Court Rules that Insurance Agents Can Be Independent Contractors Instead of Employees.

• Author: Demaria, Alfred T.
• Position: [HR UPDATE]

A United States federal court recently found that insurance agents working under independent contractor agreements for a major insurance company were employees for purposes of pursuing pension and other benefits under the Employee Retirement Income Security Act ("ERISA"). The court found that the insurance agents were properly classified as independent contractors. It recognized that the decision was a close one but disagreed with the lower court on two major factors of the employee versus independent contractor test: (1) the skill required of an insurance agent; and (2) the hiring and paying of assistants.

The first factor--the amount of skill required--weighs in favor of independent contractor status because selling insurance requires considerable education and training and occurs in a highly specialized field, according to the Court.

The second factor in the Court's discussion -the individual's role in hiring and paying assistants--also weighs in favor of independent contractor status for these insurance agents because the agents were solely responsible for paying their own staff, determining their compensation and benefits, and deciding whether to classify these assistants as independent contractors or employees. Even though the insurance company had some right to override hiring and firing decisions, on balance, the insurance agents had the primary authority over hiring and paying their assistants.

Going forward, insurance industry executives should be aware that courts will weigh certain factors in the ERISA...