Smith v. Castaways Family Diner, 05-3467.

• Decision Date: 18 July 2006
• Docket Number: No. 05-3467.,05-3467.
• Citation: 453 F.3d 971
• Parties: Cyndee SMITH, Plaintiff-Appellant, v. CASTAWAYS FAMILY DINER and Carrol A. Gonzalez, doing business as Castaways Family Diner, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

453 F.3d 971

Cyndee SMITH, Plaintiff-Appellant, v. CASTAWAYS FAMILY DINER and Carrol A. Gonzalez, doing business as Castaways Family Diner, Defendants-Appellees.

No. 05-3467.

United States Court of Appeals, Seventh Circuit.

Argued February 6, 2006.

Decided July 18, 2006.

Anna M. Hearn (Argued), Blachly, Tabor, Bozik & Hartman, Valparaiso, IN, for Plaintiff-Appellant.

J. Thomas Vetne (Argued), Jones Obenchain, South Bend, IN, for Defendants-Appellees.

Before FLAUM, Chief Judge, and ROVNER and SYKES, Circuit Judges.

ROVNER, Circuit Judge.

Plaintiff Cyndee Smith filed suit against her former employer, Castaways Family Diner ("Castaways") and its sole proprietor, Carrol A. Gonzalez, under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e(b) ("Title VII" or the "Act"), complaining of discrimination on the basis of sex, race, and national origin and also retaliation. The district court entered summary judgment against Smith on her Title VII claims, concluding that Castaways and Gonzalez were not "employers" who were covered by the Act because they did not have at least fifteen "employees" for the requisite period of time. The court excluded the two individuals who manage the restaurant from the tally, reasoning that in view of their day-to-day authority to operate the business independently on Gonzalez's behalf, they should not be counted as employees of the restaurant. See Clackamas Gastroenterology Assocs. v. Wells, 538 U.S. 440, 123 S.Ct. 1673, 155 L.Ed.2d 615 (2003). Because the district court erred in excluding these two individuals from the roster of employees on summary judgment, we reverse and remand.

I.

Castaways is a family restaurant located in Knox, Indiana. Gonzalez, the restaurant's sole proprietor, works full-time in the health care industry. Her mother, Phyllis Foust, and her husband, Ricardo Gonzalez ("Ricardo"), manage the restaurant on a day-to-day basis. Gonzalez does not supervise their work and does not regulate the manner in which they work. She does not set their hours or require them to keep a schedule. Ricardo works full-time in the kitchen, creates the restaurant's menu, and orders the supplies. Foust runs the front of the restaurant, handles the bookkeeping together with Gonzalez, and has the authority to issue checks drawn on Castaway's bank account (although the record suggests that she rarely if ever exercises that authority¹). Both Foust and Ricardo have the authority to establish the policies and procedures to be followed by the restaurant's employees. They also have the power to hire, discipline, and fire the restaurant's other workers without first securing Gonzalez's approval. Like the other people who work at Castaways, both Foust and Ricardo receive regular paychecks. Ricardo also shares in the profits and losses of the restaurant, although the record tells us nothing about how, why, and to what extent he does so. Gonzalez has never considered either Foust or Ricardo to be her employee.

Smith worked part-time as a waitress at the restaurant for a period of approximately four months beginning in March 2003. According to Smith, shortly after she commenced work at Castaways, two of her co-workers—a cook and a busboy—began to sexually harass her. The alleged harassment included both lewd remarks as well as inappropriate touching and attempts to touch her. Smith perceived that there were aspects of the alleged harassment that involved race and national origin as well: the cook and busboy were of a different race and national origin than Smith, who is white. Smith represents that she went to Foust about the harassment but that Foust was unmoved. "You're easier to replace than a cook," Foust allegedly told her. "I'm not going to do a lot about this." As Smith saw it, she had no other option than to quit the diner in July 2003.

Six months after her departure, Smith filed a charge of discrimination with the Equal Employment Opportunity Commission (the "EEOC" or the "Commission"). As later amended, Smith's charge asserted that she had suffered harassment and discrimination on the basis of sex, race, and national origin. In addition, she contended that Castaways had retaliated against her for complaining about the harassment. The EEOC eventually closed its file on the charge without making any findings and issued Smith a notice of her right to sue.

Smith filed suit against Castaways and Gonzalez in Indiana state court. Her original complaint asserted only state-law claims of battery, negligent hiring and supervision, and infliction of emotional distress. However, upon receipt of the EEOC's notice of her right to sue, Smith amended her complaint to include Title VII claims of sex, race, and national origin discrimination as well as retaliation. Once the complaint was amended to include the federal claims, Castaways and Gonzalez removed the case to federal court.

Title VII only applies to businesses who employ fifteen or more employees for at least twenty weeks in a relevant calendar year, see 42 U.S.C. § 2000e(b), and from the get-go, the defendants asserted that Castaways did not meet that threshold. They initially raised this as a challenge to the district court's subject-matter jurisdiction, but consistent with our decision in Komorowski v. Townline Mini-Mart & Rest., 162 F.3d 962, 964 (7th Cir.1998) (per curiam), the district court held that the fifteen-employee minimum was not a jurisdictional requirement but rather an element of Smith's prima facie case of employment discrimination. R. 30, 32. (The Supreme Court's recent decision in Arbaugh v. Y & H Corp., ___ U.S. ___, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006), has since made clear that the requirement is not jurisdictional.) The parties then engaged in discovery limited to the question of whether Castaways had employed at least fifteen individuals for the requisite period of twenty weeks in either 2003, when the alleged discrimination occurred, or 2002. See § 2000e(b) (employer must meet threshold either in "the current or preceding calendar year"); Komorowski, 162 F.3d at 965-66 (for purposes of § 2000e(b), "current calendar year" means the year in which the alleged discrimination occurred). Review of a defendant's payroll records is usually the starting point to determine whom the defendant employed during the relevant time period. See Walters v. Metro. Educ. Enters., Inc., 519 U.S. 202, 206-07, 117 S.Ct. 660, 663, 136 L.Ed.2d 644 (1997). Regrettably, multiple alleged computer failures resulted in the loss of Castaways' payroll records. Neither side was able to produce any evidence as to the number of people Castaways employed in 2002. For 2003, the parties relied on cancelled Castaways checks, their own recollections, and other information to try and reconstruct an employee roster. However, disputes emerged as to whether Ricardo and Foust should be counted as employees and as to whether certain other workers who admittedly qualified as employees were engaged for long enough periods in 2003 to put Castaways over the fifteen-employee/twenty-week minimum.² Ultimately, Castaways moved for summary judgment contending that the evidence was insufficient on this score.

The district court concluded that Castaways did not have fifteen or more employees for a period of twenty weeks in 2003. The pertinent analysis is set forth in the magistrate judge's report and recommendation, R. 39, which the district judge, "[w]ithout taking the trouble to write a law journal article," adopted as his own in a brief order, R. 42 at 2.

First, the court rejected Smith's assertion that Ricardo and Foust should be considered employees. Applying the multi-factor test that the Supreme Court has adopted for determining whether partners, major shareholders, directors, and the like qualify as employees, see Clackamas Gastroenterology Assocs. v. Wells, supra, 538 U.S. at 449-50, 123 S.Ct. at 1680; Solon v. Kaplan, 398 F.3d 629, 632-33 (7th Cir. 2005), the court found it significant that defendants "d[o] not exercise any control over [Ricardo and Foust] or their work"; rather than reporting to Gonzalez, Ricardo and Foust "`run the show.'" R. 39 at 7 (quoting Gonzalez Aff. ¶ 8). The day-to-day authority that Ricardo and Foust exercise over the diner's operation and workforce convinced the court that they have "much more influence and control over the company than a regular manager." Id. Gonzalez had averred in her affidavit that she did not consider either of them to be an employee (a sentiment that Foust shared in her own affidavit), so there was no evident intent that Ricardo or Foust be treated as employees. Id. at 8. And finally, Ricardo shared in the profits and losses of the restaurant, a fact that would distinguish him from the ordinary employee. Id.

Second, the court concluded that four other employees, who initially were thought to have been employees of the diner for the majority of 2003, actually were employed for time periods too short to put Castaways over the fifteen-employee/twenty-week threshold. The defendants themselves, in answer to Smith's interrogatories, at first acknowledged that these four people were in their employ throughout most of 2003. Subsequently, however, the defendants contended that their acknowledgment was based on a typographical error in the employee roster they had relied upon. On further checking, they realized that each of these employees had only worked at the diner for very brief amounts of time in 2003: two of the individuals had worked just five days that year, another had worked for approximately two weeks, and the fourth had worked for at most one or two months. The defendants submitted affidavits setting forth these belatedly-discovered facts. The court rejected Smith's contention that the tardiness of the correction left its veracity open to question. "Although it is unfortunate that Defendants did not discovery this discrepancy earlier, it does not appear that Defendants are acting in...