In April of last year the U.S. District Court for the Northern District of Ohio said American Family Insurance Group improperly classified thousands of agents as independent contractors. The advisory jury in the case determined they are employees.
That case has since been sent to the 6th U.S. Court of Appeals who heard arguments by opposing attorneys on the case on July 31st.
Four former agents filed the suit that could impact 7,200 current and former agents. Their case stands on the Employee Retirement Income Security Act of 1974 (ERISA,). It has to do with retirement and retirement benefits that the agents say American Family avoids by making them independent contractors.
The agents also say their case comes down to control American Family has over them.
Here’s the history. In July of last year Judge Donald Nugent affirmed the jury ruling and said the “evidence supports a finding that the American Family agents defined in the class description should have been classified as employees and not independent contractors.”
However, the judge also said the two parties can file an interlocutory appeal. For those not knowing, that is an appeal of an aspect of a ruling by a trial court before the trial is concluded.
Here is the judge’s conclusion. He started by saying an appeal may “materially advance the ultimate termination of the litigation because:
• Evidence is there to support both parties
• Prior case law almost unanimously says insurance agents are independent contractors
• The repercussions of the finding could be far-reaching
• As a result of a positive ruling the damages could be very complicated
The judge also noted: “In order to determine employment status under ERISA, courts are instructed to look at the degree to which the hiring party retains the right to control the manner and means by which the service is accomplished.”
The employment agreement with American Family says the agents are private contractors and are responsible for paying their own taxes. It also says they have the right to determine how they conduct their business.
What they aren’t entitled to — under that agreement — is workers’ compensation and unemployment benefits.
The attorneys for the agents say the company’s agreement is paper only. Managers regularly tell agents how to do their jobs and are sometimes forceful in those instructions. The agents disagree and say the company requires them to buy their own supplies, offices, etc. but will not let them sell their agency when they terminate the relationship.
American Family responded by saying the managers merely work with the agents to set sales goals and monitor the outcome of those goals. The company does not care how the agents achieve them.
In his ruling, Judge Nugent addressed the retirement plan and noted “testimony showed that agents were offered an ‘extended earnings’ benefit based on their years of service. This plan offered a lifetime annuity, and was described to the agents as a retirement plan.”
American Family also told state insurance regulators that the company defined those extended earnings as a benefit. How much money an agent makes from that benefit depends upon the number of years worked plus the amount of money earned during the last six-months of the “exclusive relationship” with American Family.
The quizzing of the attorneys on the 31st indicated the appeals judges will be looking at the degree of control the company has over the activity of the agents. Also at issue is whether an agent can be looked at as an employee when it comes to retirement benefits yet be considered an independent contractor for tax purposes.
The judges also want to explore the far-reaching implications of a decision for the plaintiffs.
Source links: Insurance Journal, Insurance Business America