Jun 18, 2019
New Jersey District Court upholds insurance agent classification as independent contractors
The employment status of independent contractors across many sectors has come under close scrutiny in recent years. Following the filing of a class action lawsuit by insurance agents, the United States District Court for the District of New Jersey held that independent insurance agents were properly classified as independent contractors of Northwestern Mutual Life Insurance Company and Northwestern Mutual Investment Services.
In Walfish v. Northwestern Mutual Life Ins. Co. & Northwestern Mutual Inv. Servs. LLC (Docket No. 2:16-cv-4981)(May 6, 2019), the court applied the A-B-C test from New Jersey Unemployment Compensation Law to evaluate whether the agents were independent contractors in practice. The A-B-C test uses three prongs that must all be met for a service provider to qualify as an independent contractor: the control prong; the “course of business” or “location of work” prong; and the “independent business” prong. The court first evaluates whether the contractor was free from direction or control; then the location and nature of the services provided by the contractor compared to the company; and finally whether the contractor’s business may exist independent or apart from the company.
The court determined that the plaintiffs’ had complete control over their hours of work and how they did business. Although Northwestern did set sales goals, the court did not consider that enough to assert Northwestern controlled the over the manner of the plaintiffs’ work. As Northwestern hired general agents and independent agents exclusive to sell their products, it was not their ordinary business to sell products, satisfying the “course of business” prong. Additionally, the plaintiffs did not work out of the company’s location, further satisfying the B prong addressing the “location of business”. Finally, the named plaintiff, Walfish, continued to sell insurance through the same sole proprietorship following termination of his agency agreement with Northwestern. This sufficed to satisfy the “independent business” prong. By meeting all three prongs, Northwestern proved the independent agents were properly classified as independent contractors.
PIA recommends clauses in all agency agreements classifying the agency and/or producers as independent contractors of the company. Northwestern had a similar clause in its agreements with Walfish and other plaintiffs. The court looks at the contractual language, but also requires a company provide evidence of the relationship in practice. The A-B-C prongs help the court evaluate the evidence the company is required to gather to prove the classification was correct. In Walfish, Northwestern provided enough evidence to be granted summary judgment and avoid further litigation on the issue.