subject to the FMLA. So, take a look at any related companies and do the math.  Don't be unprepared when 1 + 1 = 50.