Knight v. United Farm Bureau Mut. Ins. Co.

• Decision Date: 03 December 1991
• Docket Number: No. 90-2770,90-2770
• Citation: 950 F.2d 377
• Parties: 57 Fair Empl.Prac.Cas. (BNA) 697, 57 Empl. Prac. Dec. P 41,115 Patricia KNIGHT, Plaintiff-Appellant, v. UNITED FARM BUREAU MUTUAL INSURANCE COMPANY and United Farm Bureau Family Life Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 377

950 F.2d 377

57 Fair Empl.Prac.Cas. (BNA) 697,

57 Empl. Prac. Dec. P 41,115

Patricia KNIGHT, Plaintiff-Appellant, v. UNITED FARM BUREAU MUTUAL INSURANCE COMPANY and United Farm Bureau Family Life Insurance Company, Defendants-Appellees.

No. 90-2770.

United States Court of Appeals Seventh Circuit.

Argued Oct. 1, 1991.

Decided Dec. 3, 1991.

Jere L. Humphrey (argued), Kizer & Neu, Plymouth, Ind., for plaintiff-appellant.

Donald S. Smith (argued), Laura S. Reed, Ryan L. Leitch, Riley, Bennett & Egloff, Indianapolis, Ind., for defendants-appellees.

Before CUDAHY, RIPPLE, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

Patricia Knight, an insurance agent working for the defendant United Farm Bureau Mutual Insurance Company filed suit claiming that the defendant discriminated against her on the basis of her sex in violation of Title VII, 42 U.S.C. § 2000e, et seq. Following a two-day bench trial, the district court found that Farm Bureau was entitled to judgment as a matter of law because Ms. Knight was not an employee of the defendant, but an independent contractor. Therefore, her claim fell outside the protection of Title VII. This timely appeal followed.

I. FACTS

In May, 1982, Ms. Knight began working at Farm Bureau's Plymouth, Indiana, office as an "employee agent." An employee agent is paid a salary from which social security and income taxes were withheld by Farm Bureau. After a certain period of time in which the agent has satisfactorily performed, employee agents become "contract agents." The agents are not given the option to remain employee agents. If they wish to continue selling Farm Bureau insurance as contract agents they must sign a written agreement which states that the agents are now independent contractors. The contract agents earn their income through commissions on their sales and various performance bonuses. These agents are required to pay their own taxes and receive a 1099 tax form from Farm Bureau for this purpose.

Farm Bureau provides certain services to its contract agents. Farm Bureau provides, without charge, cameras, film, office furniture, file cabinets, rate books, forms, secretarial services, postage, computer terminals, and some Farm Bureau stationery. In addition, Farm Bureau paid for all agents' education. The company pays tuition, provides a lunch stipend, and pays for room rental when agents attend various seminars or programs. The contract agents, however, provide their own pens, transportation, personalized stationery and business cards. The contract agents pay their own licensing fees and provide their own health, disability and life insurance. The agents do not receive paid holidays, sick days or vacations.

Farm Bureau retains some control over its contract agents. First, while working at Farm Bureau, the agents are not allowed to sell insurance for any other company. The contract agreement also provides that Plymouth agents can sell the insurance in only three Indiana counties. This area was further divided by the agency manager who assigned certain townships to different agents. Agents could only sell outside of their assigned geographic boundaries for "good reasons," such as referrals or a sale to a relative. Disputes between agents are settled by the agency manager. In addition, Farm Bureau requires its contract agents to be in the Plymouth office two half days each week and every fifth Saturday. Agents are expected to attend hour-long meetings on Monday mornings and to retrieve mail and messages from the office each day.

The agency affords very little supervision over the work of the contract agents. The agents find their own customers and decide which Farm Bureau products to offer. The agents also work a great deal at home, so they can work in the evening hours when clients and potential customers are home from work.

All of the above factors were considered by the district court. On appeal, Ms. Knight points to other evidence in the record which she claims is relevant to the determination of whether she was an independent contractor or an employee. First, she notes that all contract agents were evaluated by the agency manager, William Baumgartner. Part of the evaluation rates the agent's ability to communicate through the proper channels, acknowledging the chain of command. Knight contends that the existence of a chain of command inferentially establishes an employer/employee relationship. Ms. Knight also notes that the agents received a four page document entitled "Responsibility and Performance Standards" which she and two other contract agents believed were rules of conduct that they were required to follow. ¹ All agents who testified referred to Mr. Baumgartner as their boss.

II. THE DECISION OF THE DISTRICT COURT

Although finding substantial evidence of sexual harassment, the district court determined that Knight was an independent contractor, not an employee. Knight v. United Farm Bureau Mut. Ins. Co., 742 F.Supp. 518 (N.D.Ind.1990). In reaching this conclusion, the court correctly recognized the use of the "economic realities" test which involves the application of the general principles of agency to the facts. Of several factors to be considered, the employer's right to control is the most important when determining whether an individual is an employee or an independent contractor. See Broussard v. L.H. Bossier, Inc., 789 F.2d 1158, 1160 (5th Cir.1986); Spirides v. Reinhardt, 613 F.2d 826, 831 (D.C.Cir.1979). In applying this test, the district court focused on five factors:

(1) the extent of the employer's control and supervision over the worker, including directions on scheduling and performance of work, (2) the kind of occupation and nature of skill required, including whether skills are obtained in the workplace, (3) responsibility for the costs of operation, such as equipment, supplies, fees, licenses, workplace, and maintenance of operations, (4) method and form of payment and benefits, and (5) length of job commitment and/or expectations.

Knight, 742 F.Supp. at 521 (citing Tadros v. Coleman, 717 F.Supp. 996 (S.D.N.Y.1989); E.E.O.C. v. Pettegrove, 716 F.Supp. 1430, (S.D.Fla.1989); Perry v. Country Club Hills, 607 F.Supp. 771 (E.D.Mo.1983)). ²

Upon balancing these factors, the district court concluded that Ms. Knight is an independent contractor. In reference to the "control" factor, the court recognized that Farm Bureau exercised some control over the agents. The court, however, found that because Knight maintained a great deal of freedom in choosing her working hours, finding potential customers and choosing the insurance products to sell, Ms. Knight's status was closer to that of an independent contractor. As to the kind of occupation and the skills required, the court noted that Farm Bureau trains its agents, that the agents are not allowed to sell products for anyone but Farm Bureau, and that agents are integral to Farm Bureau's business. However, because Ms. Knight was free to leave Farm Bureau at any time and use her skills to work for other insurance companies, the court concluded that this "economic control," common to this type of occupation, is not entitled to significant weight. Neither party contests the district court's finding that Farm Bureau's assumption of costs for the operation of the business favors a finding of employee status. Nor do the parties contest the court's finding that the commission-based pay, from which Farm Bureau did not withhold tax, supports a finding that Knight was an independent contractor. Ms. Knight only contends that the district court placed too much weight on this latter fact. In evaluating the fifth factor, the length of the job commitment and/or expectations, the court found that either party could terminate the agreement upon giving 30 days notice which, the district court held, supported a finding that Ms. Knight was an independent contractor. The district court concluded:

In light of the facts discussed above, particularly Farm Bureau's minimal control over Ms. Knight, and the method and manner of her compensation, the court concludes that Ms. Knight's relationship to Farm Bureau is that of an independent contractor, not that of an employee.

Id. at 523.

III. ANALYSIS

A. Standard of Review

The district court's legal conclusion that Ms. Knight is an independent contractor depended on its factual determinations concerning control, the nature of the occupation, the costs of operation, the form of payment and benefits, and job commitment or expectations. Thus, the district court's conclusion involved an application of the law to the facts. Generally, "[i]f the trial judge correctly states the law, then his findings as to whether the facts meet the legal standard will be disturbed only if they are clearly erroneous." Daniels v. Essex Group, Inc., 937 F.2d 1264, 1269 (7th Cir.1991). The review, however, "would be more searching if the district court has committed an error of law, including one that 'infect[s] a so-called mixed finding of fact, or a finding of fact that is predicated on a misunderstanding of the governing rule of law.' " Id. at 1269-70 (quoting Bose Corp. v. Consumers Union, 466 U.S. 485, 500, 104 S.Ct. 1949, 1959, 80 L.Ed.2d 502 (1984)).

B. Employee or Independent Contractor

Knight must prove the existence of an employment relationship in order to maintain a Title VII action against Farm Bureau. Independent contractors are not protected by Title VII. Dixon v. Burman, 593 F.Supp. 6, 8 (N.D.Ind.1983), aff'd without opinion, 742 F.2d 1459 (7th Cir.1984). Title VII defines employee very broadly: ...