From JDSupra, Orly Henry discusses a recent case in which the Seventh Circuit Court of Appeals said that the economic realities determined whether an entity was a joint employer. Orly writes:
On appeal, the Seventh Circuit held that the lower court had erred in applying the “employee” test set forth in Smith v. Castaways Family Diner, 453 F.3d 971 (7th Cir. 2006). The court determined that the Smith test, while useful for determining whether an individual is an employer or employee (for such purposes as seeing if an employer meets the 15 employee threshold for liability under Title VII), was not appropriate for determining whether a joint employment relationship existed among entities. The court held that the applicable test, as set forth in Knight v. United Farm Bureau Mutual Ins. Co., 950 F.2d 377, 378-79 (7th Cir. 1991), is the multi-factor “economic realities test” in which no single factor is dispositive, but the broad focus is on whether the putative employer exercised sufficient control over the employee. This test, more familiarly used to distinguish between employees and independent contractors, should also be used to determine which entities are employers for purposes of Title VII, as well as the IHRA.
In addition to providing clarity on the applicable test to determine whether an entity is an employer under Title VII, the Frey case serves as a warning to employers to be aware of potential exposure to liability under anti-discrimination statutes in their capacity as joint employers. That encompasses situations where, as with Vaughn Hospitality, an entity does not consider itself to be an employer but might exercise sufficient control over putative employees to be considered as such under the economic realities test.