Hopkins v. Cornerstone America

• Decision Date: 13 October 2008
• Docket Number: No. 07-10952.,07-10952.
• Citation: 545 F.3d 338
• Parties: Joseph HOPKINS; Collective Action Members, Plaintiffs-Appellees-Cross-Appellants, v. CORNERSTONE AMERICA; Mid-West National Life Insurance Company of Tennessee; United Insurance Companies, Inc., Defendants-Appellants-Cross-Appellees. Sherrie Blair; Andrew Bowman; Chris Fox; Bob Howell; Mark Mann; Collective Action Members, Plaintiffs-Appellees-Cross-Appellants, v. Cornerstone America; Mid-West National Life Insurance Company of Tennessee; United Insurance Companies, Inc., Defendants-Appellants-Cross-Appellees. Norm Campbell; Mark Croucher; Jeff Gessner; Terrence Johanesen; Donnie Klein; Scott Roughen; Steve Woodhead; David Young; Collective Action Members, Plaintiffs-Appellees-Cross-Appellants, v. Cornerstone America; Mid-West National Life Insurance Company of Tennessee; United Insurance Companies, Inc., Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

545 F.3d 338

Joseph HOPKINS; Collective Action Members, Plaintiffs-Appellees-Cross-Appellants, v. CORNERSTONE AMERICA; Mid-West National Life Insurance Company of Tennessee; United Insurance Companies, Inc., Defendants-Appellants-Cross-Appellees.

Sherrie Blair; Andrew Bowman; Chris Fox; Bob Howell; Mark Mann; Collective Action Members, Plaintiffs-Appellees-Cross-Appellants, v. Cornerstone America; Mid-West National Life Insurance Company of Tennessee; United Insurance Companies, Inc., Defendants-Appellants-Cross-Appellees.

Norm Campbell; Mark Croucher; Jeff Gessner; Terrence Johanesen; Donnie Klein; Scott Roughen; Steve Woodhead; David Young; Collective Action Members, Plaintiffs-Appellees-Cross-Appellants, v. Cornerstone America; Mid-West National Life Insurance Company of Tennessee; United Insurance Companies, Inc., Defendants-Appellants-Cross-Appellees.

No. 07-10952.

United States Court of Appeals, Fifth Circuit.

October 13, 2008.

Alex M. Miller (argued), Watts Law Firm, San Antonio, TX, Mikal C. Watts, Watts Law Firm, Corpus Christi, TX, Francisco Guerra, IV, Watts Law Firm, Edinburg, TX, for all Plaintiffs-Appellees-Cross-Appellants.

Larry A. Flournoy, Jr., Jordan, Houser & Flournoy, Richardson, TX, for Hopkins and Collective Action Members.

David E. Keltner (argued), John Thomas Wilson, IV, Kelly, Hart & Hallman, Fort Worth, TX, Linda Ottinger Headley, Littler Mendelson, Houston, TX, Steven R. McCown, Eduardo Flores Cuaderes, Jr., Jeremy Wayne Hawpe, Littler Mendelson, Dallas, TX, for Defendants-Appellants-Cross-Appellees.

Douglas W. Alexander, Alexander, Dubose, Jones & Townsend, LLP, Austin, TX, for Amici Curiae.

Appeal from the United States District Court for the Northern District of Texas.

Before GARZA and ELROD, Circuit Judges, and HICKS,^* District Judge.

EMILIO M. GARZA, Circuit Judge:

Fourteen former sales leaders ("Sales Leaders") of defendant Cornerstone America ("Cornerstone") filed suit for unpaid overtime wages under the Fair Labor Standards Act ("FLSA"). The federal district court granted summary judgment in favor of the Sales Leaders on the threshold issue of whether the Sales Leaders were employees or independent contractors under the FLSA. Cornerstone now appeals this ruling. The Sales Leaders cross-appeal, alleging that the district court erred in dismissing the claims of one of their members, Chris Fox ("Fox"), on the grounds of judicial estoppel. For the following reasons, we affirm in part and vacate in part.

I

Cornerstone is the sales and marketing division of defendant Mid-West National Life Insurance Company of Tennessee ("Mid-West"), a corporation that issues and sells health insurance policies. Cornerstone uses a pyramid system of approximately 1,200 sales agents, each of whom agrees to work as an independent contractor on a commission basis. Some of these agents are subsequently promoted to the position of "sales leader," a management-level position in the Cornerstone hierarchy.

By contract, sales leaders agree to remain as independent contractors when they are elevated from the position of sales agent by Cornerstone. However, their opportunity to engage in personal sales diminishes, and they become primarily responsible for recruiting, training, and managing a team of subordinate sales agents. As the leaders progress in their careers, their primary income derives from overwrite commissions on their subordinates' sales. Despite this economic dependency, there is no formal relationship between the sales leaders and their team members. Each subordinate agent contracts directly with Cornerstone, and Cornerstone alone controls the hiring, firing, assignment, and promotion of the agents in each leader's team. Cornerstone also unilaterally determines the sales leaders' territories, and prevents the sales leaders from selling other insurance products or operating other businesses. Finally, Cornerstone controls the distribution of sales leads—the "lifeblood" of the business model—and prohibits sales leaders from purchasing leads from outside sources.

Despite this fairly rigid structure, sales leaders possess a great deal of flexibility with regard to their hours and day-to-day affairs. They receive no employment benefits, and Cornerstone withholds no wages for tax purposes. According to Cornerstone, corporate oversight is minimal, and the sales leaders' attendance at Cornerstone meetings and training sessions is generally considered optional.

The plaintiff-Sales Leaders in this case are all former sales leaders of Cornerstone—four were district sales leaders, nine were regional sales leaders, and one was an area sales leader. They filed suit against Cornerstone and its parent companies in federal district court, alleging that they were entitled to unpaid overtime wages as employees under the FLSA. Because the FLSA applies to employees but not to independent contractors, the district court initially sought to determine the employment status of the Sales Leaders. After both sides submitted summary judgment motions, the court ruled in favor of employee status for all of the Sales Leaders (except Chris Fox), allowing them to proceed with their FLSA claims. As to Fox alone, the district court concluded that judicial estoppel barred him from asserting employee status because he had previously claimed to be an independent contractor in an unrelated lawsuit.

After the district court issued its summary judgment order, Cornerstone sought permission to file an interlocutory appeal on the FLSA issue. See 28 U.S.C. § 1292(b) (permitting interlocutory appeal of "controlling question[s] of law as to which there is substantial ground for difference of opinion"). The district court granted permission to appeal and certified the following question for our review: "Whether, under the undisputed facts, Plaintiffs are employees of Defendants or independent contractors under the FLSA." After Cornerstone petitioned this Court for permission to appeal on the certified question, the Sales Leaders petitioned for permission to cross-appeal solely on the estoppel ruling against Fox. We granted both petitions.¹

II

Cornerstone contends that the district court erred in concluding that the Sales Leaders were employees under the FLSA. We review de novo a district court's legal conclusion as to employment status in a grant of summary judgment. Carrell v. Sunland Constr., Inc., 998 F.2d 330, 332 (5th Cir.1993). Given the limited scope of the certified question, we consider only the undisputed facts.

The definition of employee under the FLSA is particularly broad. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992) (noting that the FLSA "stretches the meaning of `employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles"). To determine if a worker qualifies as an employee, we focus on whether, as a matter of economic reality, the worker is economically dependent upon the alleged employer or is instead in business for himself. Herman v. Express Sixty-Minutes Delivery Serv., Inc., 161 F.3d 299, 303 (5th Cir.1998). To aid us in this inquiry, we consider five non-exhaustive factors: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker's opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. Id. No single factor is determinative. Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1043-44 (5th Cir.1987). Rather, each factor is a tool used to gauge the economic dependence of the alleged employee, and each must be applied with this ultimate concept in mind. Id.

A.

Under our economic-realities approach, "[c]ontrol is only significant when it shows an individual exerts such a control over a meaningful part of the business that she stands as a separate economic entity." Mr. W Fireworks, 814 F.2d at 1049. "[T]he lack of supervision over minor regular tasks cannot be bootstrapped into an appearance of real independence." Id. Cornerstone contends that the control factor weighs in favor of independent-contractor status because the Sales Leaders possessed independence in their day-to-day affairs and because Cornerstone exerted little control beyond what insurance-industry regulations required.

After a review of the record, we are convinced that Cornerstone controlled the "meaningful" economic aspects of the business. See Mr. W Fireworks, 814 F.2d at 1049. First, Cornerstone controlled the hiring, firing, assignment, and promotion of the Sales Leaders' subordinate agents. Because most of the Sales Leaders relied on overwrite commissions as their primary source of income, the Sales Leaders' lack of control over personnel decisions is significant. Second, Cornerstone at least partially controlled the advertising for new recruits by providing the Sales Leaders with approved ads and monitoring their placement. Third, Cornerstone exclusively determined the type and price of insurance products that the Sales Leaders could sell. As Cornerstone's corporate representative acknowledged, "one of the tenets" of Cornerstone's business was that leaders could not sell competing products if they wanted to "receive leads" and "have their compensation advanced." Fourth, Cornerstone controlled the number of sales leads the Sales Leaders would receive, and prevented the Sales Leaders from purchasing leads from other sources. Finally, Cornerstone determined the geographic territories where the Sales Leaders and their subordinates could operate.

Because Cornerstone controlled the meaningful aspects of the business model such that the Sales Leaders could not plausibly be considered "separate economic entit[ies]," see Mr. W Fireworks, 814 F.2d at 1049, we conclude that the control...