LEGAL ISSUES

Supreme Court Mulls Definition of 'Small Business'

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Jan. 20, 2006--A workplace sexual-harassment case now facing the Supreme Court, which pits a New Orleans waitress against her former boss, hinges on exactly who is considered -- and who isn't -- a small-business employee under federal law, legal experts say.

The case, which was heard on Jan. 11, may not only have an immediate impact on small employers currently mired in lower-court battles, but could also help define small-business employment for more than half a dozen federal statutes -- including the Americans with Disabilities Act and the Family and Medical Leave Act.

"It's a legal technicality," said Charles Craver, who teaches labor and employment law at George Washington University in Washington, D.C., "but is critical for small businesses that may or may not be covered under certain federal laws."

In November 2001, Jenifer Arbaugh, a former waitress and bartender at the Moonlight Café in New Orleans -- since shutdown by Hurricane Katrina -- sued her employer for gender discrimination and sexual harassment, alleging, among other things, that the owner made lewd comments and put his hands up her skirt, court documents showed.

She was awarded $40,000 in back pay and damages by a jury verdict under Title VII of the Civil Rights Act. Two weeks later, the ruling was overturned by a district court on the grounds that the statute didn't apply.

Under Title VII, an employer is defined as having at least 15 employees. Y&H, the café's owners, argued that its delivery drivers were independent contractors, not employees, putting the total number of workers below the 15-employee threshold.

Arbaugh immediately appealed, arguing not only that the drivers were, in fact, full employees, but that whatever evidence the owners submitted to the contrary was never heard by the jury, leaving the judge alone to decide.

The question now before the Supreme Court is precisely who should make that decision -- a judge or a jury. That is, whether the definition of an "employer" under federal civil-rights laws is a jurisdictional fact or merely evidence to be argued before a jury on the merits of a particular claim.

The court's decision could have a direct impact on small businesses across the country, according to the National Federation of Independent Business, a small-business lobby group based in Washington, D.C.

By and large, small-business owners want greater freedom in challenging a court's jurisdiction in such disputes, said Karen Harned, the executive director of the NFIB Legal Foundation.

She said owners need to know which federal statutes apply to them.

"There's a lot of federal laws that don't kick in unless a business has a certain number of employees," Harned said. "So deciding who counts is crucial."

On Jan. 11, she presented an amicus brief on behalf of the NFIB, arguing that a judge, not a jury, should decide employment in enforcing federal statutes.

"If that decision is made by 12 people on a case-by-case basis, it will only muddy the legal waters for small-business owners," she said.

Larry Peikes, an employment attorney at Wiggin and Dana LLP in Stamford, Conn., disagrees. Like George Washington's Craver, he sees the case turning on a technical legal issue, but one that will have little impact on small business.

"Unless you hire an incompetent lawyer, it won't make a big difference," Peikes said, adding that he expects the court to rule in favor of Arbaugh.

If it's not jurisdictional, he said, a business owner sued under Title VII can raise the number of employees as a challenge to the claim, and argue it in front of a jury, Peikes said. "That's how it should work," he added.

"But if it is jurisdictional, [the number of employees] just needs to be raised at the onset, and the case ends there," he said.

Whatever the outcome, Peikes said, workers can always appeal to state laws, which typically have a lower employee threshold.

A decision is expected by June 30.

Last updated: Jan 20, 2006




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