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Employee who ‘incorporated’ was still an employee under Title VII

By Lisa Milam-Perez, J.D.

Noting that the existence of an employment relationship is not a jurisdictional question but rather, a substantive element of a plaintiff’s discrimination claims, and that the defendant’s contention that it was not the plaintiff’s employer “bordered on frivolous,” a federal district court in New York denied summary judgment to a real estate brokerage company and its president on the plaintiff’s discrimination claims (Kology v. My Space NYC Corp., April 11, 2016, Glasser, I.).

The employee worked as an agent and manager for the real estate company, My Space. The company president hired her, assigned her duties, and allegedly “controlled every aspect” of her work, including her schedule. When the president assigned her to manage a new branch office, the parties entered into a new contract detailing her salary and commission, time off, etc.; subsequently, the employee signed a noncompete agreement.

Then the employee formed Atlantis 94 Corp, of which she was sole shareholder and employee, and My Space began to pay Atlantis for her services, rather than pay the employee directly. Indeed, her corporation was set up for this very purpose. Her duties did not change, though, and the My Space president continued to exert the same control over her work. However, her job title did change: she was named senior vice president of My Space, and was ordered to identify herself as such in emails and on her business card.

But she was subsequently fired, and she filed discrimination claims against the company and its president under Title VII (and the NYSHRL and NYCHRL). The defendants moved to dismiss, asserting that she was not their “employee” but rather, that her corporation was its “vendor.” As evidence, it cited the plaintiff’s corporate form. That was not enough to support this defense, the court found, particularly when the remaining evidence clearly showed that My Space was the plaintiff’s employer throughout the duration of their relationship.

Under Title VII, the term “employer” is construed functionally, the court observed. The definition is meant to encompass entities or individuals who, even if not “employers” in the conventional sense, nonetheless exert control over an individual’s compensation or terms and conditions of employment. In this case, it was undisputed that the plaintiff started out as an employee of My Space, and the “functional features” of her relationship with the company were not altered with the formation of Atlantis, “an entity whose sole purpose was to receive [her] compensation.” Her incorporation was merely a change in form, not substance, and it could not insulate her true employer from liability for discrimination.