When a captive insurance agent loses his job, is he eligible to receive unemployment insurance benefits? Employees of a company are eligible; independent contractors generally are not. A New York agent had to go to court to prove he was an employee.
He signed the initial contract in May 2013 and a superseding one a few months later. A state law permitted carriers and their agents to have an independent contractor relationship, but the court later determined that this specific contract did not meet the law’s requirements.
The next year the carrier terminated the relationship. He had represented the carrier exclusively and believed that he was the carrier’s employee. Consequently, he submitted a claim for unemployment benefits.
According to the appellate court’s opinion, the carrier:
- Assigned the agent a sales territory
- Set product prices
- Established the commission schedule that was the basis for his compensation
- Prohibited him from assigning his contract without their prior written consent
- Owned all policyholder data, records, material and supplies that they furnished to him during the course of business
- Imposed a two-year non-compete agreement in the event of termination; he was prohibited from soliciting or servicing the carrier’s customers
Before contracting with him, the carrier also screened and interviewed him, ran criminal background and credit checks, and reviewed his work history. He was required to attend orientation sessions on company values, and given a handbook that described rules for behavior and appearance. His choice of errors and omissions liability insurance was subject to their approval. They gave him support staff, office space, business supplies, and an expense allowance. His business cards displayed the name of the carrier’s affiliated agency, a company phone number and email address. They had the right to approve his advertisements and promotional material, provided him with training, and conducted performance reviews. He participated in their pension plan, and they matched his contributions to it.
Nevertheless, the carrier appealed when the state labor department awarded him unemployment benefits. An administrative law judge sided with the carrier, concluding that he was an independent contractor ineligible for benefits. The state Unemployment Insurance Appeal Board reversed the judge’s ruling and awarded the benefits, and the carrier appealed.
The appellate court judges ruled that the circumstances of the relationship, such as the carrier’s ownership of expirations, right to veto advertising and E&O insurance, and performance reviews, were sufficient proof of an employment relationship. In addition, they said that the ruling applied to “those similarly situated,” meaning that all of the carrier’s supposed independent contractors were actually employees.
Insurers who sell their products through captive agents usually classify them as independent contractors. However, the truth may be different, as it was in this case. Courts, as well as the Internal Revenue Service, examine multiple factors when determining whether an individual is an independent contractor, rather than an employee. When the employer has a high degree of control over the person’s activities, tools, hours and other areas, courts are likely to find the individuals to be employees. This makes the agents eligible for employee benefits and other programs, such as unemployment insurance.
The lesson for captive agents is to not rely solely on the carrier’s determination of independent contractor status. Reality may dictate a different determination, and that can be to the agent’s benefit.
