One of the more hotly debated topics is whether executives should be viewed as the employer versus the employee when they suffer discrimination at work.  This matters a great deal because if s/he is deemed an employer, then the executive will not be covered by Title VII of the 1964 Civil Rights Act‘s (and most other federal laws’) anti-discrimination provisions.  And this legal question is increasingly playing out in corporate boardrooms, medical practices, and law firms around the country.

A typical scenario involves a high-level manager, executive, or law firm partner who is harassed, repeatedly passed over for a promotion (aka glass ceiling discrimination), or fired and then seeks shelter from the discrimination through a Title VII lawsuit.  Often the defendant company will file a motion to dismiss the case on this threshold issue because if the plaintiff is not an “employee” then they may not sue under Title VII.

Who’s in control?

In Clackamas Gastroenterology Associates v. Wells, 123 S.Ct. 1673 (2003), the Supreme Court outlined the main test courts use to decide whether a person is an “employee” covered by federal anti-discrimination laws, such as Title VII, the American with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA).

The key factor is how much, or little, control the individual has over their work, compensation, and workplace decisions.

Clackamas involved an ADA case but courts apply the test to Title VII and other federal anti-discrimination statutes.   The Supreme Court looked to the Equal Employment Opportunity Commission’s (EEOC) guidelines and settled on a six-factor test to assess if a person holding a high-level position should be considered an “employee” including whether:

• the company can hire or fire the individual or set the rules and regulations of their work;
• the extent to which the company supervises the individual’s work;
• the individual reports to someone higher in the company;
• the extent to which the individual is able to influence the company;
• the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
• the individual shares in profits, losses, and liability of the company

Clackamas, 123 S.Ct. at 1680.  None of these factors is decisive; instead, they should be viewed as a whole.  Id. at 1681.

What’s in a name?

The Supreme Court and other federal courts do not allow the job title to control whether an executive should be considered an “employee.”

The mere fact that a person has a particular title–such as partner, director, or vice president–should not necessarily be used to determine whether he or she is an employee or [an employer].

Id. at 1680 (alteration added).  So even if your title sounds like you are the boss rather than the employee, you will still have an opportunity to prove to the court that, based on the totality of the Clackamas factors listed above, you are actually an employee who should be covered by Title VII’s protections.

Law firm partner or just another “employee”?

An increasing number of law firms find themselves the defendant in employment discrimination lawsuits filed by partners in the firm.  One of the relatively few law firm partner cases (post-Clackamas) to address this “employer” versus “employee” issue after discovery at the summary judgment stage is Kirleis v. Dickie, McCamey & Chilcote, P.C., 2009 WL 3602008, (W.D. Pa. Oct. 28, 2009), aff’d Kirleis v. Dickie, McCamey & Chilcote, P.C., 2010 WL 2780927 (3rd Cir. Jul. 15, 2010).

In Kirleis, the plaintiff was an equity shareholder/director at her law firm and the court found that Kirleis was an “employer” instead of an “employee.”  Kirleis thus was not entitled to the anti-discrimination protections of Title VII and related laws.

Applying the Clackamas control test, the court found the following factors to be significant:

• as an equity Class A shareholder/director, plaintiff had equal authority to hire new shareholders and terminate other shareholders;
  • the court noted that this factor “weighs heavily in defendant’s favor . . . that plaintiff is, in fact, an ’employer'” Kirleis, 2009 WL 3602008, at *18 (emphasis in original);
• plaintiff had access to “a great deal of financial information about the firm” that employees of most corporations, or non-equity partners at law firms “would rarely be permitted to see”;
• plaintiff “maintained almost complete autonomy” in cases she originated, was free to turn down work, and generally set her own hours and work schedule;
• just because “one or a few attorneys have much greater power and influence within a law firm” does not transform the other attorneys in the firm (whether non-equity or equity partners) into “employees”;
• plaintiff’s compensation reflects the firm’s profits, which is “a prime indicator of ownership under Clackamas“; and
• liability of the firm will be borne by plaintiff and the other equity Class A shareholders/directors of the firm

For matters related to compensation and decision-making, plaintiff and other Class A shareholders/directors had far more control and influence than other employees, associates, and even Class B shareholders.

The court further noted that:

the indicia of control and ownership in traditional large firm partnerships tilts toward recognizing equity partners as employers and not employees, although all [Clackamas] factors must be considered.

Kirleis, 2009 WL 3602008, at *27.  Accordingly, because Kirleis was an “employer” she could not take shelter under Title VII’s protections and the court granted summary judgment in favor of the law firm.

In another law firm case, the EEOC settled a high-profile age discrimination lawsuit against Sidley Austin on behalf of 32 former partners.  The 2007 settlement included $27.5 million in damages and as part of the consent decree the law firm agreed that the partners were “employees within the meaning of the ADEA.”

More recently, a federal court in New York ruled in Campbell, et al. v. Chadbourne & Parke, LLP that the parties must conduct discovery before it can decide whether the plaintiff, who was an equity partner in her law firm, should be considered an “employee” under Title VII.

Takeaways

Analyzing whether an executive or law firm partner should be deemed an “employer” or “employee” under Title VII is fact-specific and will vary from case to case.  Some of the non-exhaustive factors to consider in assessing whether an executive or law firm partner will be protected by Title VII and similar anti-discrimination laws are:

• are you part of a very large firm/company, or a smaller one in which you may have relatively more control over your work and compensation;
• are you an equity partner and/or on the Board of Directors (Kirleis and Bluestein v. Central Wisconsin Anesthesiology, 679 F.3d 944, 953 (7th Cir. 2016));
• do you have equal authority to hire and fire other executives/shareholders;
• do you share in the profits of the firm/company and are you personally liable for its debts (Kirleis);
• do you have a supervisor or someone in a higher position who controls your workflow and oversees your work; and
• did you sign a partnership agreement and do you receive a K1 tax form rather than a W2 form (Bowers v. Ophthalmology Group, LLP, 648 Fed.Appx. 573, 579-80 (6th Cir. 2016))