Nationwide Mutual Insurance Company v. Darden

• Decision Date: 24 March 1992
• Docket Number: No. 90-1802,90-1802
• Citation: 503 U.S. 318,117 L.Ed.2d 581,1992 WL 512047,112 S.Ct. 1344
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, et al., Petitioners v. Robert T. DARDEN
• Court: U.S. Supreme Court

503 U.S. 318

112 S.Ct. 1344

117 L.Ed.2d 581

NATIONWIDE MUTUAL INSURANCE COMPANY, et al., Petitioners

v Robert T. DARDEN.

No. 90-1802.

Argued Jan. 21, 1992.

Decided March 24, 1992.

Syllabus

Contracts between petitioners Nationwide Mutual Insurance Co. et al. and respondent Darden provided, among other things, that Darden would sell only Nationwide policies, that Nationwide would enroll him in a company retirement plan for agents, and that he would forfeit his entitlement to plan benefits if, within a year of his termination and 25 miles of his prior business location, he sold insurance for Nationwide's competitors. After his termination, Darden began selling insurance for those competitors. Nationwide charged that Darden's new business activities disqualified him from receiving his retirement plan benefits, for which he then sued under the Employee Retirement Income Security Act of 1974 (ERISA). The District Court granted summary judgment to Nationwide on the ground that Darden was not a proper ERISA plaintiff because, under common-law agency principles, he was an independent contractor rather than, as ERISA requires, an "employee," a term the Act defines as "any individual employed by an employer." Although agreeing that he "most probably would not qualify as an employee" under traditional agency law principles, the Court of Appeals reversed, finding the traditional definition inconsistent with ERISA's policy and purposes, and holding that an ERISA plaintiff can qualify as an "employee" simply by showing (1) that he had a reasonable expectation that he would receive benefits, (2) that he relied on this expectation, and (3) that he lacked the economic bargaining power to contract out of benefit plan forfeiture provisions. Applying this standard, the District Court found on remand that Darden had been Nationwide's "employee," and the Court of Appeals affirmed.

Held:

1. The term "employee" as used in ERISA incorporates traditional agency law criteria for identifying master-servant relationships. Where a statute containing that term does not helpfully define it, this Court presumes that Congress means an agency law definition unless it clearly indicates otherwise. See, e.g., Community for Creative Non-Violence v. Reid, 490 U.S. 730, 739-740, 109 S.Ct. 2166, 2172-2173, 104 L.Ed.2d 811. ERISA's nominal definition of "employee" is completely circular and explains nothing, and the Act contains no other provision that either gives specific guidance on the term's meaning or suggests that construing it to incorporate traditional agency law principles would thwart the congressional design or lead to absurd results. Since the multifactor common-law test here adopted, see, e.g., id., at 751-752, 109 S.Ct., at 2178-2179, contains no shorthand formula for determining who is an "employee," all of the incidents of the employment relationship must be assessed and weighed with no one factor being decisive. NLRB v. Hearst Publications, Inc., 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170; United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757; Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772, distinguished. Pp. 322-327.

2. The case is remanded for a determination whether Darden qualifies as an "employee" under traditional agency law principles. P. 328.

922 F.2d 203 (CA 4 1991), reversed and remanded.

SOUTER, J., delivered the opinion for a unanimous Court.

George R. Ragsdale, Raleigh, N.C., for petitioners.

Christopher J. Wright, Washington, D.C., for U.S. as amicus curiae.

Marion G. Follin, III, Greensboro, N.C., for respondent.

Justice SOUTER delivered the opinion of the Court.

In this case we construe the term "employee" as it appears in § 3(6) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1002(6), and read it to incorporate traditional agency law criteria for identifying master-servant relationships.

I

From 1962 through 1980, respondent Robert Darden operated an insurance agency according to the terms of several contracts he signed with petitioners Nationwide Mutual Insurance Co., et al. Darden promised to sell only Nationwide insurance policies, and, in exchange, Nationwide agreed to pay him commissions on his sales and enroll him in a company retirement scheme called the "Agent's Security Compensation Plan" (Plan). The Plan consisted of two different programs: the "Deferred Compensation Incentive Credit Plan," under which Nationwide annually credited an agent's retirement account with a sum based on his business performance, and the "Extended Earnings Plan," under which Nationwide paid an agent, upon retirement or termination, a sum equal to the total of his policy renewal fees for the previous 12 months.

Such were the contractual terms, however, that Darden would forfeit his entitlement to the Plan's benefits if, within a year of his termination and 25 miles of his prior business location, he sold insurance for Nationwide's competitors. The contracts also disqualified him from receiving those benefits if, after he stopped representing Nationwide, he ever induced a Nationwide policyholder to cancel one of its policies.

In November 1980, Nationwide exercised its contractual right to end its relationship with Darden. A month later, Darden became an independent insurance agent and, doing business from his old office, sold insurance policies for several of Nationwide's competitors. The company reacted with the charge that his new business activities disqualified him from receiving the Plan benefits to which he would have been entitled otherwise. Darden then sued for the benefits, which he claimed were nonforfeitable because already vested under the terms of ERISA. 29 U.S.C. § 1053(a).

Darden brought his action under 29 U.S.C. § 1132(a), which enables a benefit plan "participant" to enforce the substantive provisions of ERISA. The Act elsewhere defines "participant" as "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan. . . ." § 1002(7). Thus, Darden's ERISA claim can succeed only if he was Nationwide's "employee," a term the Act defines as "any individual employed by an employer." § 1002(6).

It was on this point that the District Court granted summary judgment to Nationwide. After applying common-law agency principles and, to an extent unspecified, our decision in United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947), the court found that " 'the total factual context' of Mr. Darden's relationship with Nationwide shows that he was an independent contractor and not an employee." District Court Order of May 23, 1985, reprinted at Pet. for Cert. 47a, 50a, quoting NLRB v. United Ins. Co. of America, 390 U.S. 254, 88 S.Ct. 988, 19 L.Ed.2d 1083 (1968).

The United States Court of Appeals for the Fourth Circuit reversed. Darden v. Nationwide Mutual Ins. Co., 796 F.2d 701 (1986) (Darden I). After observing that "Darden most probably would not qualify as an employee" under traditional principles of agency law, id., at 705, it found the traditional definition inconsistent with the " 'declared policy and purposes' " of ERISA, id., at 706, quoting Silk, supra, 331 U.S., at 713, 67 S.Ct., at 1468, and NLRB v. Hearst Publications, Inc., 322 U.S. 111, 131-132, 64 S.Ct. 851, 861-862, 88 L.Ed. 1170 (1944), and specifically with the congressional statement of purpose found in § 2 of the Act, 29 U.S.C. § 1001.¹ It therefore held that an ERISA plaintiff can qualify as an "employee" simply by showing "(1) that he had a reasonable expectation that he would receive [pension] benefits, (2) that he relied on this expectation, and (3) that he lacked the economic bargaining power to contract out of [benefit plan] forfeiture provisions." Darden v. Nationwide Mutual Ins. Co., 922 F.2d 203, 205 (CA4 1991) (Darden II) (summarizing Darden I). The court remanded the case to the District Court, which then found that Darden had been Nationwide's "employee" under the standard set by the Court of Appeals. Darden v. Nationwide Mutual Ins. Co., 717 F.Supp. 388 (EDNC 1989). The Court of Appeals affirmed. Darden II, supra.²

In due course, Nationwide filed a petition for certiorari, which we granted on October 15, 1991. 502 U.S. ----, 112 S.Ct. 294, 116 L.Ed.2d 239 (1991). We now reverse.

II

We have often been asked to construe the meaning of "employee" where the statute containing the term does not helpfully define it. Most recently we confronted this problem in Community for Creative Non-Violence v. Reid, 490 U.S. 730, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989), a case in which a sculptor and a nonprofit group each claimed copyright ownership in a statue the group had commissioned from the artist. The dispute ultimately turned on whether, by the terms of § 101 of the Copyright Act of 1976, 17 U.S.C. § 101, the statue had been "prepared by an employee within the scope of his or her employment." Because the Copyright Act nowhere defined the term "employee," we unanimously applied the "well established" principle that

"[w]here Congress uses terms that have accumulated settled meaning under . . . the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms. . . . In the past, when Congress has used the term 'employee' without defining it, we have concluded that Congress intended to describe the conven- tional master-servant relationship as understood by common-law agency doctrine. See, e.g., Kelley v. Southern Pacific Co., 419 U.S. 318, 322-323 [95 S.Ct. 472, 475-476, 42 L.Ed.2d 498] (1974); Baker v. Texas & Pacific R. Co., 359 U.S. 227, 228 [79 S.Ct. 664, 665, 3 L.Ed.2d 756] (1959) (per curiam); Robinson v. Baltimore & Ohio R. Co., 237 U.S. 84, 94 [35 S.Ct. 491, 494, 59 L.Ed. 849] (1915)." 490 U.S., at 739-740, 109 S.Ct., at 2172 (internal quotations omitted).

While we supported this...