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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: A company was not in violation of the Age Discrimination in Employment Act (ADEA) when it dismissed an independent contractor and replaced her with a younger employee, the Eighth Circuit Court of Appeals ruled in Ernster v. Luxco, Inc. (No. 09-1200). The issue in the case involved whether Barbara Ernster was an independent contractor or an employee, because the ADEA and the Iowa Civil Rights Act (ICRA) “protects employees but not independent contractors.”
In 1999, Ms. Ernster was hired by David Day as the exclusive marketing representative in northeastern Iowa for Iowa Liquor Products, Inc. (ILP). There was no written employment contract. Mr. Day provided Ms. Ernster with names and locations of existing customers in her territory and advised her of new accounts. She was expected to visit customers regularly to make sure the ILP products were displayed effectively and to urge customers to stock additional ILP products. Ms. Ernster claimed that she was expected to make eleven customer calls a day and that Mr. Day called her every day at 7:30 am to discuss her daily activities. Mr. Day denied calling Ms. Ernster each morning, but agreed that they spoke regularly.
Mr. Day testified that all ILP marketing representatives understood that they were independent contractors, which was verified in testimony to the district court by another ILP marketing representative. Ms. Ernster was paid a fixed monthly stipend plus commissions and bonuses, which were reported on Form 1099 as self-employment income. Taxes were not withheld and no marketing representative received insurance or retirement benefits.
In December 2003, Mr. Day sold ILP to David Sherman Corporation and retired in 2005. The company’s name was changed to Luxco. In early 2006, Luxco converted its Iowa marketing staff to full-time Luxco employees and required all existing marketing representatives to apply for new positions. Ms. Ernster applied and was interviewed for the job, but was not hired. She was terminated in March 2006 and a younger woman took over her position. Ms. Ernster sued claiming age discrimination.
Ruled Not An Employee
The appellate court noted that the Supreme Court decision in Nationwide Mutual Insurance Co. v. Darden (503 U.S. 318) provided the guidance. The Supreme Court adopted a common-law test as follows:
The district court ordered that the case be handled as a bifurcated jury trial with the first trial limited to whether or not Ernster was an employee of Luxco. If she was found not to be an employee of Luxco, there would be no further action because ADEA and ICRA did not apply. The jury found that Ernster was not an employee; Ernster appealed on the grounds that the instruction to the jury was not proper.
“In determining whether a hired party is an employee under the general common law of agency, we consider 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.”
The district court had “instructed the jury that the factors it may consider in deciding this issue ‘include, but are not limited to,’ 16 enumerated aspects of the relationship between Ms. Ernster and Luxco. The court committed reversible error, Ms. Ernster argued, by omitting four of what she called the 13 mandatory Darden factors; by rewording three factors to favor Luxco’s evidence; and by improperly dividing three factors into multiple factors, unduly emphasizing Luxco’s evidence.”
The appellate court rejected Ms. Ernster’s argument, stating that “the Supreme Court in Darden emphasized that, in applying the common-law test, all of the incidents of the relationship must be assessed and weighed with no one factor being decisive….The Darden factors are a nonexhaustive list, and the ultimate inquiry requires more than simply tallying factors on each side and selecting the winner on the basis of a point score.” The district court had listed 16 factors in its charge to the jury and concluded by stating that “no one factor is decisive.”
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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