Supreme Court: Title VII Employee Threshold Does Not Determine Jurisdiction

After the court entered judgment on the verdict, Y & H filed a motion to dismiss the case for lack of subject-matter jurisdiction, alleging, for the first time, that it had fewer than 15 employees during the relevant time period. The district court concluded the employee threshold was a jurisdictional requirement and, therefore, vacated its prior judgment and dismissed the Title VII claim with prejudice, and the state law claims without prejudice. The Fifth Circuit affirmed based on prior precedent holding that unless the employee-numerosity requirement is met, federal court subject matter jurisdiction does not exist.

The Supreme Court Decision

The Supreme Court reversed and remanded, concluding it was too late for Y & H to raise the employee threshold as a defense. The Court observed that an objection that a federal court lacks subject-matter jurisdiction may be raised at any stage in the litigation, even after trial and the entry of judgment. By contrast, the objection that a complaint 'fails to state a claim upon which relief can be granted' endures only up to, not beyond, trial on the merits.

The Supreme Court held the employee numerosity requirement relates to the substantive adequacy of Arbaugh's Title VII claim and, therefore could not be raised late in the lawsuit ie, it must be raised prior to the close of trial on the merits. In so holding, the Court adopted a bright line rule that a threshold limitation on a statute's scope will only be treated as jurisdictional if Congress clearly labels it as such. The Court determined the 15-employee requirement of Title VII is not a jurisdictional issue because the requirement is not part of the provision giving federal courts jurisdiction over Title VII claims, and instead is included in a separate provision that makes no reference to jurisdiction.

Thus, the Court's treatment of the 15-employee requirement as an element of a plaintiff's Title VII claim, rather than a jurisdictional defense, has very real consequences in application. As the Court determined, subject-matter jurisdiction, because it involves a court's power to hear a case, cannot be waived, and courts have an independent obligation to determine whether it exists. If subject-matter jurisdiction depends on disputed facts, the trial court may be authorized to review the evidence and resolve the dispute on its own. When a federal court concludes it lacks subject-matter jurisdiction, on the other hand, the court must dismiss the complaint in its entirety, including all state-law claims. In contrast, when a court dismisses a federal claim for failure to prove a claim, the court generally retains discretion to exercise supplemental jurisdiction over state-law claims. Thus, this difference may impact whether a federal court will hear pendent state law claims.

This article was prepared by the Labor and Employment Relations department of Winston & Strawn LLP.

The United States Supreme Court has resolved a significant issue regarding coverage under Title VII: whether the 15-employee threshold for determining whether an individual or entity is an 'employer' covered by Title VII of the Civil Rights Act of 1964 is a substantive element of plaintiff's claim for relief, or a jurisdictional issue. (Arbaugh v. Y & H Corp., No. 04-944 (2006)). In Arbaugh, the Supreme Court, reversing the U.S. Court of Appeals for the Fifth Circuit, held that the 15-employee threshold is an element of a plaintiff's claim that must be challenged prior to trial on the merits. The Supreme Court's decision is significant because evaluating the number of employees as a substantive issue would allow a federal court to exercise supplemental jurisdiction and to retain discretion to hear pendent state law claims even if it dismisses the federal claims for failure to state a claim.

The Case

Arbaugh sued her former employer, the Y & H Corp., which operates the Moonlight Caf' in New Orleans, under both Title VII and Louisiana law in federal district court. A pretrial order signed by the parties and the trial judge stated that the court had jurisdiction over both the Title VII claims and the state law claims. However, the pretrial order did not list as a contested factual or legal issue whether Y & H had sufficient employees to be covered by Title VII. The case was tried to a jury, which returned a verdict in Arbaugh's favor.

After the court entered judgment on the verdict, Y & H filed a motion to dismiss the case for lack of subject-matter jurisdiction, alleging, for the first time, that it had fewer than 15 employees during the relevant time period. The district court concluded the employee threshold was a jurisdictional requirement and, therefore, vacated its prior judgment and dismissed the Title VII claim with prejudice, and the state law claims without prejudice. The Fifth Circuit affirmed based on prior precedent holding that unless the employee-numerosity requirement is met, federal court subject matter jurisdiction does not exist.

The Supreme Court Decision

The Supreme Court reversed and remanded, concluding it was too late for Y & H to raise the employee threshold as a defense. The Court observed that an objection that a federal court lacks subject-matter jurisdiction may be raised at any stage in the litigation, even after trial and the entry of judgment. By contrast, the objection that a complaint 'fails to state a claim upon which relief can be granted' endures only up to, not beyond, trial on the merits.

The Supreme Court held the employee numerosity requirement relates to the substantive adequacy of Arbaugh's Title VII claim and, therefore could not be raised late in the lawsuit ie, it must be raised prior to the close of trial on the merits. In so holding, the Court adopted a bright line rule that a threshold limitation on a statute's scope will only be treated as jurisdictional if Congress clearly labels it as such. The Court determined the 15-employee requirement of Title VII is not a jurisdictional issue because the requirement is not part of the provision giving federal courts jurisdiction over Title VII claims, and instead is included in a separate provision that makes no reference to jurisdiction.

Thus, the Court's treatment of the 15-employee requirement as an element of a plaintiff's Title VII claim, rather than a jurisdictional defense, has very real consequences in application. As the Court determined, subject-matter jurisdiction, because it involves a court's power to hear a case, cannot be waived, and courts have an independent obligation to determine whether it exists. If subject-matter jurisdiction depends on disputed facts, the trial court may be authorized to review the evidence and resolve the dispute on its own. When a federal court concludes it lacks subject-matter jurisdiction, on the other hand, the court must dismiss the complaint in its entirety, including all state-law claims. In contrast, when a court dismisses a federal claim for failure to prove a claim, the court generally retains discretion to exercise supplemental jurisdiction over state-law claims. Thus, this difference may impact whether a federal court will hear pendent state law claims.

This article was prepared by the Labor and Employment Relations department of Winston & Strawn LLP.