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Kimbly Arnold v. Mutual of Omaha Insurance Company

December 30, 2011


TRIAL JUDGE: Honorable Cheryl R. Mills TRIAL COURT: Contra Costa County Superior Court (Contra Costa County Super. Ct. No. C10-00230)

The opinion of the court was delivered by: Marchiano, P.J.


Plaintiff Kimbly Arnold worked as a nonexclusive insurance agent for Mutual of Omaha Insurance Company (Mutual). After plaintiff terminated her contractual relationship with Mutual, she filed suit claiming unpaid employee entitlements under the Labor Code.*fn1 She appeals from a summary judgment in favor of defendant Mutual, in which the trial court determined Ms. Arnold's causes of action depended on her being a former "employee" of Mutual, and the undisputed facts established she was not an employee, but rather an independent contractor. Arnold claims the court erred in concluding the common law test for employment was applicable to determine whether she was an "employee," arguing that a broader statutory definition of "employee" is applicable under Labor Code section 2750. Alternatively, she contends the court incorrectly applied the common law test when it determined there were no triable issues of material fact and concluded she was not an "employee" as a matter of law. As discussed below, we conclude after a de novo review the trial court was correct, and we affirm the summary judgment.


On January 25, 2010, Arnold filed a complaint against Mutual on her behalf and on behalf of a class of other persons similarly situated, whom Mutual allegedly employed as a "Licensed Agent" or "Sales Representative." The complaint consisted of three causes of action. The first cause of action alleged Mutual failed to reimburse Arnold and class members fully for "necessary business-related expenses and costs" to which they were entitled under Labor Code sections 2800 and 2802.*fn2 The second cause of action alleged Mutual had willfully failed to pay Arnold and class members for wages earned but unpaid prior to their being discharged from employment or prior to their quitting employment, for which they were entitled to recover under Labor Code sections 201, 202 and 203.*fn3 A third cause of action alleged Mutual's conduct violating Labor Code sections 2800 and 2802 additionally constituted an unlawful business practice in violation of the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et. seq.), for which Arnold and class members sought compensation, an injunction requiring Mutual to pay all outstanding wages, costs, and attorney's fees under Code of Civil Procedure section 1021.5.

Mutual filed a motion for summary judgment on September 28, 2010, contending Arnold's first two causes of actions "hinge[d] entirely on her alleged status as an 'employee' of Mutual." For example, reimbursement under Labor Code section 2802 is due only to an "employee" who incurs necessary expenditures or losses, whereas a claim for earned but unpaid wages under Labor Code section 202 arises only when an "employee" quits his or her employment. Mutual argued these provisions of the Labor Code were not subject to a statutory definition of "employee,"*fn4 and consequently were subject to the common law test of employment. According to Mutual, undisputed material facts established Arnold was an independent contractor rather than a former employee under the common law test, and hence, she was not entitled to any relief under her first or second causes of action. Because Arnold's third cause of action under the UCL was derivative of her first cause of action, it similarly afforded her no relief as a matter of law.

In making this argument, Mutual relied in part on the Supreme Court decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello), which restated the " '[p]rincipal test of an employment relationship' " under common law to be " '[w]hether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. . . .' " (Id. at p. 350.) Borello recognized that this "principal" factor of the common law test, focusing on the issue of control, was not exclusive, and articulated "[a]additional factors." These were: whether the principal has the right to discharge at will, without cause; whether the one performing services is engaged in a distinct occupation or business; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; the length of time for which the services are to be performed; the method of payment, whether by the time or by the job; whether or not the work is a part of the regular business of the principal; and, whether or not the parties believe they are creating the relationship of employer-employee. (Borello, supra, 48 Cal.3d at pp. 350−351.) The court in Borello observed that such "individual factors" were not to be "applied mechanically as separate tests," but were "intertwined," and often given weight depending on the particular combination of factors. (Id. at p. 351.)

Supporting evidence showed Arnold was licensed by the Department of Insurance as an independent agent or broker, authorized to offer products to prospective clients from different companies. When she first contracted with Mutual, in November 2006, she was under appointment with another insurance company to offer its products, and while under that appointment had acted on behalf of a third insurance company. At both of these insurance companies she performed as an independent contractor, receiving commissions and 1099 tax forms for that income.

Under Arnold's contract with Mutual, the latter appointed her as a nonexclusive "agent" to solicit and procure applications for Mutual's products. Arnold had the responsibility to maintain the proper licenses required to perform this service. Her chief duties were to procure and submit applications for Mutual's products, collect moneys, and service clients. Compensation was by commission for products sold, with a chargeback on any commission paid when moneys for sale of a product were uncollected or refunded. Either party could terminate the contract with or without cause through written notice to the other, with automatic termination in the event Arnold failed to submit an application for one of Mutual's products for a period of 180 days.

One clause of the contract stated that Arnold was "an independent contractor and not an employee," that no terms of the contract "shall be construed as creating an employer-employee relationship," and that Arnold was "free to exercise [her] own judgment as to the persons from whom [she] will solicit and the time, place and manner, and amount of such solicitation." During her deposition, Arnold said she had read the contract, and understood when she signed it that her appointment with Mutual was as an independent contractor. She agreed she used her own judgment in tending to her business, and more particularly in determining who she would solicit for applications for Mutual's products, when and where she would do so, and the amount of time she spent engaging in such solicitations.

Arnold exercised her contractual right to terminate her appointment with Mutual by a letter dated March 24, 2008, which advised Mutual that she had entered into a contract to represent another insurance company exclusively, and was prohibited from maintaining her appointment with Mutual.

The assistant general manager of Mutual's sales office in Concord averred he supervised the process of agent appointments to that office, and as such was familiar with Arnold's appointment in 2006. During her appointment with Mutual, Arnold did not receive performance evaluations, and he did not monitor or supervise her work schedule. While he conducted meetings and offered training sessions to appointed agents such as Arnold, their attendance was not required. Agents assigned to the Concord office were required to pay for their own business expenses; Mutual did not provide business cards, vehicles, or computers free of charge. Agents could, but were not required to work "out of the Concord office," but if they chose to do so, they were required to pay monthly fees to cover "workspace and telephone service." Items purchased by Arnold from Mutual appeared on a monthly "Agent Expense Statement." At the time Arnold terminated her appointment in March 2008, she owed Mutual approximately $2,288 for such expenses. These expenses remained unpaid as of September 2010.

After a hearing, the trial court granted Mutual's motion for summary judgment, observing it was "very confident" Arnold was "not an employee." Its written order ruled that all three of Arnold's causes of action were dependant on her status as an "employee" of Mutual rather than an independent contractor. In determining her status, the court found "the common law test" applicable to determine whether she was an "employee," in the absence of an applicable statutory definition. Applying the common law test, the court concluded undisputed facts established that Arnold was an independent contractor and not an employee within the meaning of Labor Code sections 202 and 2802.

Notice of entry of judgment was entered the same day. Arnold's appeal followed. (See Code Civ. Proc., ...

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