A Union of Formalism and Flexibility: Allowing Employers to Set Their Own Liability under Federal Employment Discrimination Laws

By Creasy, Darren M. | William and Mary Law Review, February 2003 | Go to article overview

A Union of Formalism and Flexibility: Allowing Employers to Set Their Own Liability under Federal Employment Discrimination Laws


Creasy, Darren M., William and Mary Law Review


INTRODUCTION

Several federal employment discrimination statutes allocate protection depending on whether potential plaintiffs occupy positions of control within a business entity. Title VII of the Civil Rights Act of 1964, (1) the Age Discrimination in Employment Act (ADEA), (2) and the Employee Retirement Income Securities Act (ERISA) (3) all permit suits by "employees" against their current or former employers, but do not provide any avenue of relief for those classified as "employers." (4) For instance, the ADEA provides: "It shall be unlawful for any employer ... to limit, segregate, or classify his employees ... because of such individual's age...." (5)

Predictably, courts have not always agreed as to what differentiates an employee from an employer. Particularly with regard to innovative business forms that have risen to prominence in recent decades, the distinction between the two is confounded. (6) Statutory language defines an employee as "any individual employed by an employer." (7) A strict statutory construction, therefore, would categorically deny relief to some members of business entities organized as partnerships, yet universally afford protection to similarly situated members of incorporated entities. (8)

Traditionally, a partner could not stand in an employment relationship with his or her partnership because partners personally control the ownership interests, making them employers rather than employees. Because a partnership is the partners, it cannot also employ the partners. Stated from another angle, a partnership simply cannot employ itself. If partners cannot employ themselves, it follows that partners cannot be employees in the technical sense of the term. On the contrary, all partners are, by default, employers. As a result, partners are ineligible to seek protection from employment discrimination because employers are not members of a protected category.

Compare partnerships to incorporated entities. Unlike a partnership, a corporation is an independent legal persona existing only on paper. It exists wholly apart from even its most high-ranking officers, operates as the de facto employer, and exists in perpetuity. (9) The title of "employer" resides with either the legal persona or, ultimately, with the shareholders. (10) Thus, no person who works for the corporation will be subject to the employer exemption, and courts will not dismiss plaintiffs' suits for lack of statutory standing. (11) Only the corporate persona itself falls into the employer exemption. (12) A strict statutory construction, therefore, only affords protection to members of incorporated entities.

Several courts have utilized this all-or-nothing approach and declined to look past a business entity's organizational form in determining worker eligibility to sue under Title VII, the ADEA, or ERISA. (13) This approach has been dubbed the "per se rule. "(14) As one would predict, courts invoking the per se rule always exempt partners of firms from protection. This is referred to as the "partnership exemption." (15) A brief history of holdings implicating the per se rule and justifications for its use is offered in Part I of this Note.

More recent decisions reflect an emerging trend, which is to consider a plaintiff's ability to protect his or her own interests within a business entity in order to determine eligibility for protection under ERISA, the ADEA, or Title VII. Courts have focused on an extensive, though not exhaustive, list of factors (16) that tend to indicate "whether the employer's control of employment opportunities places the worker in a position of dependency on the employer which may expose the worker to discriminatory conduct." (17) Courts that use this test ask whether a position of dependency within a business entity negates the presumption that a partner cannot be a victim of employment discrimination. This in-depth inquiry, spurning deference to an individual's title and focusing instead on actual powers, is referred to as the "economic realities test. …

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A Union of Formalism and Flexibility: Allowing Employers to Set Their Own Liability under Federal Employment Discrimination Laws
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