Partners and Shareholders as Covered Employees Under Federal Anti-Discrimination Acts
American Business Law Journal, Vol. 40, No. 4, pp. 781-826, 2003
47 Pages Posted: 19 Oct 2009
Date Written: October, 19 2009
A 2001 ruling by the Court of Appeals for the Ninth Circuit revives the controversy over whether partners and shareholders may be considered employees, entitled to protection under federal anti-discrimination laws. In Wells v. Clackamas, 271 F.3d 90, the Court of Appeals for the Ninth Circuit held that shareholders in a professional corporation are employees. A petition for certiorari was granted in this case, 2002 U.S. LEXIS 5383 (U.S. Oct. 1, 2002) (No. 01-1435). The Ninth Circuit's ruling allowed Ms. Wells to bring her suit for discrimination under the Americans with Disabilities Act because counting the shareholders as employees gave the company the required minimum of fifteen employees to qualify as a covered entity under the Act. The decision adopts the minority view that corporate form determines whether shareholders are employees under federal anti-discrimination laws. The majority view looks at the relationship between the individuals in question and the business entity and, based on the economic reality of that relationship, determines whether the individual has the proprietary qualities of an employer or not. The economic reality approach is also used in determining whether partners are true partners, and thus employers, or partners in name only, and thus employees. Whether partners in a partnership or shareholders in a professional corporation are employers or employees determines whether they may seek protection under federal anti-discrimination laws, or as in the Wells case, whether the firm is a covered entity, so that employees may bring suit. The authors maintain that the federal anti-discrimination laws should be amended to address the meaning of the term "employee." Because the cases indicate a lack of uniformity in both approach and outcome, the authors recommend amendments to the statutes that would clarify the distinction between "employers" and "employees" and whether the roles must be mutually exclusive. In addition, they recommend amendments regarding which indicia are critical in determining covered employee status, and what members of firms should count as employees for satisfying the jurisdictional minimum.
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