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Supreme Court Helps Define "Employee"

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In today’s changing workplace, where an increasing number of ownership and management structures exist, the question of “who is an employee?” entitled to protection under numerous statutes designed to protect workers can be a difficult one to answer. In a ruling issued today, the U.S. Supreme Court attempted to clarify which individuals in the workplace will be considered “employees” under the Americans with Disabilities Act (ADA), which requires a minimum of 15 employees before a discriminated-against employee can proceed with a lawsuit.

In Clackamas Gastroenterology Associates, P. C. v. Wells, the Court considered the disability discrimination lawsuit of Deborah Anne Wells, who was employed by an Oregon medical clinic as a bookkeeper from 1986 until 1997. In February 1997, Ms. Wells was diagnosed with mixed connective tissue disorder, an auto-immune disease similar to rheumatoid arthritis. In order to accommodate her disability, her employer initially allowed her to start earlier in the day, at 7 a.m. and finish at 4 p.m., but she was often asked to fill in for the receptionist. This added to her regular workload, and she told her boss the extra hours were too much. So on April 25, Ms. Wells’ boss assigned her to work full-time as a receptionist in a different office, about 20 miles farther from Ms. Wells’ home. The new job would shift her hours to later in the day. According to her lawyer, Craig Crispin, Ms. Wells objected to the move, telling her employer, “You know I can’t do that.” “So you’re quitting then?” Ms. Wells says her supervisor responded. He repeated the question several times during conversations he had with Ms. Wells that April, which failed to reach a compromise. Ms. Wells ultimately never made it to her new job. She faxed a notice from her doctor allowing her to stay home from work until May 12. On May 13, she faxed permission to extend the arrangement. However, Ms. Wells didn’t know that seven days earlier, her employer had mailed her a letter stating she was fired, effective May 13. (See “On the Docket” case summary for further information.)

After Ms. Wells was fired, she ended up filing a disability discrimination lawsuit against the medical clinic. The clinic’s primary defense to the lawsuit was that it did not have the minimum number of employees required for Ms. Wells to bring her lawsuit. Although between 16 and 19 people worked at the clinic during the time Ms. Wells worked there, the clinic argued that four of those people should not be considered employees. The four individuals in question were all doctors who were shareholders and members of the board of directors of the professional corporation they created to operate the medical clinic. The question was whether these four people should be treated as partners and owners of the corporation or as the corporation’s employees. The Supreme Court ultimately did not decide that question, but referred the case back to the lower courts for more fact-finding on this issue, based on the standards the Court did establish in the opinion.

In the 7-2 majority opinion written by Justice John Paul Stevens, the Court started its analysis by looking at the ADA’s definition of employee. However, the law was not particularly helpful, as it defines “employee” as “an individual employed by an employer.” 42 U.S.C. § 12111(4). In a previous case, the Court had called a similar definition of employee a “nominal definition” that is “completely circular and explains nothing.” (See Nationwide Mutual Ins. v. Darden, 503 U.S. 318, 323 (1992).) So it was necessary to look elsewhere to determine the appropriate meaning of the law. The Court then looked at the “common law” to determine how the term “employee” had generally been defined in the bulk of previous court cases dealing with this issue. There are some limitations to doing that, since professional corporations (incorporation for the purpose of practicing a profession, primarily by groups of doctors, lawyers, accountants, etc.) are a recent legal development, which have existed under various state laws for only the last few decades.

After looking at the common-law definitions of master and servant, the Court ultimately decided to adopt the test proposed by the Equal Employment Opportunity Commission (EEOC), recognized by the Court as “the agency that has special enforcement responsibilities under the ADA and other federal statutes containing similar threshold issues for determining coverage.” The EEOC had proposed that the standard for determining whether an individual is an employee should hinge on “whether shareholder-directors operate independently and manage the business or instead are subject to the firm’s control,” and offered an additional six factors which would assist in making that determination:

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.

(See EEOC Compliance Manual §605:0009.10).

After adopting this test, the Court was unable to tell from the facts before it whether or not the four doctors in question were employees or not, although the Court did opine that the facts currently “appear to weigh in favor of a conclusion that the four director-shareholder physicians in this case are not employees of the clinic.” Since the lower court did not obviously have before it the legal standard adopted by the Court, however, it is necessary for the District Court (federal trial level court) to take a closer look at how the Clackamas doctors’ situation can be analyzed under this test.

Two justices of the Supreme Court, Justices Ginsburg and Breyer, disagreed with the majority opinion. In their view, it was possible for the doctors to be considered partners for some purposes and employees for other purposes, and that considering them employees in this situation would uphold the purpose of the ADA. The dissenters found it relevant that the doctors had employment contracts under which they received salaries and yearly bonuses, worked at facilities owned or leased by the corporation, were admittedly considered employees under other laws such as ERISA and Oregon’s workers’ compensation law, and voluntarily chose to organize their practice as a corporation, which would limit their personal liability for the clinic’s debts. However, these factors, according to the majority, are not nearly as significant as the “control” test.

What is the significance of this opinion? For now, it means that a significant number of professional corporations and other businesses which have between 15 and 20 workers may not be subject to federal antidiscrimination laws. (However, they still may be sued under the laws of many states. See WF’s minimum number of employees page for more information on the minimum number of employees needed to bring a state claim.) In the future, it may also mean that smaller corporations (professional or not) configure their business in such a way so as to avoid being subject to discrimination lawsuits, and that smaller businesses are less likely to accommodate disabled employees if they believe with certainty that they are not subject to the ADA’s requirements. However, the clarified standards may also benefit some workers, where all of the factors adopted by the Court are not present, therefore allowing employees to file suit with greater certainty that the lawsuit will be allowed to proceed. (See CNN.com article.) While the reading of the law suggested by the dissenting opinion would certainly have been preferable for employees, it remains to be seen how many individuals will actually be affected by today’s ruling.


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