>The US Supreme Court, in a 7-2 decision, said that small business owners should consider Equal Employment Opportunity Commission (EEOC) guidelines when determining if their staff size requires compliance with federal disability laws, specifically the Americans with Disabilities Act (ADA), which currently includes a 15-employee threshold, but which does not specifically define the term “employee.”   The decision mainly affects professional service companies like law firms, medical practices, and accounting offices.

>Technically speaking, today’s Supreme Court decision didn’t resolve the issue.   However, in an opinion written by Justice John Paul Stevens, while the high court acknowledged that the ADA does not define the word “employee,” Stevens said that normally means the courts must look to “common law” for guidance, the combined determinations of court decisions on an issue over the years.   “We are dealing with a new type of business entity,” the professional corporation, “that has no exact precedent in the common law,” Stevens conceded.  

>In its majority opinion, the Supreme Court said that both common law and the Equal Employment Opportunity Commission (EEOC) indicate that those who control the corporation, as opposed to being controlled by it, “are proprietors, not employees” – and sent the case back to the lower court for a new hearing and a ruling based on its current evaluation.

Case History

>Deborah Wells was employed by Clackamas Gastroenterology Associates, a medical clinic incorporated in Oregon, beginning in 1986.   However, Wells suffered from “mixed connective tissue disorder,” and in 1997 her physician took her off work for several months. Her employer wanted her back to work earlier and fired her when she didn’t show up.   She later sued the clinic under the Americans with Disabilities Act in US District Court in Portland, Oregon.

>Clackamas argued that the ADA did not apply to the firm, since it did not have 15 or more employees for the 20 weeks required by the law.   Instead, it maintained that the firm’s four owners, all of whom are physicians and the only shareholders in the professional corporation, are partners and don’t count for purposes of determining applicability of the ADA.   Based on that count, the firm employs 13-14 workers, and falls underneath the ADA threshold.

Court Dockets

>A US District Court judge agreed with Clackamas that under the “economic realities” test its four physician-shareholders should be regarded as “partners” in the business, not “employees” of the corporation.  

>However, the Ninth Circuit Court of Appeals ruled in a 2-1 decision that the practice was subject to the ADA because the owners count as employees.   The appellate court said that in addition to being shareholders and directors of Clackamas, “the four physician shareholders actively participated in the management and operation of the medical practice and literally were employees of the corporation….”   Clackamas then asked the Supreme Court for review, and the justices heard argument in February.

Dissenting Opinions

>Dissenting from the majority decision, Supreme Court Justices Ruth Bader Ginsburg and Stephen Breyer said the court should not go out of its way to protect companies from having to follow the disabilities law. They also said the court’s interpretation puts too much emphasis on a company ownership structure, rather than its size.

>The case is No. 01-1435, Clackamas vs. Wells.