An increasingly hot topic in employment discrimination cases is whether law firm partners, doctors, and senior managers/directors should be deemed an “employee” versus “employer” for purposes of laws such as Title VII of the 1964 Civil Rights Act.

A typical scenario involves a high-level manager, executive, or partner who is harassed, discriminated against, 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 the threshold issue of whether the plaintiff is an “employee” or “employer” because if they are an “employer” then they may not sue under Title VII.

The governing standard: 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 settled on a six-factor test to assess if a person holding a high-level position should be considered an “employee” including whether:

1. the company can hire or fire the individual or set the rules and regulations of their work;

2. the extent to which the company supervises the individual’s work;

3. the individual reports to someone higher in the company;

4. the extent to which the individual is able to influence the company;

5. the parties intended that the individual be an employee, as expressed in written agreements or contracts; and

6. 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.

Federal court interpretations of the Clackmas factors

In January 2021, the U.S. Court of Appeals for the Fourth Circuit issued the most recent interpretation of the Clackmas factors in Lemon v. Myers Bigel, Case No. 19-1380 (4th Cir. Jan. 19, 2021).

Lemon involved an attorney who was a “shareholding partner and equal owner of the firm.” During her employment, the firm denied Lemon’s request to take leave, which she believed was motivated by race and gender discrimination.

The Fourth Circuit had little trouble finding that Lemon was an “employer” rather than an “employee” based on the following Clackmas factors:

• No one at the firm could unilaterally terminate her employment (Clackmas factor one)

• She enjoyed a high degree of independence in discharging her duties as a partner (her work could be reviewed by other partners but that was true of all partners’ work) (Clackmas factor two)

• She was a full/equity partner in the firm and reported to no one (Clackmas factor three);

• She had the same voting power as all other equity partners and no other partner owned a greater share of the firm or had a greater voting power than her (Clackmas factors one and four); and

• Her compensation was tied to a formula that varied with the profits and losses of the firm (Clackmas factor six);

Accordingly, the court ruled that as a partner and co-equal owner of the firm, “with an equal vote on all matters substantially impacting the firm, [] Lemon was not an employee. To hold otherwise would be to stretch the concept of ‘employee’ well past its breaking point and needlessly upend understandings that have been central to the organization of firm partnerships for decades.”

The Lemon decision also referenced other federal court cases in which equity partners in law firms have been deemed an “employer,” including Solon v. Kaplan, 398 F.3d 629 (7th Cir. 2005) (declining to treat an equity partner as an employee for purposes of Title VII) and von Kaenel v. Armstrong Teasdale, LLP, 943 F.3d 1139 (8th Cir. 2019) (declining to treat an equity partner as an employee for purposes of the ADEA).

Finally, 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 court followed much of the same reasoning as found in the Lemon decision and held that, because the plaintiff was an equity shareholder/director at her law firm, Kirleis was an “employer” instead of an “employee.” Kirleis thus was not entitled to the anti-discrimination protections of Title VII and related laws.

Key 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 they part of a very large firm/company, or a smaller one in which they may have relatively more control over the work and compensation;

• are they an equity partner and/or on the Board of Directors (Lemon, Kirleis, and Bluestein v. Central Wisconsin Anesthesiology, 679 F.3d 944, 953 (7th Cir. 2014)), as opposed to an income/non-equity partner;

• do they have equal authority to hire and fire other executives/shareholders;

• do they share in the profits of the firm/company and are they personally liable for its debts (Lemon, Kirleis);

• do they have a supervisor or someone in a higher position who controls their workflow and oversees their work (Lemon); and

• did they sign a partnership agreement and do they receive a K1 tax form rather than a W2 form (Bowers v. Ophthalmology Group, LLP, 648 F.App’x. 573, 579-80 (6th Cir. 2016))