Professor John Garman – Spring 2012
I. Defining Employee Status
A. Employees or Independent Contractors
Nationwide Mutual Insurance Co. v. Darden (U.S. 1992)
Procedure: Trial court ruled Darden was an independent contractor, and thus not an employee. Appellate court reversed.
Facts: Darden worked for Nationwide as an insurance salesman paid on commission for 18 years, and enjoyed an Agent’s Security Compensation Plan that stated he would lose his entitlement to the plan if within a year of his termination sold insurance for a competitor within 25 miles of his old office or got a Nationwide policyholder to cancel a policy. He was eventually fired, started selling insurance himself, was cut off from the pension, and sued, claiming that his benefits had vested and could not be cancelled.
Issue: Whether Darden, a commission insurance salesman, was an “employee” for the purpose of ERISA.
Rule: Under ERISA, the common law test of agency will be used to determine whether workers are employees or independent contractors and not the broader definition under FLSA.
Procedural Result: Judgment reversed for defendant.
Holding: Darden, a commission insurance salesman, was probably not an “employee” for the purpose of ERISA, since the definition is based on traditional agency law principles.
Reasoning: Congress intended for an employee to fall under the conventional “master-servant” understanding of what an employee was, namely considering the hiring party’s right to control the manner and means by which the product is accomplished.
Secretary of Labor v. Lauritzen (7th Cir. 1987)
Procedure: District court granted partial summary judgment finding workers were employees.
Facts: Secretary of Labor brought action arguing that migrant workers who harvest pickles on defendant’s land were employees under FLSA and not independent contractors. The workers would pick the pickles by hand and get half the profits realized from the sale of the pickles. The workers would live on the land and work by their own schedule and plan. The defendant paid for all equipment and other aspects of growing the pickles.
Issue: Whether the district court was correct in finding that the migrant workers were employees under FLSA.
Rule: Employees are those who as a matter of economic reality are dependent upon the business to which they render service. Six factors must be analyzed:
1. Control – Nature and degree of the employer’s control as to the manner the work is performed
2. Profit and Loss – The alleged employee’s opportunity for profit depending upon his managerial skill
3. Investment – equipment or materials required for task or employment of workers
4. Skill – Does the service require a special skill
5. Permanency – Degree of permanency and duration of working relationship
6. Integral Part – Service is an integral part of employer’s business
Holding: The migrant workers are selling nothing but their labor. The defendants did not relinquish complete control of the farming operation. The loss would be minimal if the workers picked the wrong pickles. They have made no investment and not much skill is required. The workers are employees.
FedEx Home Delivery v. NLRB (D.C. Appeals 2009)
Procedure: NLRB determined that drivers for FedEx Home Delivery were employees of FedEx.
Facts: FedEx Home has independent contractor agreements with 4,000 contractors nationwide. The workers use personal vehicle with removable FedEx signs. The employees must comply with FedEx uniform policies. The workers wanted to negotiate with FedEx as a labor union and FedEx refused. The workers filed a complaint with the NLRB.
Issue: Whether the Board correctly determined that the single-route drivers were employees of FedEx.
Rule: The common law test of agency will be used to determine whether workers are employees or independent contractors.
Holding: Board’s decision vacated and NLRB’s cross-application for enforcement is denied.
Dissent: The majority decision changes the common law agency test to focus to only the entrepreneurial nature of the worker’s actions.
B. Employees or Employers?
Clackamas Gastroenterology Associates, P.C. v. Wells (U.S. 2003)
Facts: Deborah Wells worked for Clackamas Gastroenterology Associates, P.C. from 1986 until 1997. Wells filed suit, alleging that Clackamas Gastroenterology violated the ADA when it terminated her employment. Clackamas moved for summary judgment, arguing that it was not covered by the Act because it did not have 15 or more employees for the 20 weeks required by the ADA. This argument depended on the four physician-shareholders, who own the professional corporation and constitute its board of directors, not being counted as employees. In granting the motion, the District Court concluded that the physicians were more analogous to partners in a partnership than to shareholders in a corporation and therefore were not employees under the ADA. In reversing, the Court of Appeals found no reason to permit the professional corporation to argue it was a partnership so as to avoid employment discrimination liability.
Issue: Should four physicians actively engaged in medical practice as shareholders and directors of a professional corporation be counted as employees under the Americans with Disabilities Act of 1990?
Holding: In a 7-2 opinion delivered by Justice Stevens, the Court held that the common-law element of control is the principal guidepost to be followed in deciding whether the four director-shareholder physicians in this case should be counted as employees and listed six factors that are relevant to such a decision. “Because the District Court's findings appear to weigh in favor of concluding that the four physicians are not clinic employees, but evidence in the record may contradict those findings or support a contrary conclusion,” the Court remanded the case for a determination under the new standard. Justice Ginsburg, joined by Justice Breyer, dissented, arguing that the physician-shareholders function in several respects as common-law employees in their capacity as doctors performing everyday functions.
1. Whether the person can be fired
2. What extent the organization supervises the work
3. Whether the person reports to someone higher
4. Whether and to what extent the person influences the organization
5. Whether the parties intended the person to be an employee
6. Whether the person shares in the profits, losses, and
4. Position is still there – either remaining open or someone else filled the position
Holding: Supreme Court affirmed Court of Appeals and remanded for trial on discrimination claim. The Court’s decision eliminates the requirement of direct evidence of discrimination and allows plaintiffs to prove their case through circumstantial evidence.
Texas Dept. of Community Affairs v. Burdine (U.S. 1981)
Procedure: The District Court found that the decisions were not base on gender discrimination. The Executive Director of TDCA testified that the individuals fired did not work well together and aimed to prove efficiency. Further, he testified that the decisions were based on consultations with advisors and on non-discriminatory evaluations of qualifications. The Fifth Circuit Court of Appeals reversed finding that Defendant had the burden of proving by a preponderance of the evidence that non-discriminatory reasons existed for the actions.
Facts: Plaintiff, a female employee of the Texas Department of Community Affairs Public Service Careers Division, filed suit alleging gender discrimination. She was hired as an accounting clerk in 1972. After almost a year on the job, she applied for her supervisor’s position after he resigned. Plaintiff’s division was funded by the United States Department of Labor, which threatened to end funding because of inefficiencies. TDCA persuaded the Department to continue funding. The Department required a complete reorganization and the hiring of a permanent Project Director. A male from another division was hired for the Project Director over Plaintiff. She was also fired as part reducing staff. Plaintiff was rehired by TDCA for another division and received the same salary as she would have as Project Director. Plaintiff sued claiming the failure to promote and the termination were due to gender discrimination.
Issue: After plaintiff has proved a prima facie case of discriminatory treatment, does the burden shift to defendant to persuade the court by a preponderance of the evidence that legitimate nondiscriminatory reasons for the challenged employment action exist?
Rule: The plaintiff has the burden of establishing a prima facie case of discrimination, and if the defendant can articulate a legitimate nondiscriminatory reason for the conduct then the burden falls back to the plaintiff to prove by a preponderance of the evidence that the reasons put forth by the defendant were just a pretext for discrimination.
Holding: Justice Powell issued the opinion reversing the Court of Appeals and holding that after a plaintiff has proved a prima facie case, the defendant only need “explain clearly the nondiscriminatory reasons for its actions.”