Was Student Who Sold Insurance Firm's Products an Employee?

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By Christine Pulfrey

“You owe me wages and overtime for the hours I spent selling your policies,” a college student told an insurance company manager.

“No, we don't,” the manager said. “You signed a contract that said you were an independent contractor.”

FACTS: During a career fair, a college student applied to be a financial representative for an insurance company that generally sold its products through a network of independent contractors and agents to solicit applications from potential customers.

The company also oversaw elements of its college internship program, including the development of program materials, branding and best practices that those managing the program should adhere to in recruiting college students.

The college student signed a contract in which he agreed to sell the company's products as an independent contractor. Under the contract, the student was not required to have a set work schedule or to be supervised by the company. He also was not on the company’s payroll and did not receive fringe benefits from the company. He was paid commissions and a $100 weekly stipend from the agency he worked through.

Through the internship program, the student worked five days a week for about five months as a financial representative selling the company's products. After attending a training where he completed a marketing plan, he worked out of an agent's office where he was provided with supplies, a computer and a workspace. His email address used the insurance company's network domain name.

After several months, the student ended his contract work for a textbook reseller. He later brought a claim against the insurance company for wages and overtime that he said he was owed under labor laws.

The insurance company reminded the student that he was an independent contractor, not an employee, so he was exempt from federal and state minimum wage and overtime laws.

ISSUE: Was the student who sold an insurance company's products an employee?

DECISION: The student was an independent contractor based on the evidence in the case, a federal district court said.

The court noted that the student offered no evidence that the insurance company managed the methods and means of his work under his contract that would allow for the rational conclusion that the student and company shared an employment relationship. Given those circumstances, the student was not covered by the wage and hour provisions of the Fair Labor Standards Act.

The college student testified that he did not understand what independent contractor meant when he signed the contract and thought he was an employee. He also presented no evidence that showed the insurance company controlled his day-to-day activities, the court said.

The student testified that he did not report the hours that he worked and his time was not tracked, but that he worked a full-time schedule five days each week, attended morning meetings with his apprenticeship program director and notified the director if he planned to take time off.

The student presented no evidence that the insurance company required him to work a full-time schedule, the court said. Rather, the internship program director said that the schedule was a program requirement, but no facts indicated the company required any number of work hours. Because an independent contractor must be at a job or place at a certain time does not eliminate his independent-contractor status, the court said.

The materials provided to the student by the agency were not mandatory and did not demonstrate that the insurance company controlled his work. The materials also did not represent mandatory policy, but rather evidence of incidental supervisory management, the court said.

The student testified that he was not promised additional or guaranteed compensation other than commission; he did not receive health, life or disability insurance benefits; and he did not participate in a company-sponsored retirement plan.

The company did not withhold taxes on the student’s income, and the student did not demonstrate that his weekly stipend came from the insurance company, the court said, which again favor a finding that no employment relationship existed.

The college student was an independent contractor because he worked through an internship program and an agency that was, itself, an independent contractor, and they, not the company, set his work-schedule obligations and paid him commissions, the court said, ruling in favor of the company. ( Rose v. Northwestern Mut. Life Ins. Co., 2016 BL 411715, E.D.N.Y., No. 14-CV-3569, 12/12/16 ).

POINTERS: Independent contractors are not considered employees under the Fair Labor Standards Act. The critical factor in determining whether a worker is an employee or independent contractor for FLSA purposes is the underlying economic realities of the parties' relationship, the Supreme Court has said. Additionally, lower courts have differed on their interpretations of underlying economic realities.

For more information, see the Payroll Administration Guide's “Fair Labor Standards Act: General Rules and Principles” chapter.

By Christine Pulfrey

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This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.

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