Hunton Employment & Labor Perspectives

According to recent federal court decisions, a shareholder, director, or other individual holding a similar position in a corporation may find his or her job status disqualifies him or her from legal relief under many state and federal anti-discrimination laws should such individual believe that he or she has been the subject of unfair treatment in the workplace. In Kirleis v. Dickie, McCamey & Chilcote, P.C., No. 09-4498 (3rd Circuit July 14, 2010), the U.S. Court of Appeals for the Third Circuit affirmed a district court’s ruling that a law firm shareholder was not an “employee” of the professional corporation protected by federal and state anti-discrimination laws.

In Kirleis, Alyson J. Kirleis filed a lawsuit against Dickie, McCamey & Chilcote. P.C., the law firm in which she was a shareholder, claiming sex discrimination, sexual harassment, unequal pay, and retaliation under both federal and state anti-discrimination laws.  Among other things, Kirleis alleged that she received less pay than her male counterparts and that discriminatory and harassing comments were made to her during her employment with the firm.  Among other allegations, Kirleis alleged that she was informed that she should give up her shareholder status to spend more time with her children.  She also claimed that she was told that “gals” in the firm should do lower level legal tasks, while the male lawyers took such cases to trial. The U.S. District Court for the Western District of Pennsylvania granted summary judgment to the law firm, based on the threshold question of whether Kirleis was an “employee” protected under the federal and state laws, or an “employer” without such protections. The district court held that certain factors of Kirleis’s shareholder position disqualified her from protection as an “employee” as defined by the federal and state laws, including Title VII and the FLSA.

In making its decision, the district court relied upon the six factors set out in a 2003 U.S. Supreme Court decision, Clackamas Gastroenterology Associates, P.C. v. Wells, which the Court used to determine whether a shareholder-director of a professional corporation is an employee or employer for application of federal anti-discrimination laws.  The six factors were based on a standard defined by the Equal Employment Opportunity Commission and focused on the amount of control the employing entity had over the shareholder-directors at issue.

In affirming the district court’s decision, the Third Circuit agreed with the district court’s application of the Clackamas decision.  In particular the Court held that, because Kirleis was entitled to a percentage of the law firm’s profits and losses, could not be terminated from employment for cause without a three-fourths majority vote of the Board of Directors, and participated in firm governance, she was not a “mere employee” of the firm and therefore did not qualify for protection under federal and state anti-discrimination laws.