Insurance Agents Not Misclassified As Independent Contractors

From JDSupraRichard Reibstein discusses the recent case which reversed a District Court decision and said that insurance agents were independent contractors. Richard writes:

the U.S. Court of Appeals for the Sixth Circuit, based in Cincinnati, Ohio, reversed the district court and held that insurance agents serving American Family policyholders were properly classified as independent contractors under ERISA and are not eligible for pension and other employee benefits.

In many ways, this is a monumental independent contractor misclassification decision, allowing the industry, at least for the moment, to be confident that their business models had not been up-ended by the federal courts.

Most insurance companies, though, will not likely be tempted to regard this decision as a conclusive determination that insurance agents are independent contractors under all federal and state laws.

As noted above, the federal law in question, ERISA, only covers pension and employee benefits.  It is not a determination that insurance agents are independent contractors under all other federal laws, including the federal wage and hour and discrimination laws.  It is also not a determination that agents are independent contractors under a host of state labor and employment laws, including wage payment, unemployment, and workers’ compensation laws.

The test under ERISA is the so-called “common law” test, which is regarded as considerably more friendly to independent contractor status than the tests for IC status under the federal Fair Labor Standards Act and almost all state wage and hour and unemployment laws.  Current or former agents may well bring new class actions for independent contractor misclassification under such laws.  Their lawyers will undoubtedly argue that the decision in the American Family Insurance case is inapplicable under those laws with more employee-friendly tests for IC status.

Some class action lawyers may also take another shot under ERISA.  The Sixth Circuit’s opinion recognized that the independent contractor status of American Family agents was a close decision.  It pointed out the district court had concluded that the common law factors were “almost evenly split between favoring employee status and favoring independent contractor status.”

The Sixth Circuit chose to reverse in large measure because, in its view, the district court had mistakenly regarded one of the 12 common law factors as favoring employee status instead of independent contractor status and another factor as “neutral” when it should have treated that factor as favoring independent contractor status.  This suggests that a slight change in some of the key facts might influence another court to side with agents in a future “close case” brought under ERISA against a different insurance company – either in a stand-alone ERISA lawsuit or one brought, for example, alongside a claim under the federal wage and hour law for unpaid overtime or minimum wages.

In reaching its decision, the Sixth Circuit also gave great weight to the agreement between American Family and the agents, finding that it fully supported the parties’ independent contractor relationship. The appellate court concluded that the district court “apparently did not weigh this important component when reaching its conclusion” and, had it done so, “it would have further swung the balance in favor of independent-contractor status.”

Read the full story at Insurance Agents Not Misclassified As Independent Contractors; Sixth Circuit Rules in Favor of Insurance Company in ERISA Class Action Seeking Pension, Life, and Health Benefits | Locke Lord LLP – JDSupra

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