Walters v. Metropolitan Educational Enterprises, Inc.: High Court Clarifies Employee Test for Small Businesses

A recent U.S. Supreme Court case is important to small businesses. In Walters v. Metropolitan Educational Enterprises, Inc., the Court clarified how to calculate the number of employees to determine whether an employer meets the threshold number of employees and therefore is subject to Title VII of the 1964 Civil Rights Act.

Darlene Walters filed a charge with the Equal Employment Opportunity Commission (EEOC) of sexual discrimination by her employer, Metropolitan Educational Enterprises, Inc. (Metropolitan). Shortly thereafter she was fired, and the EEOC filed a lawsuit against Metropolitan claiming Walters’ firing was an unlawful retaliation under Title VII. Metropolitan moved for dismissal of the case, contending that Title VII didn’t apply since Metropolitan had less than 15 employees. The District Court agreed and granted the motion.

As the U.S. Supreme Court observed, Metropolitan was subject to Title VII only if it met the statutory definition of an "employer": "a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year." In the past, this definition has created confusion as to how the number of employees is calculated.

The Court agreed with the EEOC that the appropriate test is "whether the employer has an employment relationship with the individual on the day in question." This test is called the "payroll method" since an employer’s relationship with a person is determined by whether the individual is on the payroll. In Walters, the Court applied the payroll method, decided Metropolitan was an employer under the Title VII definition, and reversed the District Court decision, thereby allowing the case to go forward.

To determine whether an employer falls under the statutory definition of employer," the question is: "whether an employer has employment relationships with 15 or more individuals for each working day in 20 or more weeks during the year in question."

Small employers should be aware of the Walters decision and the payroll method. Some business owners who may have thought they weren’t subject to Title VII may, indeed, be subject to it.

Walters v. Metropolitan Educational Enterprises, Inc. , 519 U.S. 202, 117 S.Ct. 660 (1997).