In January, the Sixth Circuit again held that insurance agents were independent contractors and not common law employees entitled to ERISA benefits, and reversed a trial court decision holding otherwise. Jammal v. American Family Ins. Co., No 17-4125 (6th Cir. 1-29-19). Because the case was being heard as an interlocutory appeal, the Court only examined the legal conclusions and whether the common law factors were factual or legal conclusions. The Court concluded that some factors -- skill required and hiring of assistants -- had been applied incorrectly and favored non-employee status. It also found that the trial court failed to give sufficient weight to the parties’ written agreement. Because ERISA focuses on employee benefits, the factors relevant to such a consideration should have been given more weight than other factors.
According to the Court’s opinion, the plaintiffs were hired pursuant to independent contractor agreements, paid their own taxes, hired and paid their own staff, bought their own office furniture and supplies, and did not receive vacation, holiday or sick pay. Nonetheless, training manuals referred to them as employees, all other individuals working for the company were employees, and the sales managers were unaware that the agents were not employees. In addition, the sales managers sometimes interfered in running the offices, and directed some daily activities. Agents also attended a comprehensive several month training program, receive type of retirement plan, are precluded from selling competing insurance, are subject to non-competition agreements, cannot sell their agencies and are discouraged from other employment. The case was tried to an advisory jury which found that the agents were employees.
On interlocutory appeal, the Court concluded that the trial court incorrectly weighed the factors of whether the agents required special skills or hired their own assistants. “This circuit has previously held that the skill required of insurance agents weighs in favor of independent-contractor status because ‘the sale of insurance is a highly specialized field” that requires “considerable training, education, and skill.’”
Though American Family preferred hiring untrained, and often unlicensed, agents, the underlying discipline of selling insurance remains the same regardless of American Family’s hiring preferences. . . . . The district court therefore misapplied the legal standard to the facts; the correct application would have weighed this factor in favor of independent contractor status, as this circuit has done previously.
The trial court also found the agent’s hiring and paying of staff was neutral, when the evidence showed otherwise. While the company imposed certain minimum requirements, would not provide computer access without approval of the candidates and could require the termination of an agent’s employees,
. . .American Family agents were responsible for paying their own staff, determining and paying for any benefits and taxes associated with that staff, and deciding whether to classify their staff as employees or independent contractors. While American Family provided “pre-approved” candidates, whom the agents could select as their staff, it did not require the agents to hire these pre-screened candidates. Agents also had sole discretion in staff-compensation matters and the sole responsibility to withhold and remit taxes to the federal government as the employers of their staff.
“If the hired party has the ‘primary authority over hiring and paying its own assistants,’ the Darden factor regarding ‘the hired party’s role in hiring and paying assistants’ should weigh in favor of independent-contractor status.”
Further, given our determination regarding the existence of each of the Darden factors, the district court also erred by not properly weighing those factors that are particularly significant in the legal context of ERISA eligibility. . . . . But “the relative weight given each [Darden] factor may differ depending upon the legal context of the determination.” . . . Because ERISA cases focus on the financial benefits that a company should have provided, the financial structure of the company-agent relationship guides the inquiry. Here, the Darden factors that most pertain to that financial structure favor independent-contractor status and, accordingly, carry more weight in the ERISA context.
. . . . Because this inquiry exists in the legal context of ERISA benefits, this collection of factors—particularly the ones relating to the source of the instrumentalities and tools, the method of payment, the provision of employee benefits, and the agents’ tax treatment—is especially important in determining the parties’ financial structure. Accordingly, these factors should have carried greater weight in the district court’s final analysis. . . . .
As further evidence of the financial structure of the parties’ relationship, the lower court should have also given greater weight to the parties’ express agreement. In determining the parties’ relationship in the Darden context, we have several times “look[ed] to any express agreement between the parties as to their status as it is the best evidence of their intent” and placed great weight on that agreement. . . . A written contract shows “how the parties themselves viewed the nature of their working relationship” and therefore carries great— but not dispositive—weight in determining an independent-contractor relationship.
NOTICE: This
summary is designed merely to inform and alert you of recent legal
developments. It does not constitute legal advice and does not apply to any
particular situation because different facts could lead to different results.
Information here can be changed or amended without notice. Readers should
not act upon this information without legal advice. If you have any questions
about anything you have read, you should consult with or retain an employment
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