Are Insurance Agents Independent Contractors or Employees?

Posted on January 19, 2012 | 0 comments

Are Insurance Agents Independent Contractors or Employees?

During the past few decades, there has been a fair amount of litigation taking place in state courts regarding the issue of whether insurance agents are employees or independent contractors for purposes of wage-and-hour claims. A few weeks ago, in Arnold v. Mutual of Omaha Ins. Co, a California Appellate Court addressed the issue in favor of  the insurance company, holding that a nonexclusive insurance agent was an independent contractor. The decision is of great importance for the insurance industry because it provides a clear roadmap on how to classify insurance agents.

In this case, Plaintiff Kimbly Arnold worked as a nonexclusive insurance agent for Mutual of Omaha Insurance Company. After terminating her contractual relationship with Mutual, she filed  a class action claiming unpaid employee entitlements under the Labor Code on the ground that she was a victim of misclassification. The trial court concluded  she was an independent contractor as a matter of law.

On appeal, Arnold argued that in determining whether she was an “employee” for the purporse of section 2802,  the court should refrain from applying the common law test expressed by California Supreme Court in Borello. Instead, she argued,  the court must refer to  section 2750  that provides a statutory definition governing  the meaning of “employee” as it is used in section 2802. The court rejected Plaintiff’s  argument and explained that the Labor Code does not expressly define “employee” for purposes of section 2802, and therefore, the common law  Borello test of employment applies.

Applying the common law Borello test, the appellate court held that the following factual findings  were indicative of independent contractor relationships:

a)      Mutual managers were  available to assist agents, as distinguished from supervising them.  Arnold did not receive performance evaluations, and managers did not monitor or supervise her work schedule.

b)      Training was generally not mandatory and was offered chiefly for the guidance of “new” agents. Training was required only with respect to compliance with state law directives.

c)      Software was provided by Mutual as a “best practice” to enable agents to sell its products more successfully.

d)      Conference rooms, if available, were provided as a courtesy to agents seeking to set up a meeting and having no other space in the office.

e)      While Mutual paid its agents in two-week periods, payments were comprised of commissions and bonuses established by policy, and there was no guaranteed compensation.

f)       Mutual did not provide business cards, vehicles, or computers free of charge.

g)      Agents could, but were not required to work “out of the Concord office,” but if they chose to do so, they were required to pay monthly fees to cover “workspace and telephone service.”

Insurance companies, brokers, and agents must keep in mind that the Arnold court did not hold that all insurance agents are automatically deemed to be independent contractors. As demonstrated above, the common law Borello test is a factually-intense analysis done on a case-by-case basis.

The legal distinction between an independent contractor and employee is often times hard to ascertain. California and federal courts, as well as state agencies, apply different tests with different factors depending on the context. However, the danger of misclassifying a worker as an independent contractor is substantial and may cost an employer  thousands of dollars in unpaid wages, reimbursements, and litigation costs. This danger has become even greater given that in 2012 California started to impose strict financial penalties on companies and individuals who “willfully” misclassify employees as independent contractors.

If you would like to know whether your workers are properly classified as independent contractors or would like me to prepare or review an independent contractor agreement, feel free to contact me. I am a San Francisco employment law attorney and would be glad to meet you for a consultation.

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