Arbaugh v. Y & H Corporation

United States Court of Appeals

Fifth Circuit

F I L E D

REVISED AUGUST 18, 2004

August 02, 2004

UNITED STATES COURT OF APPEALS

For the Fifth Circuit Charles R. Fulbruge III

Clerk

No. 03-30365

JENIFER ARBAUGH,

Plaintiff-Appellant,

VERSUS

Y&H CORPORATION, doing business as The Moonlight Café;

and YALCIN HATIPOGLU,

Defendants-Appellees.

Appeal from the United States District Court

For the Eastern District of Louisiana, New Orleans

Before EMILIO M. GARZA, DeMOSS, and CLEMENT, Circuit Judges.*

DeMOSS, Circuit Judge:

Jenifer Arbaugh filed suit against Y&H Corporation (“Y&H”) and

Yalcin Hatipoglu (collectively, “Defendants”), in November 2001,

asserting claims under both Title VII of the Civil Rights Act of

1964 and Louisiana state tort law. After a two-day jury trial in

October 2002, a verdict was returned in favor of Arbaugh. In

November 2002, Defendants filed a motion to dismiss, contending

that Y&H did not qualify as an “employer” under 42 U.S.C.

*

Emilio M. Garza, Circuit Judge, concurring in the judgment

only.

§ 2000e(b) because it did not employ 15 or more employees for 20 or

more calendar weeks during the relevant time period. The district

court ordered both parties to conduct post-trial discovery on the

issue. In March 2003, the district court converted the motion to

dismiss to a motion for summary judgment. Thereafter, in April

2003, the district court entered an order vacating and reversing

Arbaugh’s jury verdict and judgment based upon the determination

that the court did not have subject matter jurisdiction. Arbaugh

filed a timely notice of appeal.

BACKGROUND AND PROCEDURAL HISTORY

Jenifer Arbaugh was employed as a bartender and waitress at

the Moonlight Café, a New Orleans restaurant, from May 2000 until

February 2001. During this time, Arbaugh alleges that Hatipoglu,

one of Y&H’s owners, continually subjected her to a sexually

hostile environment. On November 8, 2001, Arbaugh filed suit in

federal district court, in Louisiana, asserting claims against Y&H

(the operator of the Moonlight Café) and Hatipoglu. Arbaugh

alleged sexual harassment in violation of Title VII in addition to

state tort law claims. Arbaugh asserted in her complaint that the

court had subject matter jurisdiction over her Title VII claim

pursuant to 28 U.S.C. § 1331, which confers federal question

jurisdiction.1 Arbaugh further stated in her complaint that she

1

Arbaugh also averred that the court had supplemental

jurisdiction over her state law claims pursuant to 28 U.S.C.

§ 1367.

2

had satisfied the Title VII prerequisite for filing a charge with

the Equal Employment Opportunity Commission (“EEOC”) and received

a “Right to Sue” notice less than 90 days prior to filing her suit

in district court.

The parties consented to have the matter heard before a

magistrate judge pursuant to 28 U.S.C. § 636(c).2 Over the course

of two days in October 2002, the parties presented evidence to a

jury. The jury returned a verdict in favor of Arbaugh, awarding

her $5000 in back-pay, $5000 in compensatory damages, and $30,000

in punitive damages. The district court entered final judgment for

Arbaugh on November 5, 2002. On November 19, 2002, Defendants

filed a motion pursuant to Fed. R. Civ. P. 12(h)(3), in which they

sought to dismiss the case for lack of subject matter jurisdiction.

Specifically, Defendants argued that during the relevant years

Arbaugh was employed there, the Moonlight Café did not employ 15 or

more employees for 20 calendar weeks, thus exempting it from Title

VII coverage. In March 2003, the district court converted

Defendants’ motion to dismiss to a motion for summary judgment and

ordered both parties to conduct additional post-trial discovery and

submit supplemental memoranda to support their respective

positions.

On April 4, 2003, the district court granted Defendants’

2

This opinion will refer to the magistrate judge as the

district court and her rulings as decisions issued by the district

court.

3

motion and vacated and reversed Arbaugh’s jury verdict and

judgment. In its order and reasons, the district court determined

that Defendants did not employ the requisite 15 or more persons

during the relevant time periods, explaining that this calculation

was exclusive of Y&H’s delivery drivers, the two owners of Y&H, and

their wives. The district court noted in its order that had the

delivery drivers, the two owners, or their wives counted as

employees, Defendants would have been subject to the statutory

framework of Title VII. Arbaugh timely filed the instant appeal.

STANDARD OF REVIEW

We review dismissals for lack of subject matter jurisdiction

de novo, using the same standards as those employed by the lower

court. Beall v. United States, 336 F.3d 419, 421 (5th Cir. 2003);

McAllister v. FDIC, 87 F.3d 762, 765 (5th Cir. 1996). We must take

as true all of the complaint's uncontroverted factual allegations.

John Corp. v. City of Houston, 214 F.3d 573, 576 (5th Cir. 2000).

Likewise, this court reviews grants of summary judgment de novo,

applying the same standard as the district court. Tango Transp. v.

Healthcare Fin. Servs. LLC, 322 F.3d 888, 890 (5th Cir. 2003).

Summary judgment is appropriate if no genuine issue of material

fact exists and the moving party is entitled to judgment as a

matter of law. Fed. R. Civ. P. 56(c). The court views the evidence

in a light most favorable to the non-movant. Coleman v. Houston

Indep. Sch. Dist., 113 F.3d 528, 533 (5th Cir. 1997). The non-

4

movant must go beyond the pleadings and come forward with specific

facts indicating a genuine issue for trial to avoid summary

judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). A

genuine issue of material fact exists when the evidence is such

that a reasonable jury could return a verdict for the non-movant.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary

judgment is appropriate, however, if the non-movant "fails to make

a showing sufficient to establish the existence of an element

essential to that party's case." Celotex, 477 U.S. at 322.

DISCUSSION

I. Whether the district court erred in ruling that the number of

Defendants’ employees determined subject matter jurisdiction

rather than an issue going to the merits.

Arbaugh argues that the threshold issue is not whether Y&H

employed 15 or more employees during the relevant time period, but

rather whether the employee census finding is relevant to subject

matter jurisdiction or whether that determination goes to the

merits of the case. Arbaugh argues that while the Fifth Circuit

has concluded this issue determines subject matter jurisdiction,

this court’s rulings do not provide an explanation supporting its

conclusion.

Noting a circuit split on this issue, Arbaugh cites the Second

Circuit for its observation that:

Whether a disputed matter concerns jurisdiction or the

merits (or occasionally both) is sometimes a close

question. Court decisions often obscure the issue by

stating that the court is dismissing "for lack of

5

jurisdiction" when some threshold fact has not been

established, without explicitly considering whether the

dismissal should be for lack of subject matter

jurisdiction or for failure to state a claim.

Da Silva v. Kinsho Int’l Corp., 229 F.3d 358, 361 (2d Cir. 2000).

Arbaugh relies also on the Seventh Circuit’s determination

that a plaintiff who files a non-frivolous suit in federal court

without more imparts the court with subject matter jurisdiction.

Sharpe v. Jefferson Distrib. Co., 148 F.3d 676, 677 (7th Cir.

1998), abrogated on other grounds, Papa v. Katy Indus., Inc.,

166 F.3d 937, 939-40 (7th Cir. 1999). Finding that “[a]

plaintiff’s inability to demonstrate that the defendant has 15 or

more employees is just like any other failure to meet a statutory

requirement,” the Seventh Circuit opined: “Surely the number of

employees is not the sort of question a court (including [an]

appellate court) must raise on its own, which a ‘jurisdictional’

characterization would entail.” Sharpe, 148 F.3d at 677-78.

Arbaugh contends that because she presented to the district court

a non-frivolous claim based in part on federal law, without

demonstrating anything more, this court is vested with subject

matter jurisdiction.3 Arbaugh suggests that because this court has

3

Arbaugh also raises judicial economy considerations, noting

that the lack of subject matter jurisdiction may be raised at any

time, even after a trial on the merits has concluded. She asserts

that not only does this circumstance create a waste of judicial

resources, but it also presents a situation where a plaintiff’s

state law claims may be time-barred.

In Jinks v. Richland County, S.C., 538 U.S. 456, 462-65

(2003), however, the Supreme Court recently confirmed the

constitutionality of 28 U.S.C. § 1367(d), which provides that state

6

not examined the census/jurisdiction issue sufficiently, we should

adopt the well-reasoned approach that the Second, Seventh, and

Federal Circuits have followed, and likewise conclude that the

census issue goes to the merits of an employment discrimination

case.

Defendants, on the other hand, simply argue that we must

adhere to our Circuit precedent, established in Dumas v. Town of

Mt. Vernon-Alaska, 612 F.2d 974, 980 (5th Cir. 1980), and followed

by Womble v. Bhangu, 864 F.2d 1212, 1213 (5th Cir. 1989), and

Greenlees v. Eidenmuller Enters., Inc., 32 F.3d 197, 198 (5th Cir.

1994), that a failure to qualify as an “employer” under Title VII

deprives a district court of subject matter jurisdiction.

Defendants contend that while the Second, Seventh, and Federal

Circuits view the statutory definition of an employer as an issue

which goes to the merits of the case, the Fifth Circuit is joined

by five other circuits in concluding otherwise. Specifically, the

Fourth, Hukill v. Auto Care, Inc., 192 F.3d 437, 441-42 (4th Cir.

1999), the Sixth, Armbruster v. Quinn, 711 F.2d 1332, 1335 (6th

Cir. 1983), the Ninth, Childs v. Local 18, Int’l Bhd. of Elec.

Workers, 719 F.2d 1379, 1382 (9th Cir. 1983), the Tenth, Owens v.

law claims before a federal court pursuant to supplemental

jurisdiction are tolled during the pendency of the federal suit.

See 28 U.S.C. § 1367(d)(2000). Specifically, section 1367(d)

declares that such state law claims “shall be tolled while the

[federal] claim is pending and for a period of 30 days after it is

dismissed unless State law provides for a longer tolling period.”

Id. § 1367(d).

7

Rush, 636 F.2d 283, 287 (10th Cir. 1980), and the Eleventh Circuit,

Scarfo v. Ginsberg, 175 F.3d 957, 960 (11th Cir. 1999), have all

concluded that the “employer” definition creates a jurisdictional

requirement.

In an attempt to circumvent the Dumas/Womble/Greenlees line of

cases, Arbaugh cites Clark v. Tarrant County, Texas, 798 F.2d 736,

741-42 (5th Cir. 1986), in which this court held that where

questions concerning subject matter jurisdiction are intertwined

with the merits, a Title VII claim should not be dismissed for lack

of subject matter jurisdiction unless the claim is frivolous or

clearly excluded by prior law. In Clark, the district court

granted the defendants’ motion for summary judgment, finding that

the plaintiffs’ employment positions came within the personal staff

exemption of Title VII, thus nullifying the claim. Id. at 740. In

reversing the district court, the Clark court first determined that

subject matter jurisdiction and the merits are “considered

intertwined where the statute provides both the basis of federal

court subject matter jurisdiction and the cause of action.” Id. at

742 (citing Sun Valley Gas v. Ernst Enters., Inc., 711 F.2d 138,

139 (9th Cir. 1983)). The court in Clark concluded:

The determination of whether appellants come within an

exception of Title VII is intertwined with the merits of

the Title VII claim. Where the challenge to the court's

jurisdiction is also a challenge to the existence of a

federal cause of action, and assuming that the

plaintiff's federal claim is neither insubstantial,

frivolous, nor made solely for the purpose of obtaining

jurisdiction, the district court should find that it has

jurisdiction over the case and deal with the defendant's

8

challenge as an attack on the merits.

Id. (citation omitted).

However, we find the holding in Clark not to be controlling.

Clark was decided in 1986, approximately six years after this court

had previously issued its opinion in Dumas. Dumas involved a

determination of, inter alia, whether the defendants satisfied the

statutory definition of an “employer,” thus establishing a basis

for liability under Title VII. 612 F.2d at 979-80. After finding

that the defendants did not employ the requisite number of

employees during the relevant time periods, the Dumas court held

that “dismissal of the Title VII claims against [defendants] for

lack of subject matter jurisdiction was proper.” Id. at 980.

Because we are bound by our prior precedent, Arbaugh’s

argument that the census issue is not jurisdictional must fail. See

United States v. Lee, 310 F.3d 787, 789 (5th Cir. 2002) (citing

Martin v. Medtronic, Inc., 254 F.3d 573, 577 (5th Cir. 2001) ("[A]

panel of this court can only overrule a prior panel decision if

‘such overruling is unequivocally directed by controlling Supreme

Court precedent.’" (citation omitted)). We must adhere to the

well-established rule that “in the absence of a clearer statement

by the Supreme Court or en banc reconsideration of the issue, this

panel is bound by circuit precedent.” Allison v. Citgo Petroleum

Corp., 151 F.3d 402, 411 n.3 (5th Cir. 1998); see also Gandy v.

State of Ala., 569 F.2d 1318, 1325 n.11 (5th Cir. 1978) (“This

panel is bound by a prior panel's decision in the absence of

9

intervening en banc reconsideration or Supreme Court precedent.”)

(citation omitted). To the extent that Clark conflicts with our

long-standing precedent first enunciated in Dumas, it is not

binding precedent in this Circuit. Under our prior precedent rule,

“[o]ne panel of this Court cannot disregard the precedent set by a

prior panel, even though it conceives error in the precedent.

Absent an overriding Supreme Court decision or a change in the

statutory law, only the Court en banc can do this.” Davis v.

Estelle, 529 F.2d 437, 441 (5th Cir. 1976). Because the precise

issue before us was decided in Dumas six years before Clark, and

because Clark was neither a Supreme Court case nor an en banc

decision, we are bound by the holding in Dumas that the employee

census finding is determinative of subject matter jurisdiction.

II. Whether the district court erred in ruling that Defendants

employed fewer than 15 employees.

Having concluded that the employee census issue is

determinative of subject matter jurisdiction, we shift our analysis

to whether Defendants employed the requisite number of employees

during the relevant time periods. Arbaugh argues that the jury’s

verdict should be reinstated because Y&H did in fact employ 15 or

more employees during 2000 and 2001, maintaining that the delivery

drivers, the owners of Y&H, and their wives were Y&H’s employees.

1. The Drivers

Arbaugh contends that the district court erred in concluding

that the delivery drivers were not “employees” as defined by Title

10

VII. Arbaugh first directs us to evidence she presented to the

district court concerning the work schedules created by Defendants

in which the drivers were assigned schedules identical to those

maintained for other employees at the restaurant, i.e., the kitchen

and restaurant staff. Arbaugh notes that the drivers were paid

$4.00 per hour and were expected to work all of the hours in their

respective shifts. In addition, Arbaugh argues that the drivers,

like all other employees, used Defendants’ computer to record the

beginning and end of their shifts. She also presented evidence

that Defendants prohibited the drivers from performing work for any

other employer during their shifts, regardless of whether there

were orders to be delivered. Arbaugh points to evidence suggesting

that when drivers were not delivering orders, they were required to

perform other work at the restaurant, which included, inter alia,

cleaning, replenishing condiments, and helping prepare salads and

desserts to be included in home deliveries. Arbaugh concedes that

the drivers did not appear on the payroll records nor did they have

the proper tax deductions taken from their wages.

Defendants maintain that the drivers who delivered food for

Y&H were not “employees” for Title VII purposes, but rather

independent contractors. In support of their argument, Defendants

cite Broussard v. L.H. Bossier, Inc., 789 F.2d 1158, 1160 (5th Cir.

1986), and the “economic realities” test enunciated therein for

determining whether an individual is an employee under Title VII.

While we review a district court’s findings of fact for clear

11

error, we review a district court’s ultimate determination of

employee status de novo. Reich v. Circle C. Invs., Inc., 998 F.2d

324, 327 (5th Cir. 1993). We first observe that Title VII defines

an “employee” as “an individual employed by an employer.” 42 U.S.C.

§ 2000e(f) (2000) (pending legislation). Recognizing the

circularity in such a definition, the Supreme Court explained that

“when Congress has used the term ‘employee’ without defining it, we

have concluded that Congress intended to describe the conventional

master-servant relationship as understood by common-law agency

doctrine.” Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23

(1992) (citations and quotations omitted). The Fifth Circuit has

recognized that “whether a person is an employee under Title VII is

a question of federal law . . . to be ascertained through

consideration of the statutory language of the [Civil Rights] Act,

its legislative history, existing federal case law, and the

particular circumstances of the case at hand.” Broussard, 789

F.2d at 1159-60 (citation and quotations omitted).

It is well-settled in this Circuit that we determine whether

a plaintiff is an "employee" for Title VII purposes by applying the

hybrid economic realities/common law control test first advanced in

Spirides v. Reinhardt, 613 F.2d 826, 831 (D.C. Cir. 1979), and

first adopted by this Court in Mares v. Marsh, 777 F.2d 1066, 1067-

68 (5th Cir. 1985). See also Broussard, 789 F.2d at 1160. Although

other factors are relevant, the most important factor is "the

extent of the employer's right to control the 'means and manner' of

12

the worker's performance.” Bloom v. Bexar County, Tex., 130 F.3d

722, 726 (5th Cir. 1997) (citation omitted); see also Broussard,

789 F.2d at 1160. The factors pertinent to this inquiry include:

(1) ownership of the equipment necessary to perform the job;

(2) responsibility for costs associated with operating that

equipment and for license fees and taxes; (3) responsibility for

obtaining insurance; (4) responsibility for maintenance and

operating supplies; (5) ability to influence profits; (6) length of

the job commitment; (7) form of payment; and (8) directions on

schedules and on performing work. Broussard, 789 F.2d at 1160.

Citing the above factors, the district court found that all

eight factors weighed against a finding of control by Y&H. We

agree. We begin our review by noting that the parties do not

dispute that the first four Broussard factors support Defendants’

contention that Y&H did not exercise control over the delivery

drivers. Specifically, all of the drivers owned their own vehicles

necessary to make the deliveries for Y&H. The drivers were

responsible for all operating costs and for license fees and taxes,

as well as for obtaining and maintaining the proper insurance for

their vehicles. In addition, all drivers provided for the

maintenance and operating supplies associated with the care of

their vehicles.

With regard to the drivers’ ability to influence their

profits, there was testimony elicited at trial revealing that the

drivers were given at least two incentives to maximize the number

13

of deliveries they made, thereby increasing their income: an

incentive bonus based on the total dollar value of all deliveries

made during their shifts and the income from tips, of which they

received 100%.4 Therefore, the more deliveries a driver made

during a shift, the more money they could potentially earn, thus

enabling the driver to maximize their profits.

As for the length of the job commitment, the Broussard court

concluded the plaintiffs were not employees, finding it persuasive

that the plaintiffs worked “off and on” for a year and that they

also worked for nine other companies during this time. 789 F.2d at

1160. While the parties do not dispute that the drivers were

expected to work all of the hours in their respective shifts, there

is no evidence that the drivers were prohibited from working

elsewhere when not on duty at Y&H. At trial, testimony was

presented indicating that some of the drivers in fact worked other

jobs.

With respect to the form of payment, the drivers were paid

$4.00 per hour and retained 100% of the tips they received while

making deliveries. Most drivers earned the majority of their

income from tips. For tax purposes, the drivers were issued a Form

1099, as opposed to a Form W-2, which the kitchen and restaurant

staff received. While Y&H withheld the appropriate federal and

4

The drivers were also able to influence their profits by

controlling the expenses associated with the vehicle they chose to

drive and the amount they chose to spend on operation and

maintenance.

14

state income taxes and paid social security taxes on its kitchen

and restaurant staff, it did not do so with its delivery drivers.

The parties presented the district court with conflicting

evidence as to the direction Y&H provided the drivers as to both

their schedules and the performance of their duties. Arbaugh

maintained that Y&H, without input from the drivers, assigned the

drivers to specific work schedules which were identical to the

schedules it had for other employees. For purposes of establishing

that Defendants exercised control over the performance of the

drivers’ duties, Arbaugh submitted evidence that: (1) the drivers

used Y&H’s computer to record the start and finish times for their

shifts; (2) Defendants required the drivers to work solely for them

during the entirety of the their shifts regardless of whether there

were orders to deliver; (3) the drivers were responsible for

preparing condiments and salads to be included in the orders that

came into the restaurant; and (4) the drivers were required to

clean their work stations at the end of their shifts.

Conversely, Defendants contend that the schedule making was a

collaborative effort between Y&H and the drivers. Defendants

insist that the drivers would inform Y&H of the days and times they

could work, and based on that information, work schedules for the

drivers were prepared and posted. With respect to the control Y&H

had over the drivers’ performance, Defendants concede the four

points raised above by Arbaugh, but insist that: (1) during slow

periods the drivers would watch television; (2) the drivers never

15

waited on customers in the restaurant or performed any other duties

to assist in the operation of the restaurant; (3) once a driver

picked up an order from the kitchen for delivery, it was the

driver’s responsibility to determine the route and manner of

delivery; and (4) neither Hatipoglu nor Khaleghi supervised the

drivers while they made their deliveries.

The district court concluded that, even taking as true

Arbaugh’s version of the facts concerning the setting of the

schedules, the evidence failed to demonstrate that Y&H exercised

the requisite control over its delivery drivers. Specifically, the

district court found that Arbaugh “misunderstands the control

factor,” citing both Broussard and Cole v. Venture Transport, Inc.,

2000 WL 335743 (E.D. La. Mar. 30, 2000), in support of its

conclusion. In Cole, the district court found the plaintiff, who

contracted with the defendant to provide motor carrier transport to

the defendant’s customers, was not an employee of the defendant,

concluding:

Last, and most important, although Venture directed when

and where plaintiff picked up and delivered cargo,

plaintiff alone controlled the manner and means in which

she performed her work, including the method of

transport, the operation of her vehicle, the route

selected, and the selection, hiring and firing of

drivers.

2000 WL 335743, at *4. Likewise, in Broussard, this court

responded to a truck driver’s allegation that she was an employee

because of the extensive direction she received in terms of what to

do and when to do it, by stating, “[s]he misses the point: she does

16

not really claim direction on how to operate her truck.” 789 F.2d

at 1160 (emphasis added).

We agree with the district court. Reviewing the district

court’s factual findings for clear error, we conclude that the

district court engaged in a thoughtful, well-reasoned analysis in

determining that because the drivers controlled the manner and

means by which they operated their vehicles and selected their

routes, Y&H did not exercise a right of control over the drivers’

performance.

This Circuit has also recognized the additional factors

identified in Spirides that are relevant to this inquiry,

including:

(1) the kind of occupation, with reference to whether the

work usually is done under the direction of a supervisor

or is done by a specialist without supervision; (2) the

skill required in the particular occupation; (3) whether

the "employer" or the individual in question furnishes

the equipment used and the place of work; (4) the length

of time during which the individual has worked; (5) the

method of payment, whether by time or by the job; (6) the

manner in which the work relationship is terminated;

i.e., by one or both parties, with or without notice and

explanation; (7) whether annual leave is afforded;

(8) whether the work is an integral part of the business

of the "employer;" (9) whether the worker accumulates

retirement benefits; (10) whether the "employer" pays

social security taxes; and (11) the intention of the

parties.

Broussard, 789 F.2d at 1160 (quoting Spirides, 613 F.2d at 832).

The district court cites all Spirides factors as supporting its

conclusion that the drivers were not employees of Y&H. Again, we

agree.

17

It is clear that at least four of these factors weigh heavily

against a finding that the delivery drivers are employees,

including the fact that: (1) Y&H did not provide the equipment used

by the delivery drivers; (2) the delivery drivers did not receive

annual leave; (3) the delivery drivers did not accumulate

retirement benefits; and (4) Y&H did not pay the drivers’ social

security taxes. Also, as mentioned in our discussion of the

Broussard factors, there was insufficient evidence in the record

establishing that the delivery drivers operated under the direction

of a supervisor or that the method of payment was indicative of an

employer-employee relationship.

While it may be questionable as to whether any particular

“skill” is required in making the deliveries, this factor alone is

not dispositive. In addition, although the record demonstrates

that each party was capable of terminating the working

relationship, we find this determination to be inconclusive.

Finally, as to the intention of the parties, the record is void of

any type of employment agreement defining the relationship between

Y&H and the delivery drivers. In the absence of such

documentation, we look to the conduct of the parties in determining

their common intent. The parties’ relevant conduct reveals Y&H’s

non-withholding of taxes, its non-payment of social security taxes,

the drivers’ retention of the tips they earned, and the drivers’

payment of their automobile expenses, including mileage. This

evidence clearly supports the position that the parties did not

18

intend for there to be an employer-employee relationship.

In sum, determining whether an individual is an “employee” for

Title VII purposes is a fact-intensive inquiry, and as with most

employee-status cases, there are facts pointing in both directions.

Herman v. Express Sixty-Minutes Delivery Serv., Inc., 161 F.3d 299,

305 (5th Cir. 1998) (quotations omitted). However, in the instant

case, we are persuaded that the great majority of facts in the

record support the conclusion that the delivery drivers were not

employees of Y&H. Consequently, unless Y&H’s owners or their wives

are found to be employees, Y&H did not employ 15 or more employees

during the relevant time periods as required for establishing

liability under Title VII.

2. The Owners and Their Wives5

Arbaugh argues that the owners’ wives should be counted as

“employees” under Title VII, suggesting that the manner in which

they were treated by Y&H is evidence of the alleged employer-

employee relationship. Specifically, Arbaugh contends that this

evidence includes the fact that the wives: (1) received a salary

for their “advertising and publicity” work on behalf of the

restaurant; (2) were included on the payroll register; and (3) had

5

Arbaugh concedes that the Supreme Court’s recent decision in

Clackamas Gastroenterology Associates., P.C. v. Wells,538 U.S. 440,

449-51 (2003), in which it was determined that director-

shareholders of a medical clinic are not “employees” under the

Americans with Disabilities Act, strongly suggests that Hatipoglu

and Khaleghi themselves are not “employees.” As such, Arbaugh

focuses her appeal on the owners’ wives.

19

the proper taxes deducted from their wages. Arbaugh maintains that

because the wives performed services for Y&H and were compensated

for those services, the district court erred in not counting them

as employees. Defendants respond by insisting that the wives,

along with their husbands, are the owners of Y&H. As such,

Defendants argue that the wives cannot be counted as employees in

light of Supreme Court’s recent decision in Clackamas

Gastroenterology Associates., P.C. v. Wells, 538 U.S. 440(2003).

In Clackamas, decided after the district court issued its

order dismissing Arbaugh’s suit, the Supreme Court was faced with

whether, in the context of a discrimination suit filed against a

medical clinic, the director-shareholder physicians could be

counted as employees for purposes of determining whether the

professional corporation was subject to the Americans with

Disabilities Act. Id. at 442. The Court adopted the following six-

factor inquiry advanced by the EEOC as to whether a director-

shareholder is an employee:

[1] Whether the organization can hire or fire the

individual or set the rules and regulations 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.

20

Id. at 449-50 (quotations and citation omitted). The Court

recognized that whether a director-shareholder is an employee

“depends on all of the incidents of the relationship . . . with no

one factor being decisive.” Id. at 451 (internal quotation marks

and citation omitted).

In its ruling, the district court, without the guidance of

Clackamas, observed again that this Circuit has adopted the

economic realities test to resolve whether a person is an employee

for purposes of Title VII. It was deduced that this Circuit would

look to the same test to determine whether a person is a partner or

an employee of a corporation. The district court first concluded

that Hatipoglu and Khaleghi themselves were not employees for Title

VII purposes. It found that Hatipoglu and Khaleghi were partners

who divided the profits and the responsibilities of running the

business equally. The district court also found convincing

Defendants’ argument that no one other than themselves had control

over all aspects of the business.

With regard to the two wives, the district court observed that

neither did any work at the restaurant. The only services

recognized by the district court were the occasional advertising

and promotional work they performed. The district court determined

that in applying all the factors of the economic realities test,

the only one favoring a finding of an employment relationship was

that social security taxes were paid on their income from the

business. The district court therefore concluded that the wives

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were passive partners rather than employees.

Applying the six-factor test established in Clackamas to the

facts in the instant case, we conclude that the district court

ultimately reached the correct result, albeit based on different

reasoning. First, it is unlikely that Y&H could hire or fire any

of these four individuals. Instead, Hatipoglu, Khaleghi, and their

respective wives are partners who, if it was decided that the

working relationship was unpalatable, would have to engage in a

dissolution process in accordance with the corporate structure

under which they were originally organized.6 Second, there is no

evidence demonstrating that the wives were supervised in their

advertising and promotional work, nor is there any indication that

they reported to anyone higher in the organization.

There is no evidence in the record as to whether either wife

had any influence over Y&H’s operations. With regard to the

intention of the parties, the wives were not designated as

employees either in written agreements or contracts. In fact,

there is no record evidence evincing any intended nature or scope

of employment. Finally, the record clearly establishes that the

wives, along with their husbands, shared alike in Y&H’s profits,

losses, and liabilities.

As such, although the district court did not have the

direction provided by Clackamas at the time it issued its order, we

6

Y&H was organized as a Subchapter S corporation.

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conclude that the district court nevertheless properly determined

that Hatipoglu, Khaleghi, and their respective wives should not be

counted as employees for purposes of determining Title VII

liability.

CONCLUSION

Having carefully reviewed the record of this case, the

parties' respective briefing and arguments, and for the reasons set

forth above, we find the district court properly followed our

Circuit precedent in concluding that the number of employees

determines a court’s subject matter jurisdiction in a suit filed

pursuant to Title VII. Second, the district court correctly

concluded that neither the delivery drivers, nor the owners of Y&H,

nor their wives should be counted as employees. While the district

court’s conclusion with regard to the owners and their wives was

based on the economic realities test, the same conclusion is

reached pursuant to the six-factor inquiry recently announced by

the Supreme Court in Clackamas. Because it is undisputed that Y&H

did not employ the requisite 15 employees without the inclusion of

the drivers, the owners, or their wives, Defendants are not subject

to liability under Title VII, and thus the district court properly

dismissed Arbaugh’s suit for lack of subject matter jurisdiction.

AFFIRMED.

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