Third Circuit Holds That Shareholder-Director Cannot Sue For Discrimination

The Third Circuit Court of Appeals recently ruled that a shareholder-director of a closely held family corporation was not an "employee" under Title VII, and therefore could not sue for discrimination. See Mariotti v. Mariotti Building Products, Inc., No. 11-3148, 2013 WL 1789440 (3d Cir. April 29, 2013).

Mariotti Building Products, Inc. is a "closely held family business" started by Louis S. "Babe" Mariotti in 1947. In the 1960s, Babe's sons, plaintiff Robert Mariotti, Sr. and his two brothers, Eugene and Louis, joined the business, which eventually grew to be worth more than $60 million. In his more than 45 years with the company, Robert developed a number of business areas, training staff in the day-to-day management of several product lines. He principally managed the manufactured housing sales division, as well as customer credit, bill paying, purchasing, and the inbound transportation of product lines. He was a shareholder and an officer of the corporation, serving as both vice president and secretary and as a member of the board of directors. He was employed pursuant to an agreement that provided for termination only for "cause."

In 1995, Robert had a religious "spiritual awakening," which he alleged was derided by the officers, directors and employees of the company. In 2008, Babe passed away. Two days after the funeral, the company's shareholders convened a meeting in Robert's absence and voted unanimously to terminate his employment In the letter of termination, the company explained that various benefits would cease, including the use of a company car, health insurance coverage, a cellular telephone, access to company credit cards, and the availability of an office. The letter further indicated that "[y]our share of any draws from the corporation or other entities will continue to be distributed to you." (The court noted that, in a closely held corporation, a "draw" is a withdrawal of money from the business to the business owner.)

Despite his termination, Robert continued to serve as a member of the company's board of directors until August 2009, when the shareholders did not re-elect him as a director. Two months later, Robert filed a charge of religious discrimination in violation of Title VII of the Civil Rights Act of 1964. After exhausting his administrative remedies, he filed suit against the company. The company moved to dismiss the complaint, arguing that Robert was not an "employee" for purposes of Title VII. The...