Independent contractors: What we can learn from the Jammal v. Am Fam decision
A multi-part blog series about the independent contractor relationship and the laws governing it
History of the court case
In August, the case of Jammal v. American Family Insurance came before a federal court in Ohio. The case involved 7,000 American Family (“Am Fam”) agents who were classified as independent contractors, but claimed to actually be employees. The claims were brought under the Employee Retirement Income Security Act (ERISA), a federal law that governs, among other things, employee benefits.
In the Jammal case, the court found that, under ERISA, the agents were employees, and had been misclassified as independent contractors. In so finding, the court examined, among other factors, whether Am Fam retained the right to control the manner and means by which the Am Fam agents provided insurance services — control is one key factor to the independent contractor vs. employee analysis under ERISA (as well as other federal and state laws, to be discussed more later). There were factors that weight in favor of independent contractor status, but the control factor really swayed the court toward employee. That control was key, even if it was not actually exercised by Am Fam, but only a right it retained. In essence, since Am Fam has the right to control the agents’ job performance and employment opportunities, the court found, those agents are deemed employees.
Can this impact us here in Wisconsin?
The court’s decision has no immediate impact anywhere, legally, as it is being appealed and has been stayed pending that appeal.
The decision is out of a federal court in Ohio, which is in the sixth circuit of federal courts, whereas Wisconsin is in the seventh circuit. So, the decision is not precedent setting for activities that take place in Wisconsin, per se. However, it could still have significant impact on business in Wisconsin in two ways:
1. The decision has already been appealed to the Sixth Circuit Court of Appeals.
An appellate decision, while still not technically having authority to mandate activities inside of Wisconsin, can hold very persuasive value over decisions that are made in Wisconsin courts, state and federal, if the fact pattern of the case and the legal issues at hand are analogous enough. So, courts in Wisconsin and the Seventh Circuit could begin to draw from the Sixth Circuit’s decision, when it is issued, and could make law of their own that mirrors (or goes against) it. This is why it is important to follow court cases with potential for broad impact, regardless of where they are situated.
2. More importantly, it hits home.
The main party in the case is American Family Insurance Co. (and its affiliated entities), whose corporate offices are based right here in Madison. When a company as large as Am Fam that does business in as many states as Am Fam does is forced to change its business practices in any jurisdiction, it is bound to have a wide-ranging impact because the company has an interest in being efficient in how it sets and applies its policies and practices. So, even if Wisconsin law or courts don’t technically say Am Fam agents should actually be employees, Am Fam may make a change, in light of court decisions like that in Jammal, to its practices company wide, to streamline things and avoid getting hauled into court, one state at a time.
Regardless of this particular case’s direct impact, it illustrates an important question every Wisconsin business should ask itself: Am I properly classifying my people?
That case had to do with ERISA; what if ERISA does not apply to my business? Should I care about whether someone is an independent contractor?
Yes. There are many other laws governing the independent contractor v. employee analysis, many of which almost certainly do apply to your business, with which you should be concerned. They include worker’s compensation laws, unemployment laws, and other employment laws enforced by the Wisconsin Department of Workforce Development, as well as the Internal Revenue Code, enforced by the Internal Revenue Service.
In part two of this blog series, we will go over how the Wisconsin Department of Workforce Development views the use independent contractors in Wisconsin businesses.
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