Insurance agents are not contractors, judge rules

American Family could owe $1 billion in retirement benefits

A federal judge has agreed with a jury that American Family insurance agents actually are company employees, not independent contractors — a designation attorneys for agents and former agents say entitles their clients to more than $1 billion in retirement benefits.

The Madison-based insurer said it is appealing Tuesday’s ruling by Northern District of Ohio Judge Donald Nugent, who himself helped clear the way for a timely review by an appellate court and noted that prior case law has been “nearly unanimous” in finding insurance agents should be classified as independent contractors.

But in the American Family case, Nugent concurred with an advisory jury ruling in April that the preponderance of evidence shows agents really are employees of the company, even if they had entered into an agreement that said they weren’t.

“The degree of control managers were encouraged to exercise was inconsistent with independent contractor status and was more in line with the level of control a manager would be expected to exert over an employee,” Nugent said in his 44page ruling.

Nugent’s ruling states that American Family required its agents to sign a one-year noncompete agreement when they were terminated and a lifetime non-compete pact prohibiting any contact with American Family agency clients.

“American Family trained its sales managers to treat agents in the same manner as they would treat employees,” Nugent stated.

The lawsuit, originally filed in 2013 by four former American Family agents, was certified as a class action suit in 2016, automatically adding about 7,000 current and former agents as plaintiffs.

American Family operates in 19 states.

Attorneys for the agents argued that American Family avoids complying with federal regulations that protect retirement benefits by improperly classifying its agents as independent contractors. The ruling ultimately could cost American Family more than $1 billion in restored retirement benefits, according to Whitefish Bay attorney

Erin Dickinson, one of the lawyers representing the agents.

“It’s a great result for the agents who’ve been made to bear expenses running these agencies for many years,” said Dickinson, a partner in the firm Crueger Dickinson LLC.

The $1 billion figure is disputed by the company.

“We believe that estimate is grossly exaggerated and premature, particularly in the light that the court has granted an immediate appeal,” American Family spokesman Ken Muth said Wednesday.

Muth said American Family has had what it calls an “extension of earnings” program that compensates agents after they leave, based on years of service and performance. It’s not a retirement plan but is approved by the Internal Revenue Service, he said.

Muth said the company is confident the courts will affirm its agents are independent contractors.

“We are financially strong to withstand a possible court judgment, but ultimately we believe we will prevail in the next step,” he said.