EBIA Weekly Newsletter

Employer Escapes ADEA Liability Through Small Employer Exception Despite Related Company’s Employees

   March 31, 2016

Bridge v. New Holland Logansport, Inc., 2016 WL 890971 (7th Cir. 2016)

In an employment discrimination case, the Seventh Circuit has ruled that an employer did not have the requisite 20 or more employees for it to be covered under the federal Age Discrimination in Employment Act (ADEA). While the employer maintained that it employed only 17 employees during the time period at issue, the employee argued that three employees of a related company should also be counted for purposes of the ADEA’s minimum employee threshold. The three employees, who were directly employed by the related company, performed human resources and other administrative services for both companies. The employee argued that they were jointly employed by both employers.

The court used a five-factor test to determine the extent to which there was an employer-employee relationship: (1) the extent of the employer’s control and supervision of the individuals; (2) the kind of occupation and nature of skill required; (3) the employer’s responsibility for costs of operation; (4) the method and form of payment and benefits; and (5) the length of the job commitment. Holding in favor of the employer, the court concluded that there was no evidence that the employer exercised the kind of control indicative of an employer-employee relationship. Instead, it was the related company that, among other things, directed the individuals’ day-to-day work and provided training, payment, and benefits.

EBIA Comment: The ADEA generally prohibits employers with 20 or more employees from discriminating against individuals age 40 and over with respect to the “compensation, terms, conditions, or privileges of employment,” including employee benefits. As this case illustrates, determining who the employer is and which individuals must be counted as employees for purposes of the ADEA can be complex, requiring careful application of detailed rules. For most employers, the law’s application is clear because they have either well below or well above the minimum number of employees. But complications can arise if an employer with a small number of employees is part of a larger group of companies or if the law’s application depends on whether certain individuals are counted as employees. Although courts generally agree on the appropriate factors for consideration, there can be variations in how those factors are applied to particular situations. It is also important to remember that the requirements for a “small employer exception” (if available) vary among the different mandates that apply to group health plans, both in the requisite number of employees and in the individuals who must be counted. For more information, see EBIA’s Group Health Plan Mandates manual at Sections IV.E (“Exceptions for Small Group Health Plans and Small Employers”) and XIX.A (“What Is the ADEA and Who Must Comply?”).

Contributing Editors: EBIA Staff.