Hopkins v. Cornerstone America

• Citation: 512 F.Supp.2d 672
• Decision Date: 30 March 2007
• Docket Number: Civil Action No. 4:05-CV-334-Y.,Civil Action No. 4:05-CV-333-Y.,Civil Action No. 4:05-CV-332-Y.
• Parties: Joseph HOPKINS, et al. v. CORNERSTONE AMERICA, et al.
• Court: U.S. District Court — Northern District of Texas

512 F.Supp.2d 672

Joseph HOPKINS, et al. v. CORNERSTONE AMERICA, et al.

Civil Action No. 4:05-CV-332-Y.

Civil Action No. 4:05-CV-333-Y.

Civil Action No. 4:05-CV-334-Y.

United States District Court, N.D. Texas, Fort Worth Division.

March 30, 2007.

COPYRIGHT MATERIAL OMITTED

Larry A. Flournoy, Jr., Jordan Houser & Flournoy, Richardson, TX, Mikal C. Watts, Watts Law Firm, Corpus Christi, TX, Francisco Guerra, IV, Watts Law Firm, San Antonio, TX, Kerry L. McGill, Joe Greer, Greer & McGill, Austin, TX, for Joseph Hopkins, et al.

Steven R. McCown, Eduardo F. Cuaderes, Littler Mendelson, Dallas, TX, Linda Ottinger Headley, Littler Mendelson, Houston, TX, for Cornerstone America, et al.

ORDER PARTIALLY GRANTING AND PARTIALLY DENYING DEFENDANTS' MOTION TO DISMISS OR IN THE ALTERNATIVE FOR SUMMARY JUDGMENT AND PARTIALLY GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

TERRY R. MEANS, District Judge.

Plaintiffs Joseph Hopkins, et al., are former insurance agents of defendants Cornerstone America, et al., who have filed suit for unpaid overtime wages and retaliation under the Fair Labor Standards Act ("FLSA"), breach of contract, and common-law fraud and conversion.¹ The Court has before it Defendants' motion to dismiss or, in the alternative, for summary judgment (doc. # 80), and Plaintiffs' motion for partial summary judgment (doc. # 84). Both parties' motions call upon the Court to decide whether, under the FLSA, Plaintiffs were employees of Defendants or independent contractors. After review of the motions, responses, replies, and appendices, the Court concludes that it has subject-matter jurisdiction, that all of the Plaintiffs, with the exception of Chris Fox, were employees of Defendants, and that Defendants' termination of Plaintiffs' employment contract violated public policy.

I. Factual Background

Defendant Cornerstone America ("Cornerstone") is the marketing and sales division of defendant Mid-West National Life Insurance Company of Tennessee ("Mid-West"). Cornerstone exclusively sells insurance products of Mid-West, which is a subsidiary of defendant United Insurance Companies, Incorporated ("United Insurance").

Cornerstone's business model employs a hierarchic-pyramidal system of sales agents and sales managers. At the lowest level are the sales agents whose sole responsibility is selling Mid-West's insurance policies. In ascending order, there are district sales managers, regional sales managers, area sales managers, and national sales managers.² Cornerstone possesses the exclusive authority to hire or fire, promote or demote, and assign or reassign any sales agent or manager. Cornerstone also determines the amount of commissions sales agents and managers will receive.

Plaintiffs all started work as sales agents after being required to pay an application fee, obtain an insurance license at their own expense, go through an initial training period, and sign a sales-agent contract. Under the terms of the contract, all Plaintiffs acknowledged that they were "independent contractors" and that nothing in the contract was "intended to create an employer-employee relationship between" Cornerstone, Mid-West, and Plaintiffs. They also agreed "not to assent to or take a position contrary to [their] status as an independent contractor...."

The contract provided Plaintiffs with broad discretion to "decide when, where, and [how]" to sell Mid-West's insurance policies. Plaintiffs were responsible for all of their expenses, including all business overhead, such as transportation, phone and cell phone, rental of office space, fax machines, office supplies, and any other equipment and materials. These costs, however, where shared among the district and regional sales managers and all of the sales agents that fell under them. Plaintiffs were also responsible for state and federal income tax, self-employment tax, social security tax, medicare tax, unemployment tax, and workers' compensation.

Plaintiffs agreed in the contract "not to sell or solicit ... any insurance products" from any other company. Cornerstone determined the policies for sale, the price of the policies, and the geographical area where each agent could sell the policies.

In exchange, Plaintiffs were paid strictly on a commission basis determined by the number of insurance policies they sold. They understood that they would receive an Internal Revenue Service form 1099 for income-tax purposes. Plaintiffs received no benefits. They did not accrue vacation time or sick leave, there were no retirement plans, and there was no health insurance.

Although Plaintiffs were primarily responsible for all business expenses under the contract, Cornerstone did pay for some of them. Cornerstone paid for the computers in the office and the software needed to sell the insurance policies. Also, depending on the level of production from the office, Cornerstone would pay for some of the advertising costs. And Cornerstone paid for accounting, sales brochures, training materials, the development of insurance products, and the underwriting of their policies.

Plaintiffs also agreed under the contract to attend periodic meetings and training sessions designed to address compliance issues, regulatory matters, and new or existing insurance products. The contract indicated that there might be other meetings and training sessions, but that attendance was not mandatory.³

Sales agents were eligible for promotion to district sales managers ("district managers"). All of the Plaintiffs had reached the level of district manager. In order to accept this position, Plaintiffs were required to sign a supplemental contract to their original agent contract. Plaintiffs acknowledged in their supplemental contract that "all provisions" in their original agent contract "shall remain in full force and effect." Again, Plaintiffs acknowledged that they were still independent contractors and that Cornerstone did not have "the power or right to control the manner or means of the business activities" performed as district managers.

District managers' responsibilities were to recruit and train new sales agents, see that agents under them complied with the agent contract and with Cornerstone's rules, procedures and guidelines, inform Cornerstone of any violations by a sales agent, safe guard leads obtained through Cornerstone's "LEAD Program," and distribute the leads to sales agents under them. District managers were also responsible for ten percent of Cornerstone's costs in obtaining leads through their LEAD Program.⁴ And district managers were required to pay regional sales managers a "management fee" that went to expenses for maintaining the office. Cornerstone provided training to district managers to teach them how to train new sales agents. The parties dispute whether this training was mandatory.

In return, district managers were not only paid commissions for insurance policies they sold, but they also received an "overwrite" commission. These overwrite commissions were commissions based on the production of the sales agents under them.

District managers were eligible for promotion to regional sales manager ("regional managers"). Plaintiffs Mark Croucher, Terrence Johanesen, Jeff Gessner, Scott Roughen, David Young, Norman Campbell, Donald Klein, Bob Howell, Joseph Hopkins, and Steve Woodhead reached the level of regional manager. Similar to district managers, these Plaintiffs were required to sign a supplemental contract that reiterated their status as independent contractors, and affirmed that all of the provisions in their original sales-agent contracts were to remain in full force and effect.

Regional managers' responsibilities are to recruit new sales agents, train and motivate sales agents and district managers, and manage the sales agents and district managers under them. Regional managers are responsible for placing advertisements for new agents and maintaining an office where sales agents can be trained and where new recruits can respond to ads and interview for a position. At times, and depending on the level of productivity, Cornerstone, would pay for a portion of these costs. And regional managers were responsible for twenty percent of Cornerstone's costs in obtaining leads through their LEAD Program.

Regional managers spend most of their time recruiting and interviewing new agents and managing rather then selling insurance policies. Although regional managers would conduct the interviews, only Cornerstone had the authority to hire the person. The regional manager could only make a recommendation. And all hires contracted directly with Cornerstone — none were the employee of the regional manager. While typically Cornerstone would place a newly recruited sales agent under the regional manager responsible for acquiring the new recruit, that was not always the case, and, at all times, Cornerstone retained the exclusive authority not only to assign or reassign sales agents to other regions, but to reassign district managers as well. Most of the regional managers' income comes from the overwrite commissions based on the productivity of the sales agents and district managers under them.

Regional managers were eligible for promotion to area sales managers ("area managers"). Only one plaintiff, Joseph Hopkins, reached the level of area manager. Still, he was required to sign a supplemental contract that reiterated his status as an independent contractor, and affirmed that all of the provisions in his original sales-agent contract were to remain in full force and effect.

An area manager's primary responsibility Was to supervise and motivate the district and regional managers. The area manager primarily manages the lower management, but may also assist with recruiting and training. Area managers do not have a specific office; instead, area managers are required to travel and visit with the various regional managers under them. Area managers bear all of their travel...