Enforcement Guidance on Coverage of Federal Reserve Banks

N-915.002

10/20/1993

1. SUBJECT: Enforcement Guidance on Coverage of Federal Reserve Banks.

2. PURPOSE: This enforcement guidance discusses the reasons why the Commission takes the position that the Federal Reserve Banks are private employers covered by the private sector provisions of the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act of 1964 (Title VII), the Equal Pay Act (EPA), and Title I of the Americans with Disabilities Act (ADA) (dealing solely with private sector employment) rather than executive agencies covered under the federal sector provisions of the ADEA, Title VII, the EPA and Section 501 of the Rehabilitation Act of 1973 (dealing solely with federal sector employment).

3. EFFECTIVE DATE: Upon issuance.

4. EXPIRATION DATE: As an exception to EEOC Order 205.001, Appendix B, Attachment 4, § a (5), this Notice will remain in effect until rescinded or superseded.

5. ORIGINATOR: ADEA Division, Office of Legal Counsel.

6. INSTRUCTIONS: File after the last Enforcement Guidance in the 800 series of Volume II of the Compliance Manual.

7. SUBJECT MATTER:

A. Introduction

We begin our analysis by considering whether Federal Reserve Banks are "employers" under section 11(b) or "executive agencies" under section 15(a) of the ADEA.[1] If Federal Reserve Banks are private sector "employers," EEOC field offices would accept and process charges filed against Federal Reserve Banks. If Federal Reserve Banks are "executive agencies," the federal sector procedures of the ADEA, Title VII, the EPA and Section 501 of the Rehabilitation Act of 1973 would govern the filing and disposition of complaints.
 

After a thorough review of the statutes and court decisions with regard to this issue, the Commission concludes that the Federal Reserve Banks are private sector employers and that charges and complaints filed under the ADEA (Title VII, the EPA and the ADA) should be processed accordingly.

Section 11(b) sets forth the definition of "employer" for purposes of ADEA coverage of the private sector. It provides in part that...

(b) The term "employer" means a person engaged in an industry affecting commerce who has twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year, and any agent of such a person... but such term does not include the United States, or a corporation wholly owned by the Government of the United States.

Although, as originally enacted, the ADEA's protections against unlawful discrimination did not apply to federal government employees or applicants for federal employment, the Act was amended in 1974 to extend its coverage to the federal sector. Added by the 1974 amendments, section 15(a) of the ADEA states:

All personnel actions affecting employees or applicants for employment who are at least 40 years of age (except personnel actions with regard to aliens employed outside the limits of the United States) in military departments as defined in Section 102 of Title 5, United States Code, in executive agencies as defined in Section 105 of Title 5, United States Code (including employees and applicants for employment who are paid from non-appropriated funds), in the United States Postal Service and the Postal Rate Commission, in those units in the Government of the District of Columbia having positions in the competitive service, and in those units of the legislative and judicial branches of the Federal Government having positions in the competitive service, and in the Library of Congress shall be made free from any discrimination based on age.

B. Background

The Federal Reserve System, established by the Federal Reserve Act of 1913, has three principal components. The system is a single entity but is composed of public and private elements with regional banks that are supervised by a central agency in Washington, D.C., the-Board of Governors (the Board or the Federal Reserve Board).[2] The first component, the Board, which is appointed by the President with the advice and consent of the Senate, consists of a Chairman, Vice-Chairman and five other members. Each Board member is appointed for a 14-year term. 12 U.S.C. § 241. One of the Board's primary responsibilities is to oversee the Federal Reserve Banks. 12 U.S.C. § 248.

The second component of the Federal Reserve System is the Federal Open Market Committee (FOMC). The FOMC is composed of twelve members: the seven Board of Governors members and five representatives elected by the boards of directors of the Federal Reserve Banks. 12 U.S.C. § 263(a). The FOMC is responsible for open-market trading, i.e., the purchase and sale of Government securities in the domestic market. 12 U.S.C. § 263(b).

The twelve Federal Reserve Banks are the third component of the Federal Reserve System.[3] Each Federal Reserve Bank has its own board, consisting of nine directors. Directors hold office for three years and are divided into three classes, A, B, and C. 12 U.S.C. § 302. There are three class A directors, who are selected by and represent commercial banks that are members of that regional Federal Reserve Bank. Id. There are three class B directors, who are also selected by member banks, but represent the public. Id There are three class C directors, who are selected by the Board of Governors and also represent the public. Id The directors of each Federal Reserve Bank oversee the day-to-day operations of their bank subject only to the overall supervision of the Board of Governors.[4]

C. Analysis

Section 11(b) of the ADEA specifically excludes the United States, and corporations wholly owned by the Government of the United States, from the definition of the term "employer" (for purposes of private sector coverage).

Section 15 of the ADEA prohibits age discrimination by the federal government. See p.2, supra. Its provisions govern whether the Federal Reserve Banks are included within the meaning of the term "United States," as referred to in section 11(b). In pertinent part, section 15 applies to all personnel actions affecting employees or applicants for employment in "executive agencies," as defined in 5 U.S.C. § 105. Section 105 provides that an "executive agency" is "an executive department, a Government corporation, and an independent establishment."

With respect to section 11(b) of the ADEA, the Federal Reserve Banks are not corporations wholly owned by the Government of the United States. The wholly owned government corporations currently in operation are listed at 31 U.S.C. § 9101, and Federal Reserve Banks are not among those listed. In addition, all shares of capital stock of Federal Reserve Banks are held by member commercial banks of each region, not by the United States.[5] Federal Reserve Banks, therefore, are not corporations "wholly owned by the Government of the United States."

Further considering section 15 of the ADEA and its reference to the terms in 5 U.S.C. § 105, "executive departments" of the United States are listed at 5 U.S.C. § 101, and the list does not include the Federal Reserve Banks.[6] The second term, "government corporation," is defined in 5 U.S.C. § 103 as a "corporation owned or controlled by the Government of the United States." As discussed above, Federal Reserve Banks are not owned by the Government of the United States. In addition, although the Board of Governors exercises broad supervisory authority over Federal Reserve Banks, the Federal Reserve Banks are not "controlled" by the Board of Governors, an agency of the Government of the United States. The Board of Governors selects only three of nine Federal Reserve Bank directors and those three directors represent the public rather than the federal government. None of the nine directors represents the federal government, and the government does not own any shares of capital stock in the Federal Reserve Banks. Moreover, the directors of each Federal Reserve Bank, not the Board of Governors, appoint the president and first vice president of the Banks (subject to Board approval) and oversee the general operation of the Banks.

The third term specified in 5 U.S.C. § 105, "independent establishment," is defined in section 104 of Title 5, 5 U.S.C. § 104. That section provides that an independent establishment is:

(1) an establishment in the executive branch (other than the United States Postal Service or the Postal Rate Commission) which is not an Executive department, military department, Government corporation, or part thereof, or part of an independent establishment; and (2) the General Accounting Office.

The Commission concludes, based upon all the evidence available, that the Federal Reserve Banks are not within the executive branch as either agencies or independent establishments. Indeed, the Federal Reserve Board has taken the position that the Federal Reserve Banks are not governmental agencies within the meaning of Title VII and other federal employment discrimination statutes. "The Federal Reserve Banks are not government agencies for purposes of the Civil Rights Act.... For this reason, the Federal Reserve Banks have long interacted with EEOC under those provisions of Title VII of the Civil Rights Act of 1964, as amended, that apply to nongovernment employers." 50 Fed. Reg. 18769 (May 2, 1985) (Preamble to Final Rule Regarding Equal Opportunity).

This position is supported by the legislative history of the Federal Reserve Act, which indicates that Congress intended that the Federal Reserve Banks would operate as private corporation, although there would be oversight by the Federal Reserve Board, a purely governmental entity:

It will be observed that in what has just been said the reserve banks recommend that they shall be individually organized and individually controlled, each holding the fluid funds of the region in which it is organized and each ordinarily dependent upon no other part of the country for assistance. The only factor of centralization which has been provided in the committee's plan is found in the Federal Reserve Board, which is to be a strictly Government organization created for the purpose of inspecting existing banking institutions and of equalizing relationships between federal reserve banks and between them and the Government itself.... Local control of banking, local application of resources to necessities, combined with Federal supervision, and limited by federal authority to compel the joint application of bank resources to the relief of dangerous or stringent conditions in any locality are the characteristics of the plan as now put forward.

H.R. Report No. 69, 63rd Cong.. 1st Sess., 18 (1913).

Consistent with the legislative history, the Supreme Court has stated, in dicta, that Federal Reserve Banks are private corporations. "Instrumentalities like the national banks (federally chartered commercial banks] or the federal reserve banks, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest." United States Shipping Board Emergency Fleet Corp. v. Western Union Telegraph Co., 275 U.S. 415, 425-26 (1928). In addition, in Cooper v. Federal Reserve Bank of Richmond, 467 U.S. 867, 34 EPD ¶ 34,445 (1984), the Court assumed jurisdiction over an action brought by the Commission against a Federal Reserve Bank under § 703(a) of Title VII which governs private sector employers.[7]

A number of lower courts have also held that the twelve Federal Reserve Banks are private corporations rather than governmental entities. See Committee for Monetary Reform v. Board of Governors of the Federal Reserve System. 766 F.2d 538, 540 (D.C. Cir. 1985); Lewis v. United States, 680 F.2d 1239, 1242 (9th Cir. 1982); Riegle v. Federal Open Market Committee 656 F.2d 873, 875 (D.C. Cir. 1981); Melcher v. Federal Open Market Committee 644 F. Supp. 510 (D.D.C. 1986); Lee Construction Co. v. Federal Reserve Bank of Richmond 558 F. Supp. 165, 176 (D. Md. 1982).[8]

In Lewis v. United States 680 F.2d at 1242, the court held that the Federal Reserve Bank of San Francisco was not a "federal agency" within the meaning of the Federal Tort Claims Act (FTCA). The FTCA defines the term "federal agency" as:

The executive departments, the military departments, independent establishments of the United States, and corporations acting primarily as instrumentalities of the United States.

28 U.S.C. § 2671. Since the definition of "federal agency" under the FTCA is very similar to the definition of "executive agency" under the ADEA and Title VII, the reasoning of the court in Lewis provides useful guidance for making the determination of whether the Federal Reserve Banks are "executive agencies" under section 15 of the ADEA and §717 of Title VII.

The court held that the critical factor in determining whether an entity is a federal agency for purposes of the FTCA is whether the federal government has "control over the 'detailed physical performance' and 'day-to-day operations' of the entity." Id. at 1240, quoting United States v. Orleans, 425 U.S. 807, 814 (1976); Logue v. United States 412 U.S. 521 (1973). After examining the organization and function of the Federal Reserve Banks, the Lewis court concluded that "the Federal Reserve Banks are not federal instrumentalities for purposes of the FTCA, but are independent, privately owned and locally controlled corporations." Id. at 1241. In making this determination, the court found the following factors dispositive. Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. Although the Federal Reserve Board regulates the Federal Reserve Banks, a bank's board of directors supervises and controls the day-to-day operations of the bank. The court also considered the fact that Federal Reserve Banks receive no appropriated funds from Congress, are empowered to sue and be sued in their own name, carry their own liability, insurance and usually process and handle their own claims. With respect to their relationship to bank employees, the court found that:

Unlike typical federal agencies, each bank is empowered to hire and fire employees at will. Bank employees do not participate in the Civil Service Retirement System. They are covered by worker's compensation insurance, purchased by the Bank, rather than the Federal Employees Compensation Act. Employees traveling on Bank business are not subject to federal travel regulations and do not receive government employee discounts on lodging and services.

Additionally, the Comptroller General has recognized that employees of Federal Reserve Banks are not employees of the United States within the meaning of the dual compensation statutes (which generally prohibit federal employees from receiving compensation from more than one federal sector employer):

While the organization and operation of Federal Reserve Banks are controlled by Federal statute and regulation and such banks are required to perform certain functions for the Federal Government, the appointment or employment of the personnel of the bank is not controlled by Federal statute; the salaries of the employees are not paid from appropriated funds but from the earnings of the banks; and their duties are not prescribed or supervised by Federal officers. It has been held by this office that an employee of a Federal Reserve Bank is not an employee of the United States within the meaning of the dual compensation statutes. Decision of July 21, 1936, A-76647, to the Administrator, Federal Housing Administration. See also 17 Comp. Gen. 1055.

19 Comp. Gen. 363, 364-65 (1939).

While the Commission views the foregoing decisions as largely dispositive of the issue at hand, several courts have held that the Federal Reserve Banks are federal agencies or federal instrumentalities for certain purposes. However, these cases are readily distinguished from the issue of whether the Federal Reserve Banks are executive agencies for purposes of the ADEA, Title VII, EPA and the Rehabilitation Act of 1973. For example, it is well established that the Federal Reserve Banks are federal instrumentalities for purposes of immunity from state taxation. Federal Reserve Bank of St. Louis v. Metrocentre Improvement District, 657 F.2d 183, 185-86 (8th Cir. 1981); Federal Reserve Bank of Boston v. Commissioner of Corporations and Taxation, 520 F.2d 221 (1st Cir. 1975). The test for determining whether an entity is a federal instrumentality for purposes of state tax immunity is whether the entity performs an important governmental function. Lewis v. United States, 680 F.2d at 1242. The Federal Reserve Banks are an integral part of the nation's central bank system and, thus, clearly perform an important governmental function. Courts have also recognized that state taxation of federal entities could pose a threat to their ability to perform federal functions and, therefore, disturb federal sovereignty. Federal Reserve Bank of St. Louis v. Metrocentre Improvement District, 657 F. 2d at 185-86.

In United States v. Hollingstead, 672 F.2d 751 (9th Cir. 1982), the court applied the Federal Bribery Statute, a criminal statute, to an employee of a Federal Reserve Bank. The application of the statute turned not on the Ninth Circuit's belief that the Bank was an executive agency of the United States, but on its conclusion that the Bank employee was a "public official" within the meaning of the statute. The court noted that the definition of "public official" was intended to be broad and applicable to any person carrying on activities for or on behalf of the federal government. In light of the Bank's close involvement with national fiscal policy and its responsibilities to carry out tasks delegated by a government agency (the Federal Reserve Board), the court had little problem in characterizing the defendant employee of the Bank as a "public official" within the meaning of the Federal Bribery Statute. Similarly, in Brinks v. Board of Governors of the Federal Reserve System. 466 F. Supp. 116 (D.D.C. 1979), the court appeared to be influenced more by the fact that Federal Reserve Banks have an important national purpose and close federal ties than by any definitive finding of executive agency status. Indeed, in applying the Service Contract Act (applicable to service contracts of the United States) to the Richmond Federal Reserve Bank, the court relied in part upon an opinion of the Department of Justice's Office of Legal Counsel that appears to acknowledge this distinction. The Legal Counsel's memorandum, as quoted by the court, opines that the Federal Reserve Banks are a part of the United States for purposes of the application of the Service Contract Act due to "the close connection, if not the identity," of the Banks with the United States. Brinks, 466 F. Supp. at 119. (Emphasis added).

D. Conclusion

The Commission, therefore, concludes on the basis of a full consideration of the statutes and court decisions that the Federal Reserve Banks are private sector employers and that charges and complaints filed pursuant to the ADEA, Title VII and the EPA should be processed under the private sector provisions of those Acts. Additionally, as private sector employers, the Federal Reserve Banks are subject to the ADA.
 

DATE: Oct. 20, 1993

APPROVED:

______/s/_______
Tony E. Gallegos
Chairman