Fraver v. North Carolina Farm Bureau Mut. Ins. Co.
| Decision Date | 18 September 1986 |
| Docket Number | Nos. 85-2076,s. 85-2076 |
| Citation | 801 F.2d 675 |
| Parties | , 7 Employee Benefits Ca 2137 R.E. FRAVER; J. Rives Manning, Jr.; J.C. Faust; Hubert Hampton Martin; William A. Pleasant; C.B. Weatherly, Jr.; Lee Williams; Jimmy McElreath; Mike Steiner; David Marion; James K. Wright; William A. Davenport, Jr.; Max F. Roberts; Ted Bright; Billy Ray Staley; William Samuel Kirby; Herbert M. Speas, Jr.; Robert L. Dobbins; Linda G. Hamrick; Edward L. Lowder; Ron Worthington; David Breeden; Peggy Horney; Harry Horney; Robert J. Womble, Appellees, v. NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, Appellant. R.E. FRAVER; Hubert Hampton Martin; C.B. Weatherly, Jr.; Lee Williams; William A. Davenport, Jr.; Max F. Roberts; Ted Bright; Herbert M. Speas, Jr.; Robert L. Dobbins; Ron Worthington, Plaintiffs, and J. Rives Manning, Jr.; J.C. Faust; William A. Pleasant; Jimmy McElreath; Mike Steiner; David Marion; James K. Wright; Billy Ray Staley; William Samuel Kirby; Linda G. Hamrick; Edward L. Lowder; David Breeden; Peggy Horney; Harry Horney; Robert J. Womble, Appellants, v. NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, Appellee. (L), 85-2077. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Gregory B. Crampton (W. Sidney Aldridge, Merriman, Nicholls, Crampton, Dombalis & Aldridge, P.A., on brief), for appellant/cross-appellee.
Charles R. Holton (David E. Fox, Bryan E. Lessley, Powe, Porter & Alphin, P.A., on brief), for appellees/cross-appellants.
Before RUSSELL, SPROUSE, and CHAPMAN, Circuit Judges.
Appellant North Carolina Farm Bureau Mutual Insurance Company ceased paying certain benefits to appellees, former members of its sales force, when they violated a condition of payment. Appellees filed this action, alleging that the condition was unenforceable under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1001 et seq. (1982 & Supp. II 1984) (ERISA). The central issue is whether the court erred in ruling that the former agents had been employees of Farm Bureau for purposes of ERISA and that the benefits provisions of their contracts established employee pension benefit plans. Finding no pension plan within the meaning of ERISA, we reverse.
Farm Bureau markets its insurance through a sales force of agents and agency managers who solicit applications for insurance. Farm Bureau has treated the members of its sales force as independent contractors. They are paid through commissions, which are reported to the IRS on Form 1099, not Form W-2. Farm Bureau withholds neither FICA nor FUTA from the commissions. Farm Bureau has a funded pension plan that complies with ERISA for its full-time employees, but the members of the sales force do not participate in that plan.
The contracts provide for termination at the end of the year that the agent or agency manager reaches age 65 or by either party upon ten days notice, without cause. The agent's contract contains the following provisions:
RETIREMENT, DEATH AND DISABILITY BENEFITS
14. Upon termination of this contract, Company shall pay to agent ... an amount equal to the agent's renewal commission for the last 12 months prior to termination of this contract. The following provisions shall apply to this payment:
(A) Payment shall be made unless contract is terminated for reasons of fraud or criminal act.
(B) Agent shall have been agent for Company for at least five consecutive years prior to termination of contract.
(C) Amount payable shall be paid in 60 equal monthly payments beginning 60 days after termination of contract.
(D) Agent shall not be licensed to sell any kind of insurance in North Carolina during the payment period.
* * *
(G) Company shall deduct above payment from the commission payable to the incoming agent in equal monthly amounts for 60 consecutive months beginning the first full month after the Agent takes over the territory.
The agency manager's contract contains similar provisions. Farm Bureau has no fund or trust for the payment of these benefits
Plaintiffs are former agents or agency managers for Farm Bureau who, during the payment period, became licensed to sell insurance with other companies in North Carolina and solicited sales in competition with Farm Bureau. When Farm Bureau discontinued payment of their benefits, they instituted this action in the U.S. District Court for the Eastern District of North Carolina. Plaintiffs alleged that they had been employees of Farm Bureau covered by ERISA and that the benefits provision of their contracts established a pension plan under ERISA. They alleged that the condition under which Farm Bureau ceased making payments violates ERISA's vesting provisions, 29 U.S.C. Sec. 1053 (1982 & Supp. II 1984), and thus is invalid and unenforceable. They sought to recover sums past due and sought a declaratory judgment that the remaining amounts would become due in the future.
On the parties' motions for summary judgment, the court granted partial summary judgment for plaintiffs, ruling that the agents and agency managers had been employees of Farm Bureau covered by ERISA and that the termination benefits were pension plans under ERISA. The court found that the benefits were vested under the contract and that the clause requiring that the plaintiffs not be licensed to sell insurance during the payment period was invalid and unenforceable because of ERISA's nonforfeitability requirements.
On Farm Bureau's motion to alter or amend the judgment, the court ruled that the five-year vesting period in the contract exceeded the requirements of Sec. 1053(a)(2)(A), that an employee with at least ten years of service has a nonforfeitable right to his entire accrued benefit derived from employer contributions. The court ruled that although the benefits were vested after five years, they were forfeitable under the condition until the agent had ten years of service; therefore, those plaintiffs with less than ten years of service were barred from recovery. 643 F.Supp. 633. Following trial on the issue of whether plaintiffs were covered by the highly-compensated employee exception to ERISA's vesting requirements, Sec. 1051(2), the court entered an order incorporating its prior rulings and holding that plaintiffs were not covered by the exception. Farm Bureau appeals, and plaintiffs cross-appeal.
The parties have raised numerous issues, but we need address only one. Farm Bureau argues that even if plaintiffs were its employees under ERISA, the court erred in determining that the contractual provisions establishing the termination benefits constituted a pension plan within the meaning of ERISA. Given the specific facts here, we agree. 1
The nonforfeitability requirements of ERISA, set forth in Sec. 1053(a), apply to pension plans, which are defined as follows:
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