Court Opinion

ID: 2999375
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:53:28.859357+00
Date Added: 2024-06-11T15:02:59.974461
License: Public Domain

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

fifteen “employees” for the requisite period of time. The
court excluded the two individuals who manage the restau-
rant from the tally, reasoning that in view of their day-to-
day 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 (al-
though 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

1
  Of the many photocopied checks in the record issued by
Castaways in 2003, none was signed by Foust.
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 com-
menced 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 Cast-
aways 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 super-
vision, 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 re-
taliation. 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 recollec-
tions, and other information to try and reconstruct an
No. 05-3467                                                    5

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 fifteen-
employee/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 magis-
trate 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, direc-
tors, 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 defen-
dants “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.

2
  There is a high turnover among Castaways employees. Evi-
dently it is not uncommon for individuals to work for the restau-
rant for a matter of weeks or even days, in some cases just long
enough for them to pay their rent or buy groceries.
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 fifteen-
employee/twenty-week threshold. The defendants them-
selves, in answer to Smith’s interrogatories, at first ac-
knowledged 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 approxi-
mately 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 discrep-
ancy 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 defen-
dants’ 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 defen-
dants’ 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 discrimina-
tion 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 obliga-
tions—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 discrimi-
nation 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 relation-
ship:
     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 Restate-
     ment’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 organiza-
tion, or whether the individual is subject to the organiza-
tion’s control.’ ” Id. at 449, 123 S. Ct. at 1680 (quoting
EEOC Compliance Manual § 605:0009 (2000)). The Com-
mission 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-em-
ployee 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 “employ-
ees.” 538 U.S. at 445 n.5, 123 S. Ct. at 1677 n.5. “Em-
ployers” 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 poten-
tially have the right to dictate the decisions of the busi-
ness 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

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 individ-
ual 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

3
  As a sole proprietorship, of course, Castaways has no formal
corporate structure.
14                                                  No. 05-3467

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 Manage-
ment 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-

4
  The district court did not explicitly label Foust and Ricardo as
“employers,” but that finding is implicit in the court’s deter-
mination 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.
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 per-
    forming the service. The word indicates the closeness of
    the relation between the one giving and the one receiv-
    ing 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 wheth-
er 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 de-
scribed as “too obvious to be labored” the notion that a
foreman qualified as an employee both “in the most techni-
cal sense at common law as well as in common acceptance
of the term.” Id. at 488, 67 S. Ct. at 791. The Court ac-
knowledged 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 manage-
     ment and manual labor, still have interests of their own
     as employees. Though the foreman is the faithful
     representative of the employer in maintaining a produc-
     tion 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

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 over-
ruled (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 con-
trol.’ ”) (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-

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 subse-
quently 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.
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 partici-
pate 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 partici-
pate 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 ‘employ-
ees.’ ”); id. at 445 n.5, 123 S. Ct. at 1677 n.5 (“our inquiry is
whether a shareholder-director is an employee or, alterna-
tively, the kind of person that the common law would
consider an employer”).
  Given that Ricardo and Foust have no apparent owner-
ship 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 au-
thority 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

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 acquies-
cence 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 pur-
ported 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 pow-
er behind the throne. This has been done to shield a busi-
ness’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.

6
    Citations to “WLNR” are to the Westlaw NewsRoom database.
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 “employ-
ees” 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 consti-
tuted 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 partner-
    ship 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 direc-
    tion 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 individ-
ual’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 employ-
ers”). 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 shareholder-
director’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 compensa-
     tion. 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 se-
     cured 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 oppor-
     tunity 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 organiza-
tion: 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 RE-
STATEMENT § 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 author-
ity 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 RESTATE-
MENT § 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 (empha-
sis 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 substan-
tial 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 RESTATE-
MENT § 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 Gonza-
lez—that is consistent with his being an employer. Gener-
ally 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 find-
ing 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 pur-
poses 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 antidis-
crimination 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 fifteen-
employee 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 inappro-
priate 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 influ-
ence 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 employ-
ment 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 dis-
trict 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 judg-
ment 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 em-
ployers 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 con-
stitute 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 Cast-
aways 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