Court Rules Independent Agents are Employees of Insurer

A federal district court finding that independent agents working for American Family Insurance Group are company employees under the Employee Retirement Income Security Act (ERISA) could lead to other agents filing similar lawsuits, a legal expert said Monday.

The finding by the U.S. District Court for the Northern District of Ohio was certified for immediate appellate review, and the defendant noticed its appeal in the class-action case.

“While each case is a fact-intensive inquiry, if the appellate court affirms the lower court ruling you may have a lot more claims being made that (insurance) agents are employees,” said Gail L. Westover, an employment litigation partner with Eversheds Sutherland.

She was not involved in the case.

A preponderance of previous court rulings have found insurance agents to be independent contractors for purposes of employee benefits, Westover explained.

In Jammal v. American Family Insurance Group, four former agents alleged they were misclassified as independent contractors instead of as employees.

The company’s degree of control over agents’ business affairs entitled them to employee benefits under federal law, the agents argued.

About 7,000 former and current American Family agents were added as unnamed plaintiffs in March 2016 when the case was awarded class-action status.

Company Confident of Victory

But the Madison, Wis.-based company, which has been battling the agents in court since 2013, doesn’t see it that way.

American Family agents operate with broad latitude, and the leeway justifies classifying the agents as independent contractors, the company said.

American Family said it was confident of victory in the case.

“The classification has been previously affirmed by five federal court decisions and the Internal Revenue Service,” said American Family Chief Legal Officer Mark Afable, in a news release.

“We are confident we will prevail in this situation as well, affirming the strong relationships and model we have with our agents,” he said.

Weighing Two Sides to Agent Status

U.S. District Judge Donald C. Nugent’s July 31 ruling followed a 12-day trial in April, which concluded with an advisory jury finding in favor of the agents.

While the judge agreed, he granted immediate appeal of the court’s ruling to the 6th U.S. Circuit Court of Appeals.

In his ruling, Judge Nugent concluded that American Family expected its managers to exercise control over its agents whenever it was “necessary to achieve compliance with company goals and standards.”

American Family trains raw recruits in the company’s way of doing business, sales managers set goals and business plans for agents, and agents are required to keep business hours. All were cited as evidence favoring the agents being classified as employees.

Factors weighing in favor of independent contractor status were the contract between the agents and insurer, agents working in and paying for their own offices and agents receiving commissions and filing taxes as independent contractors.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.