American Family Insurance (copy)

American Family Insurance, 6000 American Parkway

AMERICAN FAMILY INSURANCE

A federal judge in Ohio has affirmed an advisory jury’s verdict that thousands of American Family Insurance agents are, in fact, employees of the Madison company and not independent contractors as the company defines their role — a ruling that could cost American Family as much as $1 billion in retirement benefits, attorneys for the plaintiffs say.

But the judge allowed an immediate appeal of his ruling, noting it could be overturned by federal appellate judges.

In a 44-page ruling on Tuesday in U.S. District Court in Cleveland, Judge Donald Nugent said American Family treats agents as employees by imposing such rules as not letting them sell insurance from other companies except those with financial ties to American Family; requiring agents to sign a one-year non-compete agreement when they leave; referring to agents as “employees” in training manuals; requiring agents to file daily reports; and giving managers authority over agents’ business plans and vacation times.

“American Family trained its managers to exercise control over the means and manner of agents’ sales and service duties when the company deemed it necessary, and reprimanded managers who did not exercise such control when the company deemed it beneficial to do so,” Nugent wrote. That degree of control “was inconsistent with independent contractor status and was more in line with the level of control a manager would be expected to exert over an employee.”

Attorney Charles Crueger, of the Crueger Dickinson law firm in Milwaukee, the lead law firm representing the plaintiffs, called it a “landmark” decision. “As far as I’m aware, we have the first case that has ever gone to a full-blown trial on this issue and then prevailed,” Crueger said.

“This is a great day for the agents who had the courage to challenge the practices of a large corporation and fight for years to protect their rights as employees,” attorney Erin Dickinson said.

The case was filed in 2013 by four former American Family agents. In 2016, the judge certified the suit as a class action, adding about 7,000 current and former agents as unnamed plaintiffs.

In a second ruling Tuesday, Nugent turned down a request by American Family to decertify the class action. The company said some agents are satisfied with their current treatment. The judge said, though, only one current agent testified during the two-week trial in April that she is happy with the arrangement.

Nugent did allow American Family to appeal the decisions immediately and hold off on the process of determining how to restructure the company’s retirement program until the appeal was resolved. There was evidence supporting both sides in the case, previous court cases have had the opposite outcome, and “repercussions of this finding are so far-reaching,” Nugent wrote.

American Family said it will appeal. “We are disappointed in the judge’s ruling but pleased the court took the unusual step of granting an immediate appeal, citing in part the prior case law that supports the classification of agents as independent contractors,” spokesman Ken Muth said.

American Family chief legal officer Mark Afable said the company is “confident we will prevail” in the appeals.

“American Family agents operate with tremendous independence that justifies classification as independent contractors. The classification has been previously affirmed by five federal court decisions and the Internal Revenue Service,” he said.

Crueger estimated the agents could be in line for a combined $1 billion in retirement benefits, but Muth disputed that.

“The estimate floated by the plaintiffs’ attorneys is grossly overstated and premature, particularly in light of the court’s granting of an immediate appeal,” Muth said.

American Family Insurance Group is the nation’s 13th-largest property and casualty insurer, with more than 10 million policies and $8.7 billion in revenue in 2016.

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Judy Newman is a business reporter for the Wisconsin State Journal.