:: How To Exclude “Independent Contractors” From Benefit Plans

“The following individuals are ineligible to participate in the Plan: (3) those individuals who are not on the Company payroll (such as consultants and independent contractors), whether or not they are later determined to be employees of the Company,…”

Bendsen v. George Weston Bakeries Distrib., 2008 U.S. Dist. LEXIS 74212 (E.D. Mo. Sept. 26, 2008) (quoting benefit plan language)

To the troublesome question of employee classification, the drafter of the plans at issue in Bendsen had a simple solution.  Just say what is intended in the plan document.

The workers in this case argued that, despite characterization as “independent contractors” in certain contractual agreements, they were actually common law employees.  As such, they advanced several claims against the defendant, including claims for benefits.

Interpreting the plan language quoted above, the district court rejected these arguments, stating:

regardless of whether Plaintiffs meet the common law definition of employee, in the instant case the Distribution Agreements define the relationship between the parties, and under those Agreements it is clear Plaintiffs are not entitled to benefits under the Plans . . .

Upon consideration of the Plans at issue, in conjunction with the quoted provision of the Distribution Agreements signed by Plaintiffs, it is clear Plaintiffs are not participants in Defendant’s ERISA Plans. In other words, by disavowing any claim to benefits or other compensation paid by GWBD to or on behalf of its employees, Plaintiffs removed themselves from the categories of “Employee,” and thus “Participant,” provided for in the Weston Foods, Inc. Savings Plan, the Weston Foods, Inc. Savings Plan for Collectively-Bargained Employees, and the George Weston Bakeries Inc. Hourly Employees Retirement Income Plan.

This conclusion eliminated the plaintiffs’ standing under the Firestone definition and created an issue of continued jurisdiction for the remaining claims.

Plaintiffs thus lack standing  to bring an action under ERISA, as they are not, “employees in, or reasonably expected to be in, currently covered employment, or former employees who have …. a reasonable expectation of returning to covered employment or who have a colorable claim to vested benefits.”

Note: The district court found a Tenth Circuit opinion instructive on the issue.

Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992), is not to the contrary. As explained by the Tenth Circuit Court of Appeals:

In Darden, the Supreme Court simply held that, since Congress had failed to provide a satisfactory or helpful definition of “employee” in ERISA, where there was ambiguity about whether someone seeking benefits was an employee or not, the common law definition would apply. The opinion does not say that any person meeting the common law definition of employee is entitled to ERISA benefits. Thus, it by no means indicates that [Plaintiffs], should they prove they meet the test for common law employees, would automatically be entitled to participate in the Plans. Indeed, it is well established that employers may exclude categories of employees from their ERISA plans.

Capital Cities/ABC, Inc. v. Ratcliff, 141 F.3d 1405, 1409 (10th Cir.) (citations omitted) (emphasis added), cert. denied, 525 U.S. 873, 119 S. Ct. 173, 142 L. Ed. 2d 141 (1998).

The Power Of The Pen – Plan documents can address many issues that frequently arise, but some employee classification issues remain regardless.  In the context of qualified retirement plans, for example, the issues of misclassification are more complicated, and inclusion or failure to include common law employees may have grave consequences.