Supreme Court Docket Report October Term, 2002 - Number 1

by Eileen Penner, Miriam Nemetz, Robert Bronston and Andrew Schapiro.

1. Americans with Disabilities Act - Application of 15-Employee Threshold to Professional Corporation. The Supreme Court granted certiorari in Clackamas Gastroenterology Assocs. P.C. v. Wells, No. 01-1435, to decide whether courts should apply an "economic realities" test to determine whether the shareholders of a professional corporation count as "employees" for the purpose of determining whether the corporation is a "covered entity" under the Americans with Disabilities Act (ADA).

The ADA defines a "covered entity," which is subject to the ADA's anti-discrimination and accommodation provisions, as "an employer, employment agency, labor organization, or joint labor-management committee." 42 U.S.C. ß 12112(2). An "employer" is "a person engaged in an industry affecting commerce who has 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year." Id. ß 12112(5)(A). An "employee" is defined as "an individual employed by an employer." Id. ß 12111(4).

Deborah Anne Wells, an employee of Clackamas Gastroenterology Associates, P.C., from 1986 until 1987, sued Clackamas under the ADA. During the relevant time period, four physicians, all of whom participated in the management and operation of the medical practice, were the shareholders and directors of Clackamas. It was undisputed that unless the physician-shareholders were counted as employees, Clackamas would have too few employees to be considered a covered "employer" under the ADA. Applying an "economic realities" test, the district court held, in an unpublished opinion, that the physician-shareholders were more properly considered "partners" than "employees." Accordingly, it concluded that Clackamas was not a "covered entity" under the ADA and dismissed Wells' ADA claim.

A divided panel of the Ninth Circuit reversed. 271 F.3d 903 (2001). The court of appeals held that an entity's decision to use the corporate form precludes it from arguing that it is exempt from the ADA's coverage because in reality it operates more like a partnership. Id. At 905. The court explained that it would be unfair for the corporation to secure "'the best of both possible worlds' by * * * assert[ing] its corporate status in order to reap the tax and civil liability advantages and * * * argu[ing] that it is like a partnership in order to avoid liability for unlawful employment...