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When a worker changes her status from “employee” to “independent contractor” due to a company’s decision to outsource a portion of its business, the worker loses the right to sue under Title VII — even if she continues to do the very same job — a federal judge has ruled. “Title VII protects workers who are ‘employees,’ but does not protect independent contractors,” Senior U.S. District Judge Lowell A. Reed Jr. of the U.S. District Court for the Eastern District of Pennsylvania wrote in his 12-page opinion in Holtzman v. The World Book Company Inc. “Unfortunately,” Reed said, “Title VII vaguely defines ‘employee’ as ‘an individual employed by an employer …’ The Supreme Court has chided Congress for providing a definition of employee that ‘is completely circular and explains nothing.’ … As a result of Title VII’s fuzzy definition of employee, federal courts have struggled with how to ascertain whether a person is an employee for the purposes of Title VII.” But Reed found that the high court went beyond its criticism of Congress in Nationwide Mutual Insurance Co. v. Darden to provide lower courts with a series of factors to consider when tackling the question of whether a plaintiff qualifies as an “employee.” Applying the Darden factors to Arlene Holtzman’s position selling World Book’s educational products, Reed found that her status had clearly changed in 1995 from employee to independent contractor. Holtzman began working for World Book as a part-time sales representative in 1983. Until 1995, she worked as a part-time sales representative and then a district manager for World Book. But in 1995, World Book decided to separate the parent division from the school and library division and reorganize its sales force by outsourcing — contracting with individual “regional directors” who would in turn contract with individual sales representatives. The same people who had worked for World Book under the previous arrangement filled many of the positions under the new structure. Branch managers for World Book became separately incorporated regional directors and district managers while sales reps took positions with the newly formed companies. Under the new contracts, Reed found that the regional directors were no longer employees of World Book. But World Book processed commission checks to sales reps through its payroll services offered to the regional directors. When Holtzman was notified of the changes, she sought an opportunity to work with Rosemarie Lee, a former World Book branch manger who had formed her own corporation, Leer Services, and gathered a sales force comprised largely of former World Book sales representatives. Holtzman signed a contract with Lee’s corporation and eventually became a territory coordinator, a position slightly above sales representative but still reporting to Lee. In 1998, Holtzman was told that she was losing her territory and would no longer be selling World Book products. In her Title VII suit, Holtzman claims that the loss of her territory was effectively a termination. Reed found that the threshold question in the case centered on Holtzman’s status: “Did she remain, de facto, an employee of World Book? Or was she an independent contractor with World Book or Leer Services?” Looking first to the written agreements, Reed found that World Book’s contract with Lee and all of its regional directors “expressly and unequivocally” said they were independent contractors. Likewise, Reed said, the contracts between Leer Services and the sales reps also expressly said they were all independent contractors. Those written agreements alone were not enough to decide the question, Reed said, but were nonetheless strong evidence. Turning to the Darden factors, Reed found they confirmed the status reflected in the contracts. “Plaintiff relied on no instrumentalities or tools provided by World Book; to the contrary, plaintiff bought her own office supplies, and, in the wake of the restructuring at World Book in 1995, Holtzman was no longer provided a company car by World Book,” Reed found. Holtzman also worked out of her home and met only twice per year with Lee, Reed noted. All of Holtzman’s pay was commission, not salary, Reed found, and she received no health or retirement benefits from World Book or Leer Services after 1996. Perhaps the strongest evidence came from Holtzman’s own tax records in which she claimed to be “self-employed” since 1996. Holtzman’s lawyer, Marc E. Weinstein of Kolman & Associates, argued that legally, Holtzman should still be considered an employee of World Book since her work was part of its regular business and since “nothing changed” in the way things operated between her and World Book before and after the structural changes in late 1995. Reed disagreed, saying, “plaintiff may well have subjectively believed that she remained a World Book employee even after the 1995 structural changes took place. However, I conclude a reasonable jury could only find that the objective, legal reality of her status under the new regime was that of an independent contractor, not an employee.” World Book was represented by attorneys Moira Clare Duggan, Jennifer Kleppe and Daniel C. Moraglia of Bennett Bricklin & Saltzburg in Philadelphia.

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