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Clackamas Gastroenterology Assocs., P.C. v. Wells - 538 U.S. 440, 123 S. Ct. 1673 (2003)

Rule:

According to the Equal Employment Opportunity Commission (EEOC), each of the following six factors is relevant to the inquiry whether a shareholder-director is an employee: 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; whether the individual shares in the profits, losses, and liabilities of the organization. EEOC Compliance Manual § 605:0009 (2000). These six factors need not necessarily be treated as "exhaustive." The answer to whether a shareholder-director is an employee or an employer cannot be decided in every case by a shorthand formula or magic phrase. 

Facts:

Petitioner employer, which was a medical clinic operated as a professional corporation, hired respondent employee as a bookkeeper. The employee sued the employer, alleging disability discrimination under the Americans with Disabilities Act of 1990 (ADA). The employer argued that it was not covered by the ADA because it did not have 15 or more employees. The employer argued that the four physician-shareholders who owned the professional corporation and constituted its board of directors were not employees. The lower court granted summary judgment in favor of the employer. However, on appeal, the United States Court of Appeals for the Ninth Circuit reversed, determining that the ADA's small employer exemption did not apply to the employer because the four physician-shareholders counted as employees. The employer appealed.

Issue:

In a case alleging unlawful discrimination under the Americans with Disabilities Act, which includes a small employer exemption, did the appellate court err in deciding that four physicians actively engaged in the medical practice as shareholders-directors were to be counted as "employees" that were thus liable for damages?

Answer:

Yes

Conclusion:

On certiorari, the Supreme Court of the United States reversed the judgment and remanded the case for further proceedings. The Court determined that the common-law element of control was the principal guidepost that should have been followed in the case. The Court also endorsed the Equal Employment Opportunity Commission's (EEOC) standard in the EEOC Compliance Manual § 605:0009 (2000) regarding whether a shareholder-director is an employee. Because the appellate court did not apply the EEOC's standard and some of the findings appeared to weigh in favor of a conclusion that the four director-shareholder physicians were not employees, remand was necessary. The Court advised that there might be evidence in the record that would contradict those findings or support a contrary conclusion under the EEOC's standard that the Court endorses in the instant opinion.

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