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Telemarketers were independent contractors, not agents; client company not liable for TCPA infractions

By Lisa Milam-Perez, J.D.

A company that contracted with a marketing vendor to sell vehicle service contracts was not vicariously liable for alleged Telephone Consumer Protection Act (TCPA) violations committed by the marketing vendor’s telemarketers, the Ninth Circuit held. Adopting the 10-factor test set forth in the Restatement of Agency for deciding whether an individual providing services for a principal is an agent or an independent contractor, the appeals court concluded that the marketing vendor and its telemarketers were acting as independent contractors, not agents of the defendant company. Therefore, it affirmed summary judgment in the company’s favor on TCPA claims brought against it by the recipients of unwanted telemarketing calls (Jones v. Royal Administration Services, Inc., August 9, 2017, Smith, N.R.).

TCPA violations. All American Auto Protection, Inc. (AAAP) sold vehicle service contracts (VSCs) through independent contractor telemarketers for companies like Royal Administration Services, Inc., the defendant here. When a telemarketer places a call, he or she first sells the customer on the idea of a VSC itself and, if the customer bites, the telemarketer chooses a particular VSC plan to sell the customer from one of numerous vendors, including Royal, based on a variety of factors. Just as AAAP sells VSCs for numerous companies, Royal sells its VSCs through 20 or so different marketing vendors, AAAP being just one of them.

When it entered into a service contract with AAAP, Royal assigned one of its employees as the “agent of record” for the AAAP account, who trained the AAAP telemarketers on the finer points of the Royal’s VSC options at AAAP’s call center. Royal’s president also visited the AAAP call center a dozen times or so, and was given repeated assurances by AAAP officials that the callers were complying with federal mandates such as the “do not call” list and other restrictions. Nonetheless, signatories to the national do-not-call registry received unwanted calls from AAAP, and filed a class action under the TCPA. AAAP defaulted, and the plaintiffs added Royal as a defendant, contending that the company was vicariously liable for the TCPA violations. The district court awarded summary judgment in Royal’s favor. The Ninth Circuit affirmed.

Vicarious liability. In its 2014 decision in Gomez v. Campbell-Ewald Co. (affirmed by the Supreme Court in 2016), the Ninth Circuit held that an entity can be liable for TCPA violations if a plaintiff can establish an agency relationship, as defined by federal common law, between the entity and the third-party caller who violated the statute. (At issue here is whether an agency relationship was established based on the alleged agent’s actual authority to act on the principal’s behalf.) Importantly, though, an individual that acts as an independent contractor does not have a traditional agency relationship with the entity, for purposes of establishing vicarious liability. This is because the principal does not have sufficient control over an independent contractor.

Test of agency status. The essential question, then, is whether an individual providing services for a principal is indeed an agent or rather, an independent contractor. In making that determination, the Ninth Circuit here adopted the 10-factor test set forth in the Restatement of Agency: “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.”

Extent of control. Noting first that the “extent of control” exercised by the principal remains the “essential ingredient” determining agency status, the appeals court observed that Royal did exert some control over AAAP—for example, Royal required it to adhere to Royal’s “guidelines and procedures,” and even once suspended the relationship when it suspected AAAP had deviated from those standards)—but it had little control over the company’s telemarketers (having no say in the hours they worked or the number of calls they made), and even less so over the specific calls that allegedly violated the statute. Significantly, Royal had no control over a telemarketer’s call until that individual decided to pitch a Royal VSC to a customer, and the telemarketers were not attempting to sell a Royal VSC when it made the offending calls in this case.

Other factors. The remaining factors on balance favored a finding of independent contractor status. AAAP was an independent business separate and apart from Royal, engaged in a “distinct occupation,” which suggested that AAAP and its telemarketers were not acting in an agency capacity. Moreover, calls made by AAAP’s telemarketers were not under Royal’s supervision. Although Royal’s agent did provide the initial training, Royal employees did not directly supervise AAAP’s calls. Another strong indicator: AAAP was paid a commission for each sale, rather than for the time the telemarketers worked. And while the record did not clearly evidence the subjective intent of the parties, the fact that AAAP sold VSCs for multiple companies strongly indicated that AAAP’s intent was to have its telemarketers operate as independent contractors for many different companies.

Consequently, the appeals court held AAAP and its telemarketers were independent contractors, and were not acting as Royal’s agents when they placed the phone calls giving rise to this TCPA action. Summary judgment in Royal’s favor was affirmed.