Unemployment Compensation Commission v. Jefferson Standard Life Insurance

BarNHill, J.,

dissenting: The majority opinion herein holds that, within the purview of our Unemployment Compensation Act, soliciting agents of an insurance company are employees of such company. With this view I cannot agree.

The decision herein turns upon the meaning of certain key-words such as “employer,” “employment,” and “wages.” All of these words have precise and definitive meanings as they have come to be, accepted at common law. They relate essentially to the law of master and servant and their use necessarily implies the existence of the master and servant relationship. The status of an independent, soliciting agent, acting under and by virtue of a written contract with an insurance company, is that of an independent contractor rather than that of a servant. As an individual he agrees to engage in the solicitation of insurance, upon a commission basis. He is the judge of the method, the manner, the time, and the extent of particular solicitations. If he at times uses the company’s offices as a convenience, this is not essential to efficient salesmanship of insurance. If he' uses certain books, forms, and blanks furnished by the company, this, too, is but in the interest of convenience; it does not affect the essential status of the insurance solicitor. He may, and often does, with the consent of the insurance company, engage in some other business or vocation, thus devoting only part of his time to the writing of insurance. Such control as is exercised over him by the company is not direct, but only such general supervision as is required by the company in determining the quality and quantity of the insurance which it accepts for coverage. In my opinion, that detailed supervision and direct control which is essential to the master-servant relationship is lacking here.

Section 19g, 6, A, B, and C, indicate three tests to be employed in determining whether or not the necessary relationship of employer-employee exists. These tests are: (A) Freedom from control or direction in the performance of the services, (B) performance of services outside of all the places of business of the enterprise, and (0) customary activity in an independently established trade, occupation, profession, or business. In my opinion, a soliciting agent meets all of these tests: He is free from direct control and direction in soliciting insurance; he may, and often does, perform all of the necessary services of his relationship outside the offices of the insurance company; and, he may, consistent with his contract relationship, engage in an independent calling or vocation. These “tests” are standard ones which have long been recognized as valuable in determining whether the status of an individual is that of servant or of an independent contractor. Restatement of the Law of Agency, s. 220. The able draftsmen of the Restatement of Agency— each an authority on the subject in his own right — make this very perti *489 nent observation, “The important distinction is between service in which the actor’s physical activities and his time are surrendered to the control of the master, and service under an agreement to accomplish results or to use care and skill in accomplishing results. Those rendering service but retaining control over the manner of doing it are not servants. They may be agents, agreeing only to use care and skill to accomplish a result and subject to the fiduciary duties of loyalty and obedience to the wishes of the principal; or they may be persons employed to accomplish or to use care to accomplish physical results, without fiduciary obligations, as where a contractor is paid to build a house. An agent who is not subject to control as to the manner in which he performs the acts that constitute the execution of his agency is in a similar relation to the principal as to such conduct as one who agrees only to accomplish mere physical results. For the purpose of determining liability, they are both ‘independent contractors’ . . .” Restatement of the Law — Agency, “Independent Contractors,” p. 485.

The essential difference between a servant and an independent contractor is the degree of control or right of control exercised with respect to the individual’s physical conduct in the performance of services. This control of the physical conduct of the individual is present in the case of a servant, but lacking in the case of an independent contractor. Creswell v. Publishing Co., 204 N. C., 380 , 168 S. E., 408 ; Texas Co. v. Mills, 171 Miss., 231, 243 , 156 So., 866, 869 ; Carter Publications, Inc., v. Davis (Tex. Civil App.), 68 S. W. (2nd), 640, 644; Washington News Co. v. Satti, 169 Md., 489, 492 , 182 Atl., 286, 287 ; Keller v. Equitable Life Assur. Soc., 246 App. Div., 565 , 282 N. Y. Supp., 841 (judgment affirmed in 271 N. Y., 511 , 2 N. E. 2nd, 670).

In the case of an insurance agent, in my opinion, that necessary degree of control over the physical conduct of the agent is lacking to constitute him a servant. In effect the insurance company gives him a rate book and general instructions as to the manner of preparing and filing applications, but thereafter relies almost entirely upon the desire of the agent for commissions as a sufficient motivating force to keep the agent alert to new prospects. To resort to the crisp but descriptive vernacular of the streets, he is “put on his own” and told to “go to it,” and the company “pays off” on the basis of results produced. The only provision in the contract in respect to the amount of business the agent is required to produce stipulates that the company may at its option consider the failure of the agent to send in a completed examined application in any consecutive period of three months as a termination of the contract unless the agent was disabled during said period.

The individual’s initiative counts high in such a calling and matters of sales psychology and technique are left to his individual choice. This *490 is scarcely a description of a “servant,” as defined at law; rather, it seems to me that such an agent is an excellent example of an “independent contractor.”

The objective of the Unemployment Compensation Act is commendable and the definitions therein contained are broad and comprehensive. And yet I do not consider that the Legislature intended, or that the definitions are sufficiently broad, to include insurance soliciting agents. The provisions of our insurance law indicate that the State treats the occupation of soliciting insurance as a business independent of the company the agent may represent. The Insurance Commissioner, rather than the company, determines the qualifications and moral character of the agent. C. S., 6299. The agent is required to obtain a license, which license is issued to him as a person authorized to solicit insurance, rather than to the company. C. S., 6298. He may be discharged by the Insurance Commissioner through a x*evocation of his license. C. S., 6300. When the soliciting agent represents a company which is not licensed to do business in this State he is personally liable on any contract of insurance he may make. C. S., 6303. He must carry with him and exhibit on demand his personal license, notwithstanding the fact the company he represents is licensed to do business in the State, and a failure to do so is a misdemeanor. C. S., 6306. As between the Insurance Company and the applicant for life insurance the soliciting agent is deemed to be the agent of the company and not of the insured. C. S., 6457. This latter provision seems to me to be particularly pertinent. If the agent occupies the position of an employee rather than that of an independent contractor he would be, as a matter of law, the representative of the company. It is evident that the Legislature did not so consider him. On the other hand, in this section and throughout the insurance law, the business of soliciting insurance is treated as an independent calling and the soliciting agent as an independent contractor or person engaged in a business separate and apart from the insurance business, as such.

The provisions for the payment of unemployment compensation is a national plan. Provision is made for crediting employers paying the Federal Social Security tax with 90 per cent of the amount paid to the State to cover unemployed eligible under the Federal Act. The Commissioner of Internal Bevenue has ruled that soliciting agents are not within the Federal Act. In 29 states and in the District of Columbia they are excluded either by statutory or judicial declaration. In five states in which it has been held that local soliciting agents are included, the rulings were not made by the Court of last resort. As the plan is national in scope and contemplates a cooperative legislative effort by state and national governments for carrying out a public purpose com *491 mon to both, which neither could fully achieve without the cooperation of the other, the judicial interpretations of the act should be uniform unless there is a compelling reason to the contrary. Ins. Co. v. Tone (Conn.), Dec. Term, 1938. I can see no such reason why we should depart from the generally accepted view of the proper scope of the Social Security Act. On the contrary, I am convinced that a local soliciting agent is not embraced within the terms of the legislation.

As to the contention of defendant that it is an instrumentality of the Federal Government, I concur in the majority view that this position is not sound and cannot be sustained. The defendant is a North Carolina corporation exercising the powers conferred by its charter. If it has the authority to exercise the privileges incident to membership in the Home Owner’s Loan Corporation it is by virtue of the terms of its certificate of incorporation. Such privileges may be withdrawn by the Federal Government, but this does not destroy its corporate entity. The exercise thereof is merely incident to the corporate existence, dependent upon compliance with the requirements of the Home Owner’s Loan Corporation. In respect to this aspect of the ease the ruling of the Commissioner of Internal Revenue is not supported by reason or logic, and we cannot accept his opinion or follow his conclusion.

ScheNOK, J., concurs in this opinion.