Court Opinion

ID: 9494566
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:40:20.355919+00
Date Added: 2024-06-11T17:56:28.243425
License: Public Domain

GRABER, Circuit Judge,
dissenting:
I respectfully dissent. For three reasons, EEOC v. Dowd & Dowd, Ltd., 736 F.2d 1177 (7th Cir.1984), expresses the more persuasive approach in the context of this case:1 (1) our circuit has cautioned against being governed by labels, rather than realities; (2) a physicians’ professional corporation in Oregon has many attributes of a partnership as a matter of law and is not merely an ordinary commercial corporation; and (3) the purpose of the numerical requirement in the ADA is to separate small from large enterprises, not to adhere to the vagaries of tax law or tort liability. Like the district court, I would apply the “economic realities” test and would conclude that Defendant’s physician-shareholders were not “employees” within the meaning of the ADA.
1. The Significance of Strother
In Strother v. Southern California Permanente Medical Group, 79 F.3d 859, 865-68 (9th Cir.1996), we held that “partners” can be considered “employees” under a state anti-discrimination statute that borrowed concepts from federal [aw. There, a partner in a medical partnership consisting of more than 2,000 partners had sued the medical partnership. The district court held that the plaintiff could not maintain the action because she was a partner in the defendant entity and was a party to its partnership agreement. We reversed, holding that the plaintiff should have an opportunity to prove that she was functionally an employee (for example, had neither the power nor the duty to participate in the management and the control of the defendant firm), rather than a partner in the normal sense. Id. at 867-68. We noted, for example, that the defendant entity was controlled by a board of directors over which the plaintiff exercised “little control and to which she [had] limited access.” Id. at 867.
Although I agree that Strothers is not controlling here, it at least suggests that economic realities are more important than labels. That principle should remain true when the shoe is on the defendant’s foot.
Indeed, even the Second Circuit has backed away a bit from the bright-line test suggested by Hyland v. New Haven Radiology Assocs., P.C., 794 F.2d 793 (2d Cir.1986). In a later case, the Second Circuit observed that, although the shareholders of a professional corporation can*907not be considered partners, it does not follow that every such shareholder also is an “employee” of the professional corporation. EEOC v. Johnson & Higgins, Inc., 91 F.3d 1529, 1538 (2d Cir.1996). For example, if a shareholder sits on the board of directors but is not involved in the day-to-day management or operation of the firm, then the shareholder is more akin to an “employer,” rather than being an “employee.” Id. This case brought the Second Circuit’s approach somewhat closer to the Seventh Circuit’s. See Chavero v. Local 241, 787 F.2d 1154, 1157 (7th Cir.1986) (holding that members of the board of directors are not employees unless they “perform traditional employee duties”); Zimmerman v. N. Am. Signal Co., 704 F.2d 347, 352 (7th Cir.1983) (holding that directors and “unpaid, inactive officers” are not corporate “employees”). In other words, “economic realities” play some role even in the Second Circuit, and Strother counsels that economic realities should play a major role in the Ninth Circuit.
2. The Nature of This Professional Corporation
A professional corporation has some attributes of an ordinary incorporated business, but it is not identical and retains attributes of a professional partnership. The use of the word “corporation” in both contexts should not constrain our inquiry.
In Oregon, a physicians’ professional corporation, like this one, preserves the professional relationship between the physicians and their patients, as well as the standards of conduct that the medical profession requires. Or.Rev.Stat. § 58.185(2). Further, “a shareholder of the corporation is personally liable as if the shareholder were rendering the service or services as an individual ” with respect to all claims of negligence, wrongful acts or omissions, or misconduct committed in the rendering of professional services. Or.Rev.Stat. § 58.185(3) (emphasis added). A licensed professional also is jointly and severally liable for such claims, albeit with some dollar limitations. Or.Rev.Stat. § 58.185(4)-(9). Ordinary business corporation rules apply only to other aspects of the entity, apart from the provision of professional services. . Or.Rev.Stat. § 58.185(11). A professional corporation’s activities must remain consistent with the requirements of the type of license in question, Or.Rev.Stat. § 58.205, and it may merge only with other professional corporations, Or.Rev.Stat. § 58.196, so the provision of professional services — with its attendant liabilities — must remain at the heart of a P.C. like this defendant.2
Additional special rules apply to professional corporations that are organized to practice medicine, none of which apply to ordinary business corporations. A majori*908ty of the directors, the holders of the majority of shares, and all officers except the secretary and treasurer must be Oregon-licensed physicians. Or.Rev.Stat. § 58.375(l)(a)-(e). The Board of Medical Examiners is given express statutory authority to require more than a majority of shares, and more than a majority of director positions, to be held by Oregon-licensed physicians. Or.Rev.Stat. § 58.375(l)(d) & (e). The Board of Medical Examiners also may restrict the corporate powers of a professional corporation organized for the purpose of practicing medicine, beyond the restrictions imposed on ordinary business corporations. Or. Rev.Stat. § 58.379. Lastly, Or.Rev.Stat. §§ 58.375 through 58.389 contain impediments to the transfer of shares and other corporate activities.
In short, even without considering the economic realities of this particular P.C., it is apparent that a physicians’ professional corporation in Oregon retains important legal aspects of a partnership. On this record, it also is clear that the four physician-shareholders are the Defendant entity’s directors, participate in the management and operation of the entity’s medical practice, attend monthly management meetings, and share profits from the professional corporation through an annual bonus system. Because they in fact exercised full control over the medical practice, shared profits, and remained jointly and severally liable to patients on medically related claims, the physician-shareholders should be classified as partners, rather than employees.
3. The Reason for the ADA Classification
The apparent reason for limiting the ADA’s coverage to entities with 15 or more employees in each of 20 or more calendar weeks in the current or preceding calendar year, 42 U.S.C. § 12111(5)(A), is to divide larger businesses from smaller ones. Congress decided “to spare very small firms from the potentially crushing expense of mastering the intricacies of the antidis-crimination 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.) (discussing the congressional purpose “of exempting tiny employers from the antidiscrimination laws,” including the ADA), cert. denied, 528 U.S. 1019, 120 S.Ct. 526, 145 L.Ed.2d 408 (1999); see also Miller v. Maxwell’s Int'l Inc., 991 F.2d 583, 587 (9th Cir.1993) (recognizing that Congress exempted small employers from the ADEA and Title VII of the Civil Rights Act in order to protect them from “the costs associated with litigating discrimination claims”).3
The result of the majority’s opinion is that Clinic # 1, this defendant, is a “covered entity” Tor ADA purposes, while Clinic # 2 next door, which is identical in all respects except in its four physicians’ decision not to adopt a P.C. format, is not a covered entity. Because the very purpose of the 15-employee threshold is economic, it makes no sense to treat Clinic # 1 and Clinic # 2 differently.
4. Conclusion
In my view, the Ninth Circuit should adopt the majority rule — an “economic realities” test — to determine whether a shareholder in a professional corporation is an “employee” within the meaning of the ADA. As Plaintiff and the panel majority acknowledge, if we applied that test to this *909case we would have to affirm the judgment of the district court. I therefore dissent from the decision to reverse and remand.

. The other circuits that have examined this question have followed the Seventh Circuit's approach in Dowd: Devine v. Stone, Leyton & Gershman, P.C., 100 F.3d 78, 80-81 (8th Cir.1996); Fountain v. Metcalf, Zima & Co., P.A., 925 F.2d 1398, 1400-01 (11th Cir.1991). It appears that no circuit other than the Second has adopted the Hyland approach.

. In Oregon, the distinction between partnerships of professionals and professional corporations is diminishing further. Oregon is currently phasing in a new set of statutes that will govern all Oregon partnerships after Jan-uaryl, 2003. 1997 Or. Laws, ch. 775, § 84. Under Or.Rev.Stat. § 67.105(4), the liability of partners in a limited liability partnership of professionals will be governed by professional-corporation law:
Notwithstanding subsection (3) of this section, the partners of a limited liability partnership who are professionals shall be personally liable in their capacity as partners to the same extent and in the same manner as provided for shareholders of a domestic professional corporation under ORS 58.185 and 58.187 and as otherwise provided in this chapter.
The fact that the law governing business entities is subject to a change that will result in having two differently named business structures share significant common features (as well as the fact that the law of business organizations varies from state to state) is an additional reason to adopt an “economic realities” test instead of one that relies solely on labels.

. Additionally, Congress made a judgment about how large a business has a presumed effect on interstate commerce.