When is a Partner an Employee?

November 25, 2013 /

I was recently asked whether a business partner was an employee or owner of that company. The other owners wanted to take certain action and needed to know their lawful rights and obligations based on the way their partnership was structured. I’ll not bore you with the details, but I do want to highlight that the EEOC has recently given us guidance on this issue.

The Equal Employment Opportunity Commission weighed in on when an accounting firm’s partner is really an employee for purposes of the Age Discrimination in Employment Act (ADEA). According to the EEOC, for partners to qualify for coverage under EEO laws, the actual working relationship between the person and the partnership is paramount. The relevant questions is:

Whether the individual acts independently and participates in managing the organization (not an employee), or whether the individual is subject to the organization’s control (an employee).

To help, here are six factors to evaluate when making this determination:

  1. Whether the organization can hire or hire the individual or set the rules and regulations of the individual’s work;
  2. Whether and to what extent the organization supervises the individual’s work;
  3. Whether the individual reports to someone higher in the organization;
  4. Whether and 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; and
  6. Whether the individual shares in the profits, losses, and liability of the organization.

There is some thought that the EEOC is seeking to expand the ADEA to partners of accounting firms, law firm, medical practices, and other similar industries. Partners in these businesses generally own and are responsible for the firm as a whole. Labeling them as employees would upend the business models of these professions, but I would not be surprised if this is an EEOC objective in 2014.

Matt Austin is a Columbus, Ohio lawyer who owns Austin Legal, LLC, a boutique law firm with offices in central and northeast Ohio that limits its representation to employers dealing with labor, employment, and OSHA matters. Austin Legal’s Concierge Legal Services program is relied upon by companies to remain compliant and competitive. If you have employees, you need Concierge Legal Services. You can call Matt at (614) 285-5342 or email him at Austin@LaborEmploymentOSHA.com.