Northwestern Mutual Wins Court Battle Over Agent Classification

A federal judge has dismissed a putative class action against Northwestern Mutual. The suit filed by a longtime insurance agent who claimed the company improperly classified him and his counterparts as independent contractors.

U.S. District Judge William J. Martini of the District of New Jersey granted Northwestern’s motion for summary judgment on plaintiff Fred Walfish’s claims that Northwestern Mutual had violated the New Jersey Wage Payment Law (NJWPL).

Walfish argued that, despite his classification as an independent contractor, Northwestern Mutual exerted a significant amount of control over the his day-to-day duties — including the deduction of expenses from agent commissions — meaning that he could be classified as an “employee” under the NJWPL, entitling him to the wage protections under that law.

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Northwestern Mutual countered that the NJWPL should be read to include an exclusion for insurance agents under New Jersey Unemployment Compensation Act; that the nature of Walfish’s relationship with Northwestern meets the “ABC Test” for classification as an independent contractor applicable under state law; and that any deductions made from Walfish’s commissions were legal and agreed-upon.

Martini wrote in his May 6 opinion that, because the court holds that the undisputed facts support a finding that defendants have met their burden on each of the three requirements of the ABC Test, the court need not address the defendants’ argument about the plaintiff’s consent to the commission deductions.

The ABC test presumes an individual is an employee unless an employer can show that:

1. That person is free from direction relating to performance of service;
2. That service is either outside the usual course of the business or performed outside of the normal place of business; and,
3. The individual is routinely engaged in an independently established trade, occupation, profession or business.

Of part A, Martini said, “The court is unwilling to find that, by promulgating certain rules to ensure regulatory compliance, Northwestern exercised control and direction sufficient to fail Part A of the ABC test. Were that so, any business operating in a regulated industry would necessarily no longer be able hire workers under an independent contractor relationship unless it was willing to risk regulatory non-compliance.”