In analyzing the qualification factor, the Sixth Circuit rejected the District Court`s finding that the amount of skill under Darden “weighs slightly in favor of employee status” because American Family “sought out unqualified agents” and then trained them. Instead, the Court of Appeal found that the sale of insurance is a “highly specialized field” that requires “substantial education, training and skills.” As a result, the Sixth Circuit concluded that the District Court should have weighed the qualification factor in favor of or status as an independent contractor. The majority`s emphasis on the importance of the independent contractor agreement between agents and American Family Insurance is hardly surprising. Independent cases of misclassification of entrepreneurs – both for and against employee status – have been decided on the basis of such agreements, which often establish the right of the company to control, where appropriate, the manner and means of provision of services by the other party. The test under ERISA for IC status is the so-called “common law” test, which is considered much more user-friendly for independent contractor status than tests for IC status under the federal Fair Labor Standards Act and almost all wage laws, hours and state unemployment. Current or former agents may very well file new class actions alleging misclassification of an independent contractor under these laws. Your lawyers will no doubt argue that the decision in the case of American family insurance is not enforceable under these laws, which have more user-friendly tests for IC status. (C) “the worker habitually engages in a trade, profession or independent undertaking of the same nature as that of the person involved in the work performed”. Finally, the Sixth Circuit found that the District Court did not give sufficient weight to the parties` written agreement, which expressly stated that their intention was to establish an independent contractor relationship and that the agent was “not an employee of the company for any purpose.” While the District Court recognized that the agreement favored CI status, the Sixth Circuit said the lower court should have given even more weight to the contract, which “would have further shifted the balance in favor of independent contractor status.” Even if the company and the individual want the relationship to be that of an independent contractor and have a written agreement specifying the relationship, it may not matter. The actual circumstances of the relationship determine the status. Regardless of whether a misclassification is anticipated, financial penalties and other costs can be a burden on the business. There are many reasons why you may want to classify workers as independent contractors, including the fact that you don`t have to pay for otherwise mandatory benefits, as in this case. But you will pay a high price if it is determined that you have misclassified the workers.
Keep in mind that the classification of employees is not at the discretion of the parties and can be challenged under many laws and for many reasons, even if there is a written agreement. An independent contractor doesn`t even have to complain that a problem occurs, as routine audits by the IRS and other federal and state agencies regularly find a misclassification. The first factor – the amount of skills required – weighs in favor of independent contractor status, as selling insurance requires considerable training and education and takes place in a highly specialized field, the court said. The insurance company`s preference to hire people who have not been trained and train them to become licensed insurance agents, rather than hiring more experienced people who already had a license, is not relevant to this factor. In August 2017, the U.S. District Court for the Northern District of Ohio found that insurance agents working under independent contractor agreements for a large insurance company were employees to obtain pensions and other benefits under the Employee Retirement Income Security Act (ERISA) of 1974. [1] Recognizing the controversy of this finding, the District Court upheld the decision to appeal immediately to the Sixth District. First of all, the 6. District noted that it has been well established by case law that “selling insurance is a highly specialized skill” that requires “substantial education, training and skills,” a factor that weighs in favor of classifying independent contractors. The court ruled that while American Family may prefer to hire and train untrained and unqualified agents, this does not negate the fact that the position requires a high level of skill. Therefore, perhaps the biggest lesson to be learned from American Family Insurance`s decision is that insurance companies, like companies in virtually every industry, can and should redocument their state-of-the-art independent contractor agreements to ensure that their agreements reflect the actual practices of the parties.
We give our readers an overview of how to achieve this goal in the final paragraphs of this blog post. Here`s how it goes. If you hire a plumber to solve problems with the company`s bathroom, that person is an independent contractor. They run their own business, do not sell insurance, and their contract covers only one transaction. The District Court`s decision was appealed to the Sixth Circuit. The Sixth Circuit, in a split decision, reversed the finding that American Family correctly classified the agents as independent contractors. The Sixth Circuit decision included a review of the Darden factors and also indicated a reluctance to deviate from previous precedents that insurance agents were generally classified as independent contractors. Taking a closer look at the situation, when the agency needs to revise an employee`s status, it may not have a negative impact on the bottom line. The manufacturer`s remuneration may be adjusted to take account of social security contributions, insurance and other expenses. Not to mention, this could help avoid possible future penalties and costs associated with a decision against the agency for misclassification.
