Arnold v. Mutual of Omaha: Court Finds That Nonexclusive Insurance Agent Was Not Employee

I missed this case when it came out in December: Arnold v. Mutual of Omaha Insurance Company (12/30/11) 202 Cal.App.4th 580.

Plaintiff Kimbly Arnold worked as a nonexclusive insurance agent for Mutual of Omaha Insurance Company (Mutual). After plaintiff terminated her contractual relationship with Mutual, she filed a putative class action alleging failure to reimburse expenses (LC 2802) failure to pay wages on termination (LC 201-203) and violation of the Unfair Competition Law. The trial court (Contra Cost County, Judge Cheryl R. Mills) granted summary judgment, applying the test in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 34 to find that Arnold was an independent contractor, rather than an employee.

Arnold argued that the trial court should not have applied Borello, but should have looked to Labor Code section 2750 to define “employee” for purposes of section 2802. Section 2750 provides:

The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person.

The Court of Appeal first discussed the test set forth in Borello, to which it referred as the "common law" test.

I have to note here that the test articulated in Borello is not the common law test. The Borello court explained that, while the factors considered under the common law test overlap to a certain extent with those considered under the Workers Compensation Act, "the concept of  'employment' embodied in the Act is not inherently limited by common law principles. We have acknowledged that the Act's definition of the employment relationship must be construed with particular reference to the 'history and fundamental purposes' of the statute."  Borello, 48 Cal.3d at 351.  

In any case, the Court held that "section 2750 does not supply such a definition of 'employee' that is clearly and unequivocally intended to supplant the common law definition of employment for purposes of Labor Code section 2802."  Slip op. at 7.  

Having determined that the Borello test applied to the question at hand, the Court affirmed the trial court's decision that Arnold was an independent contractor as a matter of law.  The Court found the following facts persuasive: 

Arnold used her own judgment in determining whom she would solicit for applications for Mutual's products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual's products.  Her appointment with Mutual was nonexclusive, and she in fact solicited for other insurance companies during her appointment with Mutual.  Her assistant general manager at Mutual's Concord office did not evaluate her performance and did not monitor or supervise her work.  Training offered by Mutual was voluntary for agents, except as required for compliance with state law.  Agents who chose to use the Concord office were required to pay a fee for their workspace and telephone service.  Arnold's minimal performance requirement to avoid automatic termination of her appointment was to submit one application for Mutual's products within each 180-day period.  Thus, under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the services she performed as one of Mutual's soliciting agents.  

Slip op. at 9-10.  

I find this decision very strange. First, as I stated above, the Court confuses the common law and Borello tests of employment.  

More importantly, the Court does not discuss the impact of Martinez v. Combs (2010) 49 Cal.4th 35. Martinez held that in an action for unpaid minimum wages under Labor Code section 1194, the Wage Orders, rather than the common law test or the Borello multi-factor test, define the employment relationship. “An examination of section 1194 in its statutory and historical context shows unmistakably that the Legislature intended the IWC's wage orders to define the employment relationship in actions under the statute.” Martinez, 49 Cal.4th at 52. Sections 1194 and 2802 were enacted by the same legislation in 1937, and I would have thought that this issue would have been raised.  

The opinion is available here.