Arbaugh v. Y & H Corporation , 446 F.3d 573 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED AUGUST 18, 2004
August 02, 2004
UNITED STATES COURT OF APPEALS
For the Fifth Circuit Charles R. Fulbruge III
Clerk
No. 03-30365
JENIFER ARBAUGH,
Plaintiff-Appellant,
VERSUS
Y&H CORPORATION, doing business as The Moonlight Café;
and YALCIN HATIPOGLU,
Defendants-Appellees.
Appeal from the United States District Court
For the Eastern District of Louisiana, New Orleans
Before EMILIO M. GARZA, DeMOSS, and CLEMENT, Circuit Judges.*
DeMOSS, Circuit Judge:
Jenifer Arbaugh filed suit against Y&H Corporation (“Y&H”) and
Yalcin Hatipoglu (collectively, “Defendants”), in November 2001,
asserting claims under both Title VII of the Civil Rights Act of
1964 and Louisiana state tort law. After a two-day jury trial in
October 2002, a verdict was returned in favor of Arbaugh. In
November 2002, Defendants filed a motion to dismiss, contending
that Y&H did not qualify as an “employer” under 42 U.S.C.
*
Emilio M. Garza, Circuit Judge, concurring in the judgment
only.
§ 2000e(b) because it did not employ 15 or more employees for 20 or
more calendar weeks during the relevant time period. The district
court ordered both parties to conduct post-trial discovery on the
issue. In March 2003, the district court converted the motion to
dismiss to a motion for summary judgment. Thereafter, in April
2003, the district court entered an order vacating and reversing
Arbaugh’s jury verdict and judgment based upon the determination
that the court did not have subject matter jurisdiction. Arbaugh
filed a timely notice of appeal.
BACKGROUND AND PROCEDURAL HISTORY
Jenifer Arbaugh was employed as a bartender and waitress at
the Moonlight Café, a New Orleans restaurant, from May 2000 until
February 2001. During this time, Arbaugh alleges that Hatipoglu,
one of Y&H’s owners, continually subjected her to a sexually
hostile environment. On November 8, 2001, Arbaugh filed suit in
federal district court, in Louisiana, asserting claims against Y&H
(the operator of the Moonlight Café) and Hatipoglu. Arbaugh
alleged sexual harassment in violation of Title VII in addition to
state tort law claims. Arbaugh asserted in her complaint that the
court had subject matter jurisdiction over her Title VII claim
pursuant to 28 U.S.C. § 1331, which confers federal question
jurisdiction.1 Arbaugh further stated in her complaint that she
1
Arbaugh also averred that the court had supplemental
jurisdiction over her state law claims pursuant to 28 U.S.C.
§ 1367.
2
had satisfied the Title VII prerequisite for filing a charge with
the Equal Employment Opportunity Commission (“EEOC”) and received
a “Right to Sue” notice less than 90 days prior to filing her suit
in district court.
The parties consented to have the matter heard before a
magistrate judge pursuant to 28 U.S.C. § 636(c).2 Over the course
of two days in October 2002, the parties presented evidence to a
jury. The jury returned a verdict in favor of Arbaugh, awarding
her $5000 in back-pay, $5000 in compensatory damages, and $30,000
in punitive damages. The district court entered final judgment for
Arbaugh on November 5, 2002. On November 19, 2002, Defendants
filed a motion pursuant to Fed. R. Civ. P. 12(h)(3), in which they
sought to dismiss the case for lack of subject matter jurisdiction.
Specifically, Defendants argued that during the relevant years
Arbaugh was employed there, the Moonlight Café did not employ 15 or
more employees for 20 calendar weeks, thus exempting it from Title
VII coverage. In March 2003, the district court converted
Defendants’ motion to dismiss to a motion for summary judgment and
ordered both parties to conduct additional post-trial discovery and
submit supplemental memoranda to support their respective
positions.
On April 4, 2003, the district court granted Defendants’
2
This opinion will refer to the magistrate judge as the
district court and her rulings as decisions issued by the district
court.
3
motion and vacated and reversed Arbaugh’s jury verdict and
judgment. In its order and reasons, the district court determined
that Defendants did not employ the requisite 15 or more persons
during the relevant time periods, explaining that this calculation
was exclusive of Y&H’s delivery drivers, the two owners of Y&H, and
their wives. The district court noted in its order that had the
delivery drivers, the two owners, or their wives counted as
employees, Defendants would have been subject to the statutory
framework of Title VII. Arbaugh timely filed the instant appeal.
STANDARD OF REVIEW
We review dismissals for lack of subject matter jurisdiction
de novo, using the same standards as those employed by the lower
court. Beall v. United States, 336 F.3d 419, 421 (5th Cir. 2003);
McAllister v. FDIC, 87 F.3d 762, 765 (5th Cir. 1996). We must take
as true all of the complaint's uncontroverted factual allegations.
John Corp. v. City of Houston, 214 F.3d 573, 576 (5th Cir. 2000).
Likewise, this court reviews grants of summary judgment de novo,
applying the same standard as the district court. Tango Transp. v.
Healthcare Fin. Servs. LLC, 322 F.3d 888, 890 (5th Cir. 2003).
Summary judgment is appropriate if no genuine issue of material
fact exists and the moving party is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(c). The court views the evidence
in a light most favorable to the non-movant. Coleman v. Houston
Indep. Sch. Dist., 113 F.3d 528, 533 (5th Cir. 1997). The non-
4
movant must go beyond the pleadings and come forward with specific
facts indicating a genuine issue for trial to avoid summary
judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). A
genuine issue of material fact exists when the evidence is such
that a reasonable jury could return a verdict for the non-movant.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary
judgment is appropriate, however, if the non-movant "fails to make
a showing sufficient to establish the existence of an element
essential to that party's case." Celotex, 477 U.S. at 322.
DISCUSSION
I. Whether the district court erred in ruling that the number of
Defendants’ employees determined subject matter jurisdiction
rather than an issue going to the merits.
Arbaugh argues that the threshold issue is not whether Y&H
employed 15 or more employees during the relevant time period, but
rather whether the employee census finding is relevant to subject
matter jurisdiction or whether that determination goes to the
merits of the case. Arbaugh argues that while the Fifth Circuit
has concluded this issue determines subject matter jurisdiction,
this court’s rulings do not provide an explanation supporting its
conclusion.
Noting a circuit split on this issue, Arbaugh cites the Second
Circuit for its observation that:
Whether a disputed matter concerns jurisdiction or the
merits (or occasionally both) is sometimes a close
question. Court decisions often obscure the issue by
stating that the court is dismissing "for lack of
5
jurisdiction" when some threshold fact has not been
established, without explicitly considering whether the
dismissal should be for lack of subject matter
jurisdiction or for failure to state a claim.
Da Silva v. Kinsho Int’l Corp., 229 F.3d 358, 361 (2d Cir. 2000).
Arbaugh relies also on the Seventh Circuit’s determination
that a plaintiff who files a non-frivolous suit in federal court
without more imparts the court with subject matter jurisdiction.
Sharpe v. Jefferson Distrib. Co., 148 F.3d 676, 677 (7th Cir.
1998), abrogated on other grounds, Papa v. Katy Indus., Inc.,
166 F.3d 937, 939-40 (7th Cir. 1999). Finding that “[a]
plaintiff’s inability to demonstrate that the defendant has 15 or
more employees is just like any other failure to meet a statutory
requirement,” the Seventh Circuit opined: “Surely the number of
employees is not the sort of question a court (including [an]
appellate court) must raise on its own, which a ‘jurisdictional’
characterization would entail.” Sharpe, 148 F.3d at 677-78.
Arbaugh contends that because she presented to the district court
a non-frivolous claim based in part on federal law, without
demonstrating anything more, this court is vested with subject
matter jurisdiction.3 Arbaugh suggests that because this court has
3
Arbaugh also raises judicial economy considerations, noting
that the lack of subject matter jurisdiction may be raised at any
time, even after a trial on the merits has concluded. She asserts
that not only does this circumstance create a waste of judicial
resources, but it also presents a situation where a plaintiff’s
state law claims may be time-barred.
In Jinks v. Richland County, S.C., 538 U.S. 456, 462-65
(2003), however, the Supreme Court recently confirmed the
constitutionality of 28 U.S.C. § 1367(d), which provides that state
6
not examined the census/jurisdiction issue sufficiently, we should
adopt the well-reasoned approach that the Second, Seventh, and
Federal Circuits have followed, and likewise conclude that the
census issue goes to the merits of an employment discrimination
case.
Defendants, on the other hand, simply argue that we must
adhere to our Circuit precedent, established in Dumas v. Town of
Mt. Vernon-Alaska, 612 F.2d 974, 980 (5th Cir. 1980), and followed
by Womble v. Bhangu, 864 F.2d 1212, 1213 (5th Cir. 1989), and
Greenlees v. Eidenmuller Enters., Inc., 32 F.3d 197, 198 (5th Cir.
1994), that a failure to qualify as an “employer” under Title VII
deprives a district court of subject matter jurisdiction.
Defendants contend that while the Second, Seventh, and Federal
Circuits view the statutory definition of an employer as an issue
which goes to the merits of the case, the Fifth Circuit is joined
by five other circuits in concluding otherwise. Specifically, the
Fourth, Hukill v. Auto Care, Inc., 192 F.3d 437, 441-42 (4th Cir.
1999), the Sixth, Armbruster v. Quinn, 711 F.2d 1332, 1335 (6th
Cir. 1983), the Ninth, Childs v. Local 18, Int’l Bhd. of Elec.
Workers, 719 F.2d 1379, 1382 (9th Cir. 1983), the Tenth, Owens v.
law claims before a federal court pursuant to supplemental
jurisdiction are tolled during the pendency of the federal suit.
See 28 U.S.C. § 1367(d)(2000). Specifically, section 1367(d)
declares that such state law claims “shall be tolled while the
[federal] claim is pending and for a period of 30 days after it is
dismissed unless State law provides for a longer tolling period.”
Id. § 1367(d).
7
Rush, 636 F.2d 283, 287 (10th Cir. 1980), and the Eleventh Circuit,
Scarfo v. Ginsberg, 175 F.3d 957, 960 (11th Cir. 1999), have all
concluded that the “employer” definition creates a jurisdictional
requirement.
In an attempt to circumvent the Dumas/Womble/Greenlees line of
cases, Arbaugh cites Clark v. Tarrant County, Texas, 798 F.2d 736,
741-42 (5th Cir. 1986), in which this court held that where
questions concerning subject matter jurisdiction are intertwined
with the merits, a Title VII claim should not be dismissed for lack
of subject matter jurisdiction unless the claim is frivolous or
clearly excluded by prior law. In Clark, the district court
granted the defendants’ motion for summary judgment, finding that
the plaintiffs’ employment positions came within the personal staff
exemption of Title VII, thus nullifying the claim. Id. at 740. In
reversing the district court, the Clark court first determined that
subject matter jurisdiction and the merits are “considered
intertwined where the statute provides both the basis of federal
court subject matter jurisdiction and the cause of action.” Id. at
742 (citing Sun Valley Gas v. Ernst Enters., Inc., 711 F.2d 138,
139 (9th Cir. 1983)). The court in Clark concluded:
The determination of whether appellants come within an
exception of Title VII is intertwined with the merits of
the Title VII claim. Where the challenge to the court's
jurisdiction is also a challenge to the existence of a
federal cause of action, and assuming that the
plaintiff's federal claim is neither insubstantial,
frivolous, nor made solely for the purpose of obtaining
jurisdiction, the district court should find that it has
jurisdiction over the case and deal with the defendant's
8
challenge as an attack on the merits.
Id. (citation omitted).
However, we find the holding in Clark not to be controlling.
Clark was decided in 1986, approximately six years after this court
had previously issued its opinion in Dumas. Dumas involved a
determination of, inter alia, whether the defendants satisfied the
statutory definition of an “employer,” thus establishing a basis
for liability under Title VII. 612 F.2d at 979-80. After finding
that the defendants did not employ the requisite number of
employees during the relevant time periods, the Dumas court held
that “dismissal of the Title VII claims against [defendants] for
lack of subject matter jurisdiction was proper.” Id. at 980.
Because we are bound by our prior precedent, Arbaugh’s
argument that the census issue is not jurisdictional must fail. See
United States v. Lee, 310 F.3d 787, 789 (5th Cir. 2002) (citing
Martin v. Medtronic, Inc., 254 F.3d 573, 577 (5th Cir. 2001) ("[A]
panel of this court can only overrule a prior panel decision if
‘such overruling is unequivocally directed by controlling Supreme
Court precedent.’" (citation omitted)). We must adhere to the
well-established rule that “in the absence of a clearer statement
by the Supreme Court or en banc reconsideration of the issue, this
panel is bound by circuit precedent.” Allison v. Citgo Petroleum
Corp., 151 F.3d 402, 411 n.3 (5th Cir. 1998); see also Gandy v.
State of Ala., 569 F.2d 1318, 1325 n.11 (5th Cir. 1978) (“This
panel is bound by a prior panel's decision in the absence of
9
intervening en banc reconsideration or Supreme Court precedent.”)
(citation omitted). To the extent that Clark conflicts with our
long-standing precedent first enunciated in Dumas, it is not
binding precedent in this Circuit. Under our prior precedent rule,
“[o]ne panel of this Court cannot disregard the precedent set by a
prior panel, even though it conceives error in the precedent.
Absent an overriding Supreme Court decision or a change in the
statutory law, only the Court en banc can do this.” Davis v.
Estelle, 529 F.2d 437, 441 (5th Cir. 1976). Because the precise
issue before us was decided in Dumas six years before Clark, and
because Clark was neither a Supreme Court case nor an en banc
decision, we are bound by the holding in Dumas that the employee
census finding is determinative of subject matter jurisdiction.
II. Whether the district court erred in ruling that Defendants
employed fewer than 15 employees.
Having concluded that the employee census issue is
determinative of subject matter jurisdiction, we shift our analysis
to whether Defendants employed the requisite number of employees
during the relevant time periods. Arbaugh argues that the jury’s
verdict should be reinstated because Y&H did in fact employ 15 or
more employees during 2000 and 2001, maintaining that the delivery
drivers, the owners of Y&H, and their wives were Y&H’s employees.
1. The Drivers
Arbaugh contends that the district court erred in concluding
that the delivery drivers were not “employees” as defined by Title
10
VII. Arbaugh first directs us to evidence she presented to the
district court concerning the work schedules created by Defendants
in which the drivers were assigned schedules identical to those
maintained for other employees at the restaurant, i.e., the kitchen
and restaurant staff. Arbaugh notes that the drivers were paid
$4.00 per hour and were expected to work all of the hours in their
respective shifts. In addition, Arbaugh argues that the drivers,
like all other employees, used Defendants’ computer to record the
beginning and end of their shifts. She also presented evidence
that Defendants prohibited the drivers from performing work for any
other employer during their shifts, regardless of whether there
were orders to be delivered. Arbaugh points to evidence suggesting
that when drivers were not delivering orders, they were required to
perform other work at the restaurant, which included, inter alia,
cleaning, replenishing condiments, and helping prepare salads and
desserts to be included in home deliveries. Arbaugh concedes that
the drivers did not appear on the payroll records nor did they have
the proper tax deductions taken from their wages.
Defendants maintain that the drivers who delivered food for
Y&H were not “employees” for Title VII purposes, but rather
independent contractors. In support of their argument, Defendants
cite Broussard v. L.H. Bossier, Inc., 789 F.2d 1158, 1160 (5th Cir.
1986), and the “economic realities” test enunciated therein for
determining whether an individual is an employee under Title VII.
While we review a district court’s findings of fact for clear
11
error, we review a district court’s ultimate determination of
employee status de novo. Reich v. Circle C. Invs., Inc., 998 F.2d
324, 327 (5th Cir. 1993). We first observe that Title VII defines
an “employee” as “an individual employed by an employer.” 42 U.S.C.
§ 2000e(f) (2000) (pending legislation). Recognizing the
circularity in such a definition, the Supreme Court explained that
“when Congress has used the term ‘employee’ without defining it, we
have concluded that Congress intended to describe the conventional
master-servant relationship as understood by common-law agency
doctrine.” Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23
(1992) (citations and quotations omitted). The Fifth Circuit has
recognized that “whether a person is an employee under Title VII is
a question of federal law . . . to be ascertained through
consideration of the statutory language of the [Civil Rights] Act,
its legislative history, existing federal case law, and the
particular circumstances of the case at hand.” Broussard, 789
F.2d at 1159-60 (citation and quotations omitted).
It is well-settled in this Circuit that we determine whether
a plaintiff is an "employee" for Title VII purposes by applying the
hybrid economic realities/common law control test first advanced in
Spirides v. Reinhardt, 613 F.2d 826, 831 (D.C. Cir. 1979), and
first adopted by this Court in Mares v. Marsh, 777 F.2d 1066, 1067-
68 (5th Cir. 1985). See also Broussard, 789 F.2d at 1160. Although
other factors are relevant, the most important factor is "the
extent of the employer's right to control the 'means and manner' of
12
the worker's performance.” Bloom v. Bexar County, Tex., 130 F.3d
722, 726 (5th Cir. 1997) (citation omitted); see also Broussard,
789 F.2d at 1160. The factors pertinent to this inquiry include:
(1) ownership of the equipment necessary to perform the job;
(2) responsibility for costs associated with operating that
equipment and for license fees and taxes; (3) responsibility for
obtaining insurance; (4) responsibility for maintenance and
operating supplies; (5) ability to influence profits; (6) length of
the job commitment; (7) form of payment; and (8) directions on
schedules and on performing work. Broussard, 789 F.2d at 1160.
Citing the above factors, the district court found that all
eight factors weighed against a finding of control by Y&H. We
agree. We begin our review by noting that the parties do not
dispute that the first four Broussard factors support Defendants’
contention that Y&H did not exercise control over the delivery
drivers. Specifically, all of the drivers owned their own vehicles
necessary to make the deliveries for Y&H. The drivers were
responsible for all operating costs and for license fees and taxes,
as well as for obtaining and maintaining the proper insurance for
their vehicles. In addition, all drivers provided for the
maintenance and operating supplies associated with the care of
their vehicles.
With regard to the drivers’ ability to influence their
profits, there was testimony elicited at trial revealing that the
drivers were given at least two incentives to maximize the number
13
of deliveries they made, thereby increasing their income: an
incentive bonus based on the total dollar value of all deliveries
made during their shifts and the income from tips, of which they
received 100%.4 Therefore, the more deliveries a driver made
during a shift, the more money they could potentially earn, thus
enabling the driver to maximize their profits.
As for the length of the job commitment, the Broussard court
concluded the plaintiffs were not employees, finding it persuasive
that the plaintiffs worked “off and on” for a year and that they
also worked for nine other companies during this time. 789 F.2d at
1160. While the parties do not dispute that the drivers were
expected to work all of the hours in their respective shifts, there
is no evidence that the drivers were prohibited from working
elsewhere when not on duty at Y&H. At trial, testimony was
presented indicating that some of the drivers in fact worked other
jobs.
With respect to the form of payment, the drivers were paid
$4.00 per hour and retained 100% of the tips they received while
making deliveries. Most drivers earned the majority of their
income from tips. For tax purposes, the drivers were issued a Form
1099, as opposed to a Form W-2, which the kitchen and restaurant
staff received. While Y&H withheld the appropriate federal and
4
The drivers were also able to influence their profits by
controlling the expenses associated with the vehicle they chose to
drive and the amount they chose to spend on operation and
maintenance.
14
state income taxes and paid social security taxes on its kitchen
and restaurant staff, it did not do so with its delivery drivers.
The parties presented the district court with conflicting
evidence as to the direction Y&H provided the drivers as to both
their schedules and the performance of their duties. Arbaugh
maintained that Y&H, without input from the drivers, assigned the
drivers to specific work schedules which were identical to the
schedules it had for other employees. For purposes of establishing
that Defendants exercised control over the performance of the
drivers’ duties, Arbaugh submitted evidence that: (1) the drivers
used Y&H’s computer to record the start and finish times for their
shifts; (2) Defendants required the drivers to work solely for them
during the entirety of the their shifts regardless of whether there
were orders to deliver; (3) the drivers were responsible for
preparing condiments and salads to be included in the orders that
came into the restaurant; and (4) the drivers were required to
clean their work stations at the end of their shifts.
Conversely, Defendants contend that the schedule making was a
collaborative effort between Y&H and the drivers. Defendants
insist that the drivers would inform Y&H of the days and times they
could work, and based on that information, work schedules for the
drivers were prepared and posted. With respect to the control Y&H
had over the drivers’ performance, Defendants concede the four
points raised above by Arbaugh, but insist that: (1) during slow
periods the drivers would watch television; (2) the drivers never
15
waited on customers in the restaurant or performed any other duties
to assist in the operation of the restaurant; (3) once a driver
picked up an order from the kitchen for delivery, it was the
driver’s responsibility to determine the route and manner of
delivery; and (4) neither Hatipoglu nor Khaleghi supervised the
drivers while they made their deliveries.
The district court concluded that, even taking as true
Arbaugh’s version of the facts concerning the setting of the
schedules, the evidence failed to demonstrate that Y&H exercised
the requisite control over its delivery drivers. Specifically, the
district court found that Arbaugh “misunderstands the control
factor,” citing both Broussard and Cole v. Venture Transport, Inc.,
2000 WL 335743 (E.D. La. Mar. 30, 2000), in support of its
conclusion. In Cole, the district court found the plaintiff, who
contracted with the defendant to provide motor carrier transport to
the defendant’s customers, was not an employee of the defendant,
concluding:
Last, and most important, although Venture directed when
and where plaintiff picked up and delivered cargo,
plaintiff alone controlled the manner and means in which
she performed her work, including the method of
transport, the operation of her vehicle, the route
selected, and the selection, hiring and firing of
drivers.
2000 WL 335743, at *4. Likewise, in Broussard, this court
responded to a truck driver’s allegation that she was an employee
because of the extensive direction she received in terms of what to
do and when to do it, by stating, “[s]he misses the point: she does
16
not really claim direction on how to operate her truck.” 789 F.2d
at 1160 (emphasis added).
We agree with the district court. Reviewing the district
court’s factual findings for clear error, we conclude that the
district court engaged in a thoughtful, well-reasoned analysis in
determining that because the drivers controlled the manner and
means by which they operated their vehicles and selected their
routes, Y&H did not exercise a right of control over the drivers’
performance.
This Circuit has also recognized the additional factors
identified in Spirides that are relevant to this inquiry,
including:
(1) the kind of occupation, with reference to whether the
work usually is done under the direction of a supervisor
or is done by a specialist without supervision; (2) the
skill required in the particular occupation; (3) whether
the "employer" or the individual in question furnishes
the equipment used and the place of work; (4) the length
of time during which the individual has worked; (5) the
method of payment, whether by time or by the job; (6) the
manner in which the work relationship is terminated;
i.e., by one or both parties, with or without notice and
explanation; (7) whether annual leave is afforded;
(8) whether the work is an integral part of the business
of the "employer;" (9) whether the worker accumulates
retirement benefits; (10) whether the "employer" pays
social security taxes; and (11) the intention of the
parties.
Broussard, 789 F.2d at 1160 (quoting Spirides, 613 F.2d at 832).
The district court cites all Spirides factors as supporting its
conclusion that the drivers were not employees of Y&H. Again, we
agree.
17
It is clear that at least four of these factors weigh heavily
against a finding that the delivery drivers are employees,
including the fact that: (1) Y&H did not provide the equipment used
by the delivery drivers; (2) the delivery drivers did not receive
annual leave; (3) the delivery drivers did not accumulate
retirement benefits; and (4) Y&H did not pay the drivers’ social
security taxes. Also, as mentioned in our discussion of the
Broussard factors, there was insufficient evidence in the record
establishing that the delivery drivers operated under the direction
of a supervisor or that the method of payment was indicative of an
employer-employee relationship.
While it may be questionable as to whether any particular
“skill” is required in making the deliveries, this factor alone is
not dispositive. In addition, although the record demonstrates
that each party was capable of terminating the working
relationship, we find this determination to be inconclusive.
Finally, as to the intention of the parties, the record is void of
any type of employment agreement defining the relationship between
Y&H and the delivery drivers. In the absence of such
documentation, we look to the conduct of the parties in determining
their common intent. The parties’ relevant conduct reveals Y&H’s
non-withholding of taxes, its non-payment of social security taxes,
the drivers’ retention of the tips they earned, and the drivers’
payment of their automobile expenses, including mileage. This
evidence clearly supports the position that the parties did not
18
intend for there to be an employer-employee relationship.
In sum, determining whether an individual is an “employee” for
Title VII purposes is a fact-intensive inquiry, and as with most
employee-status cases, there are facts pointing in both directions.
Herman v. Express Sixty-Minutes Delivery Serv., Inc., 161 F.3d 299,
305 (5th Cir. 1998) (quotations omitted). However, in the instant
case, we are persuaded that the great majority of facts in the
record support the conclusion that the delivery drivers were not
employees of Y&H. Consequently, unless Y&H’s owners or their wives
are found to be employees, Y&H did not employ 15 or more employees
during the relevant time periods as required for establishing
liability under Title VII.
2. The Owners and Their Wives5
Arbaugh argues that the owners’ wives should be counted as
“employees” under Title VII, suggesting that the manner in which
they were treated by Y&H is evidence of the alleged employer-
employee relationship. Specifically, Arbaugh contends that this
evidence includes the fact that the wives: (1) received a salary
for their “advertising and publicity” work on behalf of the
restaurant; (2) were included on the payroll register; and (3) had
5
Arbaugh concedes that the Supreme Court’s recent decision in
Clackamas Gastroenterology Associates., P.C. v. Wells,538 U.S. 440,
449-51 (2003), in which it was determined that director-
shareholders of a medical clinic are not “employees” under the
Americans with Disabilities Act, strongly suggests that Hatipoglu
and Khaleghi themselves are not “employees.” As such, Arbaugh
focuses her appeal on the owners’ wives.
19
the proper taxes deducted from their wages. Arbaugh maintains that
because the wives performed services for Y&H and were compensated
for those services, the district court erred in not counting them
as employees. Defendants respond by insisting that the wives,
along with their husbands, are the owners of Y&H. As such,
Defendants argue that the wives cannot be counted as employees in
light of Supreme Court’s recent decision in Clackamas
Gastroenterology Associates., P.C. v. Wells, 538 U.S. 440(2003).
In Clackamas, decided after the district court issued its
order dismissing Arbaugh’s suit, the Supreme Court was faced with
whether, in the context of a discrimination suit filed against a
medical clinic, the director-shareholder physicians could be
counted as employees for purposes of determining whether the
professional corporation was subject to the Americans with
Disabilities Act. Id. at 442. The Court adopted the following six-
factor inquiry advanced by the EEOC as to whether a director-
shareholder is an employee:
[1] Whether the organization can hire or fire the
individual or set the rules and regulations of the
individual’s work;
[2] Whether and, if so, to what extent the organization
supervises the individual's work;
[3] Whether the individual reports to someone higher in
the organization;
[4] Whether and, if so, to what extent the individual
is able to influence the organization;
[5] Whether the parties intended that the individual be
an employee, as expressed in written agreements or
contracts;
[6] Whether the individual shares in the profits,
losses, and liabilities of the organization.
20
Id. at 449-50 (quotations and citation omitted). The Court
recognized that whether a director-shareholder is an employee
“depends on all of the incidents of the relationship . . . with no
one factor being decisive.” Id. at 451 (internal quotation marks
and citation omitted).
In its ruling, the district court, without the guidance of
Clackamas, observed again that this Circuit has adopted the
economic realities test to resolve whether a person is an employee
for purposes of Title VII. It was deduced that this Circuit would
look to the same test to determine whether a person is a partner or
an employee of a corporation. The district court first concluded
that Hatipoglu and Khaleghi themselves were not employees for Title
VII purposes. It found that Hatipoglu and Khaleghi were partners
who divided the profits and the responsibilities of running the
business equally. The district court also found convincing
Defendants’ argument that no one other than themselves had control
over all aspects of the business.
With regard to the two wives, the district court observed that
neither did any work at the restaurant. The only services
recognized by the district court were the occasional advertising
and promotional work they performed. The district court determined
that in applying all the factors of the economic realities test,
the only one favoring a finding of an employment relationship was
that social security taxes were paid on their income from the
business. The district court therefore concluded that the wives
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were passive partners rather than employees.
Applying the six-factor test established in Clackamas to the
facts in the instant case, we conclude that the district court
ultimately reached the correct result, albeit based on different
reasoning. First, it is unlikely that Y&H could hire or fire any
of these four individuals. Instead, Hatipoglu, Khaleghi, and their
respective wives are partners who, if it was decided that the
working relationship was unpalatable, would have to engage in a
dissolution process in accordance with the corporate structure
under which they were originally organized.6 Second, there is no
evidence demonstrating that the wives were supervised in their
advertising and promotional work, nor is there any indication that
they reported to anyone higher in the organization.
There is no evidence in the record as to whether either wife
had any influence over Y&H’s operations. With regard to the
intention of the parties, the wives were not designated as
employees either in written agreements or contracts. In fact,
there is no record evidence evincing any intended nature or scope
of employment. Finally, the record clearly establishes that the
wives, along with their husbands, shared alike in Y&H’s profits,
losses, and liabilities.
As such, although the district court did not have the
direction provided by Clackamas at the time it issued its order, we
6
Y&H was organized as a Subchapter S corporation.
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conclude that the district court nevertheless properly determined
that Hatipoglu, Khaleghi, and their respective wives should not be
counted as employees for purposes of determining Title VII
liability.
CONCLUSION
Having carefully reviewed the record of this case, the
parties' respective briefing and arguments, and for the reasons set
forth above, we find the district court properly followed our
Circuit precedent in concluding that the number of employees
determines a court’s subject matter jurisdiction in a suit filed
pursuant to Title VII. Second, the district court correctly
concluded that neither the delivery drivers, nor the owners of Y&H,
nor their wives should be counted as employees. While the district
court’s conclusion with regard to the owners and their wives was
based on the economic realities test, the same conclusion is
reached pursuant to the six-factor inquiry recently announced by
the Supreme Court in Clackamas. Because it is undisputed that Y&H
did not employ the requisite 15 employees without the inclusion of
the drivers, the owners, or their wives, Defendants are not subject
to liability under Title VII, and thus the district court properly
dismissed Arbaugh’s suit for lack of subject matter jurisdiction.
AFFIRMED.
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