Farlow v. Wachovia Bank NC ( 2001 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JEWEL A. FARLOW, 
Plaintiff-Appellant,
v.
 No. 00-2251
WACHOVIA BANK OF NORTH
CAROLINA, N.A.,
Defendant-Appellee.

Appeal from the United States District Court
for the Middle District of North Carolina, at Greensboro.
N. Carlton Tilley, Jr., Chief District Judge.
(CA-98-479-1)
Argued: April 5, 2001
Decided: August 6, 2001
Before WIDENER and LUTTIG, Circuit Judges, and
Rebecca Beach SMITH, United States District Judge for the
Eastern District of Virginia, sitting by designation.
Affirmed in part, vacated in part, and remanded by published opinion.
Judge Widener wrote the opinion, in which Judge Luttig and Judge
Smith joined.
COUNSEL
ARGUED: Nancy Pulliam Quinn, THE QUINN LAW FIRM,
Greensboro, North Carolina, for Appellant. Mack Sperling,
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD,
2 FARLOW v. WACHOVIA BANK OF NORTH CAROLINA
L.L.P., Greensboro, North Carolina, for Appellee. ON BRIEF: James
P. Hutcherson, Vice President and Counsel, Legal Department,
WACHOVIA BANK OF NORTH CAROLINA, N.A., Winston-
Salem, North Carolina, for Appellee.
OPINION
WIDENER, Circuit Judge:
Jewel A. Farlow (Farlow) appeals the district court’s dismissal of
her discrimination claims under Title VII of the Civil Rights Act of
1964, 42 U.S.C. 2000e et seq. (1994 & 2000 Supp.), because she was
not an employee of Wachovia Bank of North Carolina (Wachovia).
We affirm the judgment of the district court as to Title VII, and we
remand to the district court with directions Farlow’s state-law claims.
I.
Farlow graduated from law school in 1988. Wachovia subsequently
employed her to represent it, while she was an associate in a Greens-
boro, North Carolina law firm. In February 1991, Farlow went into
private practice in Greensboro, and she continued to keep Wachovia
as a client. In 1993, Farlow and Wachovia discussed the possibility
of Farlow working as in-house counsel for Wachovia to handle recov-
ery and bankruptcy cases.
On October 5, 1993, Farlow completed a Wachovia employee
application form in which she disclosed that she was convicted of two
counts of misdemeanor larceny in 1982. Those convictions made it
unlawful for her to become an employee of Wachovia without Federal
Deposit Insurance Corporation (FDIC) approval.1 Farlow was aware
1
12 U.S.C. § 1829 (a)(1) (1989 & 2000 Supp.) states:
(a) Prohibition
(1) In general
Except with the prior written consent of the Corporation—
FARLOW v. WACHOVIA BANK OF NORTH CAROLINA 3
of this statute and knew that she could not become an employee
unless Wachovia received a waiver from the FDIC.2
The parties nonetheless proceeded with their working relationship,
and Farlow moved on-site with Wachovia in Winston-Salem where
she worked from March 1994 to December 1994. When she moved
on-site, Farlow closed her private office in Greensboro in March
1994. The parties subsequently entered into a written contract exe-
cuted on September 19, 19943 for legal services for Wachovia in
(A) any person who has been convicted of any criminal
offense involving dishonesty or a breach of trust, or money
laundering or has agreed to enter into a pretrial diversion or
similar program in connection with a prosecution for such
offense, may not—
(i) become, or continue as, an institution-affiliated party
with respect to any insured depository institution;
(ii) own or control, directly or indirectly, any insured
depository institution; or
(iii) otherwise participate, directly or indirectly, in the
conduct of the affairs of any insured depository institu-
tion; and
(B) any insured depository institution may not permit any
person referred to in subparagraph (A) to engage in any con-
duct or continue any relationship prohibited under such sub-
paragraph.
2
Farlow specifically stated:
They could not officially, quote, put me on the payroll or offi-
cially give me any benefits until that FDIC waiver. They could
not do that . . . . I mean, they couldn’t make it on their record
that I was an employee until the FDIC waiver.
Wachovia could not officially put me on the books or have it
known that I was an employee there until that waiver came
through.
3
This contract was placed in the record with an affidavit of Kenneth
W. McAllister, a senior vice president and general counsel of Wachovia.
The affidavit stated that McAllister had personal knowledge of the mat-
4 FARLOW v. WACHOVIA BANK OF NORTH CAROLINA
bankruptcy, debt collection and such matters that provided that Far-
low was an independent contractor.4 It was the intent of the parties
that Farlow would not be considered an employee unless the FDIC
waiver was obtained. At oral argument, we were told without refuta-
tion that a waiver was never sought for Farlow. Wachovia never sent
her an official offer letter detailing her position, salary, and benefits.
Wachovia did not keep a personnel file on her, and Farlow never
completed federal and state withholding forms, a fidelity bond appli-
cation, the Form I-9 (an immigration status form), a form acknowl-
edging receipt of Wachovia’s Code of Conduct, or the supplemental
personal data form listing contact and other information that all
Wachovia employees complete and that would be contained in the
personnel file. Additionally, during that 10-month relationship with
Wachovia, she continued to work with clients obtained from her sole
practice as well as to take on new, non-Wachovia clients.
The money paid to Farlow by Wachovia was reported to the Inter-
nal Revenue Service (IRS) with a 1099 form rather than a W-2 form.5
ters contained in the affidavit, which would make it comply with Fed. R.
Civ. P. 56(e). The contract is signed by one G. Jerry Venable, an officer
of the bank, and by the plaintiff, Farlow, and is dated September 19,
1994, some months after Farlow moved her office into the bank building.
In her deposition, Farlow freely admits signing the contract but then,
remarkably, states that "To the best of my knowledge" the bank did not
execute the contract until after she was "no longer employed by Defen-
dant," this in an apparent effort to avoid the consequences of the con-
tract. Because Rule 56(e) requires supporting and opposing affidavits to
be "made on personal knowledge," as the record stands in this case, the
contract was signed by Wachovia and Farlow on September 19, 1994, as
it shows on its face.
4
This contract for legal services recites that "Wachovia desires to
retain the services of the Attorney as an independent, professional con-
tractor . . . ." Article I states that "Wachovia hereby engages the Attorney
as an independent professional." Article 2(F) states that "The Attorney
shall in no way be considered or act in such manner so that she might
be considered to be an employee or an agent of Wachovia. . . ." Article
6 states that "The Attorney will not be considered an employee of
Wachovia or any of its subsidiary companies for any purpose."
5
Form 1099 is used for reporting the income of non-employees, and
the W-2 form is used for reporting the income of employees.
FARLOW v. WACHOVIA BANK OF NORTH CAROLINA 5
She was never paid a salary during her 10 months there; while
employees are paid twice monthly, she was paid for the bills she sub-
mitted. She did not receive business cards, and the letterhead she used
designated that she was merely an Attorney-at-Law. Farlow was,
however, provided with on-site office space, support staff, equipment,
the use of company vehicles, and was paid for continuing education
matters. Wachovia also exercised control over the hours that she had
access to her office. Farlow did not receive benefits such as paid
vacation, long-term disability insurance, business travel and accident
insurance, life insurance; nor did she partake in Wachovia’s retire-
ment savings and profit-sharing plan, or its common stock purchase
plan.
After working at Wachovia for a period of months, Farlow com-
plained about a sexually and racially hostile work environment. She
was terminated, effective December 21, 1994. Upon termination, Far-
low submitted a request for payment for her services while employed
there. Wachovia paid part of the request.
Farlow subsequently filed suit in North Carolina state court on May
1, 1998. The Complaint alleged four causes of action: 1) under Title
VII of the Civil Rights Act of 1964, the creation of a racially and sex-
ually hostile work environment and Title VII retaliation; 2) failure to
pay wages due; 3) punitive damages; and 4) a request for injunctive
relief. Wachovia removed the case to the Middle District of North
Carolina based on federal question jurisdiction. Wachovia filed an
answer, which denied that Farlow was an employee, and counter-
claimed for a return of money paid to her. Farlow filed an answer to
the counterclaim. Discovery was bifurcated to address initially Far-
low’s employment status. At the close of discovery, Wachovia filed
a Motion for Summary Judgment, and on August 31, 2000, the district
court dismissed her claims in entirety because she was not an
employee. Farlow timely appealed.
II.
We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and review
a district court’s grant of summary judgment de novo. See United
States v. Kanasco, Ltd., 123 F.3d 209, 210 (4th Cir. 1997). The mov-
ing party must demonstrate the absence of a genuine issue of material
6 FARLOW v. WACHOVIA BANK OF NORTH CAROLINA
fact and that it is entitled to judgment as a matter of law. See Fed. R.
Civ. P. 56; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). We consider the facts in the light most favorable to the non-
moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986). The facts with respect to the employment relationship are not
materially in conflict. Resolution of factors as "to whether an employ-
ment relationship or an independent contractor relationship was cre-
ated" is "a question of law." Cilecek v. Inova Health Systems Servs.,
115 F.3d 256, 261 (4th Cir. 1997). Merely because employee and
independent contractor status is each supported by certain factors
does not bar entry of summary judgment. Whether a person is an
employee depends on the common law of agency definition of
employee. Cilecek, 115 F.3d at 259, 261-63.
Farlow appeals the district court’s grant of summary judgment to
Wachovia on her Title VII claim and argues she was employed by
Wachovia. Wachovia argues that Farlow was merely an independent
contractor and thus Title VII is not applicable. Each side concedes
that Title VII only applies if Farlow was an employee of Wachovia.6
See 42 U.S.C. § 2000e(f) (defining "employee" as "an individual
employed by an employer"); Cilecek, 115 F.3d at 263. The Supreme
Court has outlined several factors that a court should consider to
determine whether a party is an employee or independent contractor:
In determining whether a hired party is an employee under
the general common law of agency, we consider the hiring
party’s right to control the manner and means by which the
product is accomplished. Among the other factors relevant
to this inquiry are the skill required; the source of the instru-
mentalities and tools; the location of the work; the duration
of the relationship between the parties; whether the hiring
party has the right to assign additional projects to the hired
party; the extent of the hired party’s discretion over when
and how long to work; the method of payment; the hired
party’s role in hiring and paying assistants; whether the
work is part of the regular business of the hiring party;
whether the hiring party is in business; the provision of
6
Neither party disputes that Wachovia is within the definition of
employer under Title VII. See 42 U.S.C. § 2000e(b).
FARLOW v. WACHOVIA BANK OF NORTH CAROLINA 7
employee benefits; and the tax treatment of the hired party.
No one of these factors is determinative.
Community for Creative Non-Violence v. Reid, 490 U.S. 730, 751-52
(1989) (citations and footnotes omitted). We recently applied these
factors in Cilecek and added that the parties’ beliefs regarding the
nature of the employment relationship are significant. See 115 F.3d
at 259-63.
The district court methodically addressed each of the Reid factors
and counted factors in favor of Farlow when they were unclear. For
our purposes here, we highlight several of the more pertinent factors
implicated by the facts of this case. The touchstone inquiry enunci-
ated in Reid addresses the degree of the "hiring party’s right to control
the manner and means by which the product is accomplished." Reid,
490 U.S. at 751. The degree of control considers the degree of control
of the professional services rendered rather than "‘peripheral, admin-
istrative details which were incidental to the rendering of . . . ser-
vices.’" Robb v. United States, 80 F.3d 884, 889 (4th Cir. 1996)
(quotations omitted). In this case, Farlow has not presented evidence
suggesting that she was under the direct control of any Wachovia
supervisor regarding the performance of her professional services.
Farlow stated that her non-lawyer supervisor, Jerry Venable, "did not
tell me what the law was." Indeed, this conduct was consistent with
the language of the contract for legal services Farlow signed,
"Wachovia shall not exert any control, direction, or supervision over
the Attorney with regard to the manner, details, or means through
which she renders such services."
Farlow has, however, presented evidence that she was required to
attend staff meetings, comply with a dress code, and told the hours
that her office was available. Although she was required to comply
with these administrative details suggesting she was an employee, the
lack of oversight in the actual rendering of her skilled, professional
services weighs in favor of finding that Farlow was an independent
contractor despite the administrative oversight. See Eyerman v. Mary
Kay Cosmetics, Inc., 967 F.2d 213, 218-19 (6th Cir. 1992). However,
as we noted in Cilecek, if the nature of the profession, such as medi-
cine, or in this case, the law, mandates less control by supervisors,
this lack of control may not be as significant in this context as it
8 FARLOW v. WACHOVIA BANK OF NORTH CAROLINA
would be in other service relationships. See Cilecek, 115 F.3d at 260.
Thus, we also look to other more relevant factors outlined below.
We next consider the source of the instrumentalities and the loca-
tion of work under Reid. In general, when equipment is furnished dur-
ing a working relationship and work is done on-site, these facts tend
to favor an employment rather than independent contractor relation-
ship. See Kirk v. Harter, 188 F.3d 1005, 1009 (8th Cir. 1999). Farlow
contends that she was provided with a car and a Wachovia computer7
on the Wachovia premises to do her work. Wachovia also provided
Farlow with administrative assistants.8 These facts suggest that Far-
low was an employee, although we note that independent contractors
at Wachovia often are provided with equipment and office space dur-
ing their working relationship. On the other hand, Wachovia did not
provide Farlow with other identifying marks that would normally be
provided to employees, such as business cards, letterhead, and mal-
practice insurance. Despite the ambiguity on this factor, we will count
it toward finding that Farlow was an employee.
We next address the duration of the working relationship. The
duration of the relationship of the parties, when viewed in the context
of the written contract signed by Farlow in this case, suggests an inde-
pendent contractor relationship was intended by the parties. See
Cilecek, 115 F.3d at 262 ("[T]hat the relationship was an enduring
one might suggest the regularity inherent in an employment relation-
ship."). Prior to working on-site, Farlow worked remotely for several
years for Wachovia, which clearly suggests an independent contractor
relationship. When she moved on-site, she worked a total of 10
months for Wachovia. This duration, coupled with the move to
Wachovia’s premises, is some indication that an employment rela-
tionship was intended. However, in Cilecek, we held that the parties’
7
There is a dispute about whether Farlow’s or Wachovia’s computer
was used by Farlow. We assume, for purposes of the motion for sum-
mary judgment, that Wachovia provided Farlow with a computer.
8
Wachovia provided temporary assistants to Farlow because she
expressed concerns about Wachovia employees providing services on
matters involving her other non-Wachovia clients. In addition, the con-
tract for legal services stated that she should hire her own assistants.
FARLOW v. WACHOVIA BANK OF NORTH CAROLINA 9
actual understanding of their working relationship is another factor to
consider in this determination. See 115 F.3d at 261.
Importantly, the facts of this case suggest that Farlow knew she
could not be an employee of Wachovia without FDIC approval
because of her past criminal history. In this regard, she knew that no
waiver was in fact granted, and she signed a contract for legal ser-
vices that repeatedly indicated her status as an independent contractor.
Wachovia’s actions upon Farlow’s employment are consistent with
this understanding: no offer letter was sent and no personnel file was
created or maintained for Farlow. Although the intent may have been
to have her ultimately become an employee, the facts show that this
could not occur until an FDIC waiver was obtained. Thus, we place
great weight on the actual understanding between the parties and find
that this factor weighs heavily in favor of treating Farlow as an inde-
pendent contractor.
We also note, especially, that Wachovia did not preclude Farlow
from representing former clients and from gaining new, non-
Wachovia clients during her time working with Wachovia. For a law-
yer, this clearly signifies the lack of an in-house counsel, or employ-
ment, relationship. The contract for legal services Farlow signed
provided that she could represent other clients. Moreover, the record
reflects that Farlow did have an active practice, representing more
than 30 clients, during the time period she worked with Wachovia,
and she admitted that she took on new clients during the 10-month
relationship with Wachovia. Wachovia does not permit its lawyer
employees to represent outside clients. These facts also strongly sug-
gest that Farlow was an independent contractor rather than an
employee. See Cilecek, 115 F.3d at 261 (addressing whether
employer had the right to "preclude the [alleged employee] from
working at other facilities or for competitors").
The Reid Court also highlighted several factors relating to the
financial relationship between the parties including the tax treatment
of the worker, employee benefits, and how the worker was paid. We
hold that these financial factors are significant in determining a work-
er’s status. See Aymes v. Bonelli, 980 F.2d 857, 863 (2d Cir. 1992)
(stating that "every case since Reid that has applied the test has found
the hired party to be an independent contractor where the hiring party
10 FARLOW v. WACHOVIA BANK OF NORTH CAROLINA
failed to extend benefits or pay social security taxes"). The failure of
an employer to extend employment benefits or to pay any payroll
taxes is "highly indicative" that the employee is an independent con-
tractor. Aymes, 980 F.2d at 862. A party’s tax and benefit treatment
can be "virtual admissions" of the party’s status. See Aymes, 980 F.2d
at 862. In addition, the "absence of regular, periodic payments is an
indicia of independent contractor status." Kirk v. Harter, 188 F.3d
1005, 1008 (8th Cir. 1999).
In this case, Wachovia did not withhold taxes from Farlow’s pay
and did not pay Social Security tax thereupon. Significantly, as noted,
it reported her earnings to the IRS on a Form 1099 rather than the W-
2 form, and Farlow herself candidly admitted that she was self-
employed to the IRS on the relevant tax returns. Moreover, Farlow
did not receive paid vacation, long-term disability insurance, business
travel and accident insurance, life insurance, partake in Wachovia’s
retirement savings and profit-sharing plan, or its common stock pur-
chase plan. She did not even have a checking account at Wachovia,
which Wachovia requires of its employees. Additionally, she was not
paid weekly, bi-weekly, or on any schedule as other employees are
paid; rather, she submitted bills for hours worked based on a $41 per-
hour-rate after over 10-months of work and was paid in response to
those bills. These facts are quite significant regarding her status as an
independent contractor rather than an employee, and we place great
weight on them.
Upon review of all of these factors, it is clear that, although some
may weigh in favor of a finding that Farlow was an employee, the
vast majority of them, including the most significant, weigh in favor
of the conclusion that Farlow was an independent contractor. We
place greater weight on: 1) the financial relationship between the par-
ties in which she was paid not a salary but only in response to her
bills, for services actually rendered; 2) the financial relationship
between the parties in which Wachovia did not withhold or pay any
taxes that are incident to an employment relationship; 3) the financial
relationship between the parties in which Farlow did not receive
employee benefits such as medical and life insurance; 4) Farlow’s fil-
ing of income tax returns under a self-employed status; 5) the express
intent of the parties as indicated in the contract Farlow signed labeling
her as an independent contractor; 6) that Farlow did not work exclu-
FARLOW v. WACHOVIA BANK OF NORTH CAROLINA 11
sively for Wachovia during her working relationship with it; and (7)
that Wachovia exercised no control over the manner of her work.
These factors demonstrate that Farlow exercised independence from
Wachovia. Although Wachovia did provide Farlow with instrumental-
ities such as a computer and did exercise control over some adminis-
trative details incident to her on-site work, such as monitoring her
dress code, supplying some support staff, and controlling the hours
she could use her office, when balanced against the clear intent of the
parties and the striking economic realities surrounding the working
relationship in this case, we conclude that the district court was cor-
rect, as a matter of law, in holding that Farlow was an independent
contractor for Wachovia, and not its employee. We thus affirm that
aspect of the decision of the district court.
III.
We next address Farlow’s claim that the district court erred in dis-
missing her state-law claims. The judgment of the district court dis-
missed the case in its entirety, which would have included the state-
law claims, and under Rule 41(b) of the Federal Rules of Civil Proce-
dure, such dismissal would have been a decision on the merits. The
district court, however, had not considered the state-law claims, so the
dismissal of them on the merits was error for that reason.
In United Mine Workers of America v. Gibbs, 383 U.S. 715 (1966),
the predecessor of 28 U.S.C. § 1367, the 1990 statute with respect to
supplemental jurisdiction, the Court, although not denying the right
of the district court to decide pendent claims, stated that "Certainly,
if the federal claims are dismissed before trial, even though not insub-
stantial in a jurisdictional sense, the state claims should be dismissed
as well." Gibbs, 383 U.S. at 726. Following Gibbs, the Court decided
in Carnegie-Mellon University v. Cohill, 484 U.S. 343, 357 (1988),
that, in a case in which the federal claims had been deleted from the
complaint by the plaintiff, before trial, following a removal from a
state court, the district court had the discretion to remand the pendent
state-law claims to the state court.
The upshot of applying Gibbs, Cohill and § 1367 to this case is that
on remand, the district court has the discretion either to dismiss the
pendent state-law claims without prejudice, remand the state-law
12 FARLOW v. WACHOVIA BANK OF NORTH CAROLINA
claims to the state court, or decide the merits of the state-law claims
if it believes it should not follow the statement we have quoted from
Gibbs.
The counterclaim of Wachovia, which was filed after removal,
being based solely on the ground of excessiveness of fees charged, is
a state-law claim. If the district court should elect to decide the pen-
dent or supplemental claims, it should dispose of, in that proceeding,
the counterclaim also. If the district court elects to remand the case
to the state court, it should dismiss the counterclaim without prejudice
prior to the remand so that Wachovia may reassert the same in the
state court should it be so advised. Should the district court elect to
dismiss the state-law claims, that dismissal should be without preju-
dice.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED WITH INSTRUCTIONS