The U.S. Court of Appeals for the Third Circuit recently adopted a six-factor test to determine whether a shareholder-director of a company could be considered an “employee” – and, thus, eligible to institute a lawsuit – under Title VII of the Civil Rights Act of 1964. The test was previously established by the U.S. Supreme Court in the matter of Clackamas Gastroenterology Associates, P.C. v. Wells to determine whether a shareholder-director of a professional corporation would be considered an “employee” for purposes of determining whether the corporation met the numerosity requirements of the Americans with Disabilities Act (“ADA”).

According to the Third Circuit, the test is meant to consider whether an individual exhibits a level of “control” over a business entity such that he or she should be considered to be the “employer,” as opposed to an “employee,” under the applicable anti-discrimination statutes. To make that determination, a court should consider:

  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.

In Clackamas, the Supreme Court considered the test only as it applied to the ADA, but the Third Circuit noted that the EEOC guidelines on which the test is based apply also to Title VII, as well as the Age Discrimination in Employment Act and the Equal Pay Act. Thus, the Third Circuit held that the Clackamas test should apply to the Title VII claims before it.

The Third Circuit also found that there was no reason to limit the application of the test to professional corporations, as the Supreme Court did in Clackamas. Instead, the form and nature of the business entity would be relevant to the Court’s consideration of the six-factors of the test, but no particular type of entity would rule out the use of the test.

Finally, the Third Circuit cautioned that the relevant inquiry is not just whether the individual exhibits control over the business, but rather whether the individual has the right to exhibit such control.

In this case, the plaintiff, Robert Mariotti, was a longtime shareholder-director of his family’s business, Mariotti Building Products. He was ridiculed and ousted from his role in managing the family business – and later from its board of directors – because, he claimed, his family members disagreed with his religious beliefs. The Third Circuit ruled that Mariotti had sufficient authority to control the business to preclude his claim that he should be considered an “employee” under Title VII. Thus, the Third Circuit granted the company’s motion to dismiss his claims.

The case is Mariotti v. Mariotti Building Products, Inc., Docket No. 11-3148.