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Small Business Owners: Can a Fellow Owner Sue Your Business Claiming Employment Discrimination?

May 6, 2013

By Scott J. Wenner

In a very recent opinion, the U.S. Court of Appeals for the Third Circuit answered the question with an emphatic (and lawyerly) . . . it depends!

The federal employment discrimination laws – Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, among others – prohibit discrimination in employment, which leads many to presume that if a person is not an employee of a business, that person is not protected from discrimination by that business on the basis of race, sex, age, religion, disability and other protected characteristics.  This may leave an impression on many smaller businesses with working owners that the business needn’t exercise care to avoid appearing to act or make decisions regarding their business partners in a manner that would violate laws against employment discrimination and harassment. The Third Circuit’s opinion in Robert A. Mariotti, Sr., v. Mariotti Building Products, Inc. (April 29, 2013) confirmed that owners of a close corporation or other small business entity sometimes may bring actions for employment discrimination, depending on the circumstances.

Relying on U.S. Supreme Court authority, in a slightly different context, and on EEOC guidelines on determining whether “partners, officers, members of boards of directors, and major shareholders qualify as employees[,]”, the court listed the following factors as relevant to this determination:

  • whether the organization can hire or fire the complainant or fix rules and regulations for the complainant’s work;
  • whether and to what extent the organization supervises the complainant’s work activities;
  • whether the complainant reports to someone higher in the organization;
  • whether and to what extent the complainant can influence the organization;
  • whether written agreements suggest that the parties intended the complainant to be an employee; and,
  • whether the complainant shares in the profits, losses, and liabilities of the business.

Conclusion

Based on these factors the court affirmed the lower court’s conclusion that the complaining owner was not an employee and could not sue. However, the Mariotti opinion illustrates that small business owners are not exempt from discrimination, harassment and retaliation lawsuits from other shareholders, officers, directors and partners who are found to function more like employees.   Guidance from corporate and/or employment law experts can help minimize the risk to a small business in these situations.  Schnader lawyers stand ready to provide creative solutions to these and other issues that arise for small businesses.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner,  chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

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