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Nationwide Mut. Ins. Co. v. Darden - 503 U.S. 318, 112 S. Ct. 1344 (1992)

Rule:

The United States Supreme Court adopts a common-law test for determining who qualifies as an "employee" as defined under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.S. § 1002(6). In determining whether a hired party is an employee under the general common law of agency, the Court considers 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.

Facts:

Contracts between petitioners Nationwide Mutual Insurance Co. et al. and respondent Darden provided, among other things, that Darden would sell only Nationwide policies, that Nationwide would enroll him in a company retirement plan for agents, and that he would forfeit his entitlement to plan benefits if, within a year of his termination and 25 miles of his prior business location, he sold insurance for Nationwide's competitors. After his termination, Darden began selling insurance for those competitors. Nationwide charged that Darden's new business activities disqualified him from receiving his retirement plan benefits, for which he then sued under the Employee Retirement Income Security Act of 1974 (ERISA). The district court granted summary judgment to Nationwide on the ground that Darden was not a proper ERISA plaintiff because, under common-law agency principles, he was an independent contractor rather than, as ERISA requires, an "employee," a term the Act defines as "any individual employed by an employer." Although agreeing that he "most probably would not qualify as an employee" under traditional agency law principles, the United States Court of Appeals for the Fourth Circuit reversed, finding the traditional definition inconsistent with ERISA's policy and purposes, and holding that an ERISA plaintiff can qualify as an "employee" simply by showing (1) that he had a reasonable expectation that he would receive benefits, (2) that he relied on this expectation, and (3) that he lacked the economic bargaining power to contract out of benefit plan forfeiture provisions. Applying this standard, the district court found on remand that Darden had been Nationwide's "employee," and the court of appeals affirmed.

Issue:

Does the term "employee", as used in ERISA, incorporate traditional agency law criteria for identifying master-servant relationships?

Answer:

Yes

Conclusion:

The Supreme Court of the United States held that the term "employee" as used in ERISA incorporated common law traditional agency criteria for identifying master-servant relationships. Where a statute containing that term does not helpfully define it, the Court presumed that Congress meant an agency law definition unless it clearly indicated otherwise. ERISA's nominal definition of "employee" was completely circular and explained nothing, and the Act contained no other provision that either gave specific guidance on the term's meaning or suggested that construing it to incorporate traditional agency law principles would thwart the congressional design or lead to absurd results. Since the multifactor common-law test contained no shorthand formula for determining who was an "employee," all of the incidents of the employment relationship must be assessed and weighed with no one factor being decisive. The case was remanded for a determination whether Darden qualified as an "employee" under traditional agency law principles.

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