Who Counts?: The United States Supreme Court Cites “Control” as the Key to Distinguishing Employers from Employees Under Federal Employment Antidiscrimination Laws

Wednesday, January 1st, 2003 at 12:00 am by Stephanie Greene, Christine Neylon O'Brien
Stephanie Greene, Christine Neylon O’Brien, Who Counts?: The United States Supreme Court Cites “Control” as the Key to Distinguishing Employers from Employees Under Federal Employment Antidiscrimination Laws, 2003 Colum. Bus. L. Rev. 761

When an individual makes a decision to sue her employer under federal laws prohibiting discrimination in the workplace, she might not expect some of the hurdles that can prevent her case from going forward. First, the individual must be an “employee” as that term is defined by the relevant antidiscrimination laws and the case law interpreting the term “employee.” Second, the business entity that employs the claimant must be an employer covered by the statute in question. Determining whether an individual is an employee entitled to the protection of federal antidiscrimination laws or whether the employer is subject to such laws is not always easy to ascertain. The language of the statutes provides no instruction and courts have taken different approaches to defining the terms “employee” and “employer.” In deciding Clackamas Gastroenterology Associates, P.C. v. Wells, the Supreme Court has answered several questions that have troubled lower courts about “who counts” as an employee or an employer in suits brought under federal antidiscrimination laws.

Individuals alleging discrimination under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Americans with Disabilities Act (“ADA”), and the Age Discrimination in Employment Act (“ADEA”), may bring suit only if they are employees and the entity they work for is a covered employer. These statutes use the same language, defining the term “employee” as “an individual employed by an employer” and the term “employer” as “a person engaged in an industry affecting commerce” having fifteen, twenty, or more employees, depending on the statute, “for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.” The statutes indicate that only employees are protected, but the statutes offer no guidance on how to determine when an individual is an employee entitled to protection or which individuals should be counted as employees for purposes of the statutory minimum.

Threshold issues involving the definition of employee under federal antidiscrimination laws usually occur in two situations. First, a business entity may use the statutory minimum as a defense, maintaining that it is not a covered entity because it does not have the requisite number of employees. In these “counting” cases, the dispute revolves around whether various individuals “count” towards the threshold number of employees required for covered employer status. Second, the definition of employee is crucial when the claimant serves a role that could arguably be characterized as either an employer or an employee. In such cases, a partner in a partnership or a shareholder in a professional corporation may argue that she is entitled to sue because she is an employee within the meaning of the statute. The business entity may counter that the individual is not an employee, but an employer who is not entitled to sue under the antidiscrimination laws. Similar questions may arise regarding major shareholders in general corporations. Although courts have yet to address the covered employee status of individuals in other forms of business organizations, such as limited liability partnerships (LLPs) and limited liability companies (LLCs), such cases would involve the same issues. With no help from the circular definitions provided by the statutes, the courts have struggled to find consistent definitions for the term “employee.” This task has become particularly difficult as forms of business organization continue to evolve and businesses choose their organizational form for a variety of reasons.

Should shareholders in a professional corporation or partners in a general partnership count as employees for establishing jurisdiction over an employer under the federal discrimination statutes? Should these same parties be protected as employees entitled to bring discrimination claims under these statutes? In Clackamas Gastroenterology Associates, P.C. v. Wells, the United States Supreme Court considered whether physicians in a professional corporation who performed services for the corporation and who also owned and managed the business were employees to be counted towards the fifteen-employee threshold required by the ADA. In determining that the individuals in question were more like employers than employees, the Court held that the common law of agency is the appropriate source to fill gaps in the statutory definition of the term “employee.” In its decision, the Court endorsed factors listed by the Equal Employment Opportunity Commission (“EEOC”) in its Compliance Manual which distinguishes employees from employers based on “whether the individual is subject to the organization’s control.” The EEOC’s Compliance Manual applies the same “factors to be considered with regard to coverage of partners, officers, members of boards of directors, and major shareholders.” Thus, in recognizing the EEOC factors, the Court endorsed a method of evaluating an individual’s employment status as employee or employer not only in the professional corporation, as was the case in Clackamas, but also in various other forms of business organization. Moreover, the Court’s decision indicates that the EEOC factors will also be used to determine whether partners, shareholders, or other individuals of uncertain status, may bring claims under the antidiscrimination laws.

The importance of the outcome in the Clackamas case for employment discrimination purposes is clear. Businesses, such as Clackamas Gastroenterology, that sit on the borderline of the size threshold for statutory coverage, are impacted by the Court’s interpretation of who qualifies as a covered employee under the federal statutes. Figures from the Small Business Administration in 1999 indicate that more than 332,540 firms in the United States have between fifteen and twenty-four employees. Because the Court’s decision pertains to all federal employment antidiscrimination laws, a business that expects to be shielded from compliance with these laws must be aware of the number of individuals in its firm that count as employees. The decision is also important for individuals such as partners, officers, members of boards of directors, and major shareholders who wish to bring discrimination claims.

This article analyzes the issues posed and the conclusions reached by the Supreme Court in the Clackamas case and the extent to which the Court’s decision has resolved several questions regarding employer and employee status. Part II explains the different approaches taken by the circuit courts of appeal in determining who qualifies as an employee under the federal statutes that led to the United States Supreme Court’s review of the circuit split. Part III sets forth the facts, history, and holding of the Clackamas case in detail. In Part IV, this article analyzes the extent to which the Court answered three questions that have troubled the lower courts. The first issue is whether the employer’s form of organization or the claimant’s title should impact how a court determines whether the federal antidiscrimination statutes apply. In exploring the decision’s impact on this issue, this article examines several recent cases to illustrate how the Court’s decision and reasoning will guide the lower courts. The second issue concerns whether partners may be employees and the related issue of whether individuals may be both employers and employees for different purposes. The Court clearly rejected the conclusion that partners are always employers and the approach followed by lower courts of comparing an individual’s role to that of a partner to determine his status. The third issue is whether courts should define the term “employee” in the same manner whether the case involves the status of a claimant or the status of individuals for counting purposes.

This article concludes that the Court’s decision will go far to remedy the confusion over who qualifies as a covered employee under federal employment antidiscrimination laws because it applies uniformly to all forms of business organization. Although the EEOC factors endorsed by the Court leave room for speculation and some uncertainty as to how individuals will be categorized, the Court’s decision, with its emphasis on control, should allow firms to better predict whether they are subject to the federal antidiscrimination laws and individuals to better assess whether they are entitled to the statutes’ protections. The authors believe that amending the statutes to clarify whom the statutes intend to protect and how the size of a firm should be determined for exemption purposes would be a better solution to the difficult issue of defining employers and employees under the statutes. Nevertheless, the Court’s decision resolves inconsistencies in the lower courts’ approaches to the issues and, with the assistance of the EEOC’s guidelines, should provide more uniformity in outcome as well.

Author Information

Greene (Assistant Professor of Business Law, Boston College); O'Brien (Professor of Business Law, Boston College)