Insurance Agents Are For ERISA Independent Contractors

Sixth Circuit Court of Appeals Addresses Whether Insurance Agents Are, For Purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”),
To Be Classified as Employees or Independent Contractors

      In this case, the Sixth Circuit reversed the trial court and held that the insurance agents are independent contractors. Jammal v. American Family Insurance Company, No. 17-4125 (6^th Cir. Jan. 29, 2019).

      In this class-action lawsuit, the agents for American Family alleged they should be classified as employees and that their incorrect independent contractor classification “‘deprived [them] of the rights and protections guaranteed by state and federal law to employees, including their rights under ERISA.’” Slip Op. at 3.

      While the trial court determined that the correct classification was as employees, that was reversed by the Sixth Circuit, it applying the various factors set forth by the United States Supreme Court in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992), they being:

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.

            The Sixth Circuit noted as well that it would take account of the express agreement between the parties as a relevant factor in determining. In this instance, the agents had signed agreements with American Family providing that they were independent contractors. Those agreements provided:

It is the intent of the parties hereto that you are not an employee of the Company for any purpose, but are an independent contractor for all purposes, including federal taxation with full control of your activities and the right to exercise independent judgment as to time, place and manner of soliciting insurance, servicing policyholders and otherwise carrying out the provisions of this agreement. As an independent contractor you are responsible for your self-employment taxes and are not eligible for various employee benefits such as Workers and Unemployment Compensation.

      Giving weight to this express written agreement and applying the various Darden factors, the Sixth Circuit determined that the insurance agents are properly characterized as independent contractors.

      Demonstrating the closeness of these questions, there was a dissent by one of the three members of the panel.