[COLUMN] Misclassification as independent contractors can be costly to employees and employers

$75 million employer payout for class of insurance agents

Irene Parry and Jeanette O’Sullivan worked as captive insurance agents for Farmers. They sold insurance products in California on behalf of Farmers and its affiliated companies. Under Farmers’ Agents Appointment Agreement (“AAA”), which Parry and O’Sullivan—and other agents like them—were made to sign, the insurance agents were classified as independent contractors rather than employees.

As supposed independent contractors, the agents were made to pay for their own business expenses in selling Farmers’ insurance products. Had they been classified as employees, Farmers as the employer would have paid or reimbursed the agents these expenses.

Parry and O’Sullivan filed a class action alleging that they, and other captive insurance agents, were wrongfully misclassified as Independent Contractors even though they were actually treated like employees. They alleged that Farmers wrongfully failed to reimburse them for the mandatory business expenses they incurred in working for Farmers. On November 16, 2022, the Los Angeles Superior Court granted final approval of the $75 Million settlement in their case.

Under California law, a person providing labor or services is considered an employee rather than an independent contractor unless the hiring entity demonstrates all of the following:

(i) that the person is free from the control and direction of the hiring entity in connection with the performance of work;

(ii) that the work performed is outside the usual course of the hiring entity’s business; and

(iii) that the person is customarily engaged in an independently established trade, occupation or business.

Even if workers sign an agreement that labels them an Independent Contractor, the agreement will not be enforced by the courts if an actual employment relationship can be demonstrated under the above test. Employment status is determined by law, not by the parties’ agreement. This is for the protection of workers.

In the case of Parry, et al. v. Farmers Insurance Exchange, et al., although Farmers expressly denied any wrongdoing, they agreed to certain amendments to their AAA with the class members that addresses issues of control over the captive insurance agents. Additionally, the monetary portion of the settlement, totaling $75,000,000, resolves the insurance agents’ claims for reimbursement of expenses they incurred in the course of their work for Farmers.

Employees misclassified an Independent Contractors miss out on the many protections and benefits guaranteed under California’s employment laws. As such, workers classified as Independent

Contractors—who commonly receive a 1099 tax form rather than a W-2 form—should carefully examine the nature of their working relationship with their company.

If workers are actually employees under California law, they may be entitled to back wages, reimbursements for expenses, and the value of employment benefits such as health insurance, retirement or pension benefits. Knowing your rights at work makes a lot of difference.

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The opinions, beliefs and viewpoints expressed by the author do not necessarily reflect the opinions, beliefs and viewpoints of the Asian Journal, its management, editorial board and staff.

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The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com. [For more than 25 years, C. Joe Sayas, Jr., Esq. successfully recovered wages and other monetary damages for thousands of employees and consumers. He was named Top Labor & Employment Attorney in California by the Daily Journal, selected as Super Lawyer by the Los Angeles Magazine for 11 years, and is a past Presidential Awardee for Outstanding Filipino Overseas.]

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