A New York court has upheld a decision by the New York Unemployment Insurance Appeal Board that an insurance agent was entitled to unemployment insurance benefits as an employee of an insurance agency, and that the parties’ agreement did not fall within the statutory exception classifying insurance agents as independent contractors.

The case

Christopher Fahrson worked as an insurance agent with Aaron Casey Insurance Agency in New York for approximately six months. After his employment ended, Mr. Fahrson applied for unemployment insurance benefits. The New York Department of Labor determined that he was an employee of Aaron Casey Insurance and that the agency was liable for contributions based on remuneration paid to Mr. Fahrson and others similarly situated.

Aaron Casey Insurance objected on the ground that Mr. Fahrson was an independent contractor. Following a hearing, an administrative law judge sustained the initial determination.

The Board affirmed, and Aaron Casey Insurance went to court.

What the law says

New York Labor Law § 511(21) provides:

21. Qualified insurance agent or broker. The term “employment” shall not include the services of a licensed insurance agent or broker if it be proven that (a) substantially all of the remuneration (whether or not paid in cash) for the services performed by such agent or broker is directly related to sales or other output (including the performance of services) rather than to the number of hours worked; (b) such agent is not a life insurance agent receiving a training allowance subsidy described in paragraph three of subsection (e) of section four thousand two hundred twenty-eight of the insurance law; (c) the services performed by the agent or broker are performed pursuant to a written contract executed between such agent or broker and the person for whom the services are performed; and (d) the written contract provided for in paragraph (c) of this subdivision was not executed under duress and contains the following provisions:

(i) that the agent or broker is engaged as an independent contractor associated with the person for whom services are performed pursuant to article twenty-one of the insurance law and shall be treated as such for all purposes, including but not limited to federal and state taxation, withholding (other than federal insurance contributions act (FICA) taxes required for full time life insurance agents pursuant to section 3121(d)(3) of the federal internal revenue code), unemployment insurance and workers’ compensation;

(ii) that the agent or broker (A) shall be paid a commission on his or her gross sales, if any, without deduction for taxes (other than federal insurance contributions act (FICA) taxes required for full time life insurance agents pursuant to section 3121(d)(3) of the federal internal revenue code), which commission shall be directly related to sales or other output; (B) shall not receive any remuneration related to the number of hours worked; and (C) shall not be treated as an employee with respect to such services for federal and state tax purposes (other than federal insurance contributions act (FICA) taxes required for full time life insurance agents pursuant to section 3121(d)(3) of the federal internal revenue code);

(iii) that the agent or broker shall be permitted to work any hours he or she chooses;

(iv) that the agent or broker shall be permitted to work out of his or her own office or home or the office of the person for whom services are performed;

(v) that the person for whom the services are performed may provide office facilities, clerical support, and supplies for the use of the agent or broker, but the agent or broker shall otherwise bear his or her own expenses, including but not limited to automobile, travel, and entertainment expenses;

(vi) that the person for whom the services are performed and the agent or broker shall comply with the requirements of article twenty-one of the insurance law and the regulations pertaining thereto, but such compliance shall not affect the agent’s or broker’s status as an independent contractor nor should it be construed as an indication that the agent or broker is an employee of the person for whom the services are performed for any purpose whatsoever;

(vii) that the contract and the association created thereby may be terminated by either party thereto at any time with notice given to the other.

Business man training new employees

The court’s decision: It’s about control

The court affirmed the Board’s decision.

In its decision, the court explained that whether an employee-employer relationship existed was “a factual question to be resolved by the Board” and courts would not disturb a determination by the Board that was “supported by substantial evidence in the record.”

The court added that although no single factor was determinative, “control over the results produced or the means used to achieve those results” were “pertinent considerations,” with the latter being “more important.”

In this case, the court found, there was “ample evidence” to support the finding that Aaron Casey Insurance had exercised control over numerous aspects of Mr. Fahrson’s work. For example, the court said, Mr. Fahrson was required to work a minimum of 30 hours per week, per a schedule set by Aaron Casey Insurance, and he needed permission to take time off. The court added that, in addition to servicing customers outside the office, Mr. Fahrson was responsible for performing in-office work, including answering phones and servicing walk-in customers. The court observed that Mr. Fahrson was paid an hourly wage plus commissions and was reimbursed for the costs associated with obtaining his insurance license. Additionally, the court continued, Mr. Fahrson was provided training and was required to report back regarding sales leads, his work was reviewed by Aaron Casey Insurance, and he had a sales quota and faced termination if it was not met.

In the court’s view, this was “more than sufficient to support the Board’s finding of an employment relationship, notwithstanding the existence of other proof that could support a contrary conclusion.”

Finally, the court decided that the Board properly had concluded that the parties’ agreement had not satisfied the requirements of Labor Law § 511(21) and, thus, that the statute did not bar Mr. Fahrson’s application for unemployment insurance benefits.

The case is Matter of Claim of Fahrson (N.Y. App.Div. 3d Dep’t Feb. 19, 2015).

The above article was drawn from FC&S Legal, and originally published by The National Underwriter Company.