Stack v. Karr-Barth Associates, Inc.

Background

John M. Stack sued Karr-Barth Associates, Inc., AXA Advisors, LLC, and AXA Network, LLC. The opinion refers to the defendants collectively as “Karr Barth.” Stack alleged violations of the Family and Medical Leave Act (FMLA), the Employee Retirement Income Security Act (ERISA), the Americans with Disabilities Act (ADA), and the Pennsylvania Human Relations Act (PHRA). He also had alleged hostile-work-environment claims under the ADA and PHRA, but he voluntarily dismissed those claims.

Stack had been associated with Karr Barth in various capacities since 1994. For the period relevant to the claims, he worked full time as a “14th Edition Agent,” a financial professional who sold insurance, annuities, and other financial products and earned commissions rather than a fixed salary. He took leaves from November 2017 to March 2018 and from May to September 2018 for inpatient alcoholism treatment. During those leaves, Karr Barth reassigned eleven of his clients to other financial advisors. Stack alleged that he lost more than $500,000 in income, was assessed more than $26,000 in fees that should have been waived, and was unlawfully denied access to his 401(k) account.

Stack claimed that the client reassignments, failure to pay associated commissions, and fees constituted interference and retaliation under the FMLA. He also claimed discrimination, retaliation, and failure to provide a reasonable accommodation under the ADA and PHRA, and denial of benefits under ERISA. The defendants moved for summary judgment on all claims, arguing that Stack was an independent contractor and, alternatively, that his claims failed on their merits.

Employee or Independent Contractor Under the ADA, ERISA, and PHRA

The court explained that the ADA, ERISA, and PHRA protect employees, not independent contractors. It applied the common-law agency test, which considers thirteen factors and evaluates the totality of the circumstances. The court gave particular importance to the hiring party’s control over how the work is performed and disregarded factors that did not meaningfully favor either employee or contractor status.

The court found that most factors favored independent-contractor status. Stack chose the products he sold, the clients he pursued, his work schedule, and his work location. He supplied or paid for his office space, computer, telephone, and other work expenses; was paid entirely through commissions; selected and paid his assistant; and filed taxes in a manner consistent with self-employment. The court also found that his professional licensing, training, production quotas, and certain administrative requirements did not establish the level of employer control required for employee status, particularly when those requirements resulted from financial-industry regulations.

Three factors favored employee status: Stack’s long relationship with Karr Barth, the fact that his work was part of Karr Barth’s regular business, and the fact that Karr Barth was a business organization. The benefits factor was considered indeterminate because Stack’s benefits depended on meeting production quotas, and the court disregarded it. Balancing the factors, the court concluded that Stack was an independent contractor. Because he was not an employee, the court granted summary judgment to the defendants on the ADA, ERISA, and PHRA claims.

Employee or Independent Contractor Under the FMLA

For the FMLA claim, the court applied the economic-realities test. That test considers the employer’s control, the worker’s opportunity for profit or loss and investment, the skill and initiative required, the permanence of the relationship, and whether the work is integral to the business.

The court found that the first three factors favored independent-contractor status. Karr Barth exercised little control over Stack’s work; Stack had opportunities for profit or loss and invested in his practice; and his work required substantial skill and independent initiative. His long tenure and the importance of financial advising to Karr Barth’s business favored employee status, but the court concluded that those factors did not outweigh the others. The court also noted that Stack’s clients had been reassigned to other agents during his leaves, indicating that his services were interchangeable rather than indispensable.

The court therefore concluded that Stack was an independent contractor under the economic-realities test as well. Because the FMLA protects employees, the court concluded that Stack could not state an FMLA claim.

Disposition

The court decided the motion on the threshold issue of Stack’s employment status. Judge Valerie Caproni granted the defendants’ motion for summary judgment. The case was dismissed with prejudice, and the Clerk of Court was directed to terminate the open motions and close the case.