Nesbit v. Gears Unlimited Inc

Opinions of the United

2003 Decisions States Court of Appeals

for the Third Circuit

10-21-2003

Nesbit v. Gears Unlimited Inc

Precedential or Non-Precedential: Precedential

Docket No. 01-1195

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PRECEDENTIAL

Filed October 21, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 01-1195

NORMA J. NESBIT,

Appellant

v.

GEARS UNLIMITED, INC.

Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. Civil Action No. 99-cv-00655)

District Judge: Honorable Yvette Kane

Argued March 22, 2002

Before: NYGAARD, ROTH and AMBRO, Circuit Judges

(Opinion filed: October 21, 2003)

Donald A. Bailey, Esquire (Argued)

4311 North 6th Street

Harrisburg, PA 17110

Attorney for Appellant

John L. Senft, Esquire (Argued)

Barley, Snyder, Senft & Cohen

100 East Market Street

P.O. Box 15012

York, PA 17405

Attorney for Appellee

2

OPINION OF THE COURT

AMBRO, Circuit Judge:

Title VII of the Civil Rights Act of 1964 prohibits

companies employing “fifteen or more” persons from

discriminating on the basis of sex in hiring, discharge,

compensation, or terms of employment. 42 U.S.C.

§§ 2000e(b), 2000e-2(a)(1). Norma Nesbit alleges that Gears

Unlimited, Inc. (“Gears”) terminated her employment as a

machine operator because of her sex. She concedes that

Gears did not employ fifteen persons during the pertinent

time period, but argues that we should also count the

employees at a related entity, Winters Performance

Products (“Winters”). Together, Gears and Winters had

more than fifteen employees. We hold that the District

Court properly refused to aggregate the number of

employees at these companies. Because Title VII does not

cover Gears by itself, we affirm the dismissal of Nesbit’s

complaint. But we part with the District Court on the path

to this result. It viewed Title VII’s “fifteen or more” person

requirement as jurisdictional. We affirm the dismissal of

Nesbit’s complaint on the merits rather than for lack of

subject matter jurisdiction.

I. FACTS AND PROCEDURAL HISTORY

In 1973, Vaughn Winter, Sr. (“Vaughn Sr.”) founded

Winters, which manufactures “rear ends” for high-

performance automobiles. In 1990, he acquired Gears, a

transmission parts manufacturer. Vaughn Sr. and his wife,

Madeline Winter (“Madeline”), also formed Maverick

Industries, Inc. (“Maverick”), which warehouses automotive

parts, including parts produced at Winters. At the time of

the events relating to this suit — December 1994 through

August 1997 — Vaughn Sr. had a stake in three automotive

companies: Gears, Winters, and Maverick.

The Winter family shares ownership and control of these

three companies. Vaughn Sr. owns ten percent of Gears,

with the remainder held in trust in equal shares for his

3

children — Nina and Vaughn Jr. Vaughn Sr. is president of

Gears and his children are corporate officers. He and

Madeline own Winters and Maverick in equal shares. He is

president of Winters and Maverick, and Madeline is the

Secretary/Treasurer at Winters.

Gears and Winters occupy separate plants about one

mile apart in York, Pennsylvania. In almost all respects,

they operate independently. Their products are distinct —

Gears produces transmissions and Winters produces

automotive rear ends — and each company has its own

equipment and production lines. Winters contracts to buy

parts from Gears at market rates. The companies maintain

separate financial records and payrolls, write separate

checks, and file separate tax returns.

Vaughn Sr. monitors operations at both Gears and

Winters. While he participates in day-to-day management

at Winters, Gears is managed by Randy Lau. Vaughn Sr.

testified that he visits the Gears facility only about twice a

month, usually because a machine has broken down.

Nesbit disputes this testimony, contending that Vaughn Sr.

spends time at Gears “pretty much every day.”

The only area in which Gears and Winters cooperate

considerably is in hiring. Typically, if either Gears or

Winters has an opening, a Winters employee will place a

“help wanted” sign on the street in front of the Winters

building. Prospective employees obtain applications at the

Winters front office and return them there as well. If

Winters is hiring, either Vaughn Sr. or his wife will invite

qualified applicants for an interview. If Gears has an

opening, someone at Winters will communicate with the

applicant on Lau’s behalf and then direct him or her to the

Gears plant to interview with Lau. The hiring decision is

then Lau’s “prerogative.” However, Vaughn Sr. (who, as

noted above, normally does not participate in Gears

management) can request that Gears hire a particular

applicant and Gears will generally do so. Either Lau or the

Winter children normally decide whether to terminate an

employee, but Vaughn Sr. testified that he could ask Gears

to fire an employee who engaged in significant misconduct.

On December 14, 1994, Nesbit submitted a standard

4

employment application to Winters for a machine operator

position. That day, either Vaughn Sr. or Madeline

interviewed her.1 The interviewer concluded that no

available positions at Winters would be suitable for Nesbit

and instead referred her to Gears, which hired her as a

machine operator.2 Vaughn Sr. personally accompanied

Nesbit to meet Lau, but the parties dispute whether

Vaughn Sr. or Lau actually made the hiring decision.

Nesbit remained at Gears for two years and eight months.

She perceived that Lau was her “boss” and was “more or

less in charge” at Gears. Occasionally she also worked an

extra shift at Winters following her regular shift at Gears.

She would punch out on the time clock at Gears and then

punch in at Winters. When working a Winters shift, she

received a separate paycheck. Her hours at the two plants

were not consolidated for overtime pay.

On August 19, 1997, Nesbit’s machine at Gears

“crashed,” leaving it unusable without repairs. Nesbit

became upset, which apparently caused her to develop a

headache and neck pains. She informed the acting

supervisor, Greg Pell, that she was leaving work to visit her

chiropractor. When she returned the next day, Lau was on

vacation, and Vaughn Sr. discharged her for

insubordination.

After receiving permission from the Equal Employment

Opportunity Commission, Nesbit filed suit in the United

States District Court for the Middle District of Pennsylvania

alleging that Gears discriminated against her because of

gender. Gears moved to dismiss the complaint under

Federal Rule of Civil Procedure 12(b)(1) for lack of subject

matter jurisdiction on the basis that it employed fewer than

fifteen persons during the relevant time period and

therefore was not an “employer” subject to Title VII.

Nesbit then filed an amended complaint alleging that

1. The parties dispute whether Vaughn Sr. or Madeline conducted the

initial interview, though it is not important for our analysis.

2. Nesbit is plaintiff ’s maiden name and the name she uses in this

litigation. The name on her employment application and in Gears’

employment records is Norma J. Tran.

5

Gears and its “associate corporation” Winters Transmission,

Inc. — a company different from Winters that Vaughn Sr.

owned from 1955 to 1985 — were really a single employer

with more than fifteen employees. Gears moved again for a

dismissal, this time observing that the entity called

“Winters Transmission, Inc.” had ceased operation long

before Nesbit began working at Gears. Nesbit then filed a

second amended complaint, alleging that Gears and

Winters are associate corporations that together meet the

fifteen-employee threshold. On the basis of that allegation,

the District Court ordered discovery limited to the question

whether Gears and Winters constitute a single employer

under Title VII. Following discovery, the District Court

issued a memorandum and order in which it concluded

that Gears and Winters are separate entities and, because

Gears unquestionably employs fewer than fifteen persons

by itself, dismissed Nesbit’s complaint for lack of subject

matter jurisdiction. This appeal followed.

II. DISCUSSION

A. Is the Number of Employees a Jurisdictional

Requirement?

We first address whether Title VII’s fifteen-employee

threshold is a jurisdictional prerequisite — as the District

Court believed it was in dismissing Nesbit’s complaint

pursuant to Rule 12(b)(1) — or whether it is a substantive

element of a Title VII claim. Whether an aspect of a claim

concerns subject matter jurisdiction or the merits has at

least three implications. First, because subject matter

jurisdiction is non-waivable, courts have an independent

obligation to satisfy themselves of jurisdiction if it is in

doubt. See Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle,

429 U.S. 274, 278 (1977). A necessary corollary is that the

court can raise sua sponte subject-matter jurisdiction

concerns. Second, if the fifteen-employee requirement is not

jurisdictional, a Title VII claim for which the number of

employees is in doubt nonetheless will support

supplemental jurisdiction under 28 U.S.C. § 1367 over state

claims. Da Silva v. Kinsho Int’l Corp., 229 F.3d 358, 362 &

365 (2d Cir. 2000); 13B Wright, Miller & Cooper, Federal

Practice and Procedure § 3564, at 73-5 (2d ed. 1984). Third,

6

in most contexts the question will be important to the

plaintiff ’s burden of proof. If an aspect of a claim concerns

jurisdiction, and when jurisdiction turns on whether a

particular fact is true as here (as opposed to whether the

complaint sufficiently alleges jurisdiction on its face), a

court may inquire into the jurisdictional facts without

viewing the evidence in a light favorable to either party. See

Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884,

891 (3d Cir. 1977). By contrast, if an aspect of a claim

concerns the merits, on a Rule 12(b)(6) motion to dismiss

for failure to state a claim a court must accept the

complaint’s allegations as true, United States Express Lines

Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002); on a Rule

56 motion for summary judgment it must view the evidence

in the light most favorable to the non-moving party and, if

there are disputes over genuine issues of material fact, they

are for the jury to resolve, Huang v. BP Amoco Corp., 271

F.3d 560, 564 (3d Cir. 2001).

1. Relevant Caselaw

The question whether Title VII’s fifteen-employee

threshold is a jurisdictional prerequisite when a plaintiff

brings a colorable Title VII claim has divided the courts of

appeals.3 The Second and Seventh Circuits conclude that it

is a substantive element that the plaintiff must prove

unless the claim that there are fifteen employees is so

obviously unfounded that it fails to raise a genuine federal

controversy. Da Silva, 229 F.3d at 364-65 (2d Cir.);

3. In Walters v. Metropolitan Educational Enterprises, Inc., 519 U.S. 202

(1997), the Supreme Court granted certiorari to decide whether the

Seventh Circuit erred in dismissing a Title VII suit for lack of subject

matter jurisdiction because the defendant company lacked fifteen

employees during the relevant period. The Court reversed and remanded,

concluding that the Seventh Circuit had erred in determining the

number of employees, but did not address whether the fifteen-employee

requirement is jurisdictional or an element of the merits. Id. at 212.

Moreover, in Hishon v. King & Spalding, 467 U.S. 69 (1984), the

Supreme Court found it “unnecessary to consider the District Court’s

invocation of Rule 12(b)(1) [lack of subject matter jurisdiction], as

opposed to Rule 12(b)(6) [failure to state a claim]” on a similar issue —

whether “Title VII [is applicable] to the selection of partners by a

partnership.” Id. at 72-73 & n.2.

7

Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001-02 (7th

Cir. 2003), petition for cert. filed, 72 U.S.L.W. 3021 (U.S.

Sept. 2, 2003) (No. 03-354); Papa v. Katy Indus., Inc., 166

F.3d 937, 943 (7th Cir. 1999); Sharpe v. Jefferson Distrib.

Co., 148 F.3d 676, 677-678 (7th Cir. 1998). Moreover, the

D.C. Circuit has held the Americans with Disabilities Act’s

(“ADA”) fifteen-employee threshold an element of the merits.

EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621,

623-25 (D.C. Cir. 1997). In this context, the ADA’s fifteen-

employee requirement is in all relevant respects

indistinguishable from Title VII’s.

By contrast, the Fifth, Sixth, Ninth, Tenth, and Eleventh

Circuits have said that the fifteen-employee threshold is

jurisdictional. Greenless v. Eidenmuller Enters., Inc., 32

F.3d 197, 198 (5th Cir. 1994); Armbuster v. Quinn, 711

F.2d 1332, 1335 (6th Cir. 1983); Childs v. Local 18, IBEW,

719 F.2d 1379, 1382 (9th Cir. 1983); Owens v. Rush, 636

F.2d 283, 287 (10th Cir. 1980);4 Scarfo v. Ginsberg, 175

F.3d 957, 960 (11th Cir. 1999). Moreover, in Thurber v.

Jack Reilly’s, Inc., 717 F.2d 633 (1st Cir. 1983), the First

Circuit upheld a district court’s dismissal of a Title VII case

for lack of subject matter jurisdiction (although the basis

for the District Court’s dismissal in Thurber — lack of

jurisdiction or the merits — was uncontested; at issue was

the number of employees the employer had). The Fourth

Circuit also held that the number of employees is

jurisdictional in a case brought under the Family and

Medical Leave Act (“FMLA”), a holding that suggests it

would deem the number of employees jurisdictional in the

Title VII context as well. See Hukill v. Auto Care, Inc., 192

F.3d 437, 441 (4th Cir. 1999) (“A district court lacks

subject matter jurisdiction over an FMLA claim if the

defendant is not an employer as that term is defined in the

FMLA [which defines an employer as “any person . . . who

employs 50 or more employees.]”).

The division is deeper than merely inter-circuit. Even

4. Likewise, in Trainor v. Apollo Metal Specialties, 318 F.3d 976, 978 n.2

(10th Cir. 2003), the Tenth Circuit held that whether an employer

employs fifteen people is a jurisdictional question in a case brought

under the ADA.

8

within certain circuits that have held Title VII’s fifteen-

employee threshold jurisdictional, there is conflict. While in

Owens the Tenth Circuit assumed (without analysis) that

the requirement is jurisdictional, in Wheeler v. Hurdman,

825 F.2d 257 (10th Cir. 1987), that Court held that the

fifteen-employee threshold is both jurisdictional and

“intertwined with the merits of the case,” and therefore

should have been resolved as if on the merits. Id. at 259.

The Eleventh Circuit is similarly conflicted. In Garcia v.

Copenhaver, Bell & Associates, M.D.’s, P.A., 104 F.3d 1256

(11th Cir. 1997), the Court opined that the Age

Discrimination in Employment Act’s twenty-employee

threshold “goes to the merits of an ADEA case.” Id. at 1258.

It reasoned that “the section of the ADEA that provides the

substantive relief ” — the section forbidding an employer

from discriminating — “is intertwined and dependent on

the section of the ADEA that defines the scope of the act”

— the section defining “employer” as one who employs more

than twenty employees. Id. at 1263. However, in a later

case, Scarfo, 175 F.3d 957, the Eleventh Circuit dismissed

a plaintiff ’s Title VII claim for lack of subject matter

jurisdiction when the defendant fell short of fifteen

employees. A third case, Morrison v. Amway Corp., 323

F.3d 920 (11th Cir. 2003), recognized this intra-circuit

conflict and essentially joined both camps. It stated that, in

the FMLA context, a fifty-employee threshold “implicate[s]

both jurisdiction and the underlying merits.” Id. at 929

(emphasis added). However, it held that Garcia correctly

disposed of the issue as a matter of procedure: “the district

court was required to find that jurisdiction exists and deal

with the objection as a direct attack on the merits of

plaintiff ’s case” because of the degree to which the

jurisdictional and merits inquiries were intertwined. Id. at

929-30 (internal quotation marks omitted).5

5. Moreover, all the circuits that have held the fifteen-employee threshold

jurisdictional have also stated — in the same case or in other cases —

that “where the jurisdictional facts are intertwined with the facts central

to the merits of the dispute[,] [i]t is the better view that . . . the entire

factual dispute is appropriately resolved only by a proceeding on the

merits.” Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982); see Clark

v. Tarrant County, Texas, 798 F.2d 736, 741-42 (5th Cir. 1986); Gould,

9

2. Title VII’s Fifteen-Employee Requirement is an Element

of the Merits

With this conflict in mind, we begin our determination by

noting that subject matter jurisdiction is the “courts’

statutory or constitutional power to adjudicate” particular

cases. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83,

89 (1998) (emphasis in original). Steel Co. requires that

courts normally should not conflate subject matter

jurisdiction with elements of an action’s merits. The

Supreme Court held that the elements of another federal

statute — the Emergency Planning and Community Right-

To-Know Act of 1986 (“EPCRA”), 42 U.S.C. § 11046(a)(1) —

are not jurisdictional prerequisites. Steel Co., 523 U.S. at

90-93. In relevant part, EPCRA requires users of specified

hazardous chemicals to file annual reports detailing their

chemical inventories, waste-disposal methods, and recent

releases of chemicals from their facilities into the

environment, and provides that the “district courts shall

have jurisdiction in actions brought under subsection (a) of

this section against an owner or operator of a facility to

enforce the requirement concerned and to impose any civil

penalty provided for violation of that requirement.” 42

U.S.C. § 11046(c). The Steel Co. plaintiff, a group to protect

environmental rights, sued a Chicago manufacturer and

asserted past violations of EPCRA. After being notified that

it was in arrears on its filings, the manufacturer filed all

the overdue reports. The plaintiff nonetheless continued its

suit, seeking relief for past reporting violations.

The District Court concluded that EPCRA does not

support suits for past violations and therefore dismissed

the plaintiff ’s complaint under both Rules 12(b)(1) and

12(b)(6). The Court of Appeals for the Fourth Circuit

reversed, holding that EPCRA permits such suits. The

Supreme Court determined that the case raised (1) whether

Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 451 (6th Cir. 1988);

Timberlane v. Bank of Am., 749 F.2d 1378, 1381 (9th Cir. 1984),

overruled on other grounds by Hartford Fire Ins. Co. v. California, 509

U.S. 764 (1993); Wheeler v. Hurdman, 825 F.2d at 259; Morrison v.

Amway Corp., 323 F.3d at 929. These cases highlight the unsettled

nature of the merits/jurisdictional question.

10

the plaintiff had constitutional standing and (2) whether

allegations of past violations state a cause of action under

EPCRA, Steel Co., 523 U.S. at 88. As to the latter, the Court

decided that the past violations question was on the merits

and not a jurisdictional requirement. Id. at 110. In so

doing, Steel Co. rejected attempts to portray the

requirement to prove all elements of a cause of action as

relevant to federal courts’ jurisdiction to hear a suit. The

Court reasoned that “[i]t is firmly established in our cases

that absence of a valid (as opposed to arguable) cause of

action does not implicate subject matter jurisdiction.” Id. at

89. On the contrary,

‘[j]urisdiction . . . is not defeated . . . by the possibility

that the averments might fail to state a cause of action

on which petitioners could actually recover.’ Rather,

the district court has jurisdiction if ‘the right of the

petitioners to recover under their complaint will be

sustained if the Constitution and laws of the United

States are given one construction and will be defeated

if they are given another . . . .’

Id. at 89 (quoting Bell v. Hood, 327 U.S. 678, 685 (1946)).

The Court also criticized the implications of treating the

validity of a cause of action as jurisdictional. Id. at 92-93.

Under that approach, each element of every cause of action

would have a legitimate claim to being a jurisdictional

requirement — essentially eviscerating the distinction

between the jurisdictional and merits inquiry (and requiring

a court to dismiss a claim for lack of jurisdiction whenever

the plaintiff does not prevail). The Court made plain,

however, that subject matter jurisdiction is lacking if the

alleged basis for jurisdiction “clearly appears to be

immaterial and made solely for the purpose of obtaining

jurisdiction or where such a claim is wholly insubstantial

or frivolous.” Id. at 89.

We presaged Steel Co. in a case decided five years earlier.

In Growth Horizons, Inc. v. Delaware County, 983 F.2d

1277, 1280-81 (3d Cir. 1993), the District Court dismissed

a claim under the Fair Housing Act for lack of subject

matter jurisdiction. The Fair Housing Act makes it

unlawful, inter alia, “[t]o discriminate in the sale or rental,

11

or to otherwise make unavailable or deny, a dwelling to any

buyer or renter because of a handicap.” 42 U.S.C.

§ 3604(f)(1). The District Court concluded that the

defendant did not “make unavailable or deny” housing to

the plaintiff and that the Fair Housing Act was therefore

not implicated. We reversed, holding that “[a] district court

has federal question jurisdiction in any case where a

plaintiff with standing makes a non-frivolous allegation that

he or she is entitled to relief because the defendant’s

conduct violated a federal statute.” Growth Horizons, 983

F.2d at 1281. We further explained that “[d]ismissal for lack

of jurisdiction is not appropriate merely because the legal

theory alleged is probably false, but only because the right

claimed is ‘so insubstantial, implausible, foreclosed by prior

decisions of this Court, or otherwise completely devoid of

merit as not to involve a federal controversy.’ ” Id. at 1280-

81 (citing Kulick v. Pocono Downs Racing Ass’n, 816 F.2d

895, 899 (3d Cir. 1987) (quoting Oneida Indian Nation v.

County of Oneida, 414 U.S. 661, 666 (1974))); see also 2

Moore’s Federal Practice § 12.30[1], at 12-36 (3d ed. 2000)

(“Subject matter jurisdiction in federal-question cases is

sometimes erroneously conflated with a plaintiff ’s need and

ability to prove the defendant bound by the federal law

asserted as a predicate for relief — a merits-related

determination.”).6

6. The Restatement (Second) of Judgments: Subject Matter Jurisdiction

§ 11 (1982) also addresses the question whether an issue affects subject

matter jurisdiction or the merits, ultimately concluding that there is no

principled way to distinguish between the two. It notes that “[t]here is a

strong tendency in procedural law to treat various kinds of serious

procedural errors as defects in subject matter jurisdiction . . . because

characterizing a court’s departure in exercising authority as

‘jurisdictional’ permits an objection to the departure to be taken

belatedly.” Restatement (Second) of Judgments: Subject Matter

Jurisdiction § 11 cmt. e. Relevant to the question here, it goes on to note

that

[t]he difficult problems are encountered when the issues on which

the court’s subject matter jurisdiction depends are not so clearcut.

[For example,] if the court has jurisdiction of actions of more than

a specified amount, there can be uncertainty in whether a particular

claim exceeds that amount. The problem can be particularly difficult

12

Turning to Title VII, we note that those courts that have

held the fifteen-employee requirement jurisdictional have

provided no reasons for their holding; rather, they have

assumed it so or stated the conclusion without meaningful

analysis. Moreover, in reading 42 U.S.C. § 2000e(b) we

perceive no congressional intent to make the requirement

jurisdictional. Indeed, Title VII contains an explicit

jurisdictional section, § 2000e-5(f)(3), which provides that

“[e]ach United States district court and each United States

court of a place subject to the jurisdiction of the United

States shall have jurisdiction of actions brought under this

subchapter.” By contrast, § 2000e(b) — in which the fifteen-

employee requirement appears — is a definitional section,

defining “employer.” We doubt that Congress intended this

definitional section to have subject matter jurisdictional

import. If Congress had so intended, we believe its intention

would be clearer. Notably, § 2000e(b) does not even contain

the word “jurisdiction.” Compare 28 U.S.C. § 1331 (“The

district courts shall have original jurisdiction of all civil

actions arising under the Constitution, laws, or treaties of

the United States.”); id. § 1332 (explicitly making diverse

citizenship and a $75,000 amount-in-controversy

jurisdictional prerequisites). Moreover, congressional debate

(albeit postdating the requirement that an “employer” have

more than fifteen employees) reveals that at least some

legislators regard the fifteen-employee minimum not as

jurisdictional but as an element of the cause of action. See

137 Cong. Rec. H9505-01 (Daily ed. Nov. 7, 1991)

(statement of Rep. Brooks) (“[W]hen a company has less

than 15 employees, there are no damages available

whatsoever because there is no cause of action under our

current antidiscrimination statutes.”).

when the issue determining subject matter jurisdiction parallels an

issue going to the merits.

Id. In those cases the Restatement concludes that “the matter in

question can plausibly be characterized either as going to subject matter

jurisdiction or as being one of merits or procedure.” Id.

13

3. Most Plausible Arguments for Making Fifteen-

Employee Requirement Jurisdictional

a. Commerce Clause Argument

Perhaps the most plausible reason for finding that the

fifteen-employee requirement is jurisdictional is that it

concerns a “dispute[ ] as to the existence of a fact that is

essential to a constitutional exercise of Congress’s power to

regulate.” Da Silva, 229 F.3d at 363 (suggesting this as a

situation “[l]ess clearly placed on one side of the

jurisdiction/merits line”). As discussed, Title VII applies to

“employers” and defines an “employer” (in relevant part) as

“a person engaged in an industry affecting commerce who

has fifteen or more employees.” 42 U.S.C. § 2000e(b).

Because Congress enacted Title VII under its Commerce

Clause power, EEOC v. Ratliff, 906 F.2d 1314, 1315-16 (9th

Cir. 1990), the requirement that an employer be “in an

industry affecting commerce” is the statute’s constitutional

basis. And because the requirements that the employer be

“in an industry affecting commerce” and that the employer

have “fifteen or more employees” appear side by side in the

statute, it is arguably reasonable to read § 2000e(b)’s

“fifteen employee” minimum as relevant to Title VII’s

Commerce Clause basis as well. That is, one might read the

fifteen-employee threshold as reflecting Congress’s

determination that only those companies with fifteen or

more employees have the requisite substantial effect on

interstate commerce to permit Congress to enact the

statute. See Legislative History of Titles VII and XI of Civil

Rights Act of 1964, at 2108 (1964) (“The bill proceeds upon

a theory . . . that the quantum of employees is a rational

yardstick by which the interstate commerce concept can be

measured.”) (separate minority views of Reps. Poff and

Cramer, Members, House Comm. on the Judiciary); cf.

Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305, 311 (6th

Cir. 1991) (noting “Congress’s determination in Title VII

that any employer with 15 or more employees necessarily

implicates interstate commerce”); Ratliff, 906 F.2d at 1317

(“[I]t is difficult to imagine any activity, business or industry

employing 15 or more employees that would not in some

degree affect commerce among the states.”) (quoting A.

14

Larson & L.K. Larson, Employment Discrimination § 5.31, at

2-40 (1987)).

This argument, while well-made, nonetheless is

unconvincing. First, the very wording of 42 U.S.C.

§ 2000e(b) suggests that the requirements that an employer

be “in an industry affecting commerce” and have “fifteen or

more employees” are separate and independent, and that it

is a mistake to conflate the two. Even if a putative employer

has twenty employees, it is not covered by Title VII if not in

an industry affecting commerce. Second, while the

preceding Commerce Clause-based justification for Title

VII’s fifteen-employee requirement makes intuitive sense, it

finds little support in the legislative history. We note that

the 1972 amendments to Title VII lowered the minimum

number of employees from twenty-five to fifteen. Patricia

Davidson, Comment, The Definition of “Employee” Under

Title VII: Distinguishing Between Employees and

Independent Contractors, 53 U. Cin. L. Rev. 203, 206 (1984)

(noting this change). It lacks logic that, pre-1972, Congress

believed that it took twenty-five employees for a substantial

effect on interstate commerce but changed its mind in

1972. Furthermore, as initially proposed, the 1972

amendment to Title VII contained an eight-employee

threshold. See Armbruster, 711 F.2d at 1337 n.4. The

threshold was ultimately raised to fifteen employees as the

result of a political compromise, see id., in order (among

other reasons) “to protect ethnic businesses and small

businesses.” Davidson, supra, at 206 & n.23. Thus, the

fifteen-employee threshold appears motivated by policy —

to spare small companies the expense of complying with

Title VII — rather than Commerce Clause considerations.

Even assuming that Congress lacks authority to enact a

statute does not mean that a federal court lacks

jurisdiction to review actions brought under that statute.

When disposing of a claim brought under an

unconstitutional statute, courts ordinarily deny the claim

on the merits, on the ground that the statute under which

relief is sought is unconstitutional, rather than for lack of

subject matter jurisdiction. Martin v. United Way of Erie

County, 829 F.2d 445, 447 (3d Cir. 1987); Kulick v. Pocono

Downs Racing Ass’n, Inc., 816 F.2d 895 (3d Cir. 1987)

15

(noting the difference between congressional jurisdiction

and federal courts’ Article III jurisdiction, and concluding

that “[e]lements of a claim that are called jurisdictional

because they relate to Congress’s jurisdiction remain

questions of the merits”); see also Plaut v. Spendthrift Farm,

Inc., 789 F. Supp. 231 (E.D. Ky. 1992), aff ’d, 1 F.3d 1487

(6th Cir. 1993), aff ’d, 514 U.S. 211 (1995).

b. Jurisdictional Statements in Other Supreme Court

Cases

EEOC v. Arabian American Oil Co., 499 U.S. 244 (1991),

can be read to suggest that the fifteen-employee

requirement is jurisdictional. In that case, the Supreme

Court decided whether Title VII “applies extraterritorially to

regulate the employment practices of United States

employers who employ United States citizens abroad.” Id. at

246. The Court addressed the question not as whether Title

VII granted plaintiffs a cause of action for extraterritorial

violations, but rather whether Title VII granted

extraterritorial jurisdiction, see id. at 250, and affirmed the

dismissal of the complaint for lack of jurisdiction. Id. at

259. In Arabian American Oil Co., however, a policy

consideration — namely, the significant effect

extraterritorial application of U.S. law might have on

international relations — favored viewing the

extraterritoriality question as one of jurisdiction. That is,

even if parties did not raise the question of Title VII’s

extraterritorial application, Congress would likely have

intended courts to raise the issue sua sponte in the interest

of harmonious international relations. Such concerns of

international comity are not present here.

By analogy, some may find EEOC v. Commercial Office

Products Co., 486 U.S. 107 (1988), to counsel for finding

jurisdictional the fifteen-employee requirement. In that

case, the Supreme Court stated that “Title VII does not give

the EEOC jurisdiction to enforce the Act against employers

of fewer that 15 employees.” Id. at 119 n.5. But this does

not address the question before us. Title VII grants the

EEOC power “to prevent any person from engaging in any

unlawful employment practice.” 42 U.S.C. § 2000e-5(a).

Thus, if an entity (a “person” under the statute) employs

16

fewer than fifteen employees, by § 2000e-5(a)’s terms, the

EEOC lacks power (jurisdiction). By contrast, Title VII’s

jurisdictional grant to the federal courts is broader. See id.

§ 2000e-5(f)(3) (“Each United States district court and each

United States court of a place subject to the jurisdiction of

the United States shall have jurisdiction of actions brought

under this subchapter.”).

4. Judicial Administration Reasons for Fifteen-Employee

Requirement Being an Element of a Title VII Claim

rather than a Jurisdictional Requirement

As a policy matter — which is ultimately the gut of our

inquiry — it also makes little sense to regard the fifteen-

employee threshold as jurisdictional. Such a holding would

require a federal court to determine whether a company

had fifteen employees during the relevant period, even if the

parties so stipulated. To require a federal court to engage in

such a fact-intensive inquiry sua sponte — which might in

some cases require a federal appellate court to dig through

an extensive record, including pay stubs and time sheets —

appears to be a waste of scarce judicial resources, and we

doubt that Congress intended such a result. See Da Silva,

229 F.3d at 365 (“[I]nstitutional requirements of a judicial

system weigh in favor of narrowing the number of facts or

circumstances that determine subject matter jurisdiction.”);

Sharpe, 148 F.3d at 678 (“Surely the number of employees

is not the sort of question a court (including appellate

court) must raise on its own . . . .”).

To hold the requirement jurisdictional also implies that a

court would need to decide whether an entity employed

more than fifteen individuals before reaching a Title VII

action’s merits — even if the merits were more easily

resolved than the “jurisdictional” question. Steel Co., 523

U.S. at 94-95. This result too is undesirable.

* * * * * * * * *

In this context, we hold that, while the matter is not free

from doubt, the fifteen-employee threshold is a substantive

element (whether an “employer” exists) of a Title VII claim

and is not jurisdictional. Federal jurisdiction is implicated

only when the Title VII claim “clearly appears to be

immaterial and made solely for the purpose of obtaining

17

jurisdiction or where such a claim is wholly insubstantial

or frivolous,” Steel Co., 523 U.S. at 89, neither of which is

the case here.

B. Should We Consolidate the Number of Employees at

Gears and Winters?

As the District Court looked beyond Nesbit’s complaint

and reviewed discovery on whether Gears employs more

than fifteen people, it should have resolved the issue under

the summary judgment standard rather than as a motion

for judgment on the pleadings. Fed. R. Civ. P. 12(c).

Nonetheless, we may affirm its disposition for any reason

supported by the record. Grayson v. Mayview State Hosp.,

293 F.3d 103, 109 (3d Cir. 2002). Though the District

Court analyzed this case as jurisdictional rather than on

the merits, Nesbit fails nonetheless. Gears and Winters are

plainly separate entities that cannot be consolidated to

meet the fifteen-employee threshold.

1. The National Labor Relations Board’s “Integrated

Enterprise” Test

Several courts of appeals have borrowed a four-part test

— commonly called the “integrated enterprise” test or the

“single employer” test — from the National Labor Relations

Board (“NLRB”) to determine when two nominally distinct

companies should be treated as a single entity under Title

VII. See Anderson v. Pacific Maritime Association, 336 F.3d

924, 929 (9th Cir. 2003); RC Aluminum Industries, Inc. v.

National Labor Relations Board, 326 F.3d 235, 239 (D.C.

Cir. 2003); Parker v. Columbia Pictures Indus., 204 F.3d

326, 341 (2d Cir. 2000); Artis v. Francis Howell North Band

Booster Ass’n, Inc., 161 F.3d 1178, 1184 (8th Cir. 1998);

Frank v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir.

1993); McKenzie, 834 F.2d at 933; Childs, 719 F.2d at

1382-83; Armbruster, 711 F.2d at 1336-38; Trevino v.

Celanese Corp., 701 F.2d 397, 403-04 (5th Cir. 1983). The

four factors of the NLRB test are “(1) interrelation of

operations, (2) common management, (3) centralized control

of labor relations, and (4) common ownership or financial

control.” Artis, 161 F.3d at 1184 (citation omitted); see also

NLRB v. Browning-Ferris Indus. of Pa., 691 F.2d. 1117,

1122 (3d Cir. 1982) (discussing the test in the labor

18

context). Among these factors, “[n]o single factor is

dispositive; rather, single employer status under this test

‘ultimately depends on all the circumstances of the case.’ ”

Pearson v. Component Tech. Corp., 247 F.3d 471, 486 (3d

Cir. 2001) (describing but not adopting the test in a case

applying the Worker Adjustment Retraining Notification Act)

(citation omitted). “[T]he heart of the inquiry is whether

there is an absence of an arm’s-length relationship among

the companies.” Knowlton v. Teltrust Phones, Inc., 189 F.3d

1177, 1184 (10th Cir. 1999) (citations omitted); Browning-

Ferris, 691 F.2d at 1122. Moreover, “[c]ourts applying this

four-part standard in Title VII and related cases have

focused on the second factor: centralized control of labor

relations.” Trevino, 701 F.2d at 404.

The Seventh Circuit has rejected the NLRB’s four-factor

test as unhelpful in the anti-discrimination context. Papa v.

Katy Indus., Inc., 166 F.3d 937, 942-43 (7th Cir. 1999). In

addition, other courts have occasionally listed, but

essentially ignored, the NLRB factors in Title VII cases,

focusing instead on which entity actually made the

allegedly discriminatory employment decision. See, e.g.,

Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 777 (5th Cir.

1997); see also Marc Crandley, Note, The Failure of the

Integrated Enterprise Test: Why Courts Need to Find New

Answers to the Multiple-Employer Puzzle in Federal

Discrimination Cases, 75 Ind. L.J. 1041, 1059-71 (2000)

(arguing against application of the NLRB test in the Title VII

context and presenting alternative options).

As the National Labor Relations Act (“NLRA”) and Title VII

address aspects of employer-employee relations, there is

surface appeal to applying the NLRB’s test in the Title VII

context. But given the different policies animating the two

statutes, the NLRB test does not self-steer to the Title VII

context. That test is designed to determine whether the

NLRB may decide a particular labor dispute. UA Local 343

United Ass’n of Journeymen & Apprentices of Plumbing &

Pipefitting Indus. of U.S. & Canada, AFL-CIO v. Nor-Cal

Plumbing, Inc. 48 F.3d 1465, 1470 (9th Cir. 1994) (“[I]f the

NLRB finds that [two firms] constitute a single unit . . . the

collective bargaining agreement with the union firm [may]

be extended to the non-union firm.”); Crandley, supra, at

19

1064-65; see also Murray v. Miner, 74 F.3d 402, 404 (2d

Cir. 1996) (describing the test’s purpose to be “to protect

the collective bargaining rights of employees and to advance

industrial stability”). If the company at issue satisfies the

NLRB test, it will in many cases be required to submit to

collective bargaining. Crandley, supra, at 1064. But if a

defendant in a Title VII suit is deemed an “employer” within

the meaning of the statute, it may be subject to liability.

Because the NLRA and Title VII ask whether entities are

a single enterprise for different reasons, it does not follow

that the NLRB’s test is any more relevant to Title VII cases

than any of the other tests for determining whether two

companies should be regarded as one. To the contrary, for

purposes of determining whether two companies are a

single employer, the NLRA’s policy goals point in a different

direction than Title VII’s. As discussed, a significant

purpose of the fifteen-employee minimum in the Title VII

context is to spare small companies the considerable

expense of complying with the statute’s many-nuanced

requirements. See Papa, 166 F.3d at 940; Armbruster, 711

F.2d at 1337 n.4 (reviewing the legislative history behind

the fifteen-employee minimum). This goal suggests that the

fifteen-employee minimum should be strictly construed. By

contrast, the NLRB’s jurisdiction was intended to be

expansive, suggesting a more lenient test for labor cases.

See Crandley, supra, at 1065-66. Thus we deem there is

little reason to refer to the NLRB’s test in deciding whether

two entities should together be considered an “employer”

for Title VII purposes. We instead adopt a different

framework, tailored to Title VII’s policy goals.

2. Our Framework

In Papa, the Seventh Circuit developed its own test to

determine whether two nominally distinct entities should be

considered as one for Title VII purposes. The Court began

with the “basic principle of affiliate liability[,] . . . that an

affiliate forfeits its limited liability only if it acts to forfeit it.”

Id. at 941 (emphasis in original). It proceeded to find three

situations in the Title VII context when a company and its

affiliates forfeit limited liability and thus are deemed a

single employer: (1) where a company has split itself into

entities with less than fifteen employees with the intent to

20

evade Title VII’s reach; (2) when a parent company has

directed the subsidiary’s discriminatory act of which the

plaintiff is complaining; or (3) when a court would

otherwise pierce the corporate veil (i.e., look behind the

corporate form to hold a corporation’s shareholders

personally liable). Id. at 940-41.

We too will consider a company and its affiliates a single

employer under Title VII (1) when a company has split itself

into entities with less than fifteen employees intending to

evade Title VII’s reach or (2) when a parent company has

directed the subsidiary’s discriminatory act of which the

plaintiff is complaining. However, on the third part of this

disjunctive test, we articulate a slightly different standard

from the Seventh Circuit. Rather than applying the test for

veil piercing imported from the corporation law context

(because individual shareholder liability is not implicated

here), we will apply the factors courts use to determine

when substantively to consolidate two or more entities in

the bankruptcy context. When courts substantively

consolidate two entities, they treat the assets and liabilities

of each as belonging to a single entity. We explain in

further detail each test.

a. Splitting a Single Company into Two or More to

Evade Title VII

When a plaintiff proves that a company has split itself

into multiple entities to evade coverage under Title VII, we

consider those entities a single company for purposes of

meeting the fifteen-employee threshold. “The privilege of

separate incorporation is not intended to allow enterprises

to duck their statutory duties.” Id. at 941.

A plaintiff need not prove that evading Title VII was the

only reason that a business split itself into multiple

entities. Rather, it must make a prima facie case that this

was a substantial motivating factor, after which the burden

will shift to the defendant to produce evidence rebutting the

plaintiff ’s proof. Relevant to a prima facie case are

considerations such as (1) lack of a reasonable business

justification, (2) whether the business split was one that, as

an operational matter, would more sensibly be contained

21

within a single business entity (e.g., the two companies

make the same product or inputs for the same product),

and (3) statements from those familiar with the industry

suggesting that the company was split into multiple entities

to evade Title VII.

b. Parent Directing Subsidiary’s Act

When the companies sought to be aggregated for Title VII

purposes are in a parent-subsidiary relationship, we shall

deem a parent and subsidiary a single employer when the

parent has directed the subsidiary to perform the allegedly

discriminatory act in question. By directing such an act,

the parent disregards the separate corporate existence of

the subsidiary and thus forfeits the right to be treated as a

separate entity for Title VII purposes. Moreover, in such a

situation the parent itself has committed the act in

question and thus should share responsibility with the

subsidiary. See Papa, 166 F.3d at 941.

c. Substantive Consolidation

Absent either of the first two situations, we shall look to

the factors courts use in deciding whether substantively to

consolidate two or more entities in the bankruptcy context.

While these factors vary from circuit to circuit, the test at

base seeks to determine whether two or more entities’

affairs are so interconnected that they collectively caused

the alleged discriminatory employment practice. More

colloquially, the question is whether the “eggs” — consisting

of the ostensibly separate companies — are so scrambled

that we decline to unscramble them. We note, however,

that substantive consolidation is an equitable remedy and

is difficult to achieve.7

7. In addressing whether substantively to consolidate two entities in the

bankruptcy context, courts have developed a number of different tests.

Some have applied a seven-factor test, first set forth in In re Vecco

Construction Industries, Inc., 4 B.R. 407 (Bankr. E.D. Va. 1980). Those

factors are: “(1) The presence or absence of consolidated financial

statements; (2) The unity of interests and ownership between various

corporate entities; (3) The existence of parent and intercorporate

guarantees on loans; (4) The degree of difficulty in segregating and

22

We adopt an intentionally open-ended, equitable inquiry

— which we consider one of federal common law — to

ascertaining individual assets and liabilities; (5) The existence of

transfers of assets without formal observance of corporate formalities; (6)

The commingling of assets and business functions; [and] (7) The

profitability of consolidation at a single physical location.” Id. at 410; see

also In re Mortgage Inv. Co., 111 B.R. 604, 610 (Bankr. W.D. Tex. 1990);

Holywell Corp. v. Bank of N.Y., 59 B.R. 340, 347 (S.D. Fla. 1986); In re

Donut Queen, Ltd., 41 B.R. 706, 709 (Bankr. E.D.N.Y. 1984) (all applying

the Vecco seven-factor test).

The First Circuit, in Pension Benefit Guarantee Corp. v. Ouimet Corp.,

711 F.2d 1085 (1st Cir. 1983), posed five nonexclusive factors a court

should consider when contemplating substantive consolidation: whether

(1) the parent owns a majority of the subsidiary’s stock; (2) the entities

have common officers or directors; (3) the subsidiary is grossly

undercapitalized; (4) the subsidiary transacts business solely with the

parent; and (5) both entities disregard the legal requirements of the

subsidiary as a separate corporation. Id. at 1093.

In In re Augie/Restivo Baking Co., 860 F.2d 515 (2d Cir. 1988), the

Second Circuit surveyed the caselaw and extracted two fundamental

principles guiding the substantive consolidation inquiry: (1) “whether

creditors dealt with the entities as a single economic unit and did not

rely on their separate identity in extending credit” and (2) “whether the

affairs [of the two companies] are so entangled” that consolidation will be

beneficial. Id. at 518 (internal quotation marks omitted). The Ninth

Circuit has also adopted this test. See In re Bonham, 229 F.3d 750, 766

(9th Cir. 2000).

The Eighth Circuit considers three factors: (1) “the necessity of

consolidation due to the interrelationship among the [entities]”; (2)

“whether the benefits of consolidation outweigh the harm to creditors”;

and (3) “prejudice resulting from not consolidating the debtors.” In re

Giller, 962 F.2d 796, 799 (8th Cir. 1992).

Finally, the D.C. and Eleventh Circuits have adopted a two-part test.

First, the proponent of consolidation must make a prima facie case,

demonstrating: (1) that “there is substantial identity between the entities

to be consolidated; and (2) [that] consolidation is necessary to avoid

some harm or to realize some benefit.” Eastgroup Props. v. S. Motel Ass’n,

Ltd., 935 F.2d 245, 249 (11th Cir. 1991); see also In re Auto-Train, 810

F.2d 270, 276 (D.C. Cir. 1987). The Eastgroup Court noted that, in

making this prima facie case, the proponent for consolidation may want

to use the Vecco factors or the Ouimet factors discussed above.

23

determine when substantively to consolidate two entities.

While in the bankruptcy context the inquiry focuses

primarily on financial entanglement,8 for Title VII the focus

more often rests on the degree of operational entanglement

— whether operations of the companies are so united that

nominal employees of one company are treated

interchangeably with those of another. Relevant operational

factors include (1) the degree of unity between the entities

with respect to ownership, management (both directors and

officers), and business functions (e.g., hiring and personnel

matters), (2) whether they present themselves as a single

company such that third parties dealt with them as one

unit, (3) whether a parent company covers the salaries,

expenses, or losses of its subsidiary, and (4) whether one

entity does business exclusively with the other. That is not

to say that the considerations showing financial

entanglement9 are not relevant in Title VII cases; they

assuredly are. Indeed, the line between operational and

financial may be blurred (e.g., when the third parties

dealing with entities as one unit are creditors). However, we

assume that financial entanglement will be present less

frequently in Title VII cases than in bankruptcy cases and

will be harder for a Title VII plaintiff to prove, given that a

typical Title VII plaintiff has more limited resources and an

Eastgroup, 935 F.2d at 249. Once the proponent for consolidation has

made this showing, “the burden shifts to an objecting creditor to show

that (1) it has relied on the separate credit of one of the entities to be

consolidated; and (2) it will be prejudiced by substantive consolidation.”

Id.; see In re Auto-Train, 810 F.2d at 276.

8. See generally Mary Elizabeth Kors, Altered Egos: Deciphering

Substantive Consolidation, 49 U. Pitt. L. Rev. 381, 385 (1998) (“In cases

where the disentanglement of the assets and liabilities of various entities

is prohibitively expensive or even impossible, substantive consolidation

may significantly increase creditor recoveries.”).

9. Among them are (1) the degree of difficulty in segregating and

ascertaining individual assets and liabilities, (2) the existence of

transfers of assets without formal observance of corporate formalities, (3)

the existence of parent and intercorporate loan guarantees, (4) whether

the subsidiary is grossly undercapitalized, and (5) the existence of

consolidated financial statements.

24

attorney who does not specialize in financial transactions.10

Proving extensive financial entanglement will, however,

bolster a Title VII plaintiff ’s case.

3. Application of Our Disjunctive Test

Under the standard just discussed, and viewing the facts

in the light most favorable to Nesbit, we nonetheless hold

that no reasonable jury would consider Gears and Winters

a single employer under Title VII for purposes of the fifteen-

employee requirement. First, there is no record evidence

that Gears and Winters split themselves into separate

entities to evade Title VII. Nor has Nesbit alleged that Gears

and Winters hold themselves out as one entity or that they

remain separate only to evade anti-discrimination laws. On

the contrary, such a claim is implausible, as Vaughn Sr.

assumed his ownership interests in Gears and Winters

seventeen years apart, and the two companies produce

different products.

Second, because Gears and Winters do not have a

parent-subsidiary relationship, the second situation for

combining employees (a direction from the parent to the

subsidiary to discriminate) does not exist. In any event,

there is no evidence that one corporation (Winters) ordered

the other (Gears) to commit a Title VII discriminatory act.

Finally, Nesbit sets out no evidence — other than Gears’

10. Employees or prospective employees are generally not sophisticated

parties and typically do not have the opportunity to conduct extensive

due diligence on employers to ascertain whether they will be protected by

Title VII should they accept an offer of employment. This is in contrast

to the arms-length commercial transactional process by which parties

often become creditors in a bankruptcy case. In that context, the parties

typically urging substantive consolidation are sophisticated and have

had an opportunity to conduct due diligence on the debtor in question

to determine its assets, liabilities, and corporate structure, and to

bargain accordingly. Thus, absent exceptional circumstances, voluntary

creditors should be able to recover only from the entity with which they

have bargained. See Christopher W. Frost, Organizational Form,

Misappropriation Risk, and the Substantive Consolidation of Corporate

Groups, 44 Hastings L.J. 449, 453 (1993) (“[U]nlike voluntary creditors,

tort claimants are unable to bargain for protection against, or

compensation for, the increased risk limited liability imposes.”).

25

and Winters’ common ownership — suggesting that

substantive consolidation would make sense under the

factors discussed. The two companies have different

management. Nesbit described Randy Lau as “her boss”

and conceded he was “more or less in charge” at Gears.

While Vaughn Sr. fired Nesbit, we do not consider this a

significant indication that Winters and Gears do not

operate at arms length. Because Vaughn Sr. is president of

Gears and a ten percent shareholder, it is unsurprising

that he occasionally participated in Gears’ management.11

He was involved in Nesbit’s termination only because Lau

was unavailable on vacation when Nesbit was terminated.

Added to this, there is no indication that Gears and Winters

ignored corporate formalities.

That Gears and Winters coordinate in recruiting job

applicants likewise does not make them a single entity

under Title VII. Our outcome might be different if Gears

had no say in hiring its own employees, if Gears and

Winters held themselves out to job applicants as a single

company, if the two companies’ human resources functions

were entirely integrated, and/or if they did not maintain

separate payrolls and finances. However, such a situation

is not present here. Moreover, there is no record evidence

that third parties dealt with Gears and Winters as one unit,

that Gears and Winters covered the salaries of the other’s

employees, or that Gears and Winters did business

exclusively with each other.

In the absence of more significant operational

entanglement, common ownership and de minimis

coordination in hiring are insufficient bases to disregard

the separate corporate forms of Gears and Winters. We

therefore decline to view Gears and Winters as one entity

for Title VII purposes. As Nesbit concedes that Gears alone

employs fewer than fifteen employees, it is not an

11. While Vaughn Sr. is a director of both Gears and Winters, this fact

does not aid Nesbit here. His directorships are likely incidental to his

stock ownership, as is often the case among closely held corporations.

And as discussed, the overlapping ownership and management of Gears

and Winters are insufficient, without more, to warrant substantive

consolidation.

26

“employer” under 42 U.S.C. § 2000e(b) and Nesbit’s suit

cannot succeed.

III. CONCLUSION

We hold that whether an entity employs fifteen or more

workers is a merits question rather than a jurisdictional

inquiry. Thus, because the District Court relied on

materials external to the pleadings, it should have

evaluated under the summary judgment standard Nesbit’s

argument for viewing Gears and Winters collectively. Even

under that standard, there is no basis to view Gears and

Winters together as a single employer. Because Gears alone

employs fewer than fifteen employees, we affirm the District

Court’s dismissal of Nesbit’s complaint, albeit on the merits

rather than for lack of subject matter jurisdiction.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit