CWS 3.0: February 1, 2012

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Legal Eagle: A Matter of Control

A recent California court ruling affirms what we have reported often: whether a worker is properly classified as independent hinges on the level of control a company has over him or her. 

The case involved insurance agents for Mutual of Omaha Insurance Co.. Kimbly Arnold filed a putative class action against the insurance company claiming that she was misclassified as an independent contractor and denied reimbursement of business-related expenses under California Labor Code. Further, she alleged she was not paid wages in a timely manner.

The trial court ruled in favor of Mutual, finding that Arnold was a “common law” independent contractor and therefore not entitled to business expense reimbursement or timely payment of wages under the Labor Code. Arnold appealed, arguing the court should have applied the broader standard.

The appellate court disagreed. It boils down to control. Mutual’s managers made themselves available to assist independent agents, but did not supervise the agents. The company made training available to the agents, but it was not mandatory. While Mutual offered software to the agents, it did so as a “best practice.” Further, while the plaintiff was paid at regular intervals, there was no guarantee of compensation. Her appointment was non-exclusive, and she was free to sell other companies’ policies. She obtained her own license to sell insurance, paid all her own expenses and provided her own tools.

In short, the court held that salespeople with the discretion to determine when, how and whether to sell a company’s products may properly be classified as independent contractors. Often, a company can find itself in trouble if it exerts too much control over a worker and may be determined to have misclassified him or her. In this case, Mutual of Omaha followed the right steps to avoid that fate.

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