he issue of the control test raises the preliminary question of exactly what standard this court should apply when determining whether or not Suskovich was an employee or an independent contractor, given that the estate makes common law, FLSA, and ERISA claims, and there are slightly different tests for each of those claims.

ERISA cases use a 12-factor common law standard to determine if a party to a lawsuit was an employee under the act. The Supreme Court has held that this standard is similar to the 10-factor Restatement test. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24, 112 S. Ct. 1344, 117 L. Ed. 2d 581 (1992).

Estate of Suskovich v. Anthem Health Plans of Va., Inc., 2009 U.S. App. LEXIS 1148 (7th Cir. Ind. Jan. 22, 2009)

The Seventh Circuit reiterates some basic principles applied in evaluating employment status under ERISA.  The case raises the often overlooked risk of inadvertent conferral of benefit eligibility on workers through erroneous presumptions in worker classification.

The plan prevails in this case, but the path to victory provides useful insight into the federal judiciary’s views on this important issue.

Questions of worker classification often present stubborn issues of fact.   They refuse to be neatly allocated along predetermined borders, and that sometimes in spite of the lawyer’s best efforts at design and containment.

In this case, the terms of a contractual agreement fomented the classification dispute by inclusion of some terms indicating employee status.  But first, some factual background is necessary to provide context.

The Facts

Mr. Suskovich’ story is actually a bit sad really.  The Circuit Judge begins by observing:

Until his sudden death in 2006, Anthony J. Suskovich worked as a computer programmer for WellPoint, a health insurance company, and Trasys, an information technology (IT) company. In exactly what capacity he worked for those two companies is the subject of this present case.

Suskovich’s estate claims that he was a regular employee, and worse, one that was not paid overtime or enrolled in benefits programs for which he was eligible, and who owes state and federal tax agencies various taxes that WellPoint and Trasys should have withheld. WellPoint and Trasys claim that Suskovich was an independent contractor, and thus ineligible for benefits or overtime, and that he owes back taxes because of his own failure to file proper tax returns or pay his withholding taxes.

As it happened, during the passage of close to eleven years, Suskovich worked for a related group of companies doing IT work.   Here is just a snippet from the factual summary that gives a snapshot of his experience as a computer programmer in the insurance industry:

During his time with WellPoint, Suskovich worked in a cubicle at WellPoint, with a computer supplied to him by the company.   He apparently did not have a direct supervisor and worked under the WellPoint employee who was supervising whatever project he was working on. He occasionally worked offsite, but was expected to work at WellPoint’s offices and to answer to the supervisors on his projects.

Sometime in August 2005, WellPoint informed Suskovich that they would not be keeping him on past the end of the year; in mid-September, they declined to renew his contract through Trasys. WellPoint was attempting to train one of their in-house programmers in the work that Suskovich was doing for them, but when getting her an outside training program proved to be too difficult, WellPoint asked  Suskovich to train her. Suskovich began looking for additional work at this time, and WellPoint was disappointed with his efforts in training the in-house employee and attending his project meetings. WellPoint told Trasys that they would replace Suskovich with someone from another vendor if he did not improve his performance, and Trasys then told WellPoint that

Suskovich’s performance would improve. Suskovich continued to look for other work, and approached Tom Eberhard, who had previously an independent contractor with WellPoint but who had accepted an offer of employment from the company and had risen to a managerial role over some of the projects Suskovich worked on.

At this point, however, Suskovich contracted pneumonia and passed away suddenly.

Along the way Suskovich signed various documents indicating independent contractor status.  He had received 1099’s rather than W-2’s.  And that brought up another problem.

In 2006, shortly before his death, the IRS had opened an investigation into unpaid taxes.  At the time of his death, substantial taxes were owed, and a motivation for the case before the Court was undoubtedly his surviving spouse’s hope that relief from this tax burden might come through a finding of employment status.

The Contractual Issue And The Traditional Control Test

While working for Trasys, Suskovich entered into an agreement that contained some ambiguous language.

Trasys labeled the writing as an independent contractor agreement, – but the form contained terms that could refer to both an employment  relationship and an independent contractor relationship.

Nonetheless, the district court first found that the contracts’ terms were inconsistent with an employer-employee relationship despite the use of phrases like “employee” and “wages” .  The Seventh Circuit held that the district court was correct in considering the contract as a part of the traditional control analysis in its summary judgment ruling.

The ERISA Claims – Different Test, Same Result

This is the part of the opinion that interests us most.   The defendants argued that even if the estate prevailed on the issue of whether or not Suskovich was common law employee, the estate cannot prevail on its ERISA claims.

At issue here was a claim for damages for WellPoint and Trasys’ alleged failure to enroll Suskovich in retirement benefit plans for which he was eligible.  Aside from the other problems with such a claim (which the Court did not address), the Court agreed with the defendants that benefit eligibility cannot be reduced to a question of common law employement status.

Eligibility In ERISA Plans Is “Not Automatic”

The Court stated that “[e]ligibility under ERISA is not automatic for common law employees”.  Thus,

A plaintiff must also demonstrate that he was eligible under the terms of the employer’s own benefit plans. “Nothing in ERISA, however, compels a plan to use the term ‘employee’ in the same way it is used in the statute. Indeed, because a plan governed by ERISA need not include all categories of employees there is no reason to expect that it would.” Trombetta v. Cragin Fed. Bank Ownership Plan, 102 F.3d 1435 (7th Cir. 1996) (internal citation omitted).

Both Trasys and WellPoint cite their own employee benefit plans, which include the caveat that anyone not treated as an employee who is later ruled to be a common law employee in a lawsuit remains ineligible for benefits. WellPoint makes the same argument with respect to the estate’s breach of contract claims against them,  arguing that even if Suskovich was a common law employee he never had an employment contract that would have entitled him to fringe benefits such as participation in the company’s employee stock purchase plan.

The Court concluded that, “[w]hile we need not reach this question, having already determined that the district court correctly held that Suskovich was an independent contractor rather than an employee, we simply note that these alternative grounds would also provide a basis for affirming the judgment of the district court even assuming arguendo that Suskovich was a common law employee.”

Note: The FLSA claims were unavailing based upon an exemption applicable to computer programmers. 29 U.S.C. §§ 213(a)(1), 213(a)(17).

A Comparison Of Tests – The estate advanced common law, FLSA, and ERISA claims.  The Court noted that ” there are slightly different tests for each of those claims.”

ERISA cases use a 12-factor common law standard to determine if a party to a lawsuit was an employee under the act. The Supreme Court has held that this standard is similar to the 10-factor Restatement test. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24, 112 S. Ct. 1344, 117 L. Ed. 2d 581 (1992).

FLSA cases, meanwhile, are decided utilizing a broader definition of employee than the common law, and determine whether an arrangement is an employment or independent contractor relationship with a six-factor test to determine  the “economic reality” of the situation. Secretary of Labor, U.S. Dept. of Labor v. Lauritzen, 835 F.2d 1529, 1534 (7th Cir. 1987).

The district court followed the Restatement test, an approach that we will follow as well.  Given that the majority of the claims in this case revolve around the bare question of employment status and the Restatement test is generally equivalent to the common law test from Darden, that test provides the best means of resolving the main employment question before us.

The Supreme Court On ERISA – ERISA defines the term “employee” – yet the definition played no role in the opinion.  Why?

Omitting its frequent reference to ERISA as a “comprehensive and reticulated statute”, the Supreme Court in Darden(cited above) had some candid (and amusing) words about ERISA’s definition of an “employee”:

ERISA’s nominal definition of “employee” as “any individual employed by an employer,” 29 U. S. C. § 1002(6), is completely circular and explains nothing. As for the rest of the Act, Darden does not cite, and we do not find, any provision either giving specific guidance on the term’s meaning or suggesting that construing it to incorporate traditional agency law principles would thwart the congressional design or lead to absurd results.

Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (U.S. 1992)

The Darden Test – The Darden Court adoped “a common-law test” for determining who qualifies as an “employee” under ERISA (supplied by another Supreme Court opinion):

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired  party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring  party is in business; the provision of employee benefits; and the tax treatment of the hired party.”