Insurance agents are independent contractors, not employees, the US Court of Appeals for the Sixth Circuit ruled Jan. 29. The class-action case included some 7,200 current and former agents for Madison, Wis.-based American Family Insurance Co.

Legal services firm KCC reported American Family could have potentially been on the hook for $1 billion in liabilities.

The company was pleased with the opinion, according to a statement by American Family Insurance Chief Strategy Officer Dave Holman.

“How we work with our agents is customary in the insurance industry and of company-independent contractor relationships across the country,” Holman said. “They are paid by commission, hire and pay their staff, set their work hours, and create and execute plans to run their businesses. They file taxes as independent contractors with the Internal Revenue Service and take tax deductions for their business expenses.”

It was the sixth time a federal court has found its agents were properly classified as independent contractors, he said.

The Sixth Circuit’s opinion reverses a district court decision that found the agents to be employees. The district court made its ruling following a trial with an advisory jury that also found the agents to be employees.

“This court has time and again declared insurance agents to have independent-contractor status — and appellees have presented no case in which we have not done so,” wrote Senior Judge Danny J Boggs in the decision. “Some of our sister circuits have in fact already found American Family agents to be independent contractors in other contexts.”

Richard Reibstein of Locke Lord LLP wrote the decision was in many ways a monumental one for the insurance industry, although likely not the last word. It’s not a determination that agents are independent contractors under all federal laws or under state laws.


The Sixth Circuit’s opinion noted the agents signed agreements stating they were independent contractors, a fact that weighs in favor of independent contractor status. Agents also file tax returns as independent contractors, work out of their own offices, set their own hours, and hire and pay their own staff. It also said American Family pays its agents in commissions and does not provide them with vacation pay, holiday pay, sick pay or paid time off.

On the other hand, the opinion noted the company’s own training manuals refer to agents as employees and each agent must report to an agency sales manager. The managers, in turn, require daily activity reports. Agents must also attend a two-to-three-month training program run by American Family on how to sell insurance and how to operate an agency. They must sell insurance exclusively for American Family, and are discouraged from taking on other work even if it is unrelated to the insurance industry. American Family also retained authority to approve or disapprove agents’ office location and to be involved in the hiring and firing of the agents’ staff.

In the end, the Sixth Circuit ruled the district court should have given more weight to the fact that selling insurance is a specialized field that requires considerable training that doesn’t have to be provided by American Family. It also said agents could select their own staff to hire — following guidelines by American Family. Both point to independent contractor status.

In addition, it said the district court should have given greater weight to the agreement between the agents and American Family that said they were independent contractors.


The decision was 2-1. In his dissenting opinion, Judge Eric L. Clay wrote the training actually pointed in favor of employee status. Clay argued American Family essentially provided all the skills the workers needed to perform the job — even retraining agents who had worked for other companies. In terms of hiring staff, Clay noted the agents did not have sole discretion in hiring staff given that American Family required staff to have clean driving records, certain education levels and minimum income-to-debt ratios, among other things. The company could also fire an agent’s staff member without the consent of the agent.

Agents were also an important part of American Family’s business, bringing in 85% of insurance premiums — approximately $5.1 billion, he wrote.

The lawsuit is Jammal v. American Family Insurance Co. Case No. 17-4125.