The Seventh Circuit Court of Appeals recently affirmed a lower court’s conclusion that a doctor in a service corporation was actually an employer, and thus could not bring a claim under federal discrimination statutes based upon her termination. Bluestein v. Cent. Wisconsin Anesthesiology, S.C., 13-3724, 2014 WL 5176397 (7th Cir. Oct. 15, 2014). The case highlights the complex test that courts apply in determining whether a member of a professional business entity is eligible for protection under federal discrimination statutes.

Background

Plaintiff Linda Bluestein, M.D., an anesthesiologist, began working for Central Wisconsin Anesthesiology, S.C. (Central Wisconsin) in 1996 on a part-time basis. Her initial employment agreement identified her as an employee, and she worked in that capacity for approximately two and a half years. On January 1, 1999, Bluestein became a full partner of Central Wisconsin as well as a shareholder and member of the board of directors, which is comprised of all of the physician-shareholders. As a shareholder, she had a vote on all matters coming before the board. After a board vote in 1999, Bluestein began receiving a quarterly distribution equal to that of the other shareholders and held various positions on the board during her tenure.

In the fall of 2009, Bluestein sustained injuries in a kayak accident. She developed ischiogluteal bursitis, proximal hamstring tendinopathy, sciatica, and sacral nerve root cyst. These conditions made it difficult for her to complete her work as an anesthesiologist. Over the next several months, she intermittently took approved time off to rest and recover but she did not heal enough to return to work at full strength.

A few months later, she requested an indefinite leave of absence from her position at Central Wisconsin. The board voted to deny the request. The board then held a second vote, presenting shareholders with two additional options. The first would have granted Bluestein a four-month leave of absence on the condition that she would be terminated if she could not perform her duties as an anesthesiologist without restriction upon her return. Under the second option, Bluestein would be allowed to resign as of August 31, 2010, but would be terminated if her letter of resignation was not received by September 16, 2010. Four shareholders voted in favor of the four-month leave and 12 chose the latter option. When Bluestein did not resign by September 16, 2010, she was terminated the next day.

The District Court’s Decision

After her termination, Bluestein sued Central Wisconsin for discrimination in violation of the Americans with Disabilities Act, the Rehabilitation Act of 1973, and Title VII of the Civil Rights Act of 1964. The district court granted summary judgment for Central Wisconsin, concluding that Bluestein, a shareholder and board member of Central Wisconsin, was an employer rather than an employee, and was thus ineligible for the protections of those statutes. The court also ordered Bluestein and her attorney to pay attorneys’ fees to Central Wisconsin for pursuing a frivolous lawsuit.

The Seventh Circuit Decision

On appeal, Bluestein contended that she was an employee for the purposes of the discrimination statutes. In analyzing this threshold issue, the court applied the common law definition of “employee” as set forth in Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440, 444 (2003). In Clackamas, the Supreme Court explained that the element of control should be the principal guidepost in assessing whether a person is an employee. The Court then adopted a nonexclusive list of six factors designed to reflect the common law element of control:  

  • 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.  

When deciding whether shareholder-directors are employees, no one factor should be decisive, the Court emphasized, but all aspects of the relationship should be considered.

The Seventh Circuit first observed that Bluestein was a shareholder and member of the board of directors at Central Wisconsin, entitled to vote on all issues coming before the board and subject to the same board — and committee — approved policies as every other physician-shareholder of the service corporation. There were approximately 16 physician-shareholders at the time of Bluestein’s termination. Turning to the first factor, whether the organization can hire or fire the individual, the record demonstrated that hiring and firing decisions were made collectively by the shareholder-board members. Indeed, Bluestein herself voted on her own termination, and thus the first factor cut against a conclusion that Central Wisconsin employed Bluestein.

Turning to the second and third factors, the court held that Bluestein presented no evidence that anyone at Central Wisconsin supervised her work as an anesthesiologist. As a physician, she determined how to complete the specific tasks of her work and could point to no supervisor. Bluestein also was an equal shareholder to all members of the board, and thus had no one to report to that was higher up within the organization. The same rationale applied to factor four — the extent of influence within the organization. She had equal vote on the board and the fact that her position was often in the minority view did not matter.

As to the fifth factor, the court held that, even though Bluestein had signed an “employment agreement” that was not dispositive because she shared in the management and control of the professional corporation throughout her career, and was a shareholder, a corporate officer, a board member and a director throughout her tenure. As a shareholder, she possessed an equal vote in all matters put to a shareholder vote and had a voice in all matters put before the board. Thus, simply signing an employment agreement (and receiving a W-2) did not make her an employee. Turning to the sixth factor, the court found no evidence in the record that Bluestein did not share equally in the profits and losses of Central Wisconsin.

Considering all six factors as a whole, the court concluded that Bluestein was an employer as a matter of law. She was a full physician-shareholder and board member in a small medical professional corporation. She had an equal right to vote on all matters coming before the board, shared equally in the firm’s profits and liabilities, and participated in decisions to hire and fire employees. She even voted on her own termination. Although she was subject to general workplace policies regarding her hours, vacation, scheduling, and patient assignments, all the physician-shareholders were subject to the same policies, and all had an equal right to influence those policies. She reported to no one and the details of her work as an anesthesiologist were not supervised or controlled by anyone at the firm. Although she often found herself in the minority position among her fellow physician-shareholders, it was her right of control that matters to the analysis. Thus, because she was an employer, all of her discrimination claims failed as a matter of law.

The court also affirmed the award of attorneys’ fees to Central Wisconsin. The court reasoned that a reasonable jury could conclude that Bluestein’s award was frivolous, given the obviousness of her position as an employer.

Conclusion

Whether a person who has an ownership or other business interest in an entity is an employee or an employer of that entity is a fact specific test that potentially could yield different results under different statutes.