Barbara Ernster v. LUXCO Inc. ( 2010 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 09-1200
___________
Barbara Ernster, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the
* Southern District of Iowa.
Luxco, Inc., *
*
Defendant - Appellee. *
___________
Submitted: October 21, 2009
Filed: February 23, 2010
___________
Before LOKEN, Chief Judge, MURPHY and BYE, Circuit Judges.
___________
LOKEN, Chief Judge.
Barbara Ernster sued Luxco, Inc., alleging wrongful termination in violation of
the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 626 et seq., and the
Iowa Civil Rights Act (ICRA), Iowa Code Ann. Ch. 216. After denying Luxco
summary judgment on the threshold issue of whether Ernster was an employee or an
independent contractor, the district court1 ordered a jury trial of that issue. The jury
returned a general verdict that Ernster was an independent contractor. The court
entered judgment on the verdict dismissing Ernster’s claims and denied her post-
1
The HONORABLE HAROLD D. VIETOR, United States District Judge for
the Southern District of Iowa.
judgment motion for new trial, based on alleged instruction errors, or for judgment as
a matter of law. Ernster appeals, arguing primarily the issue of alleged instruction
errors. We affirm.
I. Background
David Day owned and managed Iowa Liquor Products, Inc. (ILP), a brokerage
company representing liquor and wine companies selling their products in the State
of Iowa. Iowa is a “control” State in which suppliers sell liquor products to the State,
which resells to customers such as bars and retail liquor stores. See Iowa Code Ann.
§ 123.22. ILP’s function was to promote suppliers’ brands by traveling to bars,
restaurants, liquor stores, and other customers around the State.
In 1999, Ernster and Day agreed she would become ILP’s exclusive marketing
representative in northeastern Iowa, calling on customers throughout the territory to
promote ILP brands and products. Day provided Ernster the names and locations of
existing customers in her territory, and thereafter advised her of new accounts that
Day learned about through ILP’s relationship with the State. Ernster was expected to
visit customers regularly, making sure that ILP products were effectively displayed,
urging customers to stock additional ILP products, distributing promotional materials
furnished by ILP’s suppliers, and arranging and conducting product demonstrations.
ILP and Ernster had no written employment agreement. Day testified that all
ILP marketing representatives understood they were independent contractors, not
employees. Ernster testified she “was led to believe that [she] was an employee.” Her
fellow marketing representative, Mike Ryan, testified that, when Day hired him, Day
explained that Ryan would be an independent contractor. ILP did not provide Ernster
-2-
insurance or retirement benefits. Ryan testified marketing representatives did not
receive employee benefits because they “were independent people.”2
ILP paid Ernster a fixed monthly stipend that was not calculated as a
commission on sales. She also earned commissions or bonuses based upon monthly
sales volumes of particular products. ILP did not withhold income taxes from
Ernster’s monthly compensation. Each year, ILP sent her an annual income tax Form
1099 reporting self-employment income, rather than a Form W-2 reporting wage or
salary income. Ernster’s tax preparer testified that Form 1099 “indicates a self-
employed or independent contractor [status].” Ernster reported ILP income and
business expense deductions on Schedule C of her annual IRS Form 1040.
Ernster worked out of her home and paid her travel expenses, which were
substantial, and the costs of her cell phone and computer. She worked a full-time
schedule for ILP, though she also worked part-time as a scheduler and bartender for
a local convention center. Ernster testified that she was required to make at least
eleven customer calls per day, and that Day called her around 7:30 in the morning to
discuss her daily activities. She admitted that she decided when to call on particular
accounts, was free to start and end her work days at different times, and did not have
to work a fixed number of hours per week. Day testified that he imposed no minimum
customer call requirement. He denied calling Ernster each morning but agreed they
spoke regularly, usually when Ernster called him. Day testified that Ernster had “no
direction as to when she worked, as long as she accomplished the job.” Ernster and
Day’s two other marketing representatives attended monthly sales meetings at his
home in Marshalltown and submitted weekly reports of stores visited and new
accounts obtained.
2
Though called as a witness by Ernster, the district court observed during a side-
bar conference that Ryan was Luxco’s best witness.
-3-
In December 2003, Day sold ILP to the David Sherman Corporation (DSC), a
liquor “rectifier” based in St. Louis.3 Day remained with DSC as a consultant,
continuing to manage and supervise ILP’s marketing representatives, including
Ernster, who were told the change in ownership did not affect their positions. Don
Wackerly became Iowa Division Manager in July 2005, sharing responsibilities with
Day until Day retired later that year. DSC changed its name to Luxco in December
2005. In early 2006, Luxco converted the Iowa marketing staff to full-time Luxco
employees, requiring the existing marketing representatives to apply for new
positions. Ernster applied and interviewed for the job but was not hired. Luxco
terminated her contract position in March 2006. A younger female took over part of
Ernster’s former territory. This age discrimination lawsuit followed.
II. The Instruction Issue
Ernster alleges age discrimination in violation of the ADEA and the ICRA.
Both statutes protect employees but not independent contractors. Wortham v. Am.
Family Ins. Group, 385 F.3d 1139, 1141 (8th Cir. 2004). In Nationwide Mutual
Insurance Co. v. Darden, 503 U.S. 318, 323-24 (1992), the Supreme Court held that,
when the definition of “employee” in a federal statute “is completely circular and
explains nothing,” the Court will adopt the common-law test derived primarily from
the Restatement (Second) of Agency § 220(2) (1958), and summarized in Community
for Creative Non-Violence v. Reid, 490 U.S. 730, 751-52 (1989):
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
3
Explaining its business, a Luxco vice president testified that Luxco buys liquor
products from distilleries, bottles them at its production facilities, and markets the
products nationwide under trademarked brand names owned by Luxco.
-4-
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.
Both the ADEA and the ICRA define employee in the same “circular” manner
as the ERISA definition at issue in Darden. See 29 U.S.C. § 630(f); Iowa Code Ann.
§ 216.2(6); compare 29 U.S.C. § 1002(6) (ERISA). Thus, the parties agree that the
Darden common-law test applies to Ernster’s statutory claims of age discrimination.
See Wortham, 385 F.3d at 1140; Jenkins v. So. Farm Bureau Cas., 307 F.3d 741, 743-
45 (8th Cir. 2002).4
The ADEA grants plaintiffs the right to a jury trial “of any issue of fact in any
such action.” 29 U.S.C. § 626(c)(2). After denying Luxco summary judgment on this
issue, the district court ordered a bifurcated jury trial, with the first trial limited to
whether Ernster was an employee of Luxco. At the conclusion of this trial, the court
submitted a single question to the jury: “Has plaintiff proved by the greater weight of
the evidence that she was defendant’s employee?” Neither party objected to
submitting the issue in this manner. The jury answered the question in the negative,
and the court entered judgment on the jury’s verdict in favor of Luxco.
4
Other circuits agree. See Barnhart v. New York Life Ins. Co., 141 F.3d 1310,
1313 (9th Cir. 1998); Speen v. Crown Clothing Corp., 102 F.3d 625, 631 (1st Cir.
1996), cert. denied, 520 U.S. 1276 (1997); Simpson v. Ernst & Young, 100 F.3d 436,
443 (6th Cir. 1996), cert. denied, 520 U.S. 1248 (1997); Frankel v. Bally, Inc., 987
F.2d 86, 90 (2d Cir. 1993).
-5-
Ernster’s principal argument on appeal is that the district court abused its
discretion in instructing the jury what to consider in determining whether Ernster was
Luxco’s employee. After bifurcating the trial and limiting the first trial to this
employee issue, the court instructed the jury that the factors it may consider in
deciding this issue “include, but are not limited to,” sixteen enumerated aspects of the
relationship between Ernster and Luxco. The court committed reversible error,
Ernster argues, by omitting four of what she calls the thirteen 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.
In support of this argument, Ernster correctly notes that we have repeatedly
quoted or referred to the multi-factor passage in Darden in defining the common-law
test for purposes of various federal statutory claims. See Wortham, 385 F.3d at 1140-
41 (ADEA); Lerohl v. Friends of Minn. Sinfonia, 322 F.3d 486, 489 (8th Cir.) (ADA
& Title VII), cert. denied, 540 U.S. 983 (2003); Jenkins, 307 F.3d at 742 (ADEA);
Schwieger v. Farm Bureau Ins. Co. of Neb., 207 F.3d 480, 484 (8th Cir. 2000) (Title
VII); Kirk v. Harter, 188 F.3d 1005, 1007 (8th Cir. 1999) (Copyright Act); Birchem
v. Knights of Columbus, 116 F.3d 310, 312-13 (8th Cir. 1997) (ADA); Berger
Transfer & Storage v. Central States, Se. & Sw. Areas Pension Fund, 85 F.3d 1374,
1378 (8th Cir. 1996) (ERISA). But in each of these cases, we were reviewing the
grant of summary judgment or a district court’s ruling after a bench trial. We have
never reviewed a district court’s instruction in submitting this issue to a jury. To do
so in this case, we apply the familiar, deferential standard of review -- a district court
has broad discretion in instructing the jury; we reverse only if, “when viewed in their
entirety, the jury instructions contained an error or errors that affected the substantial
rights of the parties.” Ryther v. KARE 11, 108 F.3d 832, 846 (8th Cir.) (en banc),
cert. denied, 521 U.S. 1119 (1997).
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
-6-
factor being decisive.” 503 U.S. at 324. Thus, we reject Ernster’s contention that, in
every case, a jury instruction must quote all the factors enumerated in Darden as they
appear in that opinion, and may not list other relevant factors. 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.”
Schwieger, 207 F.3d at 487. Here, the district court instructed the jury that it must
consider all facts and circumstances concerning Ernster’s work performance and
relationship to Luxco, “whether listed above or not.” The court listed sixteen factors
that related the general Darden factors to the evidence presented by both parties in a
neutral manner. “No one factor is decisive,” the instruction concluded. We have no
difficulty concluding that this instruction, taken as a whole in light of the evidence and
the Darden standard, “fairly and adequately” submitted the employee issue to the jury.
Gill v. Maciejewski, 546 F.3d 557, 563 (8th Cir. 2008) (quotation omitted).
III. Sufficiency of the Evidence
Ernster further argues that the district court erred in denying her motion for
judgment as a matter of law because the jury’s verdict was “clearly erroneous and
unsupported by the evidence” when properly evaluated using the Darden factors.
Ernster raises this rather common contention in a unique context. Prior to Darden,
many circuits held that whether a party was an employee for purposes of various
federal statutes was an issue of law. Darden then replaced a variety of standards that
circuit courts had based on the purposes of particular statutes with the more uniform
common-law test derived from the Restatement of Agency. A pertinent Restatement
comment states that if its multiple relevant factors provide a clear inference -
that there is, or is not, a master and servant relation, it is made by the
court; otherwise the jury determines the question after instruction by the
court as to the matters of fact to be considered.
-7-
Restatement (Second) of Agency § 220 cmt. c. Despite this rather potent signal that
the employee issue is one of fact under a common-law test, we and most other circuits
have continued to treat the ultimate issue as one of law. Our post-Darden standard,
first articulated in Berger Transfer, 85 F.3d at 1378, is that “a district court’s findings
as to the underlying factors must be accepted unless clearly erroneous, while review
of the ultimate question of employment status is de novo.” See Lerohl, 322 F.3d at
488; Schwieger, 207 F.3d at 484; Kirk, 188 F.3d at 1007; Birchem, 116 F.3d at 313.
We have only applied this issue-of-law standard in appeals from summary
judgment and bench trial rulings, never in a case where the employee issue was
submitted to a jury. But we have, perhaps paradoxically, approved the submission of
that issue to a jury. In Jenkins, we reversed the district court’s grant of summary
judgment, concluding that “the determination of whether Mr. Jenkins is an employee
is too close to be made as a matter of law, so Mr. Jenkins is entitled to reach the jury
on this issue.” 307 F.3d at 745 (emphasis added). On remand, the district court
submitted the issue to the jury, which found Jenkins to be an independent contractor.
He appealed but raised only evidentiary issues. We affirmed without addressing
whether the issue was properly submitted. Jenkins v. So. Farm Bureau Cas., 125 Fed.
App’x 749, 752 (8th Cir. 2005).
Again in Kirk, a copyright case like Reid, the district court submitted the
employee issue to the jury, which returned a general verdict that a computer
programmer was an employee. We reversed, without addressing “the degree of
deference that should be shown” the jury’s verdict, because the largely undisputed
evidence compelled a determination that the computer programmer was an
independent contractor. 188 F.3d at 1007-09.
In this case, the district court expressly relied on Jenkins in submitting the
employee issue to the jury for a general verdict. Neither party objected, so once again
we need not consider whether this was error. Because the ultimate issue is one of law,
-8-
the employee issue under Darden may often be decided by the court on a summary
judgment record. But when the issue turns on disputed facts that preclude summary
judgment, as in Jenkins and this case, we are inclined to think that a bifurcated jury
trial is one procedural option the district court has discretion to adopt. Accord Kirsch
v. Fleet St. Ltd., 148 F.3d 149, 171 (2d. Cir. 1998).5 However, unless the Supreme
Court or our court en banc overrules the governing principle that the ultimate
employee issue is one of law, the district court may not ignore its duty to review that
aspect of the jury’s verdict de novo.6
Here, in establishing the bifurcated trial procedure, the court advised counsel,
without objection, that “if the jury verdict on [employment status] is in favor of the
defendant, that’s the end of it.” In other words, counsel were fully warned that the
5
A bifurcated trial using an advisory jury may be another option. Although only
actions not triable as of right to a jury may be tried with an advisory jury, see Fed. R.
Civ. P. 39(c); Ind. Lumbermens Mut. Ins. Co. v. Timberland Pallet & Lumber Co.,
195 F.3d 368, 374 (8th Cir. 1999), the first trial using this bifurcated procedure is to
resolve an employee issue that is ultimately one of law.
6
The Federal Circuit has developed a standard for reviewing the legal issue of
a patent’s obviousness that may be helpful in this context:
When an issue of law has been submitted to the jury upon disputed facts
. . . the standard of review has two parts. We first presume that the jury
resolved the underlying factual disputes in favor of the verdict winner
and leave those presumed findings undisturbed if they are supported by
substantial evidence. Then we examine the legal conclusion de novo to
see whether it is correct in light of the presumed jury fact findings.
Hewlett-Packard Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1325 (Fed. Cir. 2003)
(quotation omitted); see Mendenhall v. Cedarapids, Inc., 5 F.3d 1557, 1561-62 & n.3
(Fed. Cir. 1993), cert. denied, 511 U.S. 1031 (1994).
-9-
court would treat the jury’s verdict as binding.7 Ernster did not object, and her post-
judgment motion for judgment as a matter of law argued, as she does on appeal, that
the jury verdict was clearly erroneous and unsupported by the evidence, the standard
for reviewing a jury’s findings of fact. Like the district court, we conclude there was
ample evidence, viewed in the light most favorable to the jury’s verdict, to establish
that Ernster was an independent contractor under Darden’s common-law test. A
number of the Darden factors weighed strongly in this direction -- Luxco’s and
Ernster’s tax treatment of her compensation and the lack of employee benefits, see
Kirk, 188 F.3d at 1008; that Ernster paid her travel and other expenses, see Schwieger,
207 F.3d at 485; that Ernster worked “almost entirely . . . in the field,” see id., and had
“considerable autonomy” over her schedule, see Berger Transfer, 85 F.3d at 1378;
and, most significantly, the testimony by all witnesses other than Ernster that the ILP
and later Luxco marketing representatives were not employees. While evidence
relevant to other Darden factors was mixed, it fell far short of establishing that Ernster
was Luxco’s employee as a matter of law.
The judgment of the district court is affirmed.
MURPHY, Circuit Judge, concurring.
While I concur in Chief Judge Loken's opinion and his thorough discussion of
our circuit law in this area, I write separately only to encourage the appropriate use of
a jury in resolving factual disputes that frequently accompany the application of the
Darden standard. Although the ultimate issue of employee status is one of law,
resolving the issue on summary judgment is only appropriate "provided there is no
genuine issue of material fact." Lerohl v. Friends of Minn. Sinfonia, 322 F.3d 486,
7
In entering judgment, the court checked the box on the form stating, “The
issues have been tried and the jury has rendered its verdict.” The court did not make
findings of fact or conclusions of law, either in entering judgment on the verdict or in
denying Ernster’s motion for a new trial or judgment as a matter of law.
-10-
488 (8th Cir. 2003) (emphasis in original). As we have recognized, the determination
of whether a party is an employee or an independent contractor is "extraordinarily fact
intensive," Alford v. United States, 116 F.3d 334, 337 (8th Cir. 1997), and requires
consideration of "all aspects of the working relationship between the parties," Hunt
v. State of Mo., Dept. of Corrections, 297 F.3d 735, 741 (8th Cir. 2002). Thus, the
nature of the Darden standard is such that it may frequently involve fact issues which
are ideal for submission to a jury as was done by the district court in this case.
______________________________
-11-