Law Library

Selling Vicariously: 9th Circuit Analyzes 10 Factors for Distinguishing Agents and Independent Contractors

By: Douglas W. Lytle

On August 9, 2017, in Jones v. Royal Admin. Servs.No. 15-17328, 2017 U.S. App. LEXIS 14671, at *3 (9th Cir. August 9, 2017), the Ninth Circuit published an opinion analyzing the ten factors used to determine when a company may be liable for the actions of others acting as its agents.

Doug Lytle, Esq.
Douglas W. Lytle

Plaintiffs had registered their mobile phone numbers on the Do-Not-Call list, but nevertheless received automated telemarketing calls in violation of the Telephone Consumer Protection Act (TCPA). Plaintiffs claimed the telemarketers were agents of Royal, and sought to hold Royal vicariously liable for the calls. Royal claimed the telemarketers were independent contractors employed by All American Auto Protection, Inc. (AAAP).[1]

If the AAAP telemarketers were agents of Royal rather than independent contractors, Royal could be vicariously liable. Whether the telemarketers were Royal’s agents or independent contractors required consideration of ten factors set forth in the Restatement (Second) Of Agency § 220(2) (1958):

(1) the control exerted by the employer,
(2) whether the one employed is engaged in a distinct occupation,
(3) whether the work is normally done under the supervision of an employer,
(4) the skill required,
(5) whether the employer supplies tools and instrumentalities [and the place of work],
(6) the length of time employed,
(7) whether payment is by time or by the job,
(8) whether the work is in the regular business of the employer,
(9) the subjective intent of the parties, and
(10) whether the employer is or is not in business.

See Schmidt v. Burlington N. & Santa Fe Ry. Co., 605 F.3d 686, 690 and fn. 3 (9th Cir. 2010).

Factual Background for Evaluating the Factors

Royal sells vehicle service contracts (VSCs), or extended warranties, through auto dealers and about twenty different marketing vendors. AAAP is one marketing vendor that sells VSCs through telemarketing. When AAAP telemarketers make a call, they first “sell the concept of . . . a vehicle service contract” to the consumer.
The telemarketer then picks a particular service plan from one of many companies (e.g., Royal) to sell to the consumer, based on the make, model, and mileage of the consumer’s car, and the price and benefits in which the consumer expressed interest.

Royal had a marketing agreement with AAAP, which required AAAP to comply with authorized sales and marketing methodologies. Expressly excluded from these methodologies, however, were acts or inaction violating federal or state laws, including “robo-calling.”

Clayton Churchill handled Royal’s account with AAAP. He trained AAAP employees at AAAP’s call center, and provided information about Royal’s VSCs, claim structure, coverage, pricing, and customer service. Royal’s president visited the call center with Churchill about a dozen times. During those visits, officials for AAAP provided assurances that the telemarketers were dialing customers one at a time and were complying with the national do-not-call registry.

Vicarious Liability Under the Law of Agency and Independent Contractors

For purposes of its motion for summary judgment, Royal did not challenge whether AAAP’s telemarketers violated the TCPA. Rather, Royal focused specifically on whether it could be held vicariously liable for AAAP’s calls. Under the TCPA, a defendant may be held vicariously liable for violations if the plaintiff proves an agency relationship between the defendant (Royal) and the caller (AAAP).
Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.

For such an agency relationship to exist, the agent must have authority to act on behalf of the principal and the principal must have a right to control the actions of the agent.

One theory of agency, actual authority, arises from a principal’s assent for the agent to take action on behalf of the principal. An agent acts with actual authority if the agent reasonably believes, at the time the agent is taking action, that the principal wants the agent to take action that has legal consequences to the principal. [Note: The district court analyzed whether Royal could be vicariously liable under three different agency theories: actual authority, apparent authority, and ratification. Plaintiffs’ appeal, however, only pursued an actual authority theory.]

Not all relationships in which one person provides services to another satisfy the definition of agency. An individual acting as an “independent contractor,” rather than an agent, does not have the traditional agency relationship with the principal necessary for vicarious liability. And generally, a principal is not vicariously liable for the actions of an independent contractor, because the principal does not have sufficient control over an independent contractor. The extent of control exercised by the principal is the essential ingredient.

Analysis of the Agent v. Independent Contractor Factors

The Ninth Circuit applied the factors as follows:

(1) Control Exerted By the [Alleged] Employer/Agent
Royal exercised some amount of control over AAAP:

(a) AAAP was required to keep records of its interactions with consumers who purchased Royal VSCs, give Royal weekly reports on VSC sales, and provide notice of requests to cancel Royal VSCs.
(b) AAAP was also required to implement security measures to protect consumer information, collect payments on behalf of Royal, and obtain Royal’s approval before using sales literature to assist in the sale of Royal VSCs.
(c) AAAP was only permitted to use the “scripts and materials” Royal approved and had to comply with the “guidelines and procedures” Royal provided when selling Royal products.
(d) These guidelines and procedures generally required AAAP to “operate in accordance with laws and regulations” and refrain from making “false and misleading” representations.
(e) Royal suspended its relationship with AAAP on one occasion after it suspected AAAP telemarketers were violating Royal’s standards and procedures.

However, Royal had only limited control of AAAP’s telemarketers:

(a) Royal did not have the right to control the hours the telemarketers worked nor did it set quotas for the number of calls or sales the telemarketers had to make.
(b) Significantly, Royal did not have any control of a telemarketer’s call until the telemarketer decided to pitch a Royal VSC to the consumer. When an AAAP telemarketer reached a consumer, they first had to sell the consumer on the idea of a VSC. Royal did not have control over this sales pitch. Only after the consumer was sold on the idea of a VSC, would an AAAP telemarketer pitch a specific VSC. (Only if the specific VSC was a Royal VSC would Royal control the “scripts and materials” the telemarketer was permitted to use in the sale.)
(c) AAAP sold VSCs for multiple companies (all of whom, presumably, had their own standards and procedures AAAP telemarketers were required to comply with).

In this case, an AAAP telemarketer pitched a VSC to a plaintiff during only one call. And during that call, the telemarketer attempted to sell a “Diamond New Car” protection plan—a plan not sold by Royal through AAAP.

Thus, there was no evidence that AAAP telemarketers ever tried to sell Royal VSCs to the plaintiffs.

Accordingly, Royal never specifically controlled any part of any of the calls to the plaintiffs.

(2) Whether the One Employed Is Engaged in a Distinct Occupation

AAAP was an independent business, separate and apart from Royal.
Royal was engaged in the “distinct occupation” of selling VSCs through telemarketing, and had many different clients and offered the same services to companies other than Royal.

Thus, this factor suggested that AAAP’s telemarketers were independent contractors rather than agents of Royal.

(3) Whether the Work Is Normally Done Under Supervision of an Employer

The AAAP telemarketer calls were not normally done under the supervision of Royal.

Churchill provided some training and oversight at AAAP’s call center, and Royal’s president visited the call center about a dozen times over the course of three years. But no Royal employee directly supervised AAAP’s calls.

Thus, this factor favored finding that AAAP’s telemarketers were independent contractors.

(4) Skill Required

No evidence was presented regarding the skill required to place the calls or sell a VSC.

Thus, the court did not consider this factor.

(5) Whether the Employer Supplies Tools and Instrumentalities (Including Place of Work]

Royal provided AAAP with some things necessary to complete the sales. In particular, Royal:

(a) provided the contracts that were to be sold and gave AAAP access to their “on-line Contract quote manager”; and
(b) trained AAAP telemarketers in how to sell Royal contracts.

AAAP, on the other hand, provided its own phones, computers, furniture, and office space. And if AAAP wanted any “brochures [or] other sales literature,” it had to develop and manufacture them itself.

Thus, AAAP’s supply of most of the “tools and instrumentalities” supported a finding of independent contractor status.

(6) Length of Time Employed

The original contract was in effect for only one year, with each party retaining the ability to cancel the contract at any time on 30 days’ notice. AAAP sold VSCs for Royal for three years. While not a short period of time, the limited nature of the original contract showed there was a “contemplated end to the . . . relationship.”

The court said that such “designated impermanency” of the relationship supported a finding of independent contractor status.

(7) Whether Payment Is By-Time or By-The-Job

AAAP was paid a commission for each sale, and was not paid for the time the telemarketers worked.

The court said this was a strong indicator that the telemarketers were independent contractors.

(8) Whether the Work Is in the Regular Business of the Employer

Royal contracted out its direct sales to many different vendors and car dealerships, and did not hire its own employees to sell its VSCs.

Since Royal is in the business of selling VSCs, and AAAP’s sales are a regular part of Royal’s business, however, this factor favored finding an agency relationship.

(9) The Subjective Intent of the Parties

There was no clear evidence regarding subjective intent of the parties.

That AAAP sold VSCs for multiple companies, however, indicated AAAP’s intent to have its telemarketers operate as independent contractors for many different companies.

(10) Whether the Employer Is or Is Not in Business

Royal is a business, which favors finding an agency relationship.

Conclusion that AAAP Telemarketers Were Independent Contractors, Not Agents

Based on its analysis of the factors, the Ninth Circuit concluded that AAAP’s telemarketers clearly were independent contractors rather than agents, which it summarized as follows:

AAAP was its own independent business that sold VSCs for multiple companies without the direct supervision of a Royal employee.

AAAP provided its own equipment, set its own hours, and only received payment if one of its telemarketers actually made a sale.

Finally, although Royal had some control over AAAP’s telemarketers, it did not specifically control the calls at issue in this case, because the telemarketers never attempted to sell a Royal VSC during those calls.

Since AAAP’s telemarketers were independent contractors, and not Royal’s agents, Royal was not vicariously liable for telemarketer calls that violated the TCPA. Thus, the district court was correct in granting summary judgment to Royal.

Bonus for making it to the end: see the oral argument before the Ninth Circuit here.

[1] Royal was added as a defendant when it appeared AAAP would declare bankruptcy.