In these challenging economic times, many private clubs are finding it increasingly difficult to attract new members, or to retain existing members. Over the last few years many clubs have lost members, and many more are facing substantial drops in revenues due to a decline in money spent by members on activities such as golfing or dining out. Many golf, country and social clubs are finding it difficult to sustain their amenities and level of service.
Because the economic situation is decreasing the potential membership pool, many clubs are offering incentives to join, such as reducing initiation fees, while some are even exploring other more drastic options to generate revenue, such as opening their doors to the general public, moving toward a semi-private status or creating public/private hybrid clubs.
Economically, such decisions may or may not make sense. But allowing virtually anyone into an ostensibly “private” club can have other than strictly economic ramifications. In addition to making the club’s members wonder just how exclusive the club really is (which could itself lead to loss in membership and decreased revenues), a decision to accept virtually anyone as a member could actually open up a private club to potential legal liability for discrimination from which it would otherwise be exempt.
This seemingly paradoxical result stems from the fact that under both Title VII of the Civil Rights Act of 1964, as amended (which prohibits discrimination based upon race, color, religion, sex and national origin) and Title I of the ADA (Americans with Disabilities Act), private membership clubs enjoy an exemption from liability. Both the ADA and Title VII expressly state that the definition of “employer” found in each statute “does not include” a bona fide private membership club which is exempt from taxation under section 501(c) of the Internal Revenue Code.
In order to qualify for this statutory exemption, a club must be tax exempt and it must be “a bona fide private membership club.” Because tax exempt status is relatively straightforward, the court battles over this exemption usually hinge on whether or not the club meets the criteria of being a bona fide private membership club.
Generally, courts have defined a private membership club as “an association of persons for social and recreational purposes or for the promotion of some common object (as literature, science, political activity) usually jointly supported and meeting periodically, membership in social clubs usually being conferred by ballot and carrying the privilege of use of the club property.” Quijano v. University Federal Credit Union, 617 F.2d 129, 131 (5th Cir. 1980). While country clubs, fraternal lodges, swim clubs and the like usually fit comfortably within this definition, the decision to open the use of the club’s facilities and/or membership to anyone from the general public could lead to the loss of the otherwise-available statutory exception. In deciding whether a club is private, the EEOC and courts consider how selective it is in choosing its members. See EEOC Compliance Manual § 2-11(B)(4)(a)(ii) (among the three factors considered is whether there “are meaningful conditions of limited membership.”); and Quijano, 617 F.2d at 131 (noting that “in order to be exempt” a private club “must require some meaningful conditions of limited membership.”).
In construing whether a club meets the requirement of “meaningful conditions of limited membership,” courts have commonly focused on factors such as:
- whether the club allows members of the public full access,
- whether the club limits its total membership and how restrictive or stringent its requirements are for membership, and
- whether applicants for membership must be personally recommended, sponsored or voted on by other members.
See e.g. EEOC v. University Club of Chicago, 763 F.Supp. 985 (N.D. Ill. 1991)(concluding that a club was not private because it gave both members and guests essentially the same privileges); and Bommarito v. Grosse Pointe Yacht Club, 2007 U.S. Dist. LEXIS 21064 at *30-31 (E.D. Mich. 2007)(finding requirements of a written application, sponsorship of three current members, posting of the candidacy at the clubhouse, consideration by the board of directors, and a secret ballot to constitute “meaningful limitations on membership.”). As stated by one leading opinion, “selective membership practices are the essence of private clubs.” EEOC v. The Chicago Club, 86 F.3d 1423, 1436 (7th Cir. 1996).
Based on the foregoing, it should hardly come as a surprise that a “private” club which opens itself up to the public, or which accepts virtually every applicant meeting minimal criteria or without recommendation or some form of personal screening may be placing its statutorily-afforded exemption in jeopardy. Because a carefully structured and properly run private club should be able to meet the requirements for exemption from the ADA and Title VII, clubs should be careful that in their push for additional revenues and/or members, they do not open themselves up to potential forms of liability. It should be noted that depending upon the jurisdiction, there may be applicable state, local or municipal discrimination laws which provide similar protections, and which may be construed as covering private clubs.
Simply stated, in the private club industry, a little “discrimination” can go a long way in avoiding potential lawsuits based on discrimination!