Insurance Agents as Employees? Court Breaks Independent Contractor Precedent

by Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

On August 1, 2017, the US District Court for the Northern District of Ohio held that insurance agents working under independent contractor agreements with an insurer were employees for purposes of pursuing pension and other employment benefits under the Employee Retirement Income Security Act of 1974 (ERISA). 

The court’s decision in Jammal v. American Family Insurance Group, which it certified for interlocutory appeal, is notable for its departure from industry practice and prior legal precedent treating many insurance agents as independent contractors. It also notable in that many of the factors the court found convincing are customary, sensible and expected business practices for an insurer ensuring that its agents meet minimum standards for services conducted under its brand. Insurers and other employers will be watching the US Court of Appeals for the Sixth Circuit carefully to see what guidance this case ultimately provides for assessing contractor status.

The Jammal ruling came after a 12-day trial on this single issue (employee vs. independent contractor) and a recommendation from an advisory jury1 in the context of a class action involving many other issues. The court certified the ruling for immediate interlocutory appeal because “(1) there was evidence supporting both sides in this case; (2) prior case law has been nearly unanimous in finding that insurance agents generally are to be classified as independent contractors; (3) the repercussions of this finding are so far-reaching; and, (4) the resolution of damages will be unusually complicated.”

Applying the Sixth Circuit’s test for employment status under ERISA, the court analyzed the degree to which the insurer possesses the right to control the manner and means by which its agents perform their work and emphasized that exercising that right was not necessary to deem an individual an employee as opposed to an independent contractor. In applying this test, the court took guidance from the Supreme Court’s decision in Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 320-21 (1992), which applied 11 non-exclusive factors from the common law agency test to an ERISA claim by an insurance agent for pension benefits.2 Adding to that list, the Jammal decision noted the Sixth Circuit’s prior focus on express agreements between the parties and the employer’s ability to control job performance and further employment opportunities as the most significant factors for consideration.

In its analysis, the court found that the following evidence weighed in favor of employee status:

  • “Skill required” factor: The insurer “always hired untrained, and often unlicensed, agents and provided all the training they needed” to serve as an agent.
    • The insurer did so because it wanted to train the agents in the “American Family way.”
    • The insurer’s network of sales management employees were very involved in the agents’ daily activities and closely supervised them.
      • The sales department consisted of 1,000 employees who all “exist solely to support its 2,800 agents.” 
      • Sales managers set goals and created business plans for the agents along with enforcing compliance with the goals and plans because their jobs depended on the agents’ success in selling insurance.
  • “Duration of the relationship” factor: By the parties’ agreement this factor weighed in favor of employee status because there is no limit on the duration of the agency relationship, and the insurer described the position as a “career” position.
  • “Right to assign additional projects” factor: The insurer could assign additional duties to agents by requiring them to service policies that they did not bring in, participate in call nights, conduct personal insurance reviews, and prepare business plans, among other duties that the agents testified they felt they could not refuse to perform.
  • “When and how long to work” factor: The court found the insurer required agents to keep particular business hours and retained the right to control this aspect of the work by permitting managers to drop-in and verify compliance with the designated hours. Agents had to submit daily activity reports even though they did not have to punch a clock or otherwise record their time.
    • There was evidence the insurer retained the right to approve or deny vacation requests and sometimes reprimanded agents for being out of the office without preapproval.
  • “Part of the regular business” factor: The insurer could not function as a business without the sales that the agents generated. Thus, the work of the agents was part of the insurer’s core function.

By comparison, the court found that the following facts weighed in favor of independent contractor status:

  • “Express agreement” factor: The contract between the agents and the insurer indicated that the parties intended that the agents would be independent contractors.
  • “Source of instrumentalities and tools” factor: Agents were responsible for their own office space, “furniture, equipment, marketing, legal and professional services, client lunches/entertainment, telephone, office supplies, health insurance, automobile, continuing education, and repairs and maintenance for their offices.”
    • Because the insurance company controlled and supplied the “computers and software essential to the performance of the agent’s job,” this factor weighed only slightly in favor of independent contractor status.
  • “Location of work” factor: Agents worked in their own office buildings and paid the costs for their worksites.
    • Because the insurer maintained some level of control by prohibiting agents from working out of their homes, and retaining the right to approve the proposed location of an agent’s office, this factor weighed only slightly in favor of independent contractor status.
  • “Method of payment” factor: Agents were paid based on commissions, not on a set salary.
  • “Provision of employee benefits” factor: Agents were not provided traditional employee benefits and had to pay for their own health insurance. They also did not receive sick pay, vacation pay or other paid time off.
  • “Tax treatment” factor: The parties did not dispute that the agents were treated as independent contractors for tax purposes.

After concluding that the Darden factors were “almost evenly split between” employee status and independent contractor status, the court noted that the insurer still maintained some right of control in nearly all categories even if that right wasn’t always exercised. Considering the other factors that the Sixth Circuit found most important, the court concluded that the evidence weighed in favor of employee status in three other areas. First, the company had the right of control over the agents’ job performance by allowing managers to reprimand or otherwise discipline agents when they did not follow its standards or employ its techniques. Second, the court also found compelling the control over the agents’ employment opportunities in the form of prohibiting: (1) ownership over a book of business or particular policies; (2) the sale of insurance from another company even when the insurance company did not carry the particular product; (3) competition with the company for one year following termination of the contract; and (4) by actively discouraging other employment during the contract term. Third, the court was persuaded by evidence that the insurer trained its sales managers to treat agents the same as employees by giving managers traditional supervisory authority over agents, holding managers responsible for agents’ failures, and referring to agents as “employees” in the training manuals. 

Ultimately, the court concluded that “[t]he degree of control managers were encouraged to exercise was inconsistent with independent contractor status and was more in line with the level of control a manager would be expected to exert over an employee.” When compared to other Sixth Circuit decisions involving insurance agents, the court found that “none of the factual scenarios presented in any of the cited cases show retention of the same level and breadth of control by the Company that was evidenced in this case.” 

This holding will not necessarily result in employees receiving benefits under the insurer’s various ERISA plans; rather, eligibility will depend on the specific terms of those plans, including any eligibility provisions that may be drafted to exclude individuals classified as agents without regard to a subsequent judicial recharacterization. However, the standards that the court applied to reach its conclusion in this case are not unique to ERISA. Similar tests have been applied in the context of employment taxes, wage and hour rules, and other employment law contexts. 

In Jammal, the insurer raised some of these consequences in a third motion to decertify the class of plaintiff agents. For example, the company argued that the evidence in the trial on employment status showed that some agents were happy with their treatment, did not want to be classified as employees, and some opposed the potential consequences of a reclassification. For example, some agents might be concerned about potentially having to refile tax returns and potentially pay back deductions for self-employed and business expenses. Despite this evidence, the Jammal court rejected the company’s arguments as not based on any new evidence that would support decertification, relying on much of the same rationale from its opinion on employment status to deny the motion to decertify. 

As the court noted in its opinion, Jammal deviates from longstanding precedent in independent contractor classification, especially in cases involving insurance agents. The court certified its ruling for interlocutory appeal because of this departure from precedent and the potential far-reaching impacts of its ruling. Even if the Sixth Circuit ultimately reverses the Jammal decision, employers should review the facts of this case closely in light of their own independent contractor arrangements. Employers should also keep in mind that state statutory and common-law tests for contractor status vary significantly. Federal laws, such as the Fair Labor Standards Act and the Internal Revenue Code, require analysis of different factors as well. Employers should consult with counsel to conduct an appropriate and efficient review of contractor relationships that contemplates changes in the case law, the employer’s specific situation, and increased litigation over independent contractor status.
1 Because jury trials are generally not permitted in ERISA cases, the court impaneled an advisory jury under Federal Rule of Civil Procedure 39(c)(1). The jury’s decision was not binding, and the court allowed the parties to submit proposed findings of fact and conclusions of law following the jury’s decision. 
2 These factors include: the skill required; the source of instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the individual; the extent of the individual’s discretion over when and how long to work; the method of payment; the individual’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; the provision of employee benefits; and the tax treatment of the individual. Darden, 503 U.S. at 232-24.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.