On January 29, 2019, a divided panel of the Sixth Circuit Court of Appeals reversed the district court finding that the American Family agents are employees, not independent contractors. In reversing, the panel majority began with the standard of review. It believed it was “clear” that findings of historical fact are reviewed for clear error and that the “ultimate conclusion as to whether the plaintiffs were employees is a question of law” reviewed de novo. But the majority stated that this Court had not decided what standard applies to intermediate conclusions about the “existence” and “weight” of each of the Supreme Court’s Darden factors. The majority recognized that “[o]ther circuits” treat those findings “as factual matters subject to review for clear error.” But the majority rejected its “sister circuits’ jurisprudence” and held that the existence and weight of each Darden factor is reviewable de novo.

Applying that standard, the panel majority held that the district court erred in assessing two of the thirteen Darden factors. It further held that the district court “erred by not properly weighing” the factors that the majority deemed “particularly significant in the legal context of ERISA eligibility.” The majority believed that although control is usually the key to employee status, in the ERISA context, “the financial structure of the company-agent relationship guides the inquiry.” And here, the majority concluded that the factors relevant to financial structure demonstrate that the Plaintiffs have “independent contractor status.” The panel also believed that, had the district court given the contract “proper consideration,” it would have found the agents were independent contractors.

Judge Clay dissented. First, he concluded that other circuits have correctly held that “the existence and degree of each Darden factor” is “reviewed for clear error.” Second, he showed that the majority erred in disturbing the district court’s findings on the two specific Darden factors. Finally, he explained that the majority erred in holding that control is less significant under ERISA than in other legal contexts.

On March 25, 2019, the Sixth Circuit denied our petition for rehearing en banc. Accordingly, we now have 90 days from that date to decide whether to file a petition asking the Supreme Court to hear the case.

Read the Judge's Decision

Q: What is the case about?

A: The case is primarily about the protection of the agents’ retirement benefits in their Termination Benefit plan (also known as Extended Earnings) under ERISA.  ERISA is the federal law protecting employee retirement benefits and it requires pension plans to meet minimum standards for, among other things, the vesting, accrual, and funding of employee retirement benefits. Plaintiffs and the Class contend that while American Family classified them as independent contractors, it retained a right to control them that makes the agents employees for purposes of ERISA. Plaintiffs and the Class also contend that the Termination Benefits plan does not meet ERISA’s minimum standards and protections and, therefore, must be reformed to comply with ERISA. In addition, Plaintiffs and the Class allege that they were also entitled to certain benefits under the health and other welfare benefits American Family offered to its employees.

Q: Am I a member of the class?

A: Click to read more  

Q: What did the judge decide?

A: The judge decided that Plaintiffs had proved that the agents were employees under ERISA.

Q: The Judge allowed American Family to take an interlocutory appeal. What does that mean and is it bad?

A: No, it is not bad. The judge allowed American Family to file a petition with the Sixth Circuit Court of Appeals to review the decision that the agents are employees for purposes of ERISA. The Sixth Circuit can decide whether it wants to hear the appeal. If it declines, then the case will go back to the district court to continue to the next phase to determine what relief the Class is entitled to. If the Court of Appeals decides to hear the appeal, then the parties will present their case to the appeals court. In that case, we are confident that the Court of Appeals will affirm the judge’s decision.

Q: What is next?

A: American Family is going to ask the Court of Appeals to hear of the case. See “The Judge allowed American Family to take an interlocutory appeal. What does that mean and is it bad,” above. If the Court of Appeals declines to hear the appeal, then the case will continue to the next phase to determine what relief the Class is entitled to.  Specifically, the Court will decide whether the Termination Benefits plan is a retirement plan and if that plan needs to be reformed to comply with ERISA’s minimum protections and requirements. (ERISA is the federal law protecting retirement benefits.) The Court will also have to decide whether the Class was entitled to participate in the health and other welfare benefits plans American Family offered to its employees.

Q: If I’m an American Family agent, does that mean that I am now an employee?

A: No. The Court’s decision does not automatically convert agents to employees for all purposes.  As we have said before, the case seeks ERISA benefits, including the protection and funding of retirement benefits.

Q: Is the Class also seeking benefits under the retirement and 401K plans American Family offers to its employees?

A: No. American Family wrote its retirement and 401K plans to exclude the agents even if they were employees.

Q: Now that the Judge found that the agents are employees for purposes of ERISA, what will I receive?

A: Nothing as of now.   No relief flows automatically from a finding that American Family misclassified that Class as independent contractors. There will be additional proceedings to determine what relief is available under ERISA.  See “What is next,” above.

Q: What are the prospects of settlement?

A: Plaintiffs and lead counsel have always been willing to resolve the case in a fair and reasonable manner. They also recognize that the case, like all lawsuits, has risk and that resolution is always preferred. American Family, however, chose to try the case to the jury. Hence, the jury’s decision.

Q: I’ve heard the case is “worth” $1 billion.  Is that accurate and where does that number come from?

A: The number comes from a report issued by Plaintiffs’ expert actuary in this case. The $1 billion number is a combination of two different numbers. The first number is American Family’s existing liability to pay benefits under the Termination Benefits plan.  This first number is approximately $500+ million. That liability is unfunded, however, and Plaintiffs contend ERISA would require American Family to fund that liability. The second number is the increase in pension liability from having to comply with ERISA’s minimum protections, such as vesting, accrual, and paying a level annuity. The second number is approximately $500+ million. American Family’s position is that even if ERISA applied, the Termination Benefits plan is a “top hat” plan maintained primarily for a “select group of management or highly compensated employees,” and it is therefore exempt from most of ERISA’s protections. Thus, American Family contends there would be no increase in liability if it had to comply with ERISA and it would not have to fund the liability. Plaintiffs dispute American Family’s “top hat” plan position and, if the Judge adopts the jury’s decision, the parties will move to the next phase of the case, which will address this issue.