May 21, 2013

The Third Circuit recently established the standard for deciding whether a corporate officer can bring a Title VII action.

In Mariotti v. Mariotti Building Products, Inc., No. 11-3148 (3d Cir. April 29, 2013), Robert A. Mariotti, Sr., a founder of the company, its Vice-President and Secretary, a member of the Board of Directors and a Manager of one of the company’s divisions, filed a Title VII claim. According to Mariotti, he was harassed by other officers, directors and employees of the company due to his religious beliefs and, ultimately, terminated.  Nevertheless, he continued to receive payments as an owner of the business and served for a time on the Board of Directors.  The United States District Court for the Middle District of Pennsylvania dismissed Mariotti’s suit, holding that he could not bring a Title VII action because he was not an employee.

On appeal, the Third Circuit held that the analysis turns on the extent of the person’s control over the business and the source of the person’s authority to exercise control.  Among the factors to be considered in this analysis are:

1. Whether the organization can hire or fire the individual or set rules and regulations of the individual’s work;
2. Whether, and to what extent, the organization supervises the individual’s work;
3. Whether the individual reports to someone higher in the organization;
4. Whether, and 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; and
6. Whether the individual shares in the profits, losses and liabilities of the organization.

Therefore, in determining whether a plaintiff is an employee or an employer for purposes of Title VII, the focus is on the authority that the individual wields in the organization and whether that individual exercises such authority by right or at the pleasure of others. Applying these principles here, the Third Circuit acknowledged that the allegations contained in Mariotti’s complaint demonstrated that his status as a Shareholder, Director and Corporate Officer gave him both substantial authority at the company and the right to control the enterprise.

In light of the Third Circuit’s decision in Mariotti, employers should consider memorializing the following factors as they relate to corporate officers:

1. Whether the individuals are at-will employees or can only be terminated for cause;
2. The extent to which these individuals share in the company’s profits, losses or liabilities;
3. The extent to which others in the company can control or supervise the work that is done by these individuals;
4. Whether these individuals must report to others in the organization;
5. The authority and control these individuals have over business decisions and how the company is operated;
6. Whether decisions made by these individuals are subject to review and approval by others and, if so, who;
7. What benefits, if any, these individuals will continue to receive if the employment relationship is terminated; and
8. The extent to which these individuals will continue to exercise control over the company if the employment-relationship is terminated.

Employers should be mindful that to the extent they can demonstrate that a corporate officer exercised control over the organization and influenced its performance and activities, a court will be more likely to hold that the corporate officer is not an employee and therefore, cannot sustain a Title VII cause of action against the business.