In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 05-3467

CYNDEE SMITH,

Plaintiff-Appellant,

v.

CASTAWAYS FAMILY DINER and

CARROL A. GONZALEZ, doing business as

CASTAWAYS FAMILY DINER,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Northern District of Indiana, South Bend Division.

No. 3:04-cv-00498—Allen Sharp, Judge.

____________

ARGUED FEBRUARY 6, 2006—DECIDED JULY 18, 2006

____________

Before FLAUM, Chief Judge, and ROVNER and SYKES,

Circuit Judges.

ROVNER, Circuit Judge. Plaintiff Cyndee Smith filed

suit against her former employer, Castaways Family

Diner (“Castaways”) and its sole proprietor, Carrol A.

Gonzalez, under Title VII of the Civil Rights Act of 1964, 24

U.S.C. § 2000e(5) (“Title VII” or the “Act”), complaining of

discrimination on the basis of sex, race, and national origin

and also retaliation. The district court entered summary

judgment against Smith on her Title VII claims, concluding

that Castaways and Gonzalez were not “employers” who

were covered by the Act because they did not have at least
2 No. 05-3467

1 Of the many photocopied checks in the record issued by

Castaways in 2003, none was signed by Foust.

fifteen “employees” for the requisite period of time. The

court excluded the two individuals who manage the restaurant from the tally, reasoning that in view of their day-today authority to operate the business independently on

Gonzalez’s behalf, they should not be counted as employees

of the restaurant. See Clackamas Gastroenterology Assocs.

v. Wells, 538 U.S. 440, 123 S. Ct. 1673 (2003). Because the

district court erred in excluding these two individuals from

the roster of employees on summary judgment, we reverse

and remand.

I.

Castaways is a family restaurant located in Knox,

Indiana. Gonzalez, the restaurant’s sole proprietor, works

full-time in the health care industry. Her mother, Phyllis

Foust, and her husband, Ricardo Gonzalez (“Ricardo”),

manage the restaurant on a day-to-day basis. Gonzalez does

not supervise their work and does not regulate the manner

in which they work. She does not set their hours or require

them to keep a schedule. Ricardo works full-time in the

kitchen, creates the restaurant’s menu, and orders the

supplies. Foust runs the front of the restaurant, handles the

bookkeeping together with Gonzalez, and has the authority

to issue checks drawn on Castaway’s bank account (although the record suggests that she rarely if ever exercises

that authority1

). Both Foust and Ricardo have the authority

to establish the policies and procedures to be followed by

the restaurant’s employees. They also have the power to

hire, discipline, and fire the restaurant’s other workers

without first securing Gonzalez’s approval. Like the other

people who work at Castaways, both Foust and Ricardo

receive regular paychecks. Ricardo also shares in the profits
No. 05-3467 3

and losses of the restaurant, although the record tells us

nothing about how, why, and to what extent he does so.

Gonzalez has never considered either Foust or Ricardo to be

her employee.

Smith worked part-time as a waitress at the restaurant

for a period of approximately four months beginning in

March 2003. According to Smith, shortly after she commenced work at Castaways, two of her co-workers—a

cook and a busboy—began to sexually harass her. The

alleged harassment included both lewd remarks as well as

inappropriate touching and attempts to touch her. Smith

perceived that there were aspects of the alleged harassment

that involved race and national origin as well: the cook and

busboy were of a different race and national origin than

Smith, who is white. Smith represents that she went to

Foust about the harassment but that Foust was unmoved.

“You’re easier to replace than a cook,” Foust allegedly told

her. “I’m not going to do a lot about this.” As Smith saw it,

she had no other option than to quit the diner in July 2003.

Six months after her departure, Smith filed a charge of

discrimination with the Equal Employment Opportunity

Commission (the “EEOC” or the “Commission”). As later

amended, Smith’s charge asserted that she had suffered

harassment and discrimination on the basis of sex, race,

and national origin. In addition, she contended that Castaways had retaliated against her for complaining about the

harassment. The EEOC eventually closed its file on the

charge without making any findings and issued Smith a

notice of her right to sue.

Smith filed suit against Castaways and Gonzalez in

Indiana state court. Her original complaint asserted only

state-law claims of battery, negligent hiring and supervision, and infliction of emotional distress. However, upon

receipt of the EEOC’s notice of her right to sue, Smith

amended her complaint to include Title VII claims of sex,
4 No. 05-3467

race, and national origin discrimination as well as retaliation. Once the complaint was amended to include the

federal claims, Castaways and Gonzalez removed the

case to federal court.

Title VII only applies to businesses who employ fifteen or

more employees for at least twenty weeks in a relevant

calendar year, see 42 U.S.C. § 2000e(b), and from the get-go,

the defendants asserted that Castaways did not meet that

threshold. They initially raised this as a challenge to the

district court’s subject-matter jurisdiction, but consistent

with our decision in Komorowski v. Townline Mini-Mart &

Rest., 162 F.3d 962, 964 (7th Cir. 1998) (per curiam), the

district court held that the fifteen-employee minimum was

not a jurisdictional requirement but rather an element of

Smith’s prima facie case of employment discrimination. R.

30, 32. (The Supreme Court’s recent decision in Arbaugh v.

Y&H Corp., 126 S. Ct. 1235 (2006), has since made clear

that the requirement is not jurisdictional.) The parties then

engaged in discovery limited to the question of whether

Castaways had employed at least fifteen individuals for the

requisite period of twenty weeks in either 2003, when the

alleged discrimination occurred, or 2002. See § 2000e(b)

(employer must meet threshold either in “the current or

preceding calendar year”); Komorowski, 162 F.3d at 965-66

(for purposes of § 2000e(b), “current calendar year” means

the year in which the alleged discrimination occurred).

Review of a defendant’s payroll records is usually the

starting point to determine whom the defendant employed

during the relevant time period. See Walters v. Metro. Educ.

Enters., Inc., 519 U.S. 202, 206-07, 117 S. Ct. 660, 663

(1997). Regrettably, multiple alleged computer failures

resulted in the loss of Castaways’ payroll records. Neither

side was able to produce any evidence as to the number of

people Castaways employed in 2002. For 2003, the parties

relied on cancelled Castaways checks, their own recollections, and other information to try and reconstruct an
No. 05-3467 5

2 There is a high turnover among Castaways employees. Evidently it is not uncommon for individuals to work for the restaurant for a matter of weeks or even days, in some cases just long

enough for them to pay their rent or buy groceries.

employee roster. However, disputes emerged as to whether

Ricardo and Foust should be counted as employees and

as to whether certain other workers who admittedly

qualified as employees were engaged for long enough

periods in 2003 to put Castaways over the fifteenemployee/twenty-week minimum.2

 Ultimately, Castaways

moved for summary judgment contending that the evidence

was insufficient on this score.

The district court concluded that Castaways did not have

fifteen or more employees for a period of twenty weeks

in 2003. The pertinent analysis is set forth in the magistrate judge’s report and recommendation, R. 39, which the

district judge, “[w]ithout taking the trouble to write a law

journal article,” adopted as his own in a brief order, R. 42 at

2.

First, the court rejected Smith’s assertion that Ricardo

and Foust should be considered employees. Applying the

multi-factor test that the Supreme Court has adopted for

determining whether partners, major shareholders, directors, and the like qualify as employees, see Clackamas

Gastroenterology Assocs. v. Wells, supra, 538 U.S. at 449-50,

123 S. Ct. at 1680; Solon v. Kaplan, 398 F.3d 629, 632-33

(7th Cir. 2005), the court found it significant that defendants “d[o] not exercise any control over [Ricardo and

Foust] or their work”; rather than reporting to Gonzalez,

Ricardo and Foust “ ‘run the show.’ ” R. 39 at 7 (quoting

Gonzalez Aff. ¶ 8). The day-to-day authority that Ricardo

and Foust exercise over the diner’s operation and workforce

convinced the court that they have “much more influence

and control over the company than a regular manager.” Id.
6 No. 05-3467

Gonzalez had averred in her affidavit that she did not

consider either of them to be an employee (a sentiment that

Foust shared in her own affidavit), so there was no evident

intent that Ricardo or Foust be treated as employees. Id. at

8. And finally, Ricardo shared in the profits and losses of

the restaurant, a fact that would distinguish him from the

ordinary employee. Id.

Second, the court concluded that four other employees,

who initially were thought to have been employees of the

diner for the majority of 2003, actually were employed for

time periods too short to put Castaways over the fifteenemployee/twenty-week threshold. The defendants themselves, in answer to Smith’s interrogatories, at first acknowledged that these four people were in their employ

throughout most of 2003. Subsequently, however, the

defendants contended that their acknowledgment was based

on a typographical error in the employee roster they had

relied upon. On further checking, they realized that each of

these employees had only worked at the diner for very brief

amounts of time in 2003: two of the individuals had worked

just five days that year, another had worked for approximately two weeks, and the fourth had worked for at most

one or two months. The defendants submitted affidavits

setting forth these belatedly-discovered facts. The court

rejected Smith’s contention that the tardiness of the

correction left its veracity open to question. “Although it is

unfortunate that Defendants did not discovery this discrepancy earlier, it does not appear that Defendants are acting

in bad faith by now attempting to correct the earlier

mistake. . . . Aside from questioning the timing of the

correction, Plaintiff provides no evidence that demonstrates

that these individuals were indeed employed longer than

Defendants now claim.” R. 39 at 9-10.

With Ricardo and Foust excluded altogether from the

employee tally, and with the other four workers removed

from the tally during the weeks they were not actually
No. 05-3467 7

employed at Castaways, Smith was unable to show that

Castaways surmounted the fifteen-employee/twenty-week

threshold. By the court’s calculation, the evidence even

construed favorably to Smith indicated that defendants had

fifteen or more employees for only thirteen weeks in 2003.

R. 39 at 10. Smith was therefore unable to establish this

element of a prima facie case under Title VII, mandating

summary judgment in the defendants’ favor on the Title VII

claims. The non-federal claims were remanded to state

court. Id. at 11; R. 42 at 2.

II.

In her appeal, Smith contends that the district court

erred both in concluding that Foust and Ricardo were

not the defendants’ employees and in accepting the defendants’ belated correction as to the length of time the four

other employees had worked at the restaurant in 2003.

Because the case was resolved on summary judgment, our

review is of course de novo. E.g., Payne v. Pauley, 337 F.3d

767, 770 (7th Cir. 2003). As it turns out, our analysis begins

and ends with Foust and Ricardo. The parties agree that all

six of the individuals whose status is at issue in this appeal

must be treated as the defendants have proposed in order

to sustain the district court’s judgment—that is, Ricardo

and Foust must be excluded from the employee tally

altogether, and the other four employees must be included

only for the short periods of time indicated in the defendants’ corrected tally. Thus, if we conclude that the district

court erred in its treatment of any one of these individuals,

then we must reverse the grant of summary judgment in

the defendants’ favor. For the reasons that follow, we

conclude that on the record before the district court, Foust

and Ricardo were erroneously excluded from the roster of

Castaways employees.

As we have mentioned, Title VII applies only to an

employer who “has fifteen or more employees for each
8 No. 05-3467

working day in each of twenty or more calendar weeks in

the current or preceding calendar year.” 42 U.S.C.

§ 2000e(b). The Age Discrimination in Employment Act,

29 U.S.C. § 630(b), and the Americans with Disabilities Act,

42 U.S.C. § 12111(5), have similar thresholds. The purpose

of these minimums is to facilitate the entry of small

businesses into the marketplace by sparing them “from the

potentially crushing expense of mastering the intricacies of

the antidiscrimination laws, establishing procedures to

assure compliance, and defending against suits when efforts

at compliance fail.” Papa v. Katy Indus., Inc., 166 F.3d 937,

940 (7th Cir. 1999).

Who constitutes an “employee” for purposes of the

threshold is a recurring question in employment discrimination cases. Like the other federal antidiscrimination

statutes, Title VII unhelpfully defines “employee” as “an

individual employed by an employer.” 42 U.S.C. § 2000e(f).

The Supreme Court has aptly observed that this sort of

language “is completely circular and explains nothing.”

Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323, 112

S. Ct. 1344, 1348 (1992). Darden dealt with who qualifies as

an employee for purposes of the Employee Retirement

Income Security Act (“ERISA”), a statute that defines

“employee” in exactly the same way as Title VII. See 29

U.S.C. § 1002(6). Finding no help in that definition, the

Court in Darden looked to the common-law definition of the

master-servant relationship to determine who qualifies as

an “employee.” Id. at 323-24, 112 S. Ct. at 1348.

Following the Supreme Court’s lead, the EEOC has

articulated a list of sixteen factors derived from Darden’s

common-law test to identify those individuals who qualify

as “employees” for purposes of Title VII and its companion

antidiscrimination statutes. EEOC Compliance Manual

(CCH) ¶ 7110(A)(1), at 5716-17 (2003). See Slingluff v.

Occupational Saftey & Health Com’n, 425 F.3d 861, 867-68

(10th Cir. 2005). These factors touch upon all aspects of the
No. 05-3467 9

relationship between employer and worker, but their

collective focus is on “whether the employer controls the

means and manner of the worker’s work performance.”

EEOC Compliance Manual (CCH) ¶ 7110(A)(1), at 5716. In

this way, the multi-factored test distinguishes an employee,

whose work performance is controlled by the employer, from

an independent contractor, who is engaged to perform work

for the employer but has the freedom to choose the method

and manner by which he completes that work. At common

law, that distinction has been an important factor in

determining when an employer is liable to third parties for

the misdeeds of those performing work on the employer’s

behalf. See RESTATEMENT (SECOND) OF AGENCY §§ 219, 220,

250 (1957) (hereinafter, the “Restatement”). And as Darden

illustrates, courts have come to rely on the same distinction

to determine when an employer owes statutory obligations—including the duty of nondiscrimination—to persons

working on its behalf.

But the Darden-derived test turns out not to answer the

question presented by this case. Although defendants have

made much of the independence with which Foust and

Ricardo manage the restaurant, they rely on that autonomy

not to show that Foust and Ricardo are independent

contractors rather than employees, but rather to show

that they exercise so much authority as to be employers

rather than employees. It is on the latter distinction that

the Supreme Court’s decision in Clackamas comes into play.

In Clackamas, 538 U.S. 440, 123 S. Ct. 1673, the Supreme

Court articulated a test for determining whether the

shareholders and directors of a professional corporation

should be counted as “employees” or rather as “employers.”

The defendant in Clackamas was a medical clinic that had

been sued by its former bookkeeper for disability discrimination under the ADA. The question presented was whether

the clinic’s four physicians, who owned the shares of the

professional corporation and constituted its board of
10 No. 05-3467

directors, qualified as “employees” for purposes of the ADA’s

fifteen-employee threshold. As in Darden, the Court looked

to the common law regarding the master-servant relationship:

At common law, the relevant factors defining the

master-servant relationship focus on the master’s

control over the servant. The general definition of the

term “servant” in the Restatement (Second) of Agency

§ 2(2) (1957), for example, refers to a person whose

work is “controlled or is subject to the right to control

by the master.” See also id., § 220(1) (“A servant is

a person employed to perform services in the affairs of

another and who with respect to the physical conduct in

the performance of the services is subject to the other’s

control or right to control.”). In addition, the Restatement’s more specific definition of the term “servant”

lists factors to be considered when distinguishing

between servants and independent contractors, the first

of which is “the extent of control” that one may exercise

over the details of the work of the other. Id. § 220(2)(a).

We think that the common-law element of control is the

principal guidepost that should be followed in this case.

538 U.S. at 448, 123 S. Ct. at 1679.

In selecting “the common-law element of control” as its

polestar, the Court found itself in agreement with the

EEOC, which itself had considered the circumstances under

which partners, officers, members of boards of directors,

and major shareholders of business organizations might

constitute employees of those organizations. In the EEOC’s

view, the relevant inquiry was “ ‘whether the individual acts

independently and participates in managing the organization, or whether the individual is subject to the organization’s control.’ ” Id. at 449, 123 S. Ct. at 1680 (quoting

EEOC Compliance Manual § 605:0009 (2000)). The Commission had identified six factors to consider in answering

that question:
No. 05-3467 11

Whether the organization can hire or fire the individual

or set the rules and regulations of the individual’s work

Whether and, if so, to what extent the organization

supervises the individual’s work

Whether the individual reports to someone higher in

the organization

Whether and, if so, to what extent the individual is able

to influence the organization

Whether the parties intended that the individual be an

employee, as expressed in written agreements or

contracts

Whether the individual shares in the profits, losses, and

liabilities of the organization.

Id. at 449-50, 123 S. Ct. at 1680 (quoting EEOC Compliance

Manual § 605:0009 (2000)). The Court in Clackamas

specifically agreed that each of these six factors is relevant

in assessing the status of a shareholder-director. Id. at 449,

123 S. Ct. at 1680. No one of these factors is dispositive, the

Court emphasized. Id. at 451, 123 S. Ct. at 1681. Rather, a

court must look to all aspects of the relationship between

the shareholder-director and the organization and decide

whether the shareholder-director exerts control (or has the

right to exert control) over the organization and its

workforce or is instead herself subject to the organization’s

control. Id. at 450-51, 123 S. Ct. at 1680-81. The former

amounts to an employer, and as such must be excluded

from the employee roster for purposes of the fifteen-employee minimum; only the latter constitutes an employee

who may be counted toward the statutory threshold. See id.

at 445 n.5, 450-51, 123 S. Ct. at 1677 n.5, 1680-81.

The defendants, in moving for summary judgment, and

the district court, in granting summary judgment, assumed

without discussion that the Clackamas test can always be

used to determine whether a highly-placed worker like
12 No. 05-3467

Ricardo or Foust is an employee for Title VII purposes.

Certainly our own decision in Solon v. Kaplan, supra,

makes clear that the Clackamas test is not confined to

shareholder-directors, but properly may be applied to

partners, officers, members of boards of directors, and major

shareholders, as the EEOC itself envisioned in framing the

test that Clackamas adopted. 398 F.3d at 633; see EEOC

Compliance Manual (CCH) ¶ 7110(A)(1)(d), at 5718-19. But

the propriety of applying Clackamas even more broadly to

managers, supervisors, and other highly-placed employees

is open to question. As we have noted, the purpose of the

Clackamas test is to distinguish “employers” from “employees.” 538 U.S. at 445 n.5, 123 S. Ct. at 1677 n.5. “Employers” are those whose authority and interests are so

aligned with the business as to render them the legal

personification of the business, i.e., principals rather than

agents. See E.E.O.C. v. Sidley Austin Brown & Wood, 315

F.3d 696, 709-10 (7th Cir. 2002) (Easterbrook, J., concurring

in the judgment). Those who own an interest in and/or hold

office with the business are the individuals who

may amount to “employers” in this sense, for they potentially have the right to dictate the decisions of the business and control the actions of its workers that a mere

“employee” would not have. Of course, ownership or office

can be nominal. Someone can be a called a “partner,” for

example, yet in fact lack any authority to make decisions for

the firm; he might be just as much at the mercy of those

who really run the firm as a clerk would be. See Clackamas,

538 U.S. at 446, 450-51, 123 S. Ct. at 1678, 1680-81; Sidley

Austin Brown & Wood, 315 F.3d at 702 (majority); id. at 709

(concurrence). The six factors set forth in Clackamas thus

serve to distinguish individuals whose title or ownership in

the business comes without meaningful authority to run the

business from those whose office or stake in the company is

genuine.

Notably, however, neither Ricardo nor Foust holds the

type of position that would typically bring the Clackamas
No. 05-3467 13

3 As a sole proprietorship, of course, Castaways has no formal

corporate structure.

test into play. Unlike the physician-shareholders at issue in

Clackamas, neither of them holds an ownership interest in

Castaways by virtue of being a shareholder or equity

partner, for example. As the sole proprietor of the business,

Gonzalez is the only person who can be described as an

owner. Moreover, neither Ricardo nor Foust occupies an

office (e.g., officer or member of a board of directors3

) that

might carry with it the right to vote on the decisions taken

by Castaways. Legally, Gonzalez as the sole proprietor is

Castaways; she is the individual, whether by hands-on

management or delegation to others of her choosing, who

decides the course of the business. See, e.g., Pagan v. State,

809 N.E.2d 915, 919 (Ind. Ct. App. 2004) (defining sole

proprietorship as a business in which one person owns all

assets, owes all liabilities, and operates the business in his

own personal capacity) (citing BLACK’S LAW DICTIONARY

1398 (7th ed. 1999)); see also Moriarty v. Svec, 164 F.3d 323,

336 (7th Cir. 1998) (Manion, J., concurring) (noting that

sole proprietorship has no legal identity apart from individual who owns it).

What power Foust and Ricardo do have is the authority

delegated to them by Gonzales to run the restaurant on her

behalf. Having a full-time job of her own, Gonzalez

has ceded near-total if not total managerial discretion to

them. Without Gonzalez’s input, they hire and fire other

employees, determine the schedules and rules by which

those employees work, set the menu, and otherwise

make the day-to-day decisions necessary to operate the

restaurant. It was this managerial authority that Foust and

Ricardo exercise in practice that persuaded the district

court to find, pursuant to Clackamas, that neither one of

them qualifies as an “employee” for purposes of Title VII
14 No. 05-3467

4 The district court did not explicitly label Foust and Ricardo as

“employers,” but that finding is implicit in the court’s determination that their authoritative role in the business excludes

them from the definition of “employee.” The purpose of the

Clackamas test, after all, is to distinguish an “employer” from an

“employee.” 538 U.S. at 445 n.5, 450-51, 123 S. Ct. at 1677 n.5,

1680-81; Solon, 398 F.3d at 632-33.

but rather that both are “employers.”4 That reasoning

assumes that Clackamas functions not only to exclude from

the class of “employees” those persons whose title or

ownership in the business carries with it meaningful

authority to participate in the governance of the business,

but also to exclude those individuals who, although they

hold no office or equity within the business, have been

delegated the authority to run the business on behalf

of those who do. This second application of Clackamas

would function as a liberal type of veil-piercing, treating as

an “employer” rather than an “employee” any individual

who exercises a sufficient degree of managerial authority,

irrespective of the source of that authority. There are

reasons to doubt that this application of Clackamas would

be appropriate.

First, consistent with the common-law tradition, the cases

interpreting “employee” for purposes of Title VII and other

statutes concerning the rights of employees typically have

not drawn a distinction between managers or supervisors

and other workers. See, e.g., Galdamez v. Potter, 415 F.3d

1015, 1022-23 (9th Cir. 2005) (Title VII); see also Guthart v.

White, 263 F.3d 1099, 1105 (9th Cir. 2001) (Labor Management Relations Act). The authority that a supervisor

possesses to act on the employer’s behalf certainly can be

relevant in assessing the employer’s liability to others for

the supervisor’s misdeeds. See Faragher v. City of Boca

Raton, 524 U.S. 775, 802-03, 118 S. Ct. 2275, 2290-91

(1998). But that authority does not distinguish the supervi-
No. 05-3467 15

sor in kind from other employees. See id. at 800, 118 S. Ct.

at 2289 (“The employer generally benefits just as obviously

from the work of common employees as from the work of

supervisors; they simply have different jobs to do, all aimed

at the success of the enterprise.”); see also Packard Motor

Car Co. v. N.R.L.B., 330 U.S. 485, 488, 67 S. Ct. 789, 792

(1947) (“Every employee, from the very fact of employment

in the master’s business, is required to act in his interest.”).

As the Restatement explains:

The word “servant” does not exclusively connote a

person rendering manual labor, but one who performs

continuous service for another and who, as to his

physical movements, is subject to the control or to the

right to control of the other as to the manner of performing the service. The word indicates the closeness of

the relation between the one giving and the one receiving the service rather than the nature of the service or

the importance of the one giving it. Thus, ship captains

and managers of great corporations are normally

superior servants, differing only in the dignity and

importance of their positions from those working under

them. The rules for determining the liability of the

employer for the conduct of both superior servants and

the humblest employees are the same; the application

differs with the extent and nature of their duties.

RESTATEMENT § 220(1), comment a; see also id. Ch. 7, tit. B,

Introductory Note (“[F]ully employed but highly placed

employees of a corporation . . . are not less servants because

they are not controlled in their day-to-day work by other

human beings. Their physical activities are controlled by

their sense of obligation to devote their time and energies

to the interests of the enterprise.”); id. § 2, comment c. At a

fundamental level, then, a supervisor or manager, however

highly placed, is still an employee. Like any other employee,

he serves the employer’s interests and, like other employ-
16 No. 05-3467

ees, he has interests as a servant that are distinct from

those of the employer.

This is a point that the Supreme Court recognized in

Packard Motor Car. The question in that case was whether foremen on automobile production lines should be treated

as “employees” with the right to organize or rather as

“employers” who could not invoke the advantages of the

National Labor Relations Act (“NLRA”). The Court described as “too obvious to be labored” the notion that a

foreman qualified as an employee both “in the most technical sense at common law as well as in common acceptance

of the term.” Id. at 488, 67 S. Ct. at 791. The Court acknowledged that a foreman acts on his employer’s behalf in

a number of respects. Id. at 488-89, 67 S. Ct. at 791-92.

(The record in Packard Motor Car indicated that the

foremen were responsible for maintaining production output

and quality as well as the promotion, demotion, and

discipline of line workers. See id. at 487, 67 S. Ct. at 791.)

But a foreman’s supervisory duties, in the Court’s view, did

not so align his interests with those of his employer as to

render the foreman himself an “employer” for purposes of

the NLRA:

Even those who act for the employer in some matters,

including the service of standing between management and manual labor, still have interests of their own

as employees. Though the foreman is the faithful

representative of the employer in maintaining a production schedule, his interest properly may be adverse to

that of the employer when it comes to fixing his own

wages, hours, seniority rights or working conditions. He

does not lose his right to serve himself in these respects

because he serves his master in others. . . .
No. 05-3467 17

5 The Court in Packard Motor Car ultimately sustained the

National Labor Relation Board’s determination that foremen

qualified as “employees” with the right to organize under the

NLRA. 330 U.S. at 491-93, 67 S. Ct. at 793-94. Congress subsequently amended the NLRA to expressly exclude foremen and

other supervisory employees from the NLRA’s definition of

“employee”. See 29 U.S.C. § 152(3). Title VII, of course, contains

no such exclusion for supervisory employees.

Id. at 489-90, 67 S. Ct. at 792.5

Second, a distinction must be drawn between the power

that a supervisor or manager exercises as of right and the

power that he exercises by delegation. It is not at all

unusual for the owner of a business enterprise to bring

someone else in to run the business on her behalf, just as

Gonzalez has done. In practice, that person may be given

virtually unbounded day-to-day discretion and authority

in operating the business. Nonetheless, he exercises that

discretion and authority at the pleasure of the business

owner; he has no inherent right, as the owner does, to

control the business. In that respect, his position is no

different from that of any other worker: he could be overruled (and, depending on the terms of his employment

contract, fired) just as summarily as the lowest ranked

employee. By contrast, the owner of a business, even if he

chooses not to exercise it, always has the right to control the

direction and operation of the business. See Schmidt

v. Ottawa Med. Ctr., P.C., 322 F.3d 461, 466 (7th Cir. 2003)

(“ ‘Ownership involves the power of ultimate control.’ ”) (quoting REV. UNIFORM PARTNERSHIP ACT § 202(a),

cmt. (1997)); see also RESTATEMENT § 2(1) (“A master is a

principal who employs an agent to perform service in his

affairs and who controls or has the right to control the

physical conduct of the other in the performance of the

service.”) (emphasis supplied). It is not happenstance, then,

that the EEOC has articulated a special test for determin-
18 No. 05-3467

ing when partners, corporate officers, members of boards of

directors, and major shareholders qualify as employees for

purposes of Title VII: those are the types of individuals who,

if their status is not purely titular, have a right to participate in the governance of the business and to control the

work of its employees that is not wholly dependent on the

acquiescence of their superiors. See Schmidt, 322 F.3d at

466-67 (discussing the power that partners have to participate in governance of business). And that is precisely why

the Supreme Court adopted the EEOC’s test in Clackamas:

to determine whether the physicians’ status as shareholders

and directors of a professional corporation gave them

sufficient control over the business of the corporation as to

render them “employers” rather than “employees”. See

Clackamas, 538 U.S. at 442, 123 S. Ct. at 1676 (“The

question in this case is whether four physicians actively

engaged in medical practice as shareholders and directors

of a professional corporation should be counted as ‘employees.’ ”); id. at 445 n.5, 123 S. Ct. at 1677 n.5 (“our inquiry is

whether a shareholder-director is an employee or, alternatively, the kind of person that the common law would

consider an employer”).

Given that Ricardo and Foust have no apparent ownership interest or office in Castaways, the test that the

Supreme Court and the EEOC have articulated for

owners, partners, directors and the like would seem to be

inapposite. Again, so far as the record reveals, any authority that Foust and Ricardo exercise they wield by

delegation rather than by right. Gonzalez, as the sole

proprietor of the business, enjoys the inherent power to

overrule their decisions and, for that matter, send them

both packing. See Schmidt, 322 F.3d at 466 (“The defining

characteristic of the master-servant relationship is the

possession in the one of the right to control the work of the

other.”); RESTATEMENT § 2(1). Certainly their skill and

experience (and her own full-time job) might dissuade

Gonzalez from taking such a step, but the point is that
No. 05-3467 19

6 Citations to “WLNR” are to the Westlaw NewsRoom database.

she as the sole owner of the business has the prerogative to

do so. The record discloses no fact suggesting that Foust

and Ricardo enjoy any authority comparable to that of

a partner or director—e.g., the right to bring Gonzalez’s

business decisions to a vote, or to dissolve the business. See

Schmidt, 322 F.3d at 466-67. Without Gonzalez’s acquiescence in their decisions, their authority over the business

would be no greater than that of any other employee.

One argument for applying the Clackamas test to a highly

placed worker who holds no ownership interest or office in

the enterprise might be to determine whether the named

owners, directors, and officers of the business are mere

marionettes whose strings are being pulled by the purported employee. It is not unheard of for businesses to be

established in the name of nominal owners and directors

whose purpose is to hide the identity of the real power behind the throne. This has been done to shield a business’s income and assets from creditors, for example, see,

e.g., Scott v. Comm’r of Internal Revenue, 70 T.C. 71, 82-85

(Tax Ct. 1978), and to fraudulently secure public contracts

reserved for women- and minority-owned businesses, see,

e.g., Matt O’Connor & Ray Gibson, U.S. Alleges Huge Fraud

in Chicago Minority Pacts, CHICAGO TRIBUNE, Sept. 26,

2003, available at 2003 WLNR 13862720; Ray Gibson &

Matt O’Connor, Controller describes Duff firms’ workings,

CHICAGO TRIBUNE, Jan. 25, 2005, available at 2003 WLNR

23444528.6

 In such situations, it might be appropriate to

use the Clackamas test as a veil-piercing tool and to

designate the person who truly is running the business an

“employer” rather than an “employee.” But no one is

suggesting that Gonzalez’s ownership of Castaways is a

sham. By all accounts, she is the one and only owner of the

business; she simply has delegated to others the authority

to run it in her stead.
20 No. 05-3467

Our decision in Solon, 398 F.3d 629, illustrates the

significance of having the right rather than the privilege of

participating in the governance of the business. The

plaintiff in Solon was a former law firm partner who, in

relevant part, alleged that he had been removed from the

partnership in violation of Title VII in retaliation for

speaking out against sexual harassment allegedly taking

place within the firm. Because the plaintiff had been a

general partner in the firm, we sustained the district court’s

determination that he was not an employee who could sue

for relief under Title VII. See id. at 631-32 (assuming, in

light of parties’ agreement, that Title VII protects “employees” but not “employers,” and collecting cases). A total of

twenty-one attorneys had worked for the firm, including

general partners, special partners, and associates. The

power attendant to the plaintiff’s position as a general

partner figured prominently in our decision that he constituted an employer under Clackamas:

By 1998, Solon was one of only four general partners.

The partnership agreement allowed for his involuntary

termination only by a two-thirds vote of the general

partners, meaning that the other three had to agree

unanimously to remove him. Holding one quarter of the

total voting power, Solon also exercised substantial

control over how to allocate the firm’s profits, and

whether to require additional capital contributions,

make financial commitments, amend the partnership

agreement, and dissolve the firm. Because special or

general partners could be added to the firm only by

a unanimous vote of the existing general partners,

Solon possessed a unilateral veto power over new

admissions. In addition to his voting rights, Solon held

an equity interest in the firm, shared in its profits,

attended the partnership meetings, and had access to

private financial information. Each of these benefits

distinguished him from the firm’s special partners

and associates.
No. 05-3467 21

Id. at 633. The plaintiff had also served as the firm’s

managing partner for several years until just prior to his

removal, and we cited the additional powers he exercised in

that capacity as further support for our conclusion. Id. The

plaintiff had argued that the powers conferred on him by

the partnership agreement were illusory because, in

practice, the firm routinely ignored that agreement. We

found no factual support for that contention, however. Id.

The record also failed to support the plaintiff’s contention

that notwithstanding his status, he had no actual authority

over the firm’s affairs because in practice he was supervised

closely by the other partners:

Solon had substantial control over the firm; control that

he exercised in fact as managing partner, and control

that he had the right to exert by virtue of the partnership agreement. Plaintiff’s assertion that he consulted

with his fellow partners before making major decisions

may demonstrate that he was passive, but it does not

show that he was powerless. Nor does his contention

that he was outvoted undermine the conclusion that he

was an employer.

Plaintiff was one of four general partners who, by virtue

of his voting rights, substantially controlled the direction of the firm, his employment and compensation, and

the hiring, firing, and compensation of others. He

played an active role in the operation of the firm as

trustee of its 401(k) account, as managing partner, and

informally thereafter. Under the facts of this case, he

was an employer as a matter of law.

Id. at 634 (citation omitted).

Our opinion in Schmidt v. Ottawa Med. Ctr., supra, 322

F.3d 461, likewise highlights the significance of an individual’s right to have a say in the decisions of the business. As

in Clackamas, the issue in Schmidt was whether the

plaintiff, a physician and shareholder-director in the
22 No. 05-3467

professional corporation that operated the medical center

where he worked, should be treated as an employer for

purposes of the ADEA. The plaintiff sought to challenge the

medical center’s shareholder compensation plan pursuant

to the ADEA; whether he was properly classified as an

“employer” or “employee” determined whether he was

entitled to bring suit. See Sidley Austin Brown & Wood, 315

F.3d at 698 (“the ADEA protects employees but not employers”). At the time of our decision, Clackamas had not yet

been decided, and we acknowledged uncertainty as to what

factors ought to guide our assessment of a shareholderdirector’s status. 322 F.3d at 463-65. What persuaded us

that the plaintiff should be classified as an employer

regardless of which methodology was used was the plaintiff’s

right, as both a shareholder and director, to participate in

the governance of the corporation:

As a shareholder, he possessed an equal vote in all

matters put to shareholder vote, including the hiring of

nonshareholder-physicians and shareholder compensation. Presumably as a director, he has in the past and

now also enjoys a voice in all matters put before the

board. Throughout his relationship with OMC and

continuing to the present day, Dr. Schmidt has thus

had ample opportunity to share in the management and

control of OMC.

And the mere fact that lately his preferences on

shareholder-compensation proposals have not secured the majority opinion of his fellow shareholders

does not alter the fact that with each vote he has

exercised this right to control. Even though Dr. Schmidt

rejected the current plan because he would be adversely

affected by its passage, he nevertheless had the opportunity to participate in revising and voting on it. . . .

Id. at 467.
No. 05-3467 23

In short, Solon and Schmidt confirm that the source of an

individual’s authority has an important bearing on whether

he is appropriately classified as an employer or employee.

In both cases, the plaintiff occupied a position (partner or

shareholder/director) which by right gave him a vote in the

affairs of the organization. That right did not necessarily

enable the plaintiff to impose his own will on the organization: in Solon, the plaintiff had been removed from the

partnership, and in Schmidt, an unfavorable compensation

plan had been adopted over the plaintiff’s objection. But in

each case the plaintiff’s status entitled him to a say in the

fundamental decisions of the business that other workers

(e.g., associates, special partners, and non-shareholders) did

not enjoy.

There is no evidence in this record suggesting that

either Foust or Ricardo possesses a comparable status with

Castaways. If there were, then it would be appropriate to

apply Clackamas. But in the absence of evidence that an

individual occupies a position in the enterprise that may

give him or her the right to exercise control over the

enterprise and its workers, the Clackamas test strikes us as

inapposite. This is not to say that supervisors, managers,

and other highly placed employees like Foust and Ricardo

do not exercise substantial authority in practice, but rather

that they do so subject to the delegation and acquiescence

of owners, directors, and the like who have a right rather

than a privilege to control the business. Clackamas, we

believe, is aimed at identifying the latter category of

individuals.

All this may simply be another way of saying that the

Clackamas test, even if it properly can be applied to an

individual who, like Foust and Ricardo, occupies no position

within an enterprise akin to partner, shareholder, or

director that might confer on him the right to exert control

over the enterprise, was misapplied here. Determining

whether an individual controls or has the right to control an
24 No. 05-3467

enterprise, and thus constitutes an employer, must take

into account not only the authority that person wields

within the enterprise but also the source of that authority.

Specifically, a court must consider whether the individual

exercises the authority by right, or whether he exercises it

by delegation at the pleasure of others who ultimately do

possess the right to control the enterprise. Compare RESTATEMENT § 2(1) (“A master is a principal who employs an

agent to perform service in his affairs and who controls or

has the right to control the physical conduct of the other in

the performance of the service.”) (emphasis supplied); with

id. § 2(2) (“A servant is an agent employed by a master to

perform service in his affairs whose physical conduct in the

performance of the service is controlled or is subject to the

right to control by the master.”) (emphasis supplied); see

also Clackamas, 538 U.S. at 448, 123 S. Ct. at 1679.

This consideration is absent from the district court’s

analysis. The court instead looked at the day-to-day authority over the restaurant that Foust and Ricardo exercise,

without asking whether they exercise that power by right,

as a partner of Gonzalez’s might, or rather at her delegation

and discretion. Similarly, the court found it significant that

Gonzalez does not supervise their work and that they do not

report to her, overlooking the point that as the sole owner

of the business, she of course has the right to exercise such

oversight. So far as the record reveals, Foust and Ricardo’s

ability to run the business is dependent upon Gonzalez’s

willingness to acquiesce to their actions. They have no

status comparable to hers as an owner that would convey

an independent right to participate in decisions affecting

the business. Gonzalez has chosen to be a hands-off owner,

but consider what could happen if she changed her mind. As

the owner of Castaways, it would be her prerogative to

direct and supervise the work of Foust and Ricardo, to

assume responsibility for hiring, firing, and discipline of

employees, to establish rules for Foust, Ricardo, and the
No. 05-3467 25

rest of the staff to follow, and for that matter to fire Foust

and Ricardo. For their part, Foust and Ricardo would have

no right, as a fellow owner, partner, or director might have,

to overrule or at least vote upon Gonzalez’s decisions. In

that respect, they are as subject to control by Gonzalez

as any other employee of the restaurant. See RESTATEMENT § 2(2). And to that extent, their interests are not

congruent with, and are potentially adverse to, Gonzalez’s

interests as the business owner. See Packard Motor Car Co.,

330 U.S. at 489-90, 67 S. Ct. at 792.

We are, of course, aware that neither Clackamas nor the

EEOC test that it adopted mentions the source of the

individual’s authority as a relevant consideration. It is

hinted at in at least one of the test’s six factors: the first

question posed is “[w]hether the organization can hire or

fire the individual or set the rules and regulations of the

individual’s work,” 538 U.S. at 449, 123 S. Ct. 1680 (emphasis ours), a phrasing that suggests a court should consider

whether an individual is subject to being overruled or

discharged, even if in practice he appears to enjoy substantial autonomy. See RESTATEMENT § 2(2). More to the point,

the significance of the source of an individual’s authority is

implicit in the framing of the test as one for partners, major

shareholders, directors, and the like. For as we have

discussed, those are the types of individuals whose status

within an enterprise potentially gives them authority that

is not dependent on the acquiescence of others. Clackamas

itself speaks not only of the control that an employer

exercises but his right to exert such control. Id. at 448, 123

S. Ct. at 1679 (quoting RESTATEMENT § 2(1)). Referencing

the right to control implicitly acknowledges that employer

may choose not to exert it, as by delegation. See RESTATEMENT § 220(1) comment d (“In some types of cases which

involve persons customarily considered as servants, there

may . . . be an understanding that the employer shall not

exercise control.”).
26 No. 05-3467

The district court noted one fact as to Ricardo—that he

shared in the profits and losses of Castaways with Gonzalez—that is consistent with his being an employer. Generally speaking, sharing in the profits, losses, and liabilities

of an enterprise is an indicum of ownership, and an owner

can qualify as an employer. See Clackamas, 538 U.S. at 450,

123 S. Ct. at 1680. Of course, the fact that Castaways is a

sole proprietorship is inconsistent with the notion that the

business might have any owner other than Gonzalez. But

putting aside that conundrum, what matters for our

purposes is the lack of elaboration in the record as to how

and why Ricardo shares in the profits and losses of the

business. We don’t know, for example, whether he does so

simply by virtue of his marital relationship with Gonzalez

or whether he has some type of agreement with her that

gives him a cognizable stake in the business. Without more

information, the mere fact that he “shares” in the profits

and losses of the business tells us very little about whether

his status is closer to that of an employer than an employee,

particularly in view of the additional fact that Ricardo and

Foust otherwise receive regular paychecks just like other

employees of the restaurant. In theory, further evidence as

to Ricardo’s sharing in the profits and losses of the business

might reveal that he has something like an ownership

interest in the business, and such an interest might lend

additional weight to the notion that he is an employer

rather than an employee. But on this record, the evidence

is insufficient to support the finding that he is the former

rather than the latter.

We add that Ricardo’s status as Gonzalez’s spouse, and

Foust’s status as her mother, does not support the finding that they are employers. Their relationships with

Gonzalez certainly may explain why Gonzalez has delegated

to them the authority to run the restaurant on her behalf.

But their ties to Gonzalez do not give them any more of a

right to control the business than any other manager
No. 05-3467 27

Gonzalez might have hired; their authority is entirely

dependent on her acquiescence. Again, one need only

consider what might happen if they became estranged from

Gonzalez: she would have every right as the owner to give

them the boot, and they would have no authority, as a

partner, director, or major shareholder might, to resist that

decision.

We conclude our analysis with a few words about the

interplay between our holding and the underlying purposes of Title VII. See Sidley Austin Brown & Wood, 315

F.3d at 702 (majority) (“[s]tatutory purpose is relevant” in

considering whether partners of large law firm should

be treated as employees or employers). As a statute aimed

at preventing and remediating invidious discrimination

in the workplace, Title VII (like its companion antidiscrimination statutes) should be liberally construed. E.g.,

Komorowski v. Townline Mini-Mart & Rest., supra, 162 F.3d

at 965; Veprinsky v. Fluor Daniel, Inc., 87 F.3d 881, 888-89

(7th Cir. 1996). Characterizing someone as an employer

rather than an employee directly affects the reach of Title

VII in two different ways. First, categorizing an individual

as an “employer” may well preclude that individual from

filing suit under Title VII, as it is thought that only an

“employee” is entitled to invoke the protections of the

statute. See Solon, 398 F.3d at 631-32 (assuming without

deciding that Title VII does not protect those individuals

who constitute “employers”); Sidley Austin Brown & Wood,

315 F.3d at 698 (ADEA). Second, as this case demonstrates,

treating an individual as an employer excludes him or her

from the workers who will be counted towards the fifteenemployee threshold, and consequently may altogether

remove a firm from the coverage of Title VII. In our view,

both ramifications serve to demonstrate why it is inappropriate to focus on the authority and independence that an

individual exerts within an enterprise while being blind to

whether that authority and independence is exercised by

right or by delegation.
28 No. 05-3467

Without some status as an owner, partner, director or the

like that grants a worker the right to vote and participate

in the management of the enterprise, that worker’s influence ultimately is dependent on those who do have such a

right. And because the worker is at their mercy, she is just

as vulnerable as any other employee to employment decisions that may be discriminatory. Like any

other employee, then, she ought to be able to invoke the

protections of Title VII. Cf. Sidley Austin Brown & Wood,

315 F.3d at 702 (majority) (“it can be argued that partners

should be classified as employers rather than employees for

purposes of the age discrimination law because partnership

law gives them effective remedies against oppression by

their fellow partners . . .”).

Similarly, an individual who is given managerial or

supervisory authority but has no right comparable to that

of a partner, owner, or director to govern the business has

interests that are distinct from those who do enjoy that

right and are congruent with the interests of lower-ranking

employees. See Packard Motor Car Co., 330 U.S. at 489-90,

67 S. Ct. at 792. As we have observed, highly placed

employees who have no inherent right to participate in the

governance of the business are as subject to the control of

the business principals as any other employee. Their

decisions might be overruled, their pay might be docked,

their hours might be altered, their positions might be

eliminated. Ibid. In the fundamental sense that they lack

the right to control the enterprise, they are like other

employees and should be counted as such in determining

whether the business meets the fifteen-employee minimum.

A small business owner like Gonzalez has the option of

running the business herself, without the need for persons

like Foust or Ricardo to act in her stead. In that way, she

might keep the number of employees below Title VII’s

threshold. If instead, she chooses to engage another person

to run the business on a day-to-day basis for her, without
No. 05-3467 29

giving him a stake in the business that lets him share the

power to control it, then she is taking on an additional

employee that may put her workforce over the statutory

threshold, just as if she had taken on an additional cook,

server, cashier, or busboy.

We noted at the outset of our analysis that if the district court erred in excluding from the employee tally any

one of the individuals whose status was disputed, then the

error would require the reversal of the summary judgment entered in the defendants’ favor. For the reasons we

have articulated, the undisputed facts do not support the

district court’s finding that Foust and Ricardo are employers rather than employees. The court therefore erred in

granting summary judgment on this basis. We need not and

do not reach the other employees whose status is disputed.

III.

The district court erred in determining on summary

judgment that Phyllis Foust and Ricardo Gonzalez constitute employers rather than employees. As the inclusion

of one or both of these two individuals suffices to put

Castaways over Title VII’s fifteen-employee threshold, the

entry of summary judgment in favor of defendants Castaways and Carrol Gonzalez was in error. We REVERSE

the entry of summary judgment in defendants’ favor and

REMAND for further proceedings consistent with this

opinion.
30 No. 05-3467

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—7-18-06