Many insurance companies in the life, health, and disability industry rely on independent insurance agents to sell their products. The details of the relationship between company and agent vary widely but they are almost always memorialized in a written contract. From time to time individual agents have mounted legal challenges to their status as independent contractors. These agents have argued that their particular arrangement should be more properly viewed as an employer/employee relationship with all of the anticipated benefits. While there is more and more rigor being applied by the courts and the Department of Labor to independent contractor relationships, the insurance industry has prevailed more times than not on maintaining independent contractor status for their agency sales force. A recent case addressing the issue was Ruggiero v. American United Life Insurance Company, 2015 WL 5822622 (D.Mass. 2015), where the U.S. District Court of Massachusetts held that an insurer did not violate the Massachusetts independent contractor statute and, therefore, did not violate Massachusetts wage laws by treating an insurance agent as an independent contractor.
In 2008, after 25 years as an insurance agent for another insurer, Ruggiero established his own insurance agency. In early 2009, he contacted American United about the possibility of signing on as a general agent and managing his own agency. At that time, American United was seeking to expand its presence in New England. Shortly thereafter, Ruggiero signed a General Agent's contract with American United for the purpose of building an agency in Boston that would sell American United products, among others. Thereafter, Ruggiero established his agency. The business cards, website, letterhead, and email signature for his agency all identified it as affiliated with American United.
In 2013, Ruggiero began to wind down his agency. He stopped recruiting career agents and completely ceased the operation in September 2014. At that time he ended his relationship with American United. Ruggiero sued American United alleging it had violated the Massachusetts independent contractor statute, Mass. General Law, Chapter 149, Section 148B, by misclassifying him as an independent contractor instead of an employee, as well as violating the Massachusetts Wage Act and the minimum wage law.
The parties filed cross-motions for summary judgment. The court found case dispositive the issue of whether American United violated the Massachusetts independent contractor statute. It found that American United did not. In doing so, it found that American United satisfied the three-prong test set forth in the statute to classify an individual as an independent contractor:
- Ruggiero was free from direction and control by American United both under the terms of his contract and in fact in connection with the performance of the service;
- The service provided by Ruggiero was performed outside the usual course of the business of American United; and
- Ruggiero was customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The court performed an in-depth analysis of each prong of this test. While the court did not make a finding that under no circumstances could a general agent be found to be an employee of the insurer, it did note that federal courts have consistently found that insurance agents acting as Ruggiero did were independent contractors.
The court's decision is particularly noteworthy in light of the fact that Massachusetts has the most restrictive independent contractor law in the nation, which creates a strong presumption in favor of an employment relationship. Only by meeting each prong of the independent contractor test can a contracting entity, such as American United, avoid reclassification of an individual as an employee. In this instance, the court found important that Ruggeiro freely maintained business relationships with numerous other insurance companies and, in so doing, was free to sell the products of other companies and to train his agents on selling such other products. In addition, the court went to great lengths to discuss what it termed the "manufacturing-sales dichotomy" in which Ruggeiro was responsible for sales of American United's products, whereas American United, by contrast, was focused on producing insurance products. As stated by the court: "As critical as sales ultimately are to . . . financial stability, at its core, [American United] manufactures - rather than sells - a product."
Due to the fact-intensive nature of the court's analysis, the decision certainly leaves room for future challenges by agents seeking to gain from asserting that they were misclassified as employees, particularly in jurisdictions outside of Massachusetts. The likelihood of such challenges is heightened in light of the U.S. Department of Labor, Wage and Hour Division's recent Administrator's Interpretation No. 2015-1, which was issued on July 15, 2015. That interpretation reveals a renewed focus at the DOL on striving to root out and eliminate misclassification of employees as independent contractors throughout the United States.