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The U.S. Court of Appeals for the Ninth Circuit recently held—consistent with other courts that have considered the issue—that “insurance agents are independent contractors and not employees for purposes of various federal employment statutes,” including ERISA, the ADEA, and Title VII.  In Murray v. Principal Financial Group, Inc., case number 09-16664, the panel unanimously affirmed a district court order granting summary judgment in favor of a purported employer because it found that the plaintiff was an independent contractor, not an employee entitled to the protections of Title VII.  The panel’s opinion clarifies the appropriate test for distinguishing between employees and independent contractors in the context of Title VII, and concludes that despite apparent precedent for multiple tests, there is, in fact, only one.

The district court had identified three possible tests: the “common law agency” test (focusing on the hiring party’s right to control the manner and means by which the product is accomplished), the “economic realities” test (a fact-specific inquiry focusing on the economic realities of the situation, as its name suggests), and the “common law hybrid” test (a combination of the other tests, taking multiple factors into account).  The appellate court said that the three tests are functionally equivalent.  Even if their different formulations suggest variations in practical application, the controlling test is the common law test, as pronounced by the Supreme Court in Nationwide Mutual insurance Co. v. Darden.  That test applies “whenever an employment statute defines the term ‘employee’ in the way ERISA does, and the statute in question does not otherwise suggest that the common law test would be inappropriate.”  The Supreme Court identified 12 factors to consider, including whether the hiring party has the right to assign additional projects to the hired party, the extent of the hired party’s discretion over when and how long to work, and the tax treatment of the hired party. 

Applying those factors, both courts found the plaintiff/appellant in this case to be an independent contractor based on the overall picture presented by her situation.  She was free to operate her business as she saw fit, could decide when and where to work (and in fact, paid rent on her own office), was paid on commission only, reported herself as self-employed to the IRS, and sold products other than those offered by the defendant. 

Now that the court has clarified the appropriate standard, hiring parties in the Ninth Circuit should reevaluate their hired parties to ensure they are classified appropriately.