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“You treated us like employees, so we deserve employee benefits,” said Marcus, an insurance company’s agent, on behalf of himself and others similarly situated.
“Our agreement is clear: You are independent contractors and not entitled to employee benefits,” a company spokesman said.
FACTS: An insurance company hired and heavily relied on its agents to sell its policies.
The company preferred to hire agents lacking specialized knowledge or experience that it would train in its approach to selling insurance through a two- or three-month comprehensive training program. The agents had to pay to obtain and maintain their license to sell insurance.
The agents' agreement with the company said that they were independent contractors for all purposes, ineligible for employee benefits, and that where an inconsistency or ambiguity existed, the agreement was the controlling document.
The company subsidized new agents' office expenses and provided a monthly stipend for up to four years. Agents were paid a monthly salary and commission and had to maintain regular hours, perform mandatory sales activities, and to track and report all of their activities on a weekly basis. The company was involved in selecting and approving the agents' offices.
The agents were provided with branded materials, a company website and email address, and were to use computers leased from the company. The agents had to pay for many of their trade tools and business expenses, file taxes as if they were independent contractors and deduct business expenses as self-employed business owners. The agents had to sign a one-year noncompete agreement.
Agents also had to comply with the company's code of ethics. The company monitored agents' email and computer use, and managers tracked agent activities. Managers could tell agents what staffers to hire and were evaluated based on the number of staff the agents hired. The company also imposed licensing and noncompete rules on agents' staffers.
Agents were encouraged to voluntarily follow the company's best practices, but managers' compensation was tied to agent compliance with those practices, so some managers implemented mandatory programs to increase agent compliance with these best practices.
Agents claimed that some managers regularly threatened them with termination to gain compliance and that when the agents complained, they were punished. The company threatened or disciplined managers if they refused to exert a high level of control over their agents.
Managers were taught from company-approved materials that referred to agents as employees and that said the managers should act as the agents' bosses.
ISSUE: Were company agents properly classified as independent contractors under the Employee Retirement Income Security Act?
DECISION: The workers were employees, a federal district court ruled. The degree of control that managers were encouraged by the company to exercise over agents is akin to the level of control that managers would be expected to exert over an employee, it said.
The terms of the agreement technically did not allow for managers to retain and exercise control over the means and manner of the agents’ service. However, the company trained and expected its managers to control the means and manner of agents’ sales and service duties when the company thought it necessary to achieve its goals and standards, the court said, noting that managers were reprimanded after they did not exercise such control when the company thought it beneficial to do so.
Among other factors, because some managers exercised a high level of control over some agents, the agents should have been classified as employees, not independent contractors, the court said.
Recognizing that its ruling reflects a split from the circuit’s decisions, which have been nearly unanimous in ruling that such agents are independent contractors, and recognizing that its ruling could have far-reaching repercussions, the court supported an appeal of its ruling to expedite resolution of the issues within the circuit court ( Jammal v. Am. Family Ins. Co., N.D. Ohio, No. 1:13-cv-00437, 8/1/17 ).
POINTERS: To determine employment status under ERISA, courts are to look at the degree to which the hiring party can control the manner and means by which work is done.
The Supreme Court has said that in deciding if the hiring party has the right to control the manner and means by which a service is accomplished, courts should consider: the required skill, the source of tools, the work location, the length of the work relationship, the provision of employee benefits, whether additional projects may be assigned, the payment method, and the hired party's discretion regarding when and how long to work and its role in hiring and paying workers.
The Sixth Circuit Court of Appeals has consistently ruled that workers may be classified as employees if the employer retains the right to direct or control the manner and means of work. An agreement between the parties is a relevant factor, but not the only factor, it said.
This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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