On September 11, 2018, the 7th Circuit issued an opinion in which it explained the joint employer doctrine and reversed the district court’s decision on summary judgment that an employer management services company was not a joint employer of the plaintiff-employee in her sexual harassment, retaliation, and pregnancy discrimination lawsuit against multiple separate companies. Frey v. Hotel Coleman, et al., No.17-2267 (7th Cir. 9/11/2018). This case presented issues regarding the employer-employee relationship that arise in the increasingly common scenario in which one employer hires another entity to manage the day-to-day operations of an enterprise. One entity provides the paycheck but another entity manages the tasks typically associated with an employer, such as hiring, firing, training, supervising, and evaluating employees. In this case, a hotel hired a management company to handle its daily operations. Under the hotel management agreement, the management company was responsible for hiring, supervising, directing, and discharging employees, and determining the compensation, benefits, and terms and conditions of their employment. The hotel agreed that it would not give direct instructions to any employee of the hotel or the management company that may interfere, undermine, conflict with or affect the authority and chain of command established by the management company. The plaintiff and other staff members who worked at the hotel were on the hotel’s payroll, and the management agreement stated that all personnel are in the employ of the hotel.
The underlying allegations of the case involved sexual harassment, pregnancy discrimination, and retaliation. The plaintiff alleged that shortly after her supervisor hired her, he began to subject her to unwelcome and inappropriate sexual comments and advances. According to the plaintiff, her supervisor subjected her to comments such as, “he could have any woman he wanted;” “she should put a penny in a jar every time she had sex with her husband;” and “she had a sexy body.” She alleged that he also asker her if he could touch her stomach, invited her to join him in a hotel room, and told her that he wanted to have phone sex with her. The plaintiff objected to the comments and complained to the housekeeping manager, but when that manager informed her supervisor, he laughed it off and his behavior continued unchecked. After the plaintiff informed her supervisor that she was pregnant, he reduced her hours, rescinded a promise to promote her to a sales manager position with a much higher salary, assigned her to work the night shift without paying her the extra amount normally associated with that position, failed to consider her for a front desk position which would have paid additional wages, and asked her to perform duties that she complained were difficult for her due to her pregnancy. She also alleged that her supervisor told her that her pregnancy would ruin her sexy body and that her sex life with her husband was over.
During the plaintiff’s maternity leave, she filed a charge of discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) and the Illinois Department of Human Rights (“IDHR”). One week after she returned from maternity leave, her supervisor fired her. She then filed a claim of retaliatory discharge with the EEOC and the IDHR against the hotel, management company, other entities, and her supervisor. She subsequently filed a lawsuit in Illinois state court alleging federal and Illinois claims for sexual harassment, hostile work environment, pregnancy discrimination, and retaliatory discharge. The case was removed to federal court. The management company moved for summary judgment, asserting that it was not an employer under Title VII or the Illinois Human Rights Act. The district court, accepting the management company’s argument that it was not an employer, granted it summary judgment on the plaintiff’s sexual harassment and pregnancy discrimination claims as well as her federal retaliation claim. The plaintiff’s Illinois Human Rights Act retaliatory discharge claim went to trial, and the jury returned a verdict in her favor, awarding her compensatory damages, back pay damages, and pre-judgment interest.
On appeal, the plaintiff challenged the district court’s conclusion that the management company was not the plaintiff’s employer. The hotel signed and funded her paychecks, issued her a W-2 for each year of employment, and owned the hotel where she worked. There was no question that the hotel employed the plaintiff. However, for purposes of Title VII, a plaintiff can have more than one employer. To determine whether a joint employment relationship exists, court use the “economic realities” test, under which five factors are considered: (1) the extent of the employer’s control and supervision over the worker; (2) the kind of occupation and nature of skill required; (3) responsibility for the costs of the operation; (4) method and form of payment and benefits; and (5) length of job commitment or expectations. Of these factors, the employer’s control over the worker is the most important, and courts give it the most weight. The 7th Circuit found that if the district court applies these factors, it would likely conclude that the management company was the plaintiff’s employer. The management company had control over every aspect of the plaintiff’s work environment. It hired and fired her, determined her compensation and other benefits, supervised, scheduled, and trained her, and evaluated her job performance. Thus, there was no question that the management company had absolute control of the plaintiff’s employment and the terms and conditions of her employment. The control factor weighs heavily in favor of the position that the management company was also the plaintiff’s employer. Most of the other factors also supported the plaintiff’s position that a joint employer relationship existed. The 7th Circuit held that it was reversible error for the district court to not apply the “economic realities” test; and that if it had done so, it seems likely that it would have reached a different conclusion about the management company as the plaintiff’s employer for purposes of Title VII enforcement.