U.S. Supreme Court Clarifies ADA's Definition of 'Employee'

June 2, 2003

The United States Supreme Court recently issued a landmark decision regarding coverage under the Americans with Disabilities Act (ADA). The ADA prohibits employers with 15 or more employees from discriminating against employees because of real or received disabilities.

The employer in this case was a professional medical corporation. The company argued that it was not covered by the ADA because it only had eleven employees. In making this argument, the company did not count four physician-shareholders who participated in the medical practice's management and operations. The issue before the Court was whether these four physicians were properly excluded from the employee head count on the basis they were not "employees" within the meaning of the ADA.

The Court interpreted and adopted the EEOC's coverage guidelines which outline the circumstances under which partners, officers, board members and shareholders qualify as employers rather than employees under federal anti-discrimination statutes. These guidelines require a factual analysis of six factors to determine whether an individual is an employer rather than an employee:

  • Whether the organization can hire or fire the individual or regulate their work;
  • Whether the employer has the right to control when, where and how the individual performs their work;
  • Whether the individual reports to a higher internal authority;
  • Whether the individual can influence the organization's business;
  • Whether written agreements, contracts or other documents refer to the individual as an employee; and
  • Whether the individual shares in the organization's profits, losses and liabilities.

While no one factor is outcome-determinative, the Court did make it clear that the "common-law touchstone of control" is extremely important to the analysis. In this regard, the Court noted that an employer is someone who owns and manages the enterprise. An employer can hire, discipline and fire employees, assign tasks and supervise an employee's performance. An employer can also decide how the profits and losses of the business are allocated and distributed. An employee cannot do these things. The Court could not, based on the record before it, determine whether the four excluded shareholders in question qualified as employers and remanded the case to the trial court for further proceedings.

This case is good news for small employers on the cusp of the 15-employee statutory coverage requirement because the Court's adoption of the EEOC's guidelines makes it easier for board members, partners and shareholders to be excluded from employee head counts for purposes of determining whether a company meets the 15-employee coverage requirement. On the flip side, this case is good news for partners or shareholders who do not function as true owners because they will now be counted as employees and entitled to the protections of the ADA.

Although this case dealt solely with the ADA, the Court’s ruling applies to all other federal discrimination lawsuits because the EEOC guidance interpreted and adopted by the Court expressly applies across the board to other federal anti-discrimination statutes, including Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act and the Equal Pay Act.

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