Opinion
Civil Action No: 01-3376
April 2, 2003
ORDER AND REASONS
Before the undersigned is the motion of the defendants, YH Corporation ("YH"), the operator of the Moonlight Café, and Yalcin Hatipoglu ("Hatipoglu"), one of YH's shareholders, to dismiss for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(h)(3). The motion was converted to a motion for summary judgment, pursuant to Fed.R.Civ.P. 56. For the following reasons, the motion is granted.
PROCEDURAL BACKGROUND
The plaintiff, Jennifer Arbaugh ("Arbaugh"), filed this action on November 18, 2001, asserting claims under Title VII and Louisiana law. Arbaugh alleged that during her employment at the Moonlight Café, as a bartender and waitress, she was discriminated against because of her sex in that she was exposed to a hostile working environment and that in February, 2001, she was forced to resign because of the actions of Hatipoglu. Rec. doc. 1. The parties consented to trial before a Magistrate Judge. Rec. doc. 6. The action was tried before a jury on October 28 and 29, 2002, and there was a verdict for Arbaugh. Rec. docs. 33 and 36. A judgment was entered in favor of Arbaugh and against the defendants. Rec. doc. 38.
On November 19, 2002, the defendants filed the motion to dismiss contending that YH does not qualify as an "employer" under 42 U.S.C. § 2000e(b). Specifically, YH argues that it did not employ fifteen or more employees for twenty or more calendar weeks in either 2000 or 2001. On December 26, 2002, the court rejected Arbaugh's contentions that the motion be denied because the defendants admitted subject matter jurisdiction was present. Rec. doc. 56. Because the burden was on Arbaugh to show that subject matter jurisdiction was present, she was given an opportunity to conduct discovery. Id. The parties completed the discovery and filed supplemental memoranda with exhibits on the jurisdictional issues. Rec. docs. 57 and 58.
The parties submitted: (1) affidavits from Hatipoglu and Hassan Khaleghi, both shareholders of YH; (2) YH's payroll records for 2000 and 2001; (3) YH work schedules for delivery drivers for January 29 through February 18 for an unidentified year; (4) YH schedules for the persons working in the kitchen and waiting tables; (4) affidavits from Sharon Davidson and Kevin Brown, delivery drivers for the Moonlight Café; and (5) Khaleghi's deposition. After reviewing the evidence, the court determined that additional evidence was required regarding compensation received by Hatipoglu and Khaleghi and their spouses in 2001. The parties were order to submit supplemental memoranda with evidence to resolve this issue. The parties were notified that the defendants' motion to dismiss was converted to a motion for summary judgment. Rec. doc. 59. Arbaugh and the defendants submitted supplemental memoranda. Rec. docs. 60 and 61. Arbaugh submitted an affidavit from Mark Brown, a former delivery driver for YH, the W-2 forms for 2001 for Hatipoglu, Khaleghi and their spouses and their 2001 income tax returns. Rec. doc. 60. The defendants also submitted the W-2 forms and income tax returns for 2001 with an affidavit from Khaleghi.
STATEMENT OF THE ISSUES
For purposes of this action, Title VII defines an employer as "a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding year, and any agent of such a person." 42 U.S.C. § 2000e(b). The parties agree that the years 2000 and 2001 are the relevant time frame.
The payroll method is the test used to determine whether an entity meets the requisite employees to qualify as an employer under Title VII. Under this test, all one needs to know about a given employee for a given year is whether the employee started or ended employment during that year and, if so, when. . . . What is ultimately critical is the existence of an employment relationship, as is most readily demonstrated by an individual's appearance on the employee's payroll. An employee who works irregular hours, perhaps only a few days a month, will be counted. Thus, some part-time workers may be counted as employees. On the other hand, an individual who appears on the payroll but is not an employee under traditional principles of agency law . . . would not count.Taylor v. Eastside Auto, Truck and Tire Repair, 2001 WL 214032, *2 (E.D.La.) (Africk, M.J.) (citations, quotation marks and brackets omitted). The defendants contend that YH's payroll journals for 2000 and 2001 demonstrate that it did not employ fifteen or more employees for twenty or more calendar weeks in either 2000 or 2001. Arbaugh replies that the defendants failed to count the drivers, who made deliveries for the restaurant, and the owners of YH, Hatipoglu and Khaleghi and their spouses.
UNDISPUTED FACTS
In 1996, Hatipoglu and Khaleghi organized YH as a Louisiana corporation under Subchapter S of the Internal Revenue Code. Hatipoglu and Khaleghi are the only officers and directors of the corporation. Hatipoglu, Khaleghi and their spouses are the only shareholders. Exhibits A and B to Rec. doc. 44. YH's only activity is the operation of the Moonlight Café. Rec. doc. 58 at Exhibit D at 5.
The YH payroll journals reflect that it did not employ fifteen or more persons, exclusive of the delivery drivers and the four owners, for twenty or more calendar weeks in either 2000 or 2001. If either the delivery drivers or the four owners are counted with the persons shown on the payroll journals, then YH employed fifteen or more persons for the requisite time. Exhibit C to Rec. doc. 44.
There were four weeks in calendar year 2000 where YH had sixteen employees, exclusive of the drivers and the shareholders. For the remaining weeks of 2000 YH employed between eight and fourteen persons. In 2001, YH employed as many as nine persons and as few as three persons, exclusive of the drivers and the shareholders. Exhibit C to Rec. doc. 44.
The amount paid by YH to Hatipoglu, Khaleghi and their spouses in calendar year 2000 totaled $60,000 per couple. This was paid to them biweekly, except for the biweekly periods ending on July 30 and August 13, 2000. Exhibit C to Rec. doc. 44. In calendar year 2001, the couples each received $29,117. Their tax returns listed $2,500 of this income as wages and the remainder was reported as income from a subchapter S corporation. Exhibit B-2 at Rec. doc. 61. In calendar year 2001, Lisa Hatipoglu also received $21,464 in wages from the Orleans Parish School Board. Id.
Tax returns for that year were not produced. It is assumed, based on a review of the payroll records, that all income was reported as wages rather than income from the Subchapter S corporation.
Khaleghi describes himself and Hatipoglu as partners in YH. Rec. doc. 58 at Exhibit D at 5. During the applicable years, they managed the restaurant and did whatever was required to keep it going. Id. at 6. For example, Hatipoglu and Kihaleghi sometimes worked as delivery drivers. Rec. doc. 57 at Exhibit C. They generally worked alternate days at the restaurant unless the demands of the business required them both to be present. Rec. doc. 58 at Exhibit D at 6. The sole source of their income was the restaurant. Id. at 6-7. Lisa Hatipoglu and Zoreh Khaleghi did not work at the restaurant, but they occasionally did advertising and promotion work. Id. at 19-20. The compensation that the spouses received was not determined based on the time they worked on advertising and promotion. They received their compensation regardless of whether they did advertising or promotion work in a given pay period. Id. at 22. The purpose of the compensation was to allow them to be eligible for Social Security benefits. Id. at 22-23. On their 2001 income tax returns the payments to the spouses were reported as wages. Exhibit B-2 at Rec. doc. 61.
The delivery drivers owned their vehicles and were responsible for: (1) all maintenance and operating costs, including insurance, for their vehicles; and (2) taxes, licenses and fees associated with their vehicles and their ability to drive. Rec. doc. 58 at Exhibits A-C. YH did not provide the delivery drivers with any annual leave or retirement benefits. Id. YH did not pay Social Security taxes for the delivery drivers. Id. The delivery drivers were paid $4.00 per hour plus an incentive payment for the value of the deliveries plus tips. Most of their income was derived from tips. Rec. doc. 58 at Exhibit C and Exhibit D at 14. There was no tip pool, so all tips paid to an individual driver were retained by that driver. Rec. doc. 58 at Exhibit D at 14. The drivers were issued a Form 1099 rather than a Form W2. Id. at 15. The kitchen and restaurant staff had federal and state income taxes withheld and Social Security taxes were paid on their wages. Rec. doc. 44 at Exhibit C.
Some of drivers worked other jobs and some did not. Id. at 11 and Exhibit A to Rec. doc. 60. How the schedules for the drivers was established is disputed. The affidavits of Hatipoglu and Khaleghi state that the drivers informed them of the days and times they could work and, based on that information, work schedules for the drivers were prepared and posted. Rec. doc. 57 at Exhibit A at 11. This is supported by the affidavit from Kevin Brown. Rec. doc. 58 at Exhibit C. This is contradicted by the affidavit of Mark Brown who states that the schedules were prepared by YH without input from the drivers. Rec. doc. 60 at Exhibit A. There is no dispute as to what occurred after a schedule was prepared. Once it was posted for the week, the drivers were expected to work at the times shown on the schedule. Id. at 11 and Rec. doc. 57 at Exhibit C.
When the drivers arrived and departed they punched in or out on a time clock on the computer that was used to determine their hourly pay. Id. at 15. When they arrived, they prepared containers of condiments for the food they would be delivering. Id. at 9. One driver stated that the drivers also helped to prepare salads and deserts that were included in the home deliveries. Rec. doc. 57 at Exhibit C. At the end of a scheduled shift, they cleaned the station they used during that shift. Rec. doc. 58 at Exhibit D at 10. During the assigned shifts the drivers were assigned orders for delivery in turn. Id. at 12. During slow periods the drivers watched television, sat and waited, or prepared condiments for the next wave of orders. Id. at 12-13. The drivers never waited on customers in the restaurant or performed any other duties to assist in the operation of the restaurant. Id. at 13-14. Although most of the drivers had other jobs, they were only permitted to work as delivery drivers for YH during their scheduled shifts. Id. at 11 and Rec. doc. 57 at Exhibit C. Mark Brown testified that he and other drivers worked between 50 and 60 hours per week. Rec. doc. 60 at Exhibit A. 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 the delivery. Hatipoglu and Kihaleghi did not supervise the drivers while they were making their deliveries. Rec. doc. 58 at Exhibit C. The drivers understood that if they did not properly perform their duties, their services would be terminated. Rec. doc. 57 at Exhibit C.
SUMMARY JUDGMENT STANDARD
Fed.R.Civ.P. 56 provides in pertinent part that summary judgment will be granted when ". . . the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." See Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2552 (1986). Lujan v. National Wildlife Federation, 110 S.Ct. 3177, 3189 (1990). To that end, the court must view the facts and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. Ameristar Jet Charter v. Signal Composites, 271 F.3d 624, 626 (5th Cir. 2001). Where the record taken as whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 106 S.Ct. 1348, 1356 (1986); Washington v. Allstate Ins. Co., 901 F.2d 1281 (5th Cir. 1990).
The parties were ordered to identify any material fact concerning subject matter jurisdiction that they contend is in dispute. Rec. doc. 59. Arbaugh states that there are disputed issues of fact, but has failed to identify them. Rec. doc. 60 at p. 4. The disputed issue of fact between the parties is their conflicting accounts of how the schedules for the drivers is prepared. The undersigned will assume, for purposes of this motion, that Arbaugh's description of the preparation of the schedules is correct. In Clark v. Tarrant County, Texas, 798 F.2d 736 (5th Cir. 1986), the Fifth Circuit held:
Courts may dismiss for lack of subject matter jurisdiction on any one of three different bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.Id. at 741. Here, the issue of subject matter jurisdiction will be resolved based on the complaint and the undisputed facts.
THE DELIVERY DRIVERS
In Broussard v. L.H. Bossier, Inc., 789 F.2d 1158 (5th Cir. 1986), the plaintiff appealed from a dismissal of her Title VII action. The district court held that the plaintiff was not the defendant's employee for Title VII purposes. The Fifth Circuit held that the economic realities test guided the analysis of whether an individual was an employee for Title VII purposes, and the most important factor in determining employee status was the right to control. Id. at 1160. The Fifth Circuit identified facts pertinent to the issue of control. In Cole v. Venture Transport, Inc., 2000 WL 335743 (E.D.La.) (Vance, D.J.), the Broussard control factors were enumerated as follows:
The factors pertinent to this inquiry (control) are: (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 job commitment; (7) forms of payment; and (8) directions on schedules and performing work.Id. at *3.
The undisputed facts show that the essential equipment necessary to perform the job, a motor vehicle, was owned by each driver. Each driver was also responsible for the cost of operating the vehicle and the license fees and taxes associated with it. Each driver was responsible for obtaining insurance and for the maintenance of the vehicle. Four of the eight factors weigh against a finding of control by YH.
The ability to influence profits rested with the drivers. The drivers were given at least two incentives to maximize the number of deliveries they made and thereby increase their income. The first was the incentive bonus based on the dollar value of deliveries made during their shifts, and the second was their income from tips. The importance of tips is shown by the fact that the drivers retained 100% of the tips they received and were not required to pool those tips for the benefit of the kitchen staff or other persons working in the restaurant. The drivers also controlled their expenses in terms of the vehicle they chose to drive and the amount they chose to spend on operation and maintenance.
The length of the job commitment also weighs in favor of a finding that control over the drivers did not rest with YH. In Cole the plaintiff agreed to provide motor carrier transport services to the defendant. Although the plaintiff worked for the defendant for four months, either party retained the right to cancel the contract without cause on thirty days notice. The District Court found that this factor weighed in favor of a determination that the plaintiff was not under the control of the defendant. Similarly, the drivers for YH could be terminated at any time and the drivers could quit at anytime.
The form of payment weighs against a finding of control over the drivers by YH. Although YH withheld taxes for federal and state income taxes and paid Social Security taxes on its kitchen and restaurant staff, it did not do so for its drivers.
Although Arbaugh stresses that the work schedules posted each week demonstrate control, she misunderstands the control factor. In Cole the District Court stated:
Arbaugh's reliance on Louisiana law to define the relationship between YH and the drivers is misplaced. The court's subject matter jurisdiction rests on Arbaugh's Title VII claim. The court must look to the law applicable to a Title VII claim to determine whether subject matter jurisdiction is present.
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 and hiring of drivers.
2000 WL 335743 at *4. As in Cole YH directed the drivers to pick up the orders at the restaurant and deliver them to customers, but the drivers controlled the manner and means in which they operated their vehicles and selected their routes. In Broussard the plaintiff and her husband hired themselves and their truck out to make hauls. The plaintiff pointed to extensive direction of her work in terms of what to do and when to do it. The Fifth Circuit responded that, "[s]he misses the point: she does not really claim direction on how to operate her truck." 789 F.2d at 1160. There is no contention that YH told the drivers how to operate their vehicles. YH did not exercise a right of control over the drivers sufficient to make them employees under the economic realities test.Broussard and Cole demonstrate that, even if the plaintiffs version of the setting of the schedules is accepted, YH did not exercise control over the drivers.
In Broussard, the Fifth Circuit stated that, "[t]he right to control, although the most significant factor, is not alone determinative." 789 F.2d at 1160. It identified additional relevant factors which were enumerated in Cole as follows:
Additional relevant factors include: (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) the manner in which the work relationship is terminated; i.e., by one or both parties, with or without notice and explanation; (4) whether annual leave is afforded; (5) whether the work is an integral part of the business of the "employer;" (6) whether the worker accumulates retirement benefits; (7) whether the "employer" pays social security taxes; and (8) the parties' intention.
2000 WL 335743 at *3. It is undisputed that four of these weigh against a finding of employee status: (1) termination of work relationship; (2) annual leave; (3) retirement benefits; and (4) payment of Social Security taxes.
While the work of delivery drivers for a restaurant is not considered a specialized trade, there is no evidence that it is usually done with supervision. The Broussard and Cole cases show that delivery truck drivers for other businesses work without supervision. The delivery of food was an integral part of YH's business. It was sufficiently important that Hatipoglu and Klialeghi would drive when the demand was sufficient.
Hatipoglu and Khaleghi state it was never their intention for the drivers to be employees and the drivers did not intend to be employees. Rec. doc. 58 at Exhibits A and B. This statement is self-serving. Arbaugh submitted an affidavit from Sharon Davidson, a driver, who stated: (1) she considered it her job; (2) she worked 35-40 hours per week; and (3) if she did not perform properly her employment would be terminated. Rec. doc. 57 at Exhibit C. These statements coming after the fact also tend to be self-serving. In Cole, the parties signed a contract that was described as an independent contractor service agreement. YH did not have its drivers sign such a contract. The issue of the intention of the parties must be resolved by evidence that was in place before this issue arose. YH reported the payments to drivers on a Form 1099. YH did not withhold taxes for the drivers or pay Social Security taxes for them. This is evidence that YH did not intend the drivers to be employees like its kitchen and restaurant staff. The fact that the drivers retained 100% of all tips received by them, provided their own vehicles and paid all expenses, demonstrates they did not intend to be employees. An employee would have expected reimbursement of his mileage expenses if he used his vehicle during the course of the company's work.
The weight of the remaining eight factors cited by Broussard and Cole is against a finding that the drivers were employees of YH.
In contrast to Broussard and Cole, the district court in Steehler v. Product Development Corp., 2001 WL 196981 (N.D. Tex.), denied a motion to dismiss and found that the facts could permit a reasonable person to find an employer/employee relationship for purposes of Title VII, where the plaintiff was a delivery driver for telephone books. The district court stated:
The fact that PDC will pay for damages to vehicles that occur while making PDC deliveries, reimburse carrier expenses on long-distance deliveries, require all PDC carriers to attend training sessions and watch videos before they begin delivery, and require mandatory drug testing in the event of an accident indicates that PDC maintains more control over its carriers than it could if those carriers were strictly independent contractors. Mr. Steehler does not select his own routes, nor does he decide the manner in which the telephone books are delivered. More importantly, the application Mr. Steehler signed to work for PDC binds him to solely deliver PDC's product. Based on the aforementioned information, this Court has determined that Mr. Steehler has satisfied his burden of production on a 12(b)(6) motion that he worked for PDC as an employee, rather than an independent contractor.Id. at *3. The facts described in Steehler are not present with the drivers for YH.
In Hathcock v. Acme Truck Lines, Inc., 262 F.3d 522 (5th Cir. 2001), the plaintiff asserted state law claims of breach of contract and unjust enrichment. At issue was whether the plaintiff was an independent contractor when he drove his truck for the defendant. The Fifth Circuit considered the economic realties test for Title VII and ADEA claims and the factors considered in a FLSA claim and held that the plaintiff was not an independent contractor. The Fifth Circuit stated:
Acme treated Hathcock as an employee for tax purposes and withheld mandated federal and state income and social security taxes from his driver's paycheck, and paid Hathcock, the driver, a regular salary as an employee. When he drove, the terms and conditions of Hathcock's employment were set by Acme: He had to submit to Acme's medical and driving requirements; he was subject to discipline for violation of Acme's personnel policies, including anti-harassment, drug testing, and 401(k) Plan; he was subject to discharge by Acme for violations of its Driver Manual; he was bound to work exclusively for Acme; and while doing so he had to drive a truck sporting the Acme logo at all times.Id. at 526. Again, this is dissimilar to the facts before the court here.
THE OWNER MANAGERS
For YH to have the requisite number, Hatipoglu and Khaleghi and their spouses must be employees. The issue is whether the corporate shareholders of a Subchapter S corporation, who also perform services for the corporation, should be considered employees of the corporation for purposes of Title VII. There is no Fifth Circuit decision that addresses this issue in the context of a Subchapter S corporation, a closely held corporation or a professional corporation. Arbaugh contends the issue should be determined by following Trainor v. Appollo Metal Specialities, Inc., 318 F.3d 976, 983 (10th Cir. 2002), where the owner of a closely held corporation and a participant in a traditional employment relationship with the corporation was held to be an employee for purposes of Title VII. The defendants contend that the court should look toGoudeau v. Dental Health Services, Inc., 901 F. Supp. 1139 (M.D. La. 1995) (Riedlinger, M.J.), where four dentists, who were owners of a professional corporation and who practiced dentistry through the professional corporation, were held not to be employees for purposes of Title VII.In Shores Realty Co., Inc. v. U.S., 468 F.2d 572, 573 (5th Cir. 1972), the Fifth Circuit stated:
A corporate taxpayer found eligible for treatment as a "small business corporation" under Subchapter S of the Internal Revenue Code is relieved of the obligation of paying corporate income taxes. Instead, income received by the corporation is attributed directly to the corporation's stockholders, even if the corporation does not distribute its earnings to the stockholders in the form of money or property. Related provisions exist for the attribution of corporate losses to the stockholders.Id. at 573, n. 3. In Hollis v. Hill, 232 F.3d 460 467 (5th Cir. 2000), the Fifth Circuit described the usual relationship between a closely held corporation and its shareholder as follows:
Unlike the typical shareholder in a publicly held corporation, who may be simply an investor or a speculator and does not desire to assume the responsibilities of management, the shareholder in a close corporation considers himself or herself as a co-owner of the business and wants the privileges and powers that go with ownership. Employment by the corporation is often the shareholder's principal or sole source of income. Providing employment may have been the principal reason why the shareholder participated in organizing the corporation. Even if shareholders in a close corporation anticipate an ultimate profit from the sale of shares, they usually expect (or perhaps should expect) to receive an immediate return in the form of salaries as officers or employees of the corporation, rather than in the form of dividends on their stock. Earnings of a close corporation are distributed in major part in salaries, bonuses and retirement benefits.Id. at 467 (citations omitted).
In Trainor the only shareholders of the defendant corporation were Mr. and Mrs. Pilgrim. 318 F.3d at 978. Mr. Pilgrim was described as both an owner and a participant in a traditional employment relationship with the corporation. Id. at 983. The defendants argued that a partner in a partnership is not an employee for purposes of Title VII, and a shareholder owner in a closely held corporation should be treated like a partner for purposes of Title VII. The Tenth Circuit rejected this argument. It also rejected the defendants' contention that it should follow those cases holding that shareholders in a professional corporation are not treated as employees under Title VII. Id. at 985-86. It recognized that, at least as to the issue of professional corporations, there was a split in the circuits. The Tenth Circuit stated:
Courts addressing the term "employee" in the context of professional corporations have therefore either given conclusive weight to the choice of corporate form, or have disregarded that form because the entity functioned as a partnership.Id. at 986. The Tenth Circuit concluded that decisions dealing with the circumstances in which a corporate officer or director is also a corporate employee offered the best guidance and stated:
Courts have generally applied a three factor test in making this determination, looking to (1) whether the director has undertaken traditional employee duties; (2) whether the director was regularly employed by a separate entity; and (3) whether the director reported to someone higher in authority.Id. at 986. The Tenth Circuit found that Mr. Pilgrim met the first and second factor but not the third, and even so found an employment relationship. In EEOC v. Johnson Higgins, Inc., 91 F.3d 1539, 1539 (2nd Cir. 1996), the Second Circuit found that all three factors were present. While the Second Circuit did not state that all three factors had to be satisfied, it did state that the "authoritative evaluation by their superiors suggests that JH directors are employees under the common law test." Id. at 1540 (emphasis in original).
Assuming that the Tenth Circuit was correct in applying the three factor test to determine whether a corporate officer or director is also a corporate employee, the undersigned questions whether two of the three factors are sufficient to establish the employee relationship. Whether the director or corporate officer reports to some person or group of higher authority sensibly is an essential element of the employer/employee relationship. That being so, then in many situations involving professional corporations and closely held corporations that element will be lacking.
Goudeau reached a result contrary to Trainor. In Goudeau, the court applied the test used by the Fifth Circuit to determine the existence of an employment relationship; an economic realities test:
The Fifth Circuit applies the hybrid economic realities/common law control test to determine whether an individual is an employee or independent contractor. A review of decisions applying this test, as well as the cases which address the issue when a professional corporation or partnership is involved, shows that the court cannot look merely at the label placed on an individual's status but must look to the particular facts of each case and determine the economic realities of the relationship.Id. at 1143. Goudeau applied the economic realities test to the dentist shareholders in a professional corporation, found that the management, control and ownership were much like that of a partnership, and, for purposes of Title VII, found the dentists were not employees.
In Fountain v. Metcalf, Zima Co., P.A., 925 F.2d 1398 (11th Cir. 1991), the plaintiff contended that he was an-employee of a professional corporation engaged in the practice of accounting and that he had a cause of action under ADEA. The sole issue was whether the plaintiff was a partner in the firm or an employee. Id. at 1399. The Eleventh Circuit applied the economic realities test and found that the plaintiff was a partner. Id. at 1401.
The Fifth Circuit uses the economic realities test to resolve whether a person is an employee for purposes of Title VII. It follows that the Fifth Circuit would look to the same test to determine whether a person is a partner or an employee of a closely held corporation, a Subchapter S corporation or a professional corporation for purposes of Title VII. The economic realities test demonstrates that Hatipoglu and Khaleghi were partners. They divided the profits equally and the responsibilities of running the business were similarly divided. By virtue of YH's status as a Subchapter S corporation, YH's losses flowed back to Hatipoglu and Khaleghi. Similarly, when business was slow, for example, in July of 2000, they did not take anything out of the business. In calendar year 2000, the couples each received $60,000 from YH. In calendar year 2001, they each received less than $30,000. Hatipoglu and Khaleghi reported to no one other than themselves and they had control over all aspects of the business. The court, after considering the relationship, concludes that Hatipoglu and Khaleghi were not employees of YH for purposes of Title VII.
THE SHAREHOLDER SPOUSES
Assuming arguendo that Hatipoglu and Khaleghi were employees for purposes of Title VII, their spouses must also be counted as employees to have the requisite number of employees for subject matter jurisdiction. The spouses did no work at the restaurant. The only services they performed were occasional advertising and promotion. There is no evidence as to what the spouses actually did byway advertising and promotion. The only factor favoring a finding of an employment relationship is that Social Security taxes were paid on their income from the business.
Whether Trainor or Goudeau is followed, the result is the same. The first factor considered in Trainor is whether the person had undertaken traditional employee duties. The spouses did not. They did no work at the restaurant. The second factor is whether the person was regularly employed by a separate entity. At least one of the spouses was employed as a school teacher. The third factor is whether the persons reported to someone in higher authority. The arrangement for the spouses was established by Hatipoglu and Khaleghi, so it is assumed the third factor is present. The spouses did not meet the factors that Trainor viewed as dispositive. Trainor, 318 F.3d at 987. If the relationship of the spouses to YH is examined in light of the economic realities test, in accord with Goudeau, they were passive partners rather than employees. The spouses were not employees of YH for purposes of Title VII. Accordingly,
IT IS ORDERED that the judgment in favor of Arbaugh and against defendants (Rec. doc. 38) is VACATED and the defendants' motion to dismiss, pursuant to Fed.R.Civ.P. 12(h)(3) (Rec. doc. 44), which was converted to a motion for summary judgment, pursuant to Fed.R.Civ.P. 56 (Rec. doc. 59), is GRANTED.
IT IS FURTHER ORDERED that the following are DISMISSED as MOOT: (1) Arbaugh's motion attorney's fees (Rec. doc. 39); (2) Arbaugh's motion to amend judgment (Rec. doc. 40); and (3) defendants' renewed motion for judgment as a matter of law or in the alternative motion for a new trial and/or remittur (Rec. doc. 43).