Friday, August 13, 2010

Third Circuit Finds Law Firm Shareholder Not Employee Under Federal and State Anti-Discrimination Laws

In Kirleis v. Dickie, McCamey & Chilcote, P.C., 2010 U.S. App. LEXIS 14530 (3d Cir. July 15, 2010), Judge Jane Roth, writing for a panel of the Third Circuit, held that the plaintiff, a “Class A Shareholder-Director” of Pittsburgh-based law firm DMC, was an “employer”—not an employee—under Title VII, the Equal Pay Act, and the Pennsylvania Human Rights Act; and thus she “was outside the protection of the employment discrimination laws.”
In so holding, the court examined the plaintiff’s shareholder-director status in light of Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440 (2003).  In Clackamas, the Court adopted the following six-factor test, to determine whether one is an employer or an employee entitled to invoke the antidiscrimination laws:
1.      Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work;
2.      Whether and, if so, to what extent the organization supervises the individual’s work;
3.      Whether the individual reports to someone higher in the organization;
4.      Whether and, if so, to what extent the individual is able to influence the organization;
5.      Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
6.      Whether the individual shares in the profits, losses, and liabilities of the organization.
Id. at 449-50 (quoting 2 Equal Employment Opportunity Commission Compliance Manual § 605.0009 (2000)).  The Clackamas Court noted further that the touchstone of the inquiry is control, which “depends on ‘all of the incidents of the relationship . . . with no one factor being decisive.’”  Id. at 449, 451 (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 324 (1992)).
In applying the above factors, in Kirleis, the court found that the plaintiff was not a “mere employee of DMC,” but rather an employer, as she “has the ability to participate in DMC’s governance, the right not to be terminated without a 3/4 vote of the Board of Directors for cause, and the entitlement to a percentage of DMC’s profits, losses, and liabilities.”  Kirleis, 2010 U.S. App. LEXIS, at *4 (citing Solon v. Kaplan, 398 F.3d 629, 633 (7th Cir. 2005) (termination only by 2/3 vote of general partners, access to financial information, participation in firm governance, and a share in profits and losses distinguished a law firm partner from associates and rendered him an employer); Schmidt v. Ottawa Med. Ctr., P.C., 322 F.3d 461, 467-68 (7th Cir. 2003) (a shareholder in a professional corporation who possesses the right to vote on matters put before the board and the opportunity to share in profits is an employer for the purposes of the anti-discrimination laws).
Tip of the hat to the New Jersey Employment Law Blog and the Lawffice Space blog for calling this decision to our attention.

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