197 F2d 728 Zipser v. Ewing

197 F.2d 728

ZIPSER et al.



No. 226, Docket 22273.

United States Court of Appeals Second Circuit.

Argued May 14, 1952.

Decided June 23, 1952.

Plaintiff, Harry B. Zipser, earned wage credits in covered employment entitling him to primary insurance benefits of $10.00 a month, and his wife to benefits of $5.00 a month, commencing in July 1945, under the Social Security Act, 42 U.S.C. § 402(a) and (b). After 1945, Zipser received commissions as a soliciting agent for the Equitable Life Assurance Society of the United States. The Bureau of Old Age and Survivors Insurance determined that such commissions (in excess of $14.99 per month) should be deducted from the social security benefits pursuant to Sec. 203(d)(1) and (e) of the Act, which provided for deductions of all wages.1 Wages are defined in Sec. 209(a) as 'all remuneration for employment,' and employment as 'any service * * * performed * * * by an employee for the person employing him * * * .' Sec. 209(b).

Zipser and his wife asked for, and received, a hearing to challenge this determination, Zipser arguing that his insurance commissions were not received in 'employment,' and so did not constitute 'wages' because he was not an 'employee' within the meaning of Section 1101(a)(6). In the Referee's original 1948 decision, the 'common-law control test for determining employer-employee relationship' was said to be 'not applicable to the determination of that relationship under the Social Security Act.' The Referee applied the so-called 'economic reality' test to find that Zipser was an employee within the meaning of the Act. The Appeals Council of the Social Security Administration affirmed the Referee, and plaintiff sought review under Sec. 205(g) of the Social Security Act and Sec. 10 of the Administrative Procedure Act. Subsequent to this affirmance, Sec. 1101(a)(6) of the Act defining an employee thereunder was amended to read:

'(6) The term 'employee' includes an officer of a corporation, but such term does not include (1) any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an independent contractor of (2) any individual (except an officer of a corporation) who is not an employee under such common-law rules.'

This amended definition was specifically stated by Congress to apply retroactively 'with the same effect as if included in the Act since 1935.' Upon the passage of the amendment this case was remanded to the Federal Security Administration for further agency action. A revised decision was handed down in 1949 to the effect that Zipser was still considered by the Federal Security Administration to be an employee even under the amended definition. On motion of defendant in the district court suit, summary judgment was granted in favor of plaintiffs.

The facts about Zipser's status with the Equitable Life Assurance Society are as follows:

On April 1, 1941, Zipser and the Equitable entered into a written agreement in which Zipser was denominated an 'agent.' He was authorized, when properly licensed, to canvass for applications for insurance policies and annuity contracts and collect the first premiums therefor. No exclusive territory was assigned to him. As his compensation, he was to be allowed 'first year commissions,' and, if continuously under written agreement, to solicit for the company 'renewal commissions' in accordance with the schedules contained in the contract. Under the agreement, Zipser was not required to produce any minimum amount of business. A statement in the agreement entitled 'Independent Contractor' said: 'Nothing contained herein shall be construed to create the relationship of employer and employee between the Society and the agent. The agent shall be free to exercise independent judgment as to the persons from whom applications for insurance policies and annuity contracts will be solicited and the time and place of solicitation. The agent shall abide by the regulations and rules of the Society in accordance with Clause X hereof but such rules and regulations shall not interfer with the freedom of action of the agent as described in this Clause.'

By subsequent modification, dated July 1, 1944, the agreement was changed to include Zipser in an 'equitable Assured Minimum Income Plan for Club Members.' This in effect set up a monthly advance based on his previous commission record against earned commission for the coming year, the agent being required to make up any deficit if his agreement to solicit for the company were terminated, but otherwise being free to keep the difference between the advances and the Commissions actually earned. After March 31, 1946, at his own request, Zipser ceased to participate in the plan.

Zipser obtained his prospects, other than those pertaining to original policyholders obtained by him, through his own contacts and independent sources. He was required to furnish the Society with the information needed by it to determine whether the applicants were good risks, within the class of individuals which the Society desired to insure, and that claims asserted against it under the policies issued by it to his clients were valid claims.

Zipser carried on his own independent general insurance broker's business. In 1944, and for many years previously, Zipser employed at his own expense a girl for bookkeeping, typing, and other clerical work in connection with his business.

Like other agents of the Society, he was assigned or attached to one of its agency offices in charge of an agency manager. A room in that office, together with office equipment belonging to the Society, including desk, telephone service and other facilities, was placed at his disposal for his use, free of charge, in connection with the Society's business and was used by him for that purpose when he needed it.

Zipser advertised in his own name and at his own expense through such devices as calendars and policy containers. Besides the salary of his clerical assistant, he had expenses for such items as brokerage license fees, telephone, stationery, postage, record books, carfare, etc., all of which he paid without reimbursement from any source. He received from the Equitable without charge, by virtue of his having produced enough business to be a club member, a limited number of business cards and letterheads.

Zipser devoted as much time to solicitation of life insurance as he felt his business required. He had no fixed hours of work. He was never directed when, where, or how to solicit. No reports of any kind were required of him. He was not required to attend agency meetings.

Training courses were offered by the Equitable on a purely voluntary basis, but Zipser never took any. Since 1919 Zipser had placed life insurance or annuity contracts with other companies in a variety of situations; in about 100 instances he placed business with some six other life insurance companies, even though the Equitable would have issued the same kind of contract.

Holmes Baldridge, Washington, D.C., Myles J. Lane and Robert Martin, New York City (Edward H. Hickey, Herman Wolkinson and Leonard B. Zeisler, Washington, D.C., of counsel), for appellant.

Stuart McCarthy, New York City (David I. Shivitz and Edmund B. Hennefeld, New York City, of counsel), for appellees.

Before AUGUSTUS N. HAND, CLARK and FRANK, Circuit Judges.

FRANK, Circuit Judge.


The 1948 Amendment in explicit terms retroactively defined 'employee' so as to make applicable the common law definition. The Senate Report2 on that amendment cited with approval our opinion in Radio City Music Hall Corp. v. United States, 2 Cir., 135 F.2d 715, 717, where we said, 'The test lies in the degree to which the principal may intervene to control the details of the agent's performance; and that in the end is all that can be said, through the regulation redundantly elaborated it.' In Ringling Bros.-Barnum & Bailey Combined Shows v. Higgins, 2 Cir., 189 F.2d 865, 867, 869, we adhered to our Radio City Music Hall test, going no further than to suggest as relevant 'such matters as the right to control and direct the performance not only as to the result, but also as to the details and means by which that is accomplished,' with emphasis on the notion 'that it is the right to direct which is important and it is not necessary that the employer actually direct or control the manner in which the services are performed.' In that connection we referred to the Regulations and observed that they treated 'insurance agents' as 'clear cases of independent contractors'.


So far as we can tell, this insurance agent operated under the contract which, incidentally, categorized him as an 'independent contractor' and not an 'employee' in the usual pattern of such agents. Office facilities, forms and stationery, were provided by the company; the contract was terminable upon notice; no fixed hours were set; he could sell insurance of other companies only under special circumstances; his advertisements had to be approved; a manual of rules and regulations for the salesmen's guidance in selling and servicing policies was furnished. Under the manual, the agent could not receive payments, issue receipts or policies, pay out benefits, etc., without first assuring himself of certain facts, or transmitting the required information to the company. All paper work had to be done in strict conformity with the rules laid down for issuing and servicing policies in the manual.


There is some dispute as to whether the agent was required to service policyholders he had originally solicited. The Federal Security Administration maintains, relying chiefly on the agency agreement and the agents' Manual, that Zipser was a general employee with specific servicing duties. The Chairman of the Appeals Council in an affidavit below testified: 'The soliciting agent was required by the rules and regulations of the Society to collect first premiums and to cooperate with the Society in the collection of subsequent premiums; to perform services in connection with payment of death and disability claims; furnish the Society with information necessary to determine whether the death of the insured was the result of accident or suicide; whether an insured was entitled to disability benefits; assist policyholders in reinstating lapsed policies, in executing change of beneficiaries and changes of premium payment forms; in executing and submitting proofs of loss; in handling settlement checks and generally in servicing his policy holders.'


The Referee's original decision, on the other hand, said that, 'In addition to obtaining new applications, the claimant performs other services in connection with the Society's business; he assists policyholders in executing change of beneficiary and change of premium payment forms, in executing and submitting proofs of loss, in delivering settlement checks and in generally servicing his policyholders. There is no evidence that such services are expressly required of him.' Our reading of the agency agreement and of the agents Manual fails to disclose any obligation on the agent's part to perform such services. The Manual merely directs how they shall be performed. We do not think therefore that the agreement or anything in the record supports the FSA's assertion that Zipser was required to perform such services to original policyholders. Insurance agents like Zipser are 'competent salesmen, almost entirely dependent upon their own initiative, skill, and personality for success, working upon their own time, at their own expense, and deriving their remuneration from the results of their work.' As such they are not 'employees.' Dimmitt-Rickhoff-Bayer Real Estate Co. v. Finnegan, 8 Cir., 179 F.2d 882, certiorari denied 340 U.S. 823, 71 S.Ct. 57, 95 L.Ed. 605, cf. United States v. Kane, 8 Cir., 171 F.2d 54. The company did not and, under the agreement, could not have required the agent to work full time for it, canvass any particular territory, or, with any particular frequency, contact any particular prospect, use any particular sales technique, require regular reports, confine himself to selling a particular amount or kind of policy. Zipser did not even have a minimum quota to sell during the year. See Brady v. Periodical Publishers' Service Bureau, 6 Cir., 173 F.2d 776; Benson v. Social Security Board, 10 Cir., 172 F.2d 682; Party Cab Co. v. United States, 7 Cir., 172 F.2d 87, 10 A.L.R.2d 358; Broderick, Inc., v. Squire, 9 Cir., 163 F.2d 980; McGowan v. Lazeroff, 2 Cir., 148 F.2d 512. See also the state cases holding insurance agents to be independent contractors, not employees, e.g., Northwestern Mutual Life Ins. Co. v. Tone, 125 Conn. 183, 4 A.2d 640, 121 A.L.R. 993.


We conclude that the agent here was not an employee under the Act and that consequently his commissions should not have been deducted from the social security benefits due him.



1 Sec. 203:

'(d) Deductions, in such amounts and at such time or times as the Board shall determine, shall be made from any payment or payments under this title to which an individual is entitled, until the total of such deductions equals such individual's benefit or benefits for any month in which such individual: (1) rendered services for wages of not less than $15; * * * .

'(e) Deductions shall be made from any wife's or child's insurance benefit to which a wife or child is entitled, until the total of such deductions equals such wife's or child's insurance benefit or benefits for any month in which the individual, with respect to whose wages such benefit was payable, rendered services for wages of not less than $15.'

2 Sen. Rep. No. 1255, 80th Cong., 2d Sess., p. 4.