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EEOC informal discussion letters lay out factors for analyzing whether a partner is really an employee

By Pamela Wolf, J.D.

In a pair of informal discussion letters just released, EEOC Legal Counsel Peggy R. Mastroianni lays out the agency’s formula for determining when a firm “partner” is and is not an “employee” for purposes of the ADEA’s prohibition against age discrimination. In these particular letters—one favoring the agency’s reported plan to “expand” ADEA coverage to include accounting firm partners and one that opposes the move—the issues specifically relate to accounting firms and age bias. However, the factors cited by the EEOC apply equally to other federal EEO laws and “partners” in other types of firms. Mastroianni also dispels the notion that the EEOC’s application of these factors to “partners” at accounting firms would somehow “expand” ADEA coverage.

Writing on behalf of the agency in both letters, one dated July 25, 2013 and the other July 29, 2013, the EEOC attorney stated: “It is well established that in some instances individuals who have the job title of ‘partner’ may qualify as employees for purposes of the EEO laws, including the ADEA.” This principle, she asserted, does not reflect an “expansion” of the ADEA.

There is no legal presumption, Mastroianni observed, that an individual who holds the title of “partner” is never an employee. The determination hinges on the “actual working relationship between the individual and the partnership,” she wrote. The question in each instance is “whether the individual acts independently and participates in managing the organization (not an employee), or whether the individual is subject to the organization’s control (an employee).”

Six factors. To determine this question, the EEOC uses six non-exhaustive factors it deems relevant:

  • 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; and
  • Whether the individual shares in the profits, losses, and liabilities of the organization.

In support of the agency’s use of these factors, Mastroianni points to the Supreme Court’s approval, in Clackamas Gastroenterology Assocs., P.C. v. Wells (2003), of the EEOC’s emphasis on “the common-law touchstone of control” in determining whether an individual with the title of “partner” is an “employee” under the EEO laws. Whether shareholder-directors in that case were employees could not be determined by inquiring if the shareholder-director position is “the functional equivalent of a partner,” because “there are partnerships that include hundreds of members, some of whom may well qualify as ‘employees’ because control is concentrated in a small number of managing partners,” she underscored. The Clackamas Court, she said, adopted the six-factor control test from EEOC guidance, stressing that the coverage determination depends on “all of the incidents of the relationship . . . with no one factor being decisive.”

ADEA application. Before Clackamas, the federal appeals courts “had similarly focused on the actual working relationship between an individual and the partnership when inquiring whether the individual was an employee within the meaning of the ADEA,” according to Mastroianni, citing the Sixth Circuit’s 1997 decision in Simpson v. Ernst & Young. The appeals court there “considered a variety of factors before holding that an accountant designated as a partner qualified as an employee for purposes of the ADEA,” she noted. In addition, she cited the Seventh Circuit’s 2002 holding in EEOC v. Sidley Austin Brown & Wood that “the EEOC was entitled to partial enforcement of a subpoena to determine whether 32 partners were employees covered by the ADEA.”

Accordingly, if there were to be a determination in a specific instance that individuals baring the title of “partner” were actually “employees,” “it would be a factual determination guided by existing law,” Mastroianni said, not an “expansion” of the ADEA.

The two EEOC letters are not considered official agency opinions but rather are informal discussions of the cited issues; they were both released by the agency on August 15, 2013.