Previous blog posts have highlighted the importance of analyzing, for purposes of both day-to-day operations and litigation strategy considerations, whether, as an initial matter, an individual can even invoke the anti-discrimination protections available under certain federal employment laws (e.g., Title VII, ADA, ADEA, ERISA). For example, our May 11, 2012 post analyzed whether a physician with privileges at a New York hospital was an employee or an independent contractor for purposes of a Title VII sexual harassment action (employees are protected under Title VII, whereas independent contractors are not). And on November 27, 2012, we blogged about whether a church music director/employee was a “minister” for purposes of the music director’s ADEA and ADA lawsuit against the church/employer (the “ministerial exception” prohibits the application of federal anti-discrimination laws to claims concerning employee relationships between a religious institution and its ministers).
In a similar vein, the U.S. Supreme Court recently declined to review a Third Circuit decision that a partial owner of a closely held family-owned company was not an “employee” under Title VII and therefore could not pursue a religious discrimination claim against the family business.
Family Feud
The facts of the case involve a building supply company that was originally started by the “founding father” in 1947. Then, in the 1960s, the founding father’s three sons joined the business as co-owners. Over time, annual sales skyrocketed from less than $250,000 to over $60 million.
The plaintiff was one of the three sons and co-owners of the company. He was a member of the company’s board of directors, an officer and a shareholder. Additionally, the division of the company that the plaintiff had oversight responsibility for earned a profit of more than $15 million over the six-year period immediately preceding his termination of employment.
In 1995, the plaintiff had a “spiritual awakening.” This new found spirituality, according to the plaintiff, resulted in a systemic pattern of antagonism toward him. He claimed that the company’s officers, directors and certain employees targeted the plaintiff with negative, hostile and humiliating statements about him and his religious affiliation.
Matters came to a head after the founding father passed away. On January 6, 2009, the plaintiff delivered a eulogy that included comments about his own faith and his father’s good example. Members of the family were, according to the plaintiff, upset by the eulogy. Two days later, on January 8, 2009, the shareholders of the company convened a meeting in the plaintiff’s absence and decided to terminate his employment. The plaintiff’s termination letter explained that his employment had ended, effective immediately, but also pointed out that he would continue to receive his company “draws” and distributions.
The plaintiff remained on the company’s board of directors until August 6, 2009, when the shareholders chose not to re-elect him to the board. Shortly thereafter, the plaintiff filed suit in federal court under Title VII, asserting, among others, claims of religious discrimination and a hostile work environment. In response, the company filed a motion with the court at a very early stage of the litigation to dismiss the plaintiff’s lawsuit on the grounds that the plaintiff wasn’t an “employee” for purposes of Title VII and therefore wasn’t protected by the statute. The company won on its motion at the lower court.
The Third Circuit Weighs In
On appeal, the Third Circuit upheld the lower court’s decision and found in favor of the company. In reaching its conclusion, the Third Circuit relied on the six-factor test that was articulated by the U.S. Supreme Court in Clackamas Gastroenterology Associates, P.C. v. Wells.
The six factors, which are used by both the Equal Employment Opportunity Commission and the courts to determine whether partners, officers, members of boards of directors and major shareholders qualify as “employees” under federal anti-discrimination laws, are as follows:
- Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work;
- Whether and, if so, to what extent the organization supervises the individual’s work;
- Whether the individual reports to someone higher in the organization;
- Whether and, if so, to what extent the individual is able to influence the organization;
- Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
- Whether the individual shares in the profits, losses and liabilities of the organization.
Using these Clackamas factors, the Third Circuit determined that the plaintiff was not an “employee” for purposes of Title VII. That is, the plaintiff, as a shareholder, board member and officer of the company, as well as being an individual who had the right to exert control over company operations and participate in fundamental business decisions, was an employer for purposes of Title VII. As a result, he was not an “employee” entitled to invoke the protections available under Title VII.
But Wait, There’s More…U.S. Supreme Court Declines to Review Third Circuit’s Decision
After losing at both the district court and the court of appeals, the plaintiff tried to plead his case before the U.S. Supreme Court. No such luck there either, as the Supreme Court denied the plaintiff’s petition to review his case.
In his petition to the Supreme Court, the plaintiff argued that his case was factually different than Clackamas because the plaintiff worked at a traditional corporation, whereas the company at issue in Clackamas was a professional corporation (specifically, an incorporated group of gastroenterologists). The other factual difference that the plaintiff raised in his petition was that in his case, the owners of the company engaged in the discriminatory acts, whereas in Clackamas, the alleged acts of discrimination weren’t committed by any of the owners.
Clearly, the Supreme Court wasn’t moved by the plaintiff’s arguments, and the plaintiff’s petition for review was denied. As a result, the Third Circuit’s decision and analysis are no longer subject to reversal by the high court and the plaintiff, as an employer, isn’t protected under Title VII.
Main Takeaways for Employers
As noted in prior blog entries, the coverage and application of federal anti-discrimination laws is neither automatic nor absolute. This case helpfully clarifies that the Clackamas “control” factors apply to a wide variety of “traditional” business entities, not just professional corporations.
Just as important, this case also explains that the definition of “employer” and “employee” in certain federal anti-discrimination laws are relevant in resolving two key issues: (1) whether an individual is an “employee” who may invoke statutory protections against discrimination, and (2) whether an entity qualifies as an “employer” under the anti-discrimination statutes. With respect to the latter issue, bear in mind that many federal employment laws aren’t triggered until the employer hits a particular employee “numerosity” threshold. Here are a few examples:
- ADA – 15 employees
- ADEA – 20 employees
- FMLA – 50 employees
- Title VII – 15 employees
- WARN – 100 employees
Reference: Mariotti v. Mariotti Bldg. Prods., U.S., No. 13-201, cert. denied 10-15-13
If you have any questions, please contact Dana Stutzman at dstutzman@wp.hallrender.com or your regular Hall Render attorney.
