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Employers beware: even “non-employees” can sue for discrimination

In Hall v. Stark Reagan, P.C. et al. 2011 Mich. App. LEXIS 1560, decided September 13, 2011, the Michigan Court of Appeals has clarified that employers in Michigan may be liable for claims of discrimination under the Elliott Larsen Civil Rights Act (ELCRA) even against non-employees, so long as a plaintiff establishes that the employer affected or controlled a term, condition or privilege of the non-employee’s employment.

The ELCRA sets forth the following:

An employer shall not do any of the following:

Fail or refuse to hire or recruit, discharge or otherwise discriminate against an individual with respect to employment, compensation or a term, condition or privilege of employment, because of religion, race, color, national origin, age, sex, height, weight, or marital status. [MCL 37.2202(1)(a)].

The plaintiffs in the case, Hall and Ortner, were attorneys and shareholders at the law firm of Stark Reagan.  When the law firm decided to terminate their shareholder status, plaintiffs brought a claim for age discrimination under the ELCRA.  The law firm argued that the attorney plaintiffs could not bring a claim under the ELCRA because they were not “employees” of the firm; they were shareholders. The Hall court concluded that, even assuming Hall and Ortner cannot be characterized as Stark Reagan “employees,” the ELCRA permits the plaintiffs to pursue an age discrimination case because Stark Reagan qualifies as an “employer” under the statute and the firm’s actions “affected or controlled a term, condition, or privilege” of Hall’s and Ortner’s employment.

The Hall court relied on a 2005 Michigan Supreme Court case, McClements v. Ford Motor Co., 473 Mich. 373, 702 NW2d 166, which held that a worker is entitled to bring an action against an employer, even if he is not an employee, if the worker can establish that the defendant affected or controlled a term, condition or privilege of the worker’s employment.  The ELCRA does not state that the discrimination must be against an “employee,” but rather against any “individual” whose employment is adversely affected by an employer. The ELCRA defines an “employer” as “a person who has 1 or more employees, and includes an agent of that person.”  MCL 37.2201(a).  A “person” includes “an individual, agent, association, corporation, . . . partnership, . . . or any other legal or commercial entity.” MCL 37.2103(g).

Professional partnerships, such as law partners or physicians’ groups are considered “employers” under the ELCRA as long as they have at least one true employee.  The Hall decision clearly holds that these groups may be held liable for discrimination against their business partners or shareholders, who are not “employees,” if the firm or group can be said to have affected or controlled a term, condition or privilege of the individual claiming discrimination.  Decisions to eliminate partners or shareholders must be considered in light of the Hall court’s clear message that such actions are subject to the anti-discrimination provisions of the ELCRA inMichigan.

In the federal realm, Title VII and the Americans with Disabilities Act (“ADA”) use the term “employee,” rather than “individual,” as in the ELCRA.  Clackamas Gastroenterology Associates v. Wells, a 2003 United States Supreme Court case held that an ownership interest does not necessarily preclude a claim of discrimination under the ADA.  To determine whether the shareholder-directors in that case were employees, the common-law element of “degree of control” was the principal guidepost.  For federal claims of discrimination by shareholders, the question is whether the shareholder-director operates independently and manages the business or instead is subject to the firm’s control, and thus qualifies as an employee. Pursuant to the McClements-Hall decisions,Michigan’s ELCRA’s use of the term “individual,” instead of “employee” changes the analysis from one of “control” to a simple look at whether the individual’s job was adversely affected by an entity fitting the definition of “employer.”

For more information on this topic or other employment law questions, contact Michelle Landis at 231.722.5403.