HR Management & Compliance

Who Is—and Isn’t—an Employee? One Employer Gets a Favorable Call

Designating workers as independent contractors can be a dicey proposition these days, with both federal and state authorities continuing their increased scrutiny of these arrangements.

But that doesn’t mean the relationship can never hold up, as in a recent case in which the court upheld a worker’s classification as an independent contractor—and dismissed all of her claims against the employer as a result.

District manager sues insurers

In September 2005, after several years working for five affiliated insurers, Erin Beaumont-Jacques became a district manager for the insurers and Farmers Group, Inc., by executing a District Manager Appointment Agreement (DMAA).

As a district manager, she recruited and recommended persons to become agents solely for these insurers. If the insurers accepted a recruit, Beaumont-Jacques trained and motivated the new agent to market only the insurers’ insurance products. While she didn’t sell those products herself, Beaumont-Jacques could represent no other insurers.

In October 2009, she voluntarily terminated the relationship, receiving almost $200,000 in two payments from the insurers in accordance with the DMAA. In May 2010, she sued the insurers for, among other things, breach of contract and sex discrimination.

The trial court dismissed the claims before trial, holding "as a matter of law" that Beaumont-Jacques was an independent contractor, not an employee. This meant that the evidence supported only that conclusion, so there was no need to go to trial. Beaumont-Jacques appealed.

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The independent contractor test

The Court of Appeals began its analysis by explaining that the "pivotal inquiry" when determining whether a worker is an independent contractor is the "control of details"—whether the employer had the right to control the manner and means of accomplishing the desired result. The key is the right to control, not the amount of control actually exercised.

The appellate court noted that the California Supreme Court has acknowledged that an employer may retain a broad general power of supervision and control as to the results of the work to ensure satisfactory performance of the independent contractor without changing the relationship to one of employer-employee.

According to the state Supreme Court, that broad general power of supervision and control could include:

  • The right to inspect;
  • The right to make suggestions or recommendations as to details of the work; and
  • The right to prescribe alterations or deviations in the work.

District manager wasn’t an employee

The Court of Appeals concluded that the undisputed evidence established that Beaumont-Jacques exercised "meaningful discretion" that made her an independent contractor. For example, she:

  • Recruited agents for the insurers and, after agents were selected, trained and motivated them to sell the insurers’ products;
  • Determined her own day-to-day hours, including her vacations;
  • Fixed the time for her arrival and departure at her office and elsewhere, including lunch and breaks, on most days;
  • Hired and supervised her staff, while remitting payroll taxes for them as employees;
  • Performed other administrative tasks, including resolving problems; and
  • Paid for her costs such as marketing, office lease, telephone service, and office supplies, and deducted those costs as business expenses in her personal tax returns (in which she identified herself as self-employed).

In addition, the DMAA specified that there was no employer-employee relationship.

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