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Date: 09-11-2018

Case Style:

Bogustawa Frey v. North Coleman

Northern District of Illinois Courthouse - Chicago, Illinois

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Case Number: 17-2267

Judge: Rovner

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney: Philip Holloway and Justin Randolph

Defendant's Attorney: Peter Michael Katsaros

Description: Before we can attend to any other
issues in an employment discrimination case, we must first
determine who, in fact, employed the plaintiff. This question,
which seems as though it ought to be simple on its face, continues
to confound litigants and courts. This case presents issues
regarding the employer/employee relationship that arise
in the not‐so‐uncommon scenario where one employer hires
2 No. 17‐2267
another entity to manage the day‐to‐day operations of an enterprise.
In such a case, one entity provides the paycheck but
another entity does all of the other tasks one ordinarily associates
with an employer—hiring, firing, training, supervising,
evaluating, assigning, et cetera.
I.
In this case, Hotel Coleman, Inc. owned a Holiday Inn Express
franchise in Algonquin, Illinois (the Hotel). Hotel Coleman
hired Vaughn Hospitality, Inc. to run the daily operations
of the Hotel. According to the terms of the hotel management
agreement between the two entities, Vaughn Hospitality
was responsible for hiring, supervising, directing, and
discharging employees, and determining the compensation,
benefits and terms and conditions of their employment. Hotel
Coleman agreed that it would “not give direct instructions to
any employee of [Hotel Coleman] or to [Vaughn Hospitality]
employees whose instructions may interfere, undermine, conflict
with or affect in any manner the authority and chain of
command as established by [Vaughn Hospitality].” R. 92‐2 at
5 (Page ID 1533). Frey and the other staff members who
worked at the Hotel were on Hotel Coleman’s payroll, and
the management agreement stated that all personnel “are in
the employ of” the Hotel. R. 92‐2 at 2 (Page ID 1529). Michael
Vaughn (Vaughn) and his wife owned Vaughn Hospitality.
Michael Vaughn served as its president and was the only person
on its payroll with the exception of a bookkeeper who
worked for eight weeks in 2008 and sixteen weeks in 2009.
Other than the hotel management agreement between the two
entities, there was no affiliation between Vaughn Hospitality
and Hotel Coleman. They were distinct and unrelated legal
entities that maintained separate financial records, filed
No. 17‐2267 3
separate tax returns, and did not share bank accounts or common
ownership. Frey v. Intercontinental Hotels Grp. Res., Inc.,
No. 12 CV 06284, 2015 WL 5921580, at *2 (N.D. Ill. Oct. 9,
2015); R. 97 at 3 (Page ID 1987) (hereinafter Frey, (employer decision));
See also R. 71 at ¶9 (Page ID 869).
Vaughn hired the plaintiff, Bogustawa Frey, in August
2008, to work in the Hotel’s guest services department. Frey
alleged that, shortly after Vaughn hired her, he began to subject
her to unwelcome and inappropriate sexual comments
and advances. Because this is an appeal of a ruling on summary
judgment that Vaughn Hospitality was not Frey’s employer,
and a jury verdict for Frey on a retaliation claim, we
report Frey’s allegations and the remaining facts in the light
most favorable to Frey and in a manner that is consistent with
the jury verdict. Love v. JP Cullen & Sons, Inc., 779 F.3d 697, 701
(7th Cir. 2015) (facts on summary judgment must be taken in
the light most favorable to the non‐moving party); Tart v. Ill.
Power Co., 366 F.3d 461, 464 (7th Cir. 2004) (“Once a jury has
spoken, we are obliged to construe the facts in favor of the
parties who prevailed under the verdict.”)
According to Frey, Vaughn subjected her to comments
such as the following: he could have any woman he wanted;
she should put a penny in a jar every time she had sex with
her husband; she had a sexy body. He also asked her if he
could touch her stomach, invited her to join him in a hotel
room, and told her he wanted to have phone sex with her. Frey
v. Hotel Coleman, No. 12 CV 06284, 2017 WL 2215013, at *1
(N.D. Ill. May 18, 2017) (hereinafter Frey (damages decision));
R. 162 at 2 (Page ID 2515). Frey objected to the comments and
complained to the housekeeping manager, but when that
4 No. 17‐2267
manager informed Vaughn, he laughed off the complaints
and the behavior went unchecked.
After Frey informed Vaughn that she was pregnant (in
June 2009), Vaughn reduced her hours on the schedule, rescinded
a promise he had made 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 an additional $3 per
hour, and asked her to perform duties that she complained
were difficult for her due to her pregnancy. He also told her
that her pregnancy would ruin her sexy body and that her sex
life with her husband was over. Frey (damages decision), 2017
WL 2215013, at *1–2; R. 162 at 2–3 (Page ID 2515–16). During
Frey’s maternity leave, which began in March 2010, she filed
a charge with the Equal Employment Opportunity Commission
(EEOC) and the Illinois Department of Human Rights
based on Vaughn’s conduct. One week after she returned
from maternity leave, Vaughn fired her for allegedly stealing
another employee’s cell phone. Frey filed a claim of retaliatory
discharge with the EEOC and the Illinois Department of
Human Rights against the Hotel, Holiday Inn Express,
Vaughn Hospitality, Michael Vaughn and another Hotel employee.
Hotel Coleman sold the Hotel in August 2010, and the new
owners did not retain Vaughn Hospitality to manage the Hotel.
Two employees who worked in guest services or at the
Hotel’s front desk continued working for the Hotel, but both
left within a year.
Frey filed a claim in the Circuit Court of Cook County pursuant
to Title VII of the Civil Rights Act of 1964, 42 U.S.C.
No. 17‐2267 5
§ 2000e et. seq., and the Illinois Human Rights Act, 775 ILCS
§ 5/1‐101 et. seq., alleging sexual harassment, hostile work environment,
pregnancy discrimination, and retaliatory discharge
against the Holiday Inn Express, Intercontinental Hotels
Group Resources, Inc., Hotel Coleman, and Vaughn Hospitality.
Intercontinental Hotels successfully removed the
case to federal court, and then successfully moved to be dismissed
from the case.
In the federal district court, Frey moved for summary
judgment against Hotel Coleman as to all counts and Vaughn
Hospitality moved for summary judgment asserting that it
was not an employer as defined under Title VII and the Illinois
Human Rights Act. The district court granted Frey’s motion
against Hotel Coleman in full.1 The court, accepting
Vaughn Hospitality’s argument that it was not an employer,
granted it summary judgment with respect to Frey’s sexual
harassment and pregnancy discrimination claims and her retaliation
claim under Title VII, but allowed Frey’s state claim
for retaliation to proceed. Under the Illinois Human Rights
Act, a retaliation claim does not require an employer/employee
relationship between the plaintiff and defendant. 775
ILCS § 5/6‐101(A).
1 Hotel Coleman failed to respond adequately to Frey’s requests for admissions
of fact and therefore the district court deemed those facts admitted.
Thereafter, finding no issue of material fact with respect to Frey’s
claims against Hotel Coleman, the district court granted summary judgment
against Hotel Coleman on all counts. Frey v. Hotel Coleman, 141
F. Supp. 3d 873, 879 (N.D. Ill. 2015) (hereinafter Frey (Hotel Coleman decision));
R. 96 at 4 (Page ID 1974).
6 No. 17‐2267
The case then advanced to trial on Frey’s claim under the
Illinois Human Rights Act that Vaughn Hospitality had retaliated
against her for filing a charge of discrimination. The jury
found in favor of Frey and awarded her $45,000 in compensatory
damages, and the district court awarded her $13,520 in
back pay damages—the amount she had claimed in the Joint
Pre‐trial Memorandum. The district court also awarded prejudgment
interest at the average prime rate from May 2010 to
May 2017, compounded monthly for a total judgment on
Frey’s IHRA retaliatory discharge claim of $73,699.51 for
which Hotel Coleman and Vaughn Hospitality are jointly and
severally liable. The district court also entered judgment
against Hotel Coleman for $142,930.51.
On appeal, Frey challenges the district court’s conclusion
on summary judgment that Vaughn Hospitality was not
Frey’s employer—a ruling we review de novo. Smith v. Castaways
Family Diner, 453 F.3d 971, 975 (7th Cir. 2006). Frey also
challenges the amount of the district court’s award of back
pay and prejudgment interest, both of which lie within a district
court’s discretion and can be overturned only where that
discretion has been abused. First Nat. Bank of Chicago v. Standard
Bank & Tr., 172 F.3d 472, 480 (7th Cir. 1999).
II.
A. Was Vaughn Hospitality Frey’s employer?
On appeal, Frey asks us to find that the district court erred
in determining that Vaughn Hospitality was not Frey’s employer.
It is undisputed that Hotel Coleman employed Frey.
It signed and funded her paychecks, issued her a W‐2 for each
year of employment, and owned the Hotel where she worked.
For Title VII purposes, however, a plaintiff can have more
No. 17‐2267 7
than one employer. Love, 779 F.3d at 701. Given the complexities
of Title VII, it is easy to get sidetracked down the incorrect
path of the Title VII maze when looking at employer/employee
relationships.
The place to begin when evaluating the existence vel non
of a joint employment relationship is Knight v. United Farm
Bureau Mut. Ins. Co., 950 F.2d 377, 378–79 (7th Cir. 1991).
Knight instructs that a court in this circuit must employ an
“economic realities” test which is, in its essence, an application
of general principles of agency law to the facts of the case.
Id. at 378; Love, 779 F.3d at 702. In doing so, a court must consider
the following:
(1) the extent of the employer’s control and supervision
over the worker, including directions
on scheduling and performance of work, (2) the
kind of occupation and nature of skill required,
including whether skills are obtained in the
workplace, (3) responsibility for the costs of operation,
such as equipment, supplies, fees, licenses,
workplace, and maintenance of operations,
(4) method and form of payment and benefits,
and (5) length of job commitment and/or
expectations.
Knight, 950 F.2d at 378–79. Of these factors, “the employer’s
right to control is the most important,” and a court must give
it the most weight. Id. at 378.
Although the Knight test began as a way to differentiate
between employees and independent contractors, it soon
came to be used in this circuit to determine which entity or
entities should be considered to be an employer for purposes
8 No. 17‐2267
of Title VII liability where there was more than one putative
employer. See, e.g., Nischan v. Stratosphere Quality, LLC, 865
F.3d 922, 928 (7th Cir. 2017) (using Knight test to consider
whether a client of an inspection and quality control company
for whom the plaintiff provided services was a joint employer
for purposes of Title VII); Bridge v. New Holland Logansport,
Inc., 815 F.3d 356, 361 (7th Cir. 2016) (using Knight test to determine
whether commonly‐owned entities could be considered
joint employers for the purposes of counting employees
for Title VII coverage); Love, 779 F.3d at 702 (applying Knight
factors to determine whether contractor or subcontractor or
both were plaintiff’s employer for Title VII purposes). And we
know our case law is on the right track because the Supreme
Court has articulated a similar test for determining whether
an employer‐employee relationship exists for purposes of
ERISA—a statute which contains the same definition of “employee”
as Title VII. Nationwide Mut. Ins. Co. v. Darden, 503
U.S. 318, 323–24 (1992). We have held that our Knight five‐factor
test is the essential equivalent of the Supreme Court’s
Darden test. Mazzei v. Rock N Around Trucking, Inc., 246 F.3d
956, 963 (7th Cir. 2001).
As we explore later, there are different tests a court might
rely on to determine if a particular entity is an employer for
Title VII purposes in other scenarios—for example, if a corporate
veil between related business entities should be pierced
because of the actions of those entities, or to determine if certain
managers and supervisors are employees or employers
for purposes of determining if a business has met the fifteenemployee
threshold—but none of these tests applies here. Instead,
we have before us two otherwise unrelated business
entities—one owns a hotel and the other manages the employees
of that hotel—and we must determine whether one,
No. 17‐2267 9
the other, or both qualify as Frey’s employer for purposes of
Title VII. In this case, the parties agree that Hotel Coleman
was an employer of Frey. The only question then is whether
Vaughn Hospitality was as well. For such a task a court must
employ the five‐factor test set forth in Knight. The district
court erred by not doing so.
Instead of looking to the Knight factors, the district court
became distracted by our holding in Smith v. Castaways Family
Diner, 453 F.3d 971 (7th Cir. 2006). In Smith we were called
upon to count heads to determine whether the employer,
Castaways Diner, had fifteen or more employees. In order for
a business to fall within the scope of Title VII, it must employ
a minimum of fifteen employees for at least twenty weeks
during the calendar year. 42 U.S.C. § 2000e(b). The Illinois Human
Rights Act requires the same. 775 ILCS § 5/2‐101(B)(1)(a).
The Smith case required the court to determine whether two
managers of the diner should be counted as employees or as
employers. Those managers had the absolute power to hire,
discipline, and fire the other workers without securing the
owner’s approval. Smith, 453 F.3d at 978. They managed all
aspects of the day‐to‐day operations, including establishing
policies, setting their own hours, creating the menu, ordering
supplies, and bookkeeping. Id. The managers, however, did
not own any part of the business and retained authority only
by delegation from the owner. Had she changed her mind and
reassumed those responsibilities, the managers would have
had no recourse. Id. at 984. The panel in Smith looked at various
tests courts have used to determine whether any individual
is an employee of the sued entity. In one line of case law
to which the district court looked, courts distinguish independent
contractors from employees. Darden, 503 U.S. at 322–
24. In another, courts differentiate between owners or
10 No. 17‐2267
partners of a business with meaningful authority to run the
business (who can be classified as employers) and nominal
owners and partners who have no such meaningful authority
and thus are employees. Clackamas Gastroenterology Assocs., P.
C. v. Wells, 538 U.S. 440, 449–51 (2003) (enunciating a test to
determine whether a shareholder‐director is an employee).
And this court uses yet another test to determine whether we
can aggregate employees (to reach the fifteen‐employee minimum)
where an employer is affiliated with other corporations.
Papa v. Katy Indus., Inc., 166 F.3d 937, 939 (7th Cir. 1999).
The Smith court rejected the Darden and Clackamus‐derived
tests as not well‐suited to the situation at issue in the case before
it—where managers who have no office or equity in the
business had near total managerial discretion merely by delegation
from someone who did have both the office and equity.
Smith, 453 F.3d at 976–79. In other words, when evaluating
whether a particular worker is an employee or an employer,
the status and role of the person in question matters
when selecting the appropriate lens or test with which to view
the question. The Smith court stated that, “Given that [the
managers] have no apparent ownership interest or office in
Castaways, the test that the Supreme Court and the EEOC
have articulated for owners, partners, directors and the like
would seem to be inapposite.” Id. at 981. Likewise, the court
noted that the defendants did not need to show that the managers
were “independent contractors rather than employees
… [it needed] to show that they exercise so much authority
as to be employers rather than employees.” Id. at 976 (emphasis
in original). In Smith, the managers held authority only
by delegation and acquiescence of the owner. In other words,
[d]etermining whether an individual controls or
has the right to control an enterprise, and thus
No. 17‐2267 11
constitutes an employer, must take into account
not only the authority that person wields within
the enterprise but also the source of that authority.
Specifically, a court must consider whether
the individual exercises the authority by right, or
whether he exercises it by delegation at the
pleasure of others who ultimately do possess
the right to control the enterprise.
Smith, 453 F.3d at 984 (emphasis ours).
And therein lies the key problem here. The district court
equated Vaughn Hospitality with the managers in Smith and
determined that “As the hired manager, [Vaughn Hospitality]
wasn’t an employer of the hotel staff—it was part of the hotel
staff. [Vaughn Hospitality] was an agent, not a principal, and
the fact that one agent [Vaughn Hospitality] exercises authority
over another agent (Frey) does not render the senior agent
the junior’s employer.” Frey (employer decision), 2015 WL
5921580, at *4; R. 97 at 7–8 (Page ID 1991–92) (citing Smith, 453
F.3d at 979, 984).
But we cannot evaluate the status of the individual we are
trying to sort into either the employer basket or employee basket
in the case before us as there is no such individual; there
is only a company—Vaughn Hospitality. Just as the Clackamus
test was misapplied in Smith, the Smith test has been misapplied
in this case. We are not considering whether a particular
manager, partner, shareholder, or director is an employee or
an employer, or whether a particular person exercised control
and authority by right (as an employer) or by delegation at
the pleasure of another (as an employee). Nor are we trying
to determine whether the employees of smaller affiliated business
entities should be aggregated for purposes of
12 No. 17‐2267
determining whether an employer has fifteen or more employees.
Instead, we are looking at two different unrelated
corporate entities—Hotel Coleman and Vaughn Hospitality—
and trying to determine if one or both were Frey’s employer.
The Knight test is the one a court must use for such
purposes.
And it is not simply that the Knight test is best designed
for this purpose, although, of the ones articulated above, it
certainly is. Recall that the Knight test simply reflects an “economic
realities” test which looks to see whether the putative
employer exercised sufficient control. Love, 779 F.3d at 702.
But when we look to the precedent in Smith, it becomes clear
why it is not applicable here. In Smith, our task was to count
workers to see if the employer had at least fifteen employees
such that it could be liable for the discrimination alleged. And
we cannot count a corporation toward the fifteen employee
minimum because it is not an employee at all. Title VII defines
“employee” as “an individual employed by an employer.” 42
U.S.C. § 2000e(f) (emphasis ours). Just recently the Supreme
Court explained at length what it means when a statute refers
to an “individual” without further defining that term, as is the
case here. Mohamad v. Palestinian Auth., 566 U.S. 449, 454
(2012). In Mohamad, the Court was deciphering the meaning
of “individual” in the Torture Victim Protection Act of 1991,
but its application was broad. Noting how the Court itself has
interpreted the word “individual,” the Court stated, “[e]videncing
that common usage, this Court routinely uses ‘individual’
to denote a natural person, and in particular to distinguish
between a natural person and a corporation.” Id. The
Court then went on to note that Congress employs the word
“individual” in the same way that the Court has. Id. The Court
specifically distinguished the word “individual” from the
No. 17‐2267 13
word “person” noting that “The Dictionary Act instructs that
‘[i]n determining the meaning of any Act of Congress, unless
the context indicates otherwise … the wor[d] “person” … include[
s] corporations, companies, associations, firms, partnerships,
societies, and joint stock companies, as well as individuals.
Id., citing 1 U.S.C. § 1 (emphasis in Mohamad decision).
The phrase “as well as individuals,” the Court reasoned,
clearly demarcated the term “individual” from “the
list of artificial entities that precedes it.” Id. In other words,
although a “person” can be defined to include a business entity
or corporation, an “individual” cannot. The Mohamad
Court thus concluded that unless Congress makes its intention
to give the word “individual” anything other than its natural
meaning as a single human being, “there must be some
indication Congress intended such a result.” Id. at 455 (emphasis
in original).
In this case, not only has Congress failed to give any indication
that “individual,” as used to define an employee in Title
VII, could include a corporation, but the statute gives all
indications to the contrary. The purpose of the statute, after
all, is to make it unlawful to discriminate “with respect to [an
employee’s] compensation, terms, conditions, or privileges of
employment, because of such individual’s race, color, religion,
sex, or national origin.” 42 U.S.C. § 2000e‐2. Corporations
do not have races, colors, religions, genders or national
origins. Individual humans do. Although corporations may
have some rights as “persons” because the Dictionary Act includes
corporations, associations etcetera as “persons” (See
Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)),
a corporation is not an “individual” that could, for example,
file a law suit for discrimination based on race. The test utilized
in Smith, therefore, simply does not answer the question
14 No. 17‐2267
we have before us. The Knight test, however, does, and should
have been the one used below. On remand, the district court
should apply the facts of this case to the factors articulated in
Knight.
The factors articulated in Knight, will also apply to an evaluation
of whether Vaughn Hospitality can be considered an
employer under the Illinois Human Rights Act. Illinois courts
often look to federal Title VII law to guide them. Carter Coal
Co. v. Human Rights Commʹn, 261 Ill. App. 3d 1, 14, 633 N.E.2d
202, 211 (Ill. Ct. App. 1994). And the test for determining an
employer‐employee relationship under Illinois law is fairly
similar:
Common‐law factors to consider in examining a
worker’s potential status as an employee include
the amount of control and supervision,
the right of discharge, the method of payment,
the skill required in the work to be done, the
source of tools, material or equipment, and the
work schedule. Of these, control of the manner
in which work is done is considered the most
important. When analyzing claims of discrimination
under the Act, we may look to the standards
applicable to analogous federal claims.
Mitchell v. Depʹt of Corr., 367 Ill. App. 3d 807, 811, 856 N.E.2d
593, 598 (Ill. Ct. App. 2006) (citations omitted).
Based on the record as set forth in the district court, it
seems likely that the district court, applying the Knight factors,
would conclude that Vaughn Hospitality was indeed
Frey’s employer, but that decision is for the district court to
No. 17‐2267 15
make on remand. Nevertheless, we note how those factors appear
from our appellate perch.
Knight instructs that the putative employer’s degree of
control is the most important and deserving of the most
weight. Vaughn Hospitality had control over every aspect of
Frey’s work environment. It hired and fired her, determined
her compensation and other benefits, supervised, scheduled,
and trained her, and evaluated her work. In a contract with
Vaughn Hospitality, Hotel Coleman stated that it would not
interfere with Vaughn Hospitality’s control in all matters of
import, noting in particular that it would “not give any direct
instructions to any employee of [the Hotel] or to [Vaughn
Hospitality] whose instructions may interfere, undermine,
conflict with or affect in any manner the authority and chain
of command as established by [Vaughn Hospitality].” R. 92‐2
at 5 (Page ID 1533). There is no question that Vaughn Hospitality
had absolute control of Frey’s employment and its conditions.
The first, and most important, factor unquestionably
points to Vaughn Hospitality as employer.
As dictated by the second Knight factor, we look at the type
of occupation and the nature of the skills required for the position,
including whether those skills were obtained in the
workplace. Knight, 950 F.2d at 378. We do not know how
much skill was required for Frey’s position, and where she
obtained those skills, as the record is light on these details, but
it does not appear that Frey had significant specialized skills
that she brought with her to the job. We do know, however,
that Vaughn Hospitality provided all of the training at the
Hotel and that each employee, including Frey, received a
“Vaughn Hospitality Employee Handbook,” which set forth
employment policies, benefit programs, and other
16 No. 17‐2267
procedures. Consequently, this factor also points to Vaughn
Hospitality as employer.
As for the third and fourth factors—responsibility for the
costs of operation and payment of salary and benefits—the
point goes to Hotel Coleman for this one. Hotel Coleman
owned the property and covered the operating expenses, including
the payment of Frey’s salary and benefits.
The fifth factor requires the district court to grapple with
a number of “what if” factors. The court must look at the
length of the job commitment and/or expectations. As far as
the record reflects, Vaughn hired Frey as a long‐term, at‐will
employee. The Employee Handbook stated, “we hope your
employment relationship with us will be long term.” R. 80‐4
at 5. This was not a temporary assignment or a contract job
that would end at the completion of some task. See, e.g., Love,
779 F.3d at 705 (finding that the fifth factor weighed against
the plaintiff where it was undisputed that he worked on the
project overseen by the general contractor for only eight
months and intended to remain employed by the subcontractor
and not the general contractor at the end of the project).
Frey worked for the Hotel for two years before Vaughn terminated
her. Hotel Coleman sold the Hotel in August 2010,
and the new owners did not retain Vaughn Hospitality to
manage the Hotel. Two employees who worked in positions
similar to Frey’s, however, continued working for the new
owner and there is no reason why Frey might not have as
well. Vaughn Hospitality argues that had she not been fired,
Frey might have been able to continue working for the Hotel,
but under new management, and thus her employment was
tied to the Hotel and not Vaughn Hospitality. But on the flip
side of that coin, Vaughn Hospitality was a hotel management
No. 17‐2267 17
company, and therefore it is also a possibility that had she not
been fired, Frey may have moved on with Vaughn Hospitality
to an assignment at a new hotel. Vaughn Hospitality’s argument,
therefore, is of no help either way. Vaughn hired Frey
as a permanent, long‐term employee. The balance on this factor
weighs in favor of finding that Vaughn Hospitality was
Frey’s employer along with the Hotel Coleman.
Although it is true that not every factor points toward
Vaughn Hospitality as Frey’s employer, the test is a balancing
one with different weights added to each side of the scale—
the heaviest of which is the degree of control. A plaintiff need
not establish that every Knight factor falls in her favor in order
to prevail. See, e.g. Love, 779 F.3d at 705 (a plaintiff can survive
summary judgment even when not all Knight factors support
him). In sum, it was legal error for the district court to fail to
apply the Knight factors. Had it done so, it seems likely that it
would have come to a different conclusion about Vaughn
Hospitality as Frey’s employer for purposes of Title VII enforcement.
Moreover, and for the same reasons, if Vaughn Hospitality
is deemed to be Frey’s employer, it is also the joint employer
of the other employees in the Hotel. It is undisputed
that more than fifteen individuals worked at the Hotel under
Vaughn Hospitality’s control, therefore we conclude that if
Vaughn Hospitality was one of Frey’s employers it had a sufficient
number of other employees to be a covered employer
under Title VII. See 42 U.S.C. § 2000e(b).
On a final note, Vaughn Hospitality claims on appeal that
Frey failed to exhaust her administrative remedies because
she named Vaughn as her “supervisor” and not her employer
in some of her claims before the Illinois Human Rights
18 No. 17‐2267
Commission and/or the EEOC. Vaughn Hospitality did not
raise this issue below and therefore it is waived. In any event,
we would find that Vaughn Hospitality had sufficient notice
of the claims against it and was able to participate fully in the
proceedings before the court. See, e.g., Tamayo v. Blagojevich,
526 F.3d 1074, 1089 (7th Cir. 2008).
We vacate the district court’s ruling on summary judgment
that Vaughn Hospitality was not a joint employer of
Frey and remand to the district court for further proceedings
that reflect these conclusions.
B. Back pay
Our remand on the employer issue does not abrogate our
need to resolve the questions raised by Frey on back pay and
prejudgment interest, as the remand will not affect the jury’s
award on the retaliation claim against Vaughn Hospitality.
Prior to trial, in a joint pre‐trial memorandum, under the
section titled “Plaintiffs Damages and Costs” Frey listed
“Back pay: $13,520.” After her success on the retaliation claim
at trial, the district court asked both parties to brief their positions
on additional damages and back pay. In her Brief in Support
of Back Pay, Frey claimed that, based on the evidence revealed
at trial, the actual amount of back pay dues was
$132,242.50—representing some six years during which she
would have worked 32.5 hours per week at a rate of $13 per
hour. After trial, the district court considered the plaintiff’s
claim in the pre‐trial order, but also conducted its own evaluation
of the back pay demand. The court considered how
Frey’s hours had been cut after she revealed her pregnancy,
how her requests for additional hours were unsuccessful,
how she was not permitted to apply for a higher paying
No. 17‐2267 19
position that Vaughn had previously told her she could expect
to obtain, how she was not paid the higher rate ordinarily
paid for night shift work, and several other factors. Frey (damages
decision), 2017 WL 2215013, at *2; R. 162 at 3 (Page ID
2516). The court also calculated her losses using the number
of hours she may have worked per week and the number of
weeks she may have worked multiplied by her hourly rate.
Id. at *5; R. 162 at 8–9 (Page ID 2521–22).
The district court both made its own calculation and it also
stated that “Frey is bound by her pretrial representation.”
Frey (damages decision), 2017 WL 2215013, at *4; R. 162 at 8
(Page ID 2521). The district court was correct that parties must
be held to the issues set forth in that order and cannot assert
new legal theories at trial. See Harper v. Albert, 400 F.3d 1052,
1063 (7th Cir. 2005). But, altering an amount of back pay based
on evidence that emerges at trial does not fall into this same
category as the defendants were, in the first instance, aware
of the issue, and secondly, are unlikely to be taken by surprise
by evidence within its control. See Id. A district court has
broad equitable discretion to award back pay to make the Title
VII victim whole. David v. Caterpillar, Inc., 324 F.3d 851, 865
(7th Cir. 2003). To the extent the district court used its discretion
and conducted its own calculation, its award is valid.
However, if the district court awarded this amount because it
concluded that Frey was inalterably bound by her pretrial
representation, then it has erred. Because it is unclear from the
decision which in fact occurred, we remand for the district
court to reconsider the award of back pay within its full discretion.
Frey argues that she should not have been limited to the
amount of back pay listed in the pretrial order because that
20 No. 17‐2267
order was not entered or signed by the district court. The parties
present various arguments for honoring or not honoring
the unsigned pretrial order. We need not resolve this debate.
Notwithstanding the pretrial order, the district court had discretion
to make the plaintiff whole. David, 324 F.3d at 865. We
remand to ensure that the district court recognized the full extent
of its discretion and equitable powers.
C. Prejudgment interest
In general, whether and how to award prejudgment interest
also lies in the discretion of the district court (Pickett v.
Sheridan Health Care Ctr., 813 F.3d 640, 647 (7th Cir. 2016)), although
there is a presumption in favor of granting such interest.
Shott v. Rush‐Presbyterian‐St. Lukeʹs Med. Ctr., 338 F.3d 736,
745 (7th Cir. 2003). This is particularly true in cases involving
remedial statutes like Title VII where the goal is to make a
plaintiff whole following violations of a federal statute. Prejudgment
interest restores a plaintiff to the position she
would have been in but for the violation. “Without it, compensation
of the plaintiff is incomplete and the defendant has
an incentive to delay.” Gorenstein Enter., Inc. v. Quality Care—
U.S.A., Inc., 874 F.2d 431, 436 (7th Cir. 1989). Courts award
prejudgment interest because “compensation deferred is
compensation reduced by the time value of money,” and only
prejudgment interest can make the plaintiff whole. Matter of
Milwaukee Cheese Wisconsin, Inc., 112 F.3d 845, 849 (7th Cir.
1997). The district court applied the federal prime rate and
Frey argues that it should have applied the state interest rate
instead.
In this circuit we have instructed district courts to “use the
prime rate as the benchmark for prejudgment interest unless
either there is a statutorily defined rate or the district court
No. 17‐2267 21
engages in ‘refined rate‐setting’ directed at determining a
more accurate market rate for interest.” First Nat. Bank of Chicago
v. Standard Bank & Tr., 172 F.3d 472, 480 (7th Cir. 1999).
We interpret this language, along with the broad grant to the
district court of discretion in awarding prejudgment interest,
to mean that where there is a state law that “statutorily defines
the rate,” a district court may use its discretion to determine
which is more likely to make the plaintiff whole—the
state statute or the prime rate. We are not alone in offering
district courts that option. See, e.g., In re ClassicStar Mare Lease
Litig., 727 F.3d 473, 497 (6th Cir. 2013) (“We have held that the
method for calculating prejudgment interest remains in the
discretion of the district courts, and they are free to look to
state law for guidance in determining the appropriate prejudgment
interest rate if they so choose”) (citations omitted);
Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758, 764 (10th Cir.
1997) (recognizing that because the prejudgment interest
award was governed by federal law, a district court is free to
choose any interest rate which would fairly compensate the
plaintiff for the delay in the receipt of payment including the
current state interest rate); Smith v. Am. Intʹl Life Assurance Co.
of N.Y., 50 F.3d 956, 958 (11th Cir. 1995) (approving the district
court’s use of state’s post‐judgment interest rate for guidance
in determining the prejudgment interest rate); Quesinberry v.
Life Ins. Co. of N. Am., 987 F.2d 1017, 1031 (4th Cir. 1993) (“The
rate of pre‐judgment interest for cases involving federal questions
is a matter left to the discretion of the district court. In
this case the district court found the Virginia judgment rate in
Va.Code § 6.1–330.54 appropriate.”) (citations omitted).
Particularly in light of the fact that the piece of the litigation
on which Frey prevailed below was her retaliation claim
under the Illinois State Human Rights Act, it certainly would
22 No. 17‐2267
be within the court’s discretion to look to that statute to determine
the prejudgment interest rate. The district court opined,
however, that there was no “statutorily defined rate” to which
it could look because it concluded that the Illinois Human
Rights Act does not provide for pre‐judgment interest. It is
true that the Illinois Human Rights Act does not use the
words “prejudgment interest,” in describing remedies, but it
does, in fact, describe prejudgment interest. Under the Illinois
Human Rights Act, “Upon the finding of a civil rights violation,
the circuit court or jury may award any of the remedies
set forth in Section 8A‐104.” 775 ILCS § 5/8‐111. That section,
in turn, allows for a court to “[t]ake such action as may be
necessary to make the individual complainant whole, including,
but not limited to, awards of interest on the complainant’s
actual damages and back pay from the date of the civil rights violation.”
775 ILCS § 5/8A‐104 (emphasis ours). Interest from
the date of the civil rights violation to the date of a judgment
is prejudgment interest. There is, therefore, a statute that addresses
pre‐judgment interest.
Vaughn Hospitality argues that these statutes in the Illinois
Human Rights Act do not include a statutory interest
rate. It is true that in a technical sense the Illinois Human
Rights Act does not itself contain a statutory interest rate but
read in light of the other statutes and the administrative code
provision, it does indeed provide an interest rate. The Illinois
Act allows for an award of interest and then leaves it to the
administrative code to hammer out the nuts and bolts of the
calculations. See 56 Ill. Admin. Code 5300.1145. In other
words, Frey cites two statutes and one regulation which together
provide for prejudgment interest for civil actions: (1)
775 ILCS § 5/8‐111 addresses “Civil Actions Commenced in
Circuit Court” and states that “[u]pon the finding of a civil
No. 17‐2267 23
rights violation, the circuit court or jury may award any of the
remedies set forth in Section 8A‐104;” (2) 775 ILCS § 5/8A‐104
then allows that court or jury to award interest from the date
of the civil rights violation; and finally (3) the Administrative
Code, 56 Ill. Admin. Code 5300.1145 provides the formula for
calculating that interest. We find this sufficient to provide a
“statutorily defined” prejudgment interest rate.
Vaughn Hospitality argues that the Illinois Human Rights
Act governs procedural rules of the Illinois Human Rights
Commission and not civil actions involving the Act’s claims,
and therefore its interest rate provisions are inapplicable in
this action. The Act, however, regulates both proceedings in
the Commission and the Illinois State Circuit Courts. In fact,
the very regulation Frey relies on for an award of pre‐judgment
interest is labeled “Court Proceedings,” with subheadings
of “(A) Civil Actions Commenced in Circuit Court,” and
“Judicial Review.” 775 ILCS § 5/8‐111. This should not preclude
a federal court from borrowing the interest rate to use
in its own proceedings when using its discretion to determine
a prejudgment interest rate. This is particularly true where the
federal court is awarding interest based on a successful claim
under a state statute via its exercise of supplemental jurisdiction.
Next, Vaughn Hospitality argues that Illinois Administrative
Code section 5300.1145, which provides the detailed calculations
for the interest rate, is inapplicable because it refers
only to cases that have proceeded “under the alternative hearing
procedure” of the Act. Not so. Vaughn Hospitality has ignored
the first six words of the statute. The Code states
“[w]henever an Order and Decision, or a Final Order in a case
proceeding under the alternative hearing procedure, includes
24 No. 17‐2267
an award of interest pursuant to Section 8A‐104(J) of the
Act …” 56 Ill. Admin. Code 5300.1145 (emphasis ours).
Clearly the code allows for an award of interest from orders
and decisions as well as “from a Final Order in a case proceeding
under the alternative hearing procedure.” Id. More
importantly, however, our federal case law allows courts in
this circuit to use their discretion to borrow interest rates from
a state statute. It does not require that every procedural posture
in the federal case match that in the statute.
In short, the district court erred when it concluded that the
state statute did not provide for prejudgment interest. The
district court may use its discretion to choose either the state
statute on prejudgment interest or the prime rate as described
by federal law. It cannot exercise its discretion, however, if it
does not understand its options. On remand, the district court
may use its discretion to determine whether the interest rate
from the state statute or the prime rate is more likely to make
the plaintiff whole in line with the purposes of Title VII.

Outcome: In sum, we VACATE the district court’s grant of summary
judgment for Vaughn Hospitality on the issue of employer liability,
its order on the amount of back pay for Frey’s successful
state retaliation claim, and its ruling on the prejudgment
interest. We remand for further proceedings consistent with
this opinion. Costs of the appeal are awarded to the plaintiff.

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