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November 30, 2005
Small Employer Not Subject to the ADA or Title VII

An employee of a bank was fired and sued, alleging sex and disability discrimination under the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964, which apply to employers with 15 or more employees. The employer argued that its credit committee members did not qualify as employees so it was not large enough to be subject to the ADA and Title VII.

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What happened. Karen Stone worked for Indiana Postal & Federal Employees Credit Union, known as Pinnacle Credit Union (Pinnacle), from 1996 to 2004, when she was terminated. She filed a complaint claiming retaliation and discrimination based on sex and alleged disability. Pinnacle moved to have the case dismissed.

What the court said. This case turned on one issue: whether Pinnacle was an "employer" under the definition given by the ADA and Title VII. In order to be considered an "employer," the employing entity must be "engaged in an industry affecting commerce who has 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.?" If the employing entity does not meet this threshold, it is not governed by either the ADA or Title VII.

Pinnacle argued that it was not an employer for the purposes of the ADA and Title VII. During 2003 and 2004, the years in which the alleged discrimination occurred, there were only two pay periods in which it employed 15 or more employees. For the rest of the time it employed between 12 and 14 employees. Stone insisted that it did have 15 employees because it should have counted the three members of Pinnacle's 'Credit Committee.' The court therefore addressed the question of whether these committee members were employees.

A person is an employee under the ADA and Title VII if he or she is "employed by an employer." The Supreme Court has said that the primary consideration is whether an "employment relationship" exists. The best way to spot an employment relationship is through the "payroll method": If an individual appears on an employer's payroll, he or she is probably an employee. There are, however, some cases in which a person appears on the payroll but is not in fact an employee.

A better test is to see if the person would fall under the common law agency definition of an employee. This test examines the amount of control the hiring party has over the manner and means of working, the skill required, the source of tools, the location of the work, the duration of the relationship, the extent of the hired party's control over when and how long to work, the method of payment, the hired party's role in hiring and paying assistants, whether the work is part of the hiring party's regular business, the provision of employee benefits, and the tax treatment of the hired party. No single factor is decisive.

The Credit Committee failed the payroll test because they did not appear on Pinnacle's payroll. The court then examined their work situation to see if they could still qualify as employees under the common law definition. It concluded that they did not. Members of the committee were not hired or fired in the normal manner but instead were elected by the credit union membership. Pinnacle's management did not control them. They were all engaged in full-time pursuits outside Pinnacle. They did not perform the duties of Pinnacle's regular employees. They were generally paid $4 for each meeting­and in 2004, were paid nothing at all. The court held that they were more like an arm of the board of directors than employees. Therefore, the court concluded that Pinnacle did not have enough employees to be considered an employer under the ADA or Title VII.

Because Pinnacle was not considered an employer, Stone's claims of discrimination were irrelevant and there was no basis for a trial. Stone v. Indiana Postal & Federal Employees Credit Union, U.S. District Court for the Northern District of Indiana, No. 1:05-CV-114 (09/26/05).

Point to remember: Every plaintiff who files a lawsuit under the ADA or Title VII must pass the first hurdle­employer size. That doesn't mean small employers should feel free to discriminate; even a dismissed lawsuit is expensive.

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