Kimbly Arnold, by contract with Mutual of Omaha, sold Mutual products as a nonexclusive agent and also sold insurance products for other insurers. She was unhappy with the relationship with Mutual, terminated the contract, and then sued for benefits. In Kimbly Arnold v. Mutual of Omaha Insurance Co., No. A131440 (Cal.App. Dist.1 12/30/2011), Arnold claimed unpaid employee entitlements under the California Labor Code. Summary judgment was granted in favor of Mutual because the facts established she was not an employee, but rather an independent contractor. Seeking serious profits from the suit, Arnold also filed as the representative plaintiff of a class.
The complaint listed three causes of action. Mutual allegedly failed to fully reimburse Arnold and class members for “necessary business-related expenses and costs,” to which they were entitled under the California Labor Code. The second cause of action alleged Mutual had willfully failed to pay Arnold and class members for wages earned but unpaid prior to being discharged from employment or prior to quitting employment, for which they were entitled to recover under multiple labor codes. A third cause of action alleged Mutual’s conduct constituted an unlawful business practice in violation of the unfair competition law, for which Arnold and class members sought compensation, an injunction requiring Mutual to pay all outstanding wages and costs.
Mutual filed a motion for summary judgment contending Arnold was an independent contractor rather than a former employee under the common law test, and hence, not entitled to any relief under her first or second causes of action. Because Arnold’s third cause of action under the UCL was derivative of her first cause of action, it similarly afforded her no relief as a matter of law.
In California, the principal test of an employment relationship under common law considers whether the person to whom service is rendered:
- Has the right to control the manner and means of accomplishing the result desired
- Has the kind of occupation, with reference to the locality, if the work is usually done under the direction of the principal or by a specialist without supervision
- Has the right to discharge at will, without cause
- Has the skill required in the particular occupation.
It also considers:
- Whether the one performing services is engaged in a distinct occupation or business
- Whether the principal or the worker supplies instrumentalities, tools and a place of work
- Whether the work is a part of the regular business of the principal
- Whether the parties believe they are creating the relationship of employer-employee
- The length of time for which the services are to be performed
- The method of payment, whether by the time or by the job.
The individual factors must not be applied as separate tests but are intertwined and often given weight depending on the particular combination of factors.
The evidence presented in the motion for summary judgment showed that Arnold was licensed by the Dept. of Insurance as an independent agent or broker and was authorized to offer products to prospective clients from different companies. When she first contracted with Mutual in November 2006, she was under appointment with another insurance company to offer its products, and while under that appointment she acted on behalf of a third insurance company. At both of these insurance companies she performed as an independent contractor, receiving commissions and 1099 tax forms for that income.
Under Arnold’s contract with Mutual, the latter appointed her as a nonexclusive “agent” to solicit and procure applications for Mutual’s products. Arnold had the responsibility to maintain the proper licenses required to perform this service. Her chief duties were to procure and submit applications for Mutual’s products, collect monies and service clients. Compensation was by commission for products sold, with a chargeback on any commission paid when monies for sale of a product were uncollected or refunded. Either party could terminate the contract with or without cause through written notice to the other, with termination if Arnold failed to submit an application for one of Mutual’s products for a period of 180 days.
One clause of the contract stated that Arnold was “an independent contractor and not an employee,” that no terms of the contract “shall be construed as creating an employer-employee relationship,” and that Arnold was “free to exercise [her] own judgment as to the persons from whom [she] will solicit and the time, place and manner, and amount of such solicitation.”
Arnold testified that she had read the contract and understood when she signed it that her appointment with Mutual was as an independent contractor. She agreed she used her own judgment in tending to her business, and in determining whom she solicited for Mutual applications, when and where she would do so and the amount of time she spent engaging in such solicitations.
Arnold exercised her contractual right to terminate her appointment with Mutual by a letter dated Mar. 24, 2008, which advised Mutual that she had entered into a contract to represent another insurance company exclusively and was prohibited from maintaining her appointment with Mutual.
THE COMMON LAW TEST FOR EMPLOYMENT
In California, a statute is construed in light of the common law unless the legislature clearly and unequivocally indicates otherwise. Thus, when a statute refers to an employee without defining the term, courts have generally applied the common law test of employment to that statute.
Mutual’s training was voluntary for agents, except as required for compliance with state law. Under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the tasks she performed as one of Mutual’s soliciting agents.
Arnold was engaged in a distinct occupation requiring a license from the Dept. of Insurance. She was responsible for her own instrumentalities or tools with the exception of limited resources offered by Mutual to enhance their agents’ successful solicitation of Mutual’s products. Arnold was required to pay a fee for the use of Mutual’s office space and telephone service. Although Mutual paid its agents in a systematic way every 2 weeks, Arnold’s payment itself—chiefly commissions—was based on her results and not on the amount of time she spent working on Mutual’s behalf. Arnold and Mutual believed, at the time of her appointment, they were creating an independent contractor relationship and not an employee relationship.
The existence and degree of each factor of the common law test for employment is a question of fact, while the legal conclusion to be drawn from those facts is a question of law. Even if one or two of the individual factors might suggest an employment relationship, summary judgment is nevertheless proper when, as here, all the factors weighed and considered as a whole establish that Arnold was an independent contractor and not an employee for purposes of labor code sections 202 and 2802.
Insurance agents and brokers who enter into contracts with insurers to sell insurance products to the public can be classified as independent contractors or as employees. It is imperative that the agent or broker entering into a contract with an insurer is certain of the relationship. Before signing an agreement such as that signed by Arnold, it is best to seek the advice of counsel. Employees, by statute in California and most states, have rights that are not available to independent contractors.
Arnold entered into an agreement with Mutual that clearly stated she was not an employee but an independent contractor. She attempted to gain benefits to which she, and the class she claimed to represent, were not entitled to receive because they were not employees.
Based on her own testimony it is difficult to understand why she brought the action and why, after losing at trial, she decided to take the case up on appeal.