Supreme Court Broadens Class of Employees Subject to the Federal Antidiscrimination Laws

Perhaps no question concerning the federal employment discrimination statutes is more important than "which individuals are employees covered by the Act." The Supreme Court recently considered and answered that question in a way that broadens the scope of covered "employees" and makes it more difficult to determine whether an individual is a covered employee. In Clackamas Gastroenterology Assoc., P.C. v. Wells, the Court ruled that the mere designation of an individual as a corporate shareholder or a partner does not exclude him or her from the definition of employee. Rather, a court must assess on a case-by-case basis how the organization actually treats the individual. The likely result is more confusion and more litigation.

In Clackamas, the plaintiff was an employee of a small medical clinic in Oregon who claimed she had been discriminated against in violation of the Americans with Disabilities Act (ADA). The clinic was organized as a professional corporation under state law. The issue before the Supreme Court was whether the four physician-shareholders of that clinic are employees of the corporation under federal employment discrimination law. For the plaintiff, the answer to that question determines whether she has an ADA case against her employer. If the physician shareholders are counted as employees, the medical clinic has more than the minimum 15 required for ADA coverage, but if they are not counted, the medical clinic does not. However, the Supreme Court's reasoning goes beyond professional corporations and minimum numbers necessary for ADA coverage. It addresses the question of who is and who is not an employee for all traditional federal employment discrimination statutes that define an employee as "an individual employed by an employer."

Earlier in the litigation, the United States Court of Appeals for the Ninth Circuit had ruled that the physician-shareholders were not employees based solely on their status as shareholders under corporate law. It reasoned that the physician-shareholders' decision to adopt the corporate form and become shareholders prevented them from qualifying as employees as a matter of law. According to the Ninth Circuit, having reaped the tax and civil liability advantages of corporate status, the shareholders could not claim a different status under federal discrimination law.

The U.S. Supreme Court disagreed with this reasoning. It concluded that whether an individual qualifies as an "employee" for the...