New Jersey District Court Rules Insurance Agents Appropriately Classified as Independent Contractors

June 10, 2019

In a state where the independent contractor model is under attack and squarely in the crosshairs of multiple enforcement agencies, a New Jersey federal court refused to allow independent insurance agents to convert their relationship to an employment arrangement, signaling that the independent contractor model is alive in the Garden State.

On May 6, 2019, the United States District Court for the District of New Jersey granted summary judgment to Northwestern Mutual Life Insurance Company and Northwestern Mutual Investment Services (together, “Northwestern”) finding plaintiff, an insurance agent, was properly classified as an independent contractor. The lawsuit was filed as a class action and asserted that Northwestern misclassified plaintiff and other insurance agents as independent contractors and that the deduction of certain expenses from their commissions violated New Jersey’s Wage Payment Law (“NJWPL”). In what can fairly be described a “buck to the trend,” the Court concluded independent contractor status was appropriate under both the parties’ governing contract and their relationship in fact. Walfish v. Northwestern Mutual Life Ins. Co. & Northwestern Mutual Inv. Servs., LLC, Docket No. 2:16-cv-4981 (May 6, 2019).

Northwestern’s Independent Contractor Model

Northwestern is a life insurance company. However, Northwestern does not sell their products from their Wisconsin headquarters; rather, Northwestern uses a “General Agency” sales model in which an independent contractor known as a “General Agent” operates a local field sales office. In turn, the General Agent enters into contractual arrangements with individual sales agents, known as “financial representatives,” who are generally responsible for developing their own client list and soliciting applications for insurance.

In 2010, plaintiff Fred Walfish entered into a contract with the Seery Financial Group, LLC (Seery), a general agency owned and operated by General Agent Robert Seery. The contract indicated Walfish would: (1) be an “independent contractor” with the ability to exercise independent judgment as to the manner and means of selling Northwestern insurance products; (2) be subject to an “exclusive dealing” provision requiring him to submit to Northwestern all applications secured by him for insurance; and (3) be subject to Northwestern’s annual minimum sales requirement. While Northwestern did not terminate agents for failing to meet the annual sales requirements, the company did impose probationary periods and/or monetary penalties, though in some cases the sales requirement was waived.

Between 2010-2016, Walfish sold insurance under this contract and filed tax returns as a sole proprietorship under the name, “Fred Walfish Insurance.” During this period, Walfish sold his clients Northwestern policies, as well as policies of several non-Northwestern companies; Northwestern did not provide Walfish specific clients or restrict his ability to pursue clients of his choosing; and Walfish determined his own work schedule and often decided to work from home or from his clients’ offices. Even after Walfish disassociated with Northwestern in June 2016, he continued to sell insurance to his clients and operate Fred Walfish Insurance.

A-B-C Test

In New Jersey, challenges to an independent contractor relationship are resolved under the A-B-C Test in the state’s Unemployment Compensation Law. Hargrove v. Sleepy’s, LLC, 220 N.J. 289, 295 (2015).

The A-B-C test presumes that a service provider is an employee, unless the service recipient can prove that: (A) the service provider is free from direction or control by the service recipient (“control” prong), (B) the services rendered by the service provider are outside the service recipient’s usual course of business, or are physically performed outside all places of the service recipient’s business (“course-of-business” or “location of work” prongs), and (C) the service provider is customarily engaged in an independently established trade, occupation, profession, or business (“independent-business” prong). A service recipient satisfies element (C) by proving the service provider’s enterprise can “continue to exist independently of and apart from the particular service relationship.”

Applying the A-B-C test, the Court held that Walfish was an independent contractor. First, Northwestern satisfied the control prong because they did not control how or when Walfish sold insurance products. The Court pointed to contractual language that indicated Walfish was “free to exercise his own judgment as to persons from whom he will solicit Applications and the time, place and manner of solicitation.” Consistent with this language, Walfish was not required to follow up with specific client leads or directed which insurance products to sell or to whom to sell them. The Court also noted Walfish set his own schedule and performed services at any time of day and at any location. For these reasons, the Court concluded that Walfish “retained control over the time, place and manner of the services,” thus satisfying the “A” factor.

The Court rejected Walfish’s contention that the Sales Minimum was a means of retaining control over the service provided. To reach this conclusion, the Court relied on Carpet Remnant Warehouse, Inc. v. N.J. Dep’t of Labor, 125 N.J. 567, 582 (1991) in which the New Jersey Supreme Court found insufficient the argument that control may be proven by a sales minimum. Citing Carpet Remnant, the Court reasoned that as long as the service provider “retains control over the manner in which those services are performed,” an agreement to accomplish certain results, such as a sales minimum, does not run afoul of the “A” factor. The Court also rejected Walfish’s contention that the exclusivity provisions in the contract constituted control of Walfish’s company. Even if the exclusive dealing language could be construed to preclude Walfish from engaging in outside business dealings, the Court refused to ignore his actual conduct and the fact that he derived significant income from non-Northwestern business.

The Court found that Northwestern satisfied the “B” factor since Walfish’ sale of insurance products occurred outside the Defendant’s normal course of business and because he physically performed these services outside Northwestern’s places of business. The Court placed significant weight on testimony that Northwestern sold insurance only through its “career agent distribution” system, i.e., through independent contractors, who in turn contracted with financial representatives like Walfish. Even if the facts were unclear regarding whether Northwestern “sold” insurance, the Court concluded that Northwestern carried its burden under the “location-of-work” prong because Walfish did not spend any time at Northwestern’s places of business or its Wisconsin headquarters.

Finally, the Court held that Northwestern satisfied the “C” prong because Walfish’s enterprise was not dependent on its relationship with Northwestern, as evidenced by the fact that it continued to exist and sell insurance policies to its client base after the Northwestern relationship ended.


The Walfish decision is significant because it demonstrates that a properly designed independent contractor relationship can survive scrutiny, even under the strict A-B-C Test, a test that is not unique to New Jersey but rather adopted by many states across the country. This design must wrestle with the competing interests of creating separateness between companies and their service providers without divorcing themselves entirely of oversight of the quality of the service being provided. Businesses seeking to avoid misclassification liability should consult an attorney who understands the legal landscape and the various business models offering them optimal protection while accomplishing their business goals.

For more information in this developing area of the law, please contact Shaun Abreu, an associate in Genova Burns’ Wage and Hour Compliance Practice Group, at 973.230.2077, or John Vreeland, Chair of Genova Burns’ Wage and Hour Compliance and the Transportation, Shipping, Trucking and Logistics Practice Groups, at 973.535.7118.

Tags: Employment LawInsurance LawNew JerseyEmployment Law & LitigationIndependent contractorJohn VreelandShaun Abreu