Opinion ID: 4311358
Heading Depth: 2
Heading Rank: 1

Heading: Was Vaughn Hospitality Frey’s employer?

Text: On appeal, Frey asks us to find that the district court erred in determining that Vaughn Hospitality was not Frey’s em‐ ployer. It is undisputed that Hotel Coleman employed Frey. It signed and funded her paychecks, issued her a W‐2 for each year of employment, and owned the Hotel where she worked. For Title VII purposes, however, a plaintiff can have more No. 17‐2267 7 than one employer. Love, 779 F.3d at 701. Given the complex‐ ities of Title VII, it is easy to get sidetracked down the incor‐ rect path of the Title VII maze when looking at employer/em‐ ployee relationships. The place to begin when evaluating the existence vel non of a joint employment relationship is Knight v. United Farm Bureau Mut. Ins. Co., 950 F.2d 377, 378–79 (7th Cir. 1991). Knight instructs that a court in this circuit must employ an “economic realities” test which is, in its essence, an applica‐ tion of general principles of agency law to the facts of the case. Id. at 378; Love, 779 F.3d at 702. In doing so, a court must con‐ sider the following: (1) the extent of the employer’s control and su‐ pervision over the worker, including directions on scheduling and performance of work, (2) the kind of occupation and nature of skill required, including whether skills are obtained in the workplace, (3) responsibility for the costs of op‐ eration, such as equipment, supplies, fees, li‐ censes, workplace, and maintenance of opera‐ tions, (4) method and form of payment and ben‐ efits, and (5) length of job commitment and/or expectations. Knight, 950 F.2d at 378–79. Of these factors, “the employer’s right to control is the most important,” and a court must give it the most weight. Id. at 378. Although the Knight test began as a way to differentiate between employees and independent contractors, it soon came to be used in this circuit to determine which entity or entities should be considered to be an employer for purposes 8 No. 17‐2267 of Title VII liability where there was more than one putative employer. See, e.g., Nischan v. Stratosphere Quality, LLC, 865 F.3d 922, 928 (7th Cir. 2017) (using Knight test to consider whether a client of an inspection and quality control company for whom the plaintiff provided services was a joint employer for purposes of Title VII); Bridge v. New Holland Logansport, Inc., 815 F.3d 356, 361 (7th Cir. 2016) (using Knight test to de‐ termine whether commonly‐owned entities could be consid‐ ered joint employers for the purposes of counting employees for Title VII coverage); Love, 779 F.3d at 702 (applying Knight factors to determine whether contractor or subcontractor or both were plaintiff’s employer for Title VII purposes). And we know our case law is on the right track because the Supreme Court has articulated a similar test for determining whether an employer‐employee relationship exists for purposes of ERISA—a statute which contains the same definition of “em‐ ployee” as Title VII. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323–24 (1992). We have held that our Knight five‐fac‐ tor test is the essential equivalent of the Supreme Court’s Darden test. Mazzei v. Rock N Around Trucking, Inc., 246 F.3d 956, 963 (7th Cir. 2001). As we explore later, there are different tests a court might rely on to determine if a particular entity is an employer for Title VII purposes in other scenarios—for example, if a corpo‐ rate veil between related business entities should be pierced because of the actions of those entities, or to determine if cer‐ tain managers and supervisors are employees or employers for purposes of determining if a business has met the fifteen‐ employee threshold—but none of these tests applies here. In‐ stead, we have before us two otherwise unrelated business entities—one owns a hotel and the other manages the em‐ ployees of that hotel—and we must determine whether one, No. 17‐2267 9 the other, or both qualify as Frey’s employer for purposes of Title VII. In this case, the parties agree that Hotel Coleman was an employer of Frey. The only question then is whether Vaughn Hospitality was as well. For such a task a court must employ the five‐factor test set forth in Knight. The district court erred by not doing so. Instead of looking to the Knight factors, the district court became distracted by our holding in Smith v. Castaways Family Diner, 453 F.3d 971 (7th Cir. 2006). In Smith we were called upon to count heads to determine whether the employer, Castaways Diner, had fifteen or more employees. In order for a business to fall within the scope of Title VII, it must employ a minimum of fifteen employees for at least twenty weeks during the calendar year. 42 U.S.C. § 2000e(b). The Illinois Hu‐ man Rights Act requires the same. 775 ILCS § 5/2‐101(B)(1)(a). The Smith case required the court to determine whether two managers of the diner should be counted as employees or as employers. Those managers had the absolute power to hire, discipline, and fire the other workers without securing the owner’s approval. Smith, 453 F.3d at 978. They managed all aspects of the day‐to‐day operations, including establishing policies, setting their own hours, creating the menu, ordering supplies, and bookkeeping. Id. The managers, however, did not own any part of the business and retained authority only by delegation from the owner. Had she changed her mind and reassumed those responsibilities, the managers would have had no recourse. Id. at 984. The panel in Smith looked at vari‐ ous tests courts have used to determine whether any individ‐ ual is an employee of the sued entity. In one line of case law to which the district court looked, courts distinguish inde‐ pendent contractors from employees. Darden, 503 U.S. at 322– 24. In another, courts differentiate between owners or 10 No. 17‐2267 partners of a business with meaningful authority to run the business (who can be classified as employers) and nominal owners and partners who have no such meaningful authority and thus are employees. Clackamas Gastroenterology Assocs., P. C. v. Wells, 538 U.S. 440, 449–51 (2003) (enunciating a test to determine whether a shareholder‐director is an employee). And this court uses yet another test to determine whether we can aggregate employees (to reach the fifteen‐employee min‐ imum) where an employer is affiliated with other corpora‐ tions. Papa v. Katy Indus., Inc., 166 F.3d 937, 939 (7th Cir. 1999). The Smith court rejected the Darden and Clackamus‐derived tests as not well‐suited to the situation at issue in the case be‐ fore it—where managers who have no office or equity in the business had near total managerial discretion merely by del‐ egation from someone who did have both the office and eq‐ uity. Smith, 453 F.3d at 976–79. In other words, when evaluat‐ ing whether a particular worker is an employee or an em‐ ployer, the status and role of the person in question matters when selecting the appropriate lens or test with which to view the question. The Smith court stated that, “Given that [the managers] 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.” Id. at 981. Likewise, the court noted that the defendants did not need to show that the man‐ agers were “independent contractors rather than employ‐ ees … [it needed] to show that they exercise so much author‐ ity as to be employers rather than employees.” Id. at 976 (em‐ phasis in original). In Smith, the managers held authority only by delegation and acquiescence of the owner. In other words, [d]etermining whether an individual controls or has the right to control an enterprise, and thus No. 17‐2267 11 constitutes an employer, must take into account not only the authority that person wields within the enterprise but also the source of that author‐ ity. 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. Smith, 453 F.3d at 984 (emphasis ours). And therein lies the key problem here. The district court equated Vaughn Hospitality with the managers in Smith and determined that “As the hired manager, [Vaughn Hospitality] wasn’t an employer of the hotel staff—it was part of the hotel staff. [Vaughn Hospitality] was an agent, not a principal, and the fact that one agent [Vaughn Hospitality] exercises author‐ ity over another agent (Frey) does not render the senior agent the junior’s employer.” Frey (employer decision), 2015 WL 5921580, at ; R. 97 at 7–8 (Page ID 1991–92) (citing Smith, 453 F.3d at 979, 984). But we cannot evaluate the status of the individual we are trying to sort into either the employer basket or employee bas‐ ket in the case before us as there is no such individual; there is only a company—Vaughn Hospitality. Just as the Clackamus test was misapplied in Smith, the Smith test has been misap‐ plied in this case. We are not considering whether a particular manager, partner, shareholder, or director is an employee or an employer, or whether a particular person exercised control and authority by right (as an employer) or by delegation at the pleasure of another (as an employee). Nor are we trying to determine whether the employees of smaller affiliated busi‐ ness entities should be aggregated for purposes of 12 No. 17‐2267 determining whether an employer has fifteen or more em‐ ployees. Instead, we are looking at two different unrelated corporate entities—Hotel Coleman and Vaughn Hospital‐ ity—and trying to determine if one or both were Frey’s em‐ ployer. The Knight test is the one a court must use for such purposes. And it is not simply that the Knight test is best designed for this purpose, although, of the ones articulated above, it certainly is. Recall that the Knight test simply reflects an “eco‐ nomic realities” test which looks to see whether the putative employer exercised sufficient control. Love, 779 F.3d at 702. But when we look to the precedent in Smith, it becomes clear why it is not applicable here. In Smith, our task was to count workers to see if the employer had at least fifteen employees such that it could be liable for the discrimination alleged. And we cannot count a corporation toward the fifteen employee minimum because it is not an employee at all. Title VII defines “employee” as “an individual employed by an employer.” 42 U.S.C. § 2000e(f) (emphasis ours). Just recently the Supreme Court explained at length what it means when a statute refers to an “individual” without further defining that term, as is the case here. Mohamad v. Palestinian Auth., 566 U.S. 449, 454 (2012). In Mohamad, the Court was deciphering the meaning of “individual” in the Torture Victim Protection Act of 1991, but its application was broad. Noting how the Court itself has interpreted the word “individual,” the Court stated, “[e]vi‐ dencing that common usage, this Court routinely uses ‘indi‐ vidual’ to denote a natural person, and in particular to distin‐ guish between a natural person and a corporation.” Id. The Court then went on to note that Congress employs the word “individual” in the same way that the Court has. Id. The Court specifically distinguished the word “individual” from the No. 17‐2267 13 word “person” noting that “The Dictionary Act instructs that ‘[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise … the wor[d] “person” … in‐ clude[s] corporations, companies, associations, firms, part‐ nerships, societies, and joint stock companies, as well as indi‐ viduals. Id., citing 1 U.S.C. § 1 (emphasis in Mohamad deci‐ sion). The phrase “as well as individuals,” the Court rea‐ soned, clearly demarcated the term “individual” from “the list of artificial entities that precedes it.” Id. In other words, although a “person” can be defined to include a business en‐ tity or corporation, an “individual” cannot. The Mohamad Court thus concluded that unless Congress makes its inten‐ tion to give the word “individual” anything other than its nat‐ ural meaning as a single human being, “there must be some indication Congress intended such a result.” Id. at 455 (em‐ phasis in original). In this case, not only has Congress failed to give any indi‐ cation that “individual,” as used to define an employee in Ti‐ tle VII, could include a corporation, but the statute gives all indications to the contrary. The purpose of the statute, after all, is to make it unlawful to discriminate “with respect to [an employee’s] compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, reli‐ gion, sex, or national origin.” 42 U.S.C. § 2000e‐2. Corpora‐ tions do not have races, colors, religions, genders or national origins. Individual humans do. Although corporations may have some rights as “persons” because the Dictionary Act in‐ cludes corporations, associations etcetera as “persons” (See Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)), a corporation is not an “individual” that could, for example, file a law suit for discrimination based on race. The test uti‐ lized in Smith, therefore, simply does not answer the question 14 No. 17‐2267 we have before us. The Knight test, however, does, and should have been the one used below. On remand, the district court should apply the facts of this case to the factors articulated in Knight. The factors articulated in Knight, will also apply to an eval‐ uation of whether Vaughn Hospitality can be considered an employer under the Illinois Human Rights Act. Illinois courts often look to federal Title VII law to guide them. Carter Coal Co. v. Human Rights Commʹn, 261 Ill. App. 3d 1, 14, 633 N.E.2d 202, 211 (Ill. Ct. App. 1994). And the test for determining an employer‐employee relationship under Illinois law is fairly similar: Common‐law factors to consider in examining a worker’s potential status as an employee in‐ clude the amount of control and supervision, the right of discharge, the method of payment, the skill required in the work to be done, the source of tools, material or equipment, and the work schedule. Of these, control of the manner in which work is done is considered the most important. When analyzing claims of discrimi‐ nation under the Act, we may look to the stand‐ ards applicable to analogous federal claims. Mitchell v. Depʹt of Corr., 367 Ill. App. 3d 807, 811, 856 N.E.2d 593, 598 (Ill. Ct. App. 2006) (citations omitted). Based on the record as set forth in the district court, it seems likely that the district court, applying the Knight fac‐ tors, would conclude that Vaughn Hospitality was indeed Frey’s employer, but that decision is for the district court to No. 17‐2267 15 make on remand. Nevertheless, we note how those factors ap‐ pear from our appellate perch. Knight instructs that the putative employer’s degree of control is the most important and deserving of the most weight. Vaughn Hospitality had control over every aspect of Frey’s work environment. It hired and fired her, determined her compensation and other benefits, supervised, scheduled, and trained her, and evaluated her work. In a contract with Vaughn Hospitality, Hotel Coleman stated that it would not interfere with Vaughn Hospitality’s control in all matters of import, noting in particular that it would “not give any direct instructions to any employee of [the Hotel] or to [Vaughn Hospitality] whose instructions may interfere, undermine, conflict with or affect in any manner the authority and chain of command as established by [Vaughn Hospitality].” R. 92‐2 at 5 (Page ID 1533). There is no question that Vaughn Hospi‐ tality had absolute control of Frey’s employment and its con‐ ditions. The first, and most important, factor unquestionably points to Vaughn Hospitality as employer. As dictated by the second Knight factor, we look at the type of occupation and the nature of the skills required for the po‐ sition, including whether those skills were obtained in the workplace. Knight, 950 F.2d at 378. We do not know how much skill was required for Frey’s position, and where she obtained those skills, as the record is light on these details, but it does not appear that Frey had significant specialized skills that she brought with her to the job. We do know, however, that Vaughn Hospitality provided all of the training at the Hotel and that each employee, including Frey, received a “Vaughn Hospitality Employee Handbook,” which set forth employment policies, benefit programs, and other 16 No. 17‐2267 procedures. Consequently, this factor also points to Vaughn Hospitality as employer. As for the third and fourth factors—responsibility for the costs of operation and payment of salary and benefits—the point goes to Hotel Coleman for this one. Hotel Coleman owned the property and covered the operating expenses, in‐ cluding the payment of Frey’s salary and benefits. The fifth factor requires the district court to grapple with a number of “what if” factors. The court must look at the length of the job commitment and/or expectations. As far as the record reflects, Vaughn hired Frey as a long‐term, at‐will employee. The Employee Handbook stated, “we hope your employment relationship with us will be long term.” R. 80‐4 at 5. This was not a temporary assignment or a contract job that would end at the completion of some task. See, e.g., Love, 779 F.3d at 705 (finding that the fifth factor weighed against the plaintiff where it was undisputed that he worked on the project overseen by the general contractor for only eight months and intended to remain employed by the subcontrac‐ tor and not the general contractor at the end of the project). Frey worked for the Hotel for two years before Vaughn ter‐ minated her. Hotel Coleman sold the Hotel in August 2010, and the new owners did not retain Vaughn Hospitality to manage the Hotel. Two employees who worked in positions similar to Frey’s, however, continued working for the new owner and there is no reason why Frey might not have as well. Vaughn Hospitality argues that had she not been fired, Frey might have been able to continue working for the Hotel, but under new management, and thus her employment was tied to the Hotel and not Vaughn Hospitality. But on the flip side of that coin, Vaughn Hospitality was a hotel management No. 17‐2267 17 company, and therefore it is also a possibility that had she not been fired, Frey may have moved on with Vaughn Hospitality to an assignment at a new hotel. Vaughn Hospitality’s argu‐ ment, therefore, is of no help either way. Vaughn hired Frey as a permanent, long‐term employee. The balance on this fac‐ tor weighs in favor of finding that Vaughn Hospitality was Frey’s employer along with the Hotel Coleman. Although it is true that not every factor points toward Vaughn Hospitality as Frey’s employer, the test is a balancing one with different weights added to each side of the scale— the heaviest of which is the degree of control. A plaintiff need not establish that every Knight factor falls in her favor in order to prevail. See, e.g. Love, 779 F.3d at 705 (a plaintiff can survive summary judgment even when not all Knight factors support him). In sum, it was legal error for the district court to fail to apply the Knight factors. Had it done so, it seems likely that it would have come to a different conclusion about Vaughn Hospitality as Frey’s employer for purposes of Title VII en‐ forcement. Moreover, and for the same reasons, if Vaughn Hospital‐ ity is deemed to be Frey’s employer, it is also the joint em‐ ployer of the other employees in the Hotel. It is undisputed that more than fifteen individuals worked at the Hotel under Vaughn Hospitality’s control, therefore we conclude that if Vaughn Hospitality was one of Frey’s employers it had a suf‐ ficient number of other employees to be a covered employer under Title VII. See 42 U.S.C. § 2000e(b). On a final note, Vaughn Hospitality claims on appeal that Frey failed to exhaust her administrative remedies because she named Vaughn as her “supervisor” and not her employer in some of her claims before the Illinois Human Rights 18 No. 17‐2267 Commission and/or the EEOC. Vaughn Hospitality did not raise this issue below and therefore it is waived. In any event, we would find that Vaughn Hospitality had sufficient notice of the claims against it and was able to participate fully in the proceedings before the court. See, e.g., Tamayo v. Blagojevich, 526 F.3d 1074, 1089 (7th Cir. 2008). We vacate the district court’s ruling on summary judg‐ ment that Vaughn Hospitality was not a joint employer of Frey and remand to the district court for further proceedings that reflect these conclusions.