Deborah Wells was a bookkeeper for Clackamas Gastroenterology Associates, a medical clinic and professional corporation with four physician shareholders and directors and about 12 employees. When Wells was terminated, she sued the clinic under the Americans with Disabilities Act. The clinic responded that it didn’t have enough employees to be covered by the ADA.
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Who Is an Employee?
The ADA applies to employers with 15 or more employees for at least 20 weeks in the current or previous calendar year. The law doesn’t specify whether a shareholder or partner qualifies as an employee.
The clinic argued that its four doctors were shareholders and not employees for ADA purposes—and therefore the clinic didn’t meet the 15-employee threshold for ADA coverage.The U.S. Ninth Circuit Court of Appeals, which covers California, disagreed, finding the physician-shareholders’ active participation in operating and managing the clinic meant they were employees.
High Court Endorses EEOC Standards
Now the U.S. Supreme Court has endorsed the U.S. Equal Employment Opportunity Commission standards for evaluating when shareholders, partners, officers, and board members count as employees under federal antibias laws.Under these guidelines, shareholder-directors who operate independently and only manage the business are proprietors and not employees. On the other hand, if their work is subject to the firm’s control, they are counted as employees. Actual business practices rather than job titles are key to whether someone is an employee. The court found that you should weigh the following factors to decide whether your firm has control over an individual, although no single factor can be used alone to make the determination:
- Whether the organization can hire or fire the individual
- Whether and to what extent the organization supervises the individual’s work
- Whether the individual reports to someone higher in the organization
- Whether and to what extent the individual can influence the organization
- Whether the parties intended the individual to be an employee, as expressed in written agreements
- Whether the individual shares in the firm’s profits, losses, and liabilities
The court found strong evidence that the clinic’s four physician-shareholders were not employees. For example, they controlled the operation of the clinic, shared in profits, and were personally liable for malpractice claims. But the court noted they received salaries and had to comply with standards established by the clinic—which could indicate, conversely, that they were employees. Consequently, the court directed the appeals court to take another look at the evidence in light of the EEOC standards.
Evaluating Coverage
Under these guidelines, many officers, shareholders, partners, or directors won’t be considered employees of an organization, but some will. If you’re a small firm, it’s wise to pay close attention to the factors above. That’s because if your officers or partners are employees, you may find yourself meeting the 15-employee threshold and subject to the ADA and other federal antibias statutes. And keep in mind you only need five employees to be covered by California’s Fair Employment and Housing Act.