McCarthy v. State Farm Ins. Co.

• Decision Date: 27 September 1988
• Docket Number: Docket Nos. 95838,96929
• Citation: 428 N.W.2d 692,170 Mich.App. 451,49 Fair Empl.Prac.Cas. (BNA) 1086
• Parties: Nancy McCARTHY, Plaintiff-Appellant, v. STATE FARM INSURANCE COMPANY, Defendant-Appellee. Carol HALL and Timothy A. Hall, Plaintiffs-Appellants, v. STATE FARM INSURANCE COMPANY, Defendant-Appellee. 170 Mich.App. 451, 428 N.W.2d 692, 49 Fair Empl.Prac.Cas. (BNA) 1086
• Court: Court of Appeal of Michigan — District of US

Page 692

428 N.W.2d 692

Nancy McCARTHY, Plaintiff-Appellant, v. STATE FARM INSURANCE COMPANY, Defendant-Appellee.

Carol HALL and Timothy A. Hall, Plaintiffs-Appellants, v. STATE FARM INSURANCE COMPANY, Defendant-Appellee.

Docket Nos. 95838, 96929.

170 Mich.App. 451, 428 N.W.2d 692,

49 Fair Empl.Prac.Cas. (BNA) 1086

Court of Appeals of Michigan.

Submitted Dec. 16, 1987.

Decided Aug. 1, 1988.

Released for Publication Sept. 27, 1988.

[170 MICHAPP 453] Eaman & Ravitz, P.C. by Frank D. Eaman, Detroit, for plaintiffs-appellants.

Pepper, Hamilton & Scheetz by Robert C. Ludolph and Helen R. Haynes, Detroit, for defendant-appellee.

Before WALSH, P.J., and McDONALD and NICOLICH, ^* JJ.

NICOLICH, Judge.

This consolidated appeal arises from two complaints filed against State Farm Insurance Company and defendants William Harb and Harb Insurance Agency, Inc., by plaintiffs Carol and Timothy Hall and plaintiff Nancy McCarthy. In their complaints, the plaintiffs alleged that plaintiffs Carol Hall and Nancy McCarthy, while employed at Harb Insurance Agency, Inc. (HIA), were sexually harassed by William Harb, the proprietor of HIA, in violation of the Civil Rights Act, M.C.L. Sec. 37.2101 et seq.; M.S.A. Sec. 3.548(101) et seq. HIA sold State Farm insurance exclusively. State Farm filed motions for summary disposition in both actions, arguing that, pursuant to the agent's agreement between it and HIA, HIA was an independent contractor and therefore, as a matter of [170 MICHAPP 454] law, State Farm was not liable for Harb's actions. Plaintiffs appeal as of right from the lower court orders granting summary disposition to State Farm.

Section 202 of the Civil Rights Act prohibits discrimination by an employer on the basis of sex. M.C.L. Sec. 37.2202; M.S.A. Sec. 3.548(202). Unlawful sexual discrimination includes sexual harassment. M.C.L. Sec. 37.2103(h); M.S.A. Sec. 3.548(103)(h). An "employer" under the act is defined as "a person who has one or more employees, and includes an agent of that person." M.C.L. Sec. 37.2201(a); M.S.A. Sec. 3.548(201)(a). The act defines "person" as

"an individual, agent, association, corporation, joint apprenticeship committee, joint stock company, labor organization, legal representative, mutual company, partnership, receiver, trust, trustee in bankruptcy, unincorporated organization, the state or a political subdivision of the state or an agency of the state, or any other legal or commercial entity."

The issue presented is whether State Farm was an "employer" of the plaintiffs under the act. If genuine issues of material fact existed as to whether State Farm was an employer, summary disposition was improper.

A motion for summary disposition under MCR 2.116(C)(10) ¹ tests the factual support for a claim. Bambino v. Dunn, 166 Mich.App. 723, 726, 420 N.W.2d 866 (1988). In ruling on such a motion, the trial court must consider the pleadings, depositions, affidavits, admissions and other documentary[170 MICHAPP 455] evidence. Id. The benefit of any reasonable doubt must be given to the nonmoving party. Id. Summary disposition is appropriate only if the court is satisfied that it is impossible for the nonmoving party's claim to be supported at trial because of a deficiency which cannot be overcome. Id.

We believe the appropriate test to be used to determine whether State Farm was plaintiffs' employer was the economic reality test adopted in Wells v. Firestone Tire & Rubber Co., 421 Mich 641, 647, 364 N.W.2d 670 (1984). At issue in Wells was whether the defendant parent corporation was the plaintiff's employer for purposes of the Workers' Disability Compensation Act, M.C.L. Sec. 418.101 et seq.; M.S.A. Sec. 17.237(101) et seq., where the plaintiff worked at the defendant's wholly owned subsidiary. The Supreme Court noted that our courts have replaced the common-law control test with the economic reality test when questions have arisen relative to the existence of an employment relationship. Id. The economic reality test looks to the totality of the circumstances surrounding the performed work in relation to the statutory scheme under consideration. Wells, supra, at p. 648, 364 N.W.2d 670. While control of the worker's duties is to be considered under the economic reality test, other equally important factors include payment of wages, authority to hire and fire, and the responsibility for the maintenance of discipline. Id.

The economic reality test has been applied by the Sixth Circuit Court of Appeals in construing the definition of employee under the Civil Rights Act. In Falls v. The Sporting News Publishing Co., 834 F.2d 611 (CA 6, 1987), the Sixth Circuit Court of Appeals found that summary judgment in favor of the defendant was improperly granted where the district court had based its opinion on the [170 MICHAPP 456] common-law independent contractor/employee distinction. While the court opined that a true independent contractor would not be protected under the civil rights statute, it held that the relationship between the parties should be evaluated under the economic reality test. Falls, supra, at p. 614.

The record in the instant case fails to indicate that the lower courts used the appropriate test to evaluate the relationship between the plaintiffs and State Farm. Furthermore, we believe the pleadings, affidavits, depositions on file, and the agent's agreement between State Farm and HIA, viewed in a light most favorable to plaintiffs, created genuine issues of material fact as to whether plaintiffs were employees of HIA or State Farm. Under the agent's agreement, State Farm maintained a significant amount of control over HIA's operations: State Farm retained approval rights over HIA's hiring of sales personnel; State Farm controlled all advertising; State Farm retained the right to prescribe all policy fees, premiums, and provisions of all insurance policies sold by HIA; HIA was prohibited from selling any insurance other than State Farm; and all monies collected by HIA were to be held in trust for State Farm. Affidavits by Ed Blanchett, agency manager for State Farm, and plaintiff Hall indicated that Blanchett interviewed Hall and other candidates for the position ultimately filled by plaintiff Hall, that Blanchett made weekly visits to HIA, that Hall had complained to Blanchett regarding Harb's sexual...