INDEPENDENT CONTRACTOR/MISCLASSIFICATION ISSUE AFFECTS ENTITLEMENT TO EMPLOYMENT BENEFITS TOO

Most companies are familiar with the great amount of publicity and litigation involving the classification of workers as employees or independent contractors.  But companies may not be aware of a rarely publicized concern, the concern being that under the companies' policies, employees are entitled to various benefits, such as healthcare coverage and possibly retirement and other benefits.  Thus, if a worker is determined to be an employee rather than a contractor, a company's potential liability for employment benefits can be large. 

A closely-watched case dealing with these issues is now pending before the federal Sixth Circuit Court of Appeals, in Jammal v. American Family Insurance Company, No. 17-4125, Petition for Rehearing 2/26/19.  A three-judge panel of the Sixth Circuit had determined that about 7,200 insurance agents were independent contractors not entitled to employment benefits, based on an analysis suggested by the factors set forth in the U.S. Supreme Court ruling in Nationwide Mutual Insurance Co. v. Darden.  A lower court judge had ruled that the company was wrong to classify the agents as independent contractors, but the Sixth Circuit had reversed that decision.  The plaintiff insurance agents want all of the Sixth Circuit judges to rehear their case, giving them another opportunity to prevail.

Editor's Note: The determination of whether purported independent contractors might be found to be employees and thus covered by company benefit policies may be determined by contractual principles, often relying on criteria set forth in the relevant benefit plan documents.  Companies should be careful how these plan documents are drafted in order to lessen exposure to this type litigation.  Further inducement for employers to examine their contractor relationships, are announcements during March that Swift Transportation has agreed to pay $100 million to end a long-standing suit alleging that it makes its workers faux "owner-operators" to avoid federal and state wage laws, and that Uber Technologies has agreed to pay $20 million to drivers to settle a lawsuit claiming the ride-hailing company misclassified those drivers as independent contractors.