The Court of Appeals for the Third Circuit Dismisses a Religious Discrimination Claim Because the Plaintiff Shareholder-Director was Not an "Employee" Under Title VII

In Mariotti v. Mariotti Building Products, Inc., 2013 WL 1789440, *1, 3 (3d Cir. April 29, 2013), the court held that a six-prong test applies to the determination of whether an individual is an employee. Based on this test, the Third Circuit concluded that the shareholder-director-officer of a closely held family corporation was not an "employee" under Title VII and, therefore, he could not assert a claim for religious discrimination under Title VII.

Mariotti and his two brothers joined their father's business, and Mariotti most recently served as: (1) both vice president and secretary of the company; (2) a member of the board of directors; and (3) a shareholder. In January 2009, Mariotti gave the eulogy at his father's funeral, including comments about his deep religious faith, which upset family members. Two days later, the shareholders of the family business decided to terminate Mariotti's employment. As a result, Mariotti lost all of his employment benefits, but he continued to receive "draws" from the company. In August 2009, the shareholders did not re-elect him as a director, and in October 2009, Mariotti timely filed Title VII religious discrimination claims against the company.

The company filed a motion to dismiss, asserting that Mariotti was not an employee. The district court agreed and the Third Circuit affirmed that decision. The Third Circuit applied the following six-part test:

1. Whether the organization can hire or fire the individual or set the rules and regulation of the individual's work;
2. Whether and, if so, to what extent the organization supervises the individual's work;
3. Whether the individual reports to someone higher in the organization;
4. Whether and, if so, to what extent the individual is able to influence the organization;
5. Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts;
6. Whether the individual shares in the profits, losses, and liabilities of the organization.

The court ruled that this test applied regardless of whether the individual worked for a professional corporation or a regular corporation.

In finding that Mariotti was not an employee, the court observed that “[his] status as a shareholder, a director and a corporate officer gave him both substantial authority at [the company] and the right to control the enterprise. He was entitled to participate in the management, development and governance of [the company]. By sitting on the board of directors and serving as a corporate officer, Plaintiff had the ability to participate in the fundamental decisions of the business.”

Under Mariotti, the Third Circuit has made it clear that, while employee-status is a fact-intensive inquiry (usually decided at summary judgment), persons who have substantial authority over a business, including the right to control the enterprise, participate in fundamental decision making and manage, develop and govern the business are not "the kind of person that the common law would consider an employee."