197 F.

2d 728

ZIPSER et al.
v.
EWING.
No. 226, Docket 22273.

United States Court of Appeals Second Circuit.

Argued May 14, 1952.
Decided June 23, 1952.

Plaintiff, Harry B. Zipser, earned wage credits in covered employment

entitling him to primary insurance benefits of $10.00 a month, and his
wife to benefits of $5.00 a month, commencing in July 1945, under the
Social Security Act, 42 U.S.C. 402(a) and (b). After 1945, Zipser
received commissions as a soliciting agent for the Equitable Life
Assurance Society of the United States. The Bureau of Old Age and
Survivors Insurance determined that such commissions (in excess of
$14.99 per month) should be deducted from the social security benefits
pursuant to Sec. 203(d)(1) and (e) of the Act, which provided for
deductions of all wages. 1 Wages are defined in Sec. 209(a) as 'all
remuneration for employment,' and employment as 'any service * * *
performed * * * by an employee for the person employing him * * * .'
Sec. 209(b).
Zipser and his wife asked for, and received, a hearing to challenge this
determination, Zipser arguing that his insurance commissions were not
received in 'employment,' and so did not constitute 'wages' because he was
not an 'employee' within the meaning of Section 1101(a)(6). In the
Referee's original 1948 decision, the 'common-law control test for
determining employer-employee relationship' was said to be 'not
applicable to the determination of that relationship under the Social
Security Act.' The Referee applied the so-called 'economic reality' test to
find that Zipser was an employee within the meaning of the Act. The
Appeals Council of the Social Security Administration affirmed the
Referee, and plaintiff sought review under Sec. 205(g) of the Social
Security Act and Sec. 10 of the Administrative Procedure Act. Subsequent
to this affirmance, Sec. 1101(a)(6) of the Act defining an employee
thereunder was amended to read:

'(6) The term 'employee' includes an officer of a corporation, but such

term does not include (1) any individual who, under the usual commonlaw rules applicable in determining the employer-employee relationship,
has the status of an independent contractor of (2) any individual (except an
officer of a corporation) who is not an employee under such common-law
rules.'
This amended definition was specifically stated by Congress to apply
retroactively 'with the same effect as if included in the Act since 1935.'
Upon the passage of the amendment this case was remanded to the
Federal Security Administration for further agency action. A revised
decision was handed down in 1949 to the effect that Zipser was still
considered by the Federal Security Administration to be an employee even
under the amended definition. On motion of defendant in the district court
suit, summary judgment was granted in favor of plaintiffs.
The facts about Zipser's status with the Equitable Life Assurance Society
are as follows:
On April 1, 1941, Zipser and the Equitable entered into a written
agreement in which Zipser was denominated an 'agent.' He was
authorized, when properly licensed, to canvass for applications for
insurance policies and annuity contracts and collect the first premiums
therefor. No exclusive territory was assigned to him. As his compensation,
he was to be allowed 'first year commissions,' and, if continuously under
written agreement, to solicit for the company 'renewal commissions' in
accordance with the schedules contained in the contract. Under the
agreement, Zipser was not required to produce any minimum amount of
business. A statement in the agreement entitled 'Independent Contractor'
said: 'Nothing contained herein shall be construed to create the
relationship of employer and employee between the Society and the agent.
The agent shall be free to exercise independent judgment as to the persons
from whom applications for insurance policies and annuity contracts will
be solicited and the time and place of solicitation. The agent shall abide by
the regulations and rules of the Society in accordance with Clause X
hereof but such rules and regulations shall not interfer with the freedom of
action of the agent as described in this Clause.'
By subsequent modification, dated July 1, 1944, the agreement was
changed to include Zipser in an 'equitable Assured Minimum Income Plan
for Club Members.' This in effect set up a monthly advance based on his
previous commission record against earned commission for the coming
year, the agent being required to make up any deficit if his agreement to

solicit for the company were terminated, but otherwise being free to keep
the difference between the advances and the Commissions actually
earned. After March 31, 1946, at his own request, Zipser ceased to
participate in the plan.
Zipser obtained his prospects, other than those pertaining to original
policyholders obtained by him, through his own contacts and independent
sources. He was required to furnish the Society with the information
needed by it to determine whether the applicants were good risks, within
the class of individuals which the Society desired to insure, and that
claims asserted against it under the policies issued by it to his clients were
valid claims.
Zipser carried on his own independent general insurance broker's
business. In 1944, and for many years previously, Zipser employed at his
own expense a girl for bookkeeping, typing, and other clerical work in
connection with his business.
Like other agents of the Society, he was assigned or attached to one of its
agency offices in charge of an agency manager. A room in that office,
together with office equipment belonging to the Society, including desk,
telephone service and other facilities, was placed at his disposal for his
use, free of charge, in connection with the Society's business and was used
by him for that purpose when he needed it.
Zipser advertised in his own name and at his own expense through such
devices as calendars and policy containers. Besides the salary of his
clerical assistant, he had expenses for such items as brokerage license
fees, telephone, stationery, postage, record books, carfare, etc., all of
which he paid without reimbursement from any source. He received from
the Equitable without charge, by virtue of his having produced enough
business to be a club member, a limited number of business cards and
letterheads.
Zipser devoted as much time to solicitation of life insurance as he felt his
business required. He had no fixed hours of work. He was never directed
when, where, or how to solicit. No reports of any kind were required of
him. He was not required to attend agency meetings.
Training courses were offered by the Equitable on a purely voluntary
basis, but Zipser never took any. Since 1919 Zipser had placed life
insurance or annuity contracts with other companies in a variety of
situations; in about 100 instances he placed business with some six other
life insurance companies, even though the Equitable would have issued

the same kind of contract.

Holmes Baldridge, Washington, D.C., Myles J. Lane and Robert Martin,
New York City (Edward H. Hickey, Herman Wolkinson and Leonard B.
Zeisler, Washington, D.C., of counsel), for appellant.
Stuart McCarthy, New York City (David I. Shivitz and Edmund B.
Hennefeld, New York City, of counsel), for appellees.
Before AUGUSTUS N. HAND, CLARK and FRANK, Circuit Judges.
FRANK, Circuit Judge.

The 1948 Amendment in explicit terms retroactively defined 'employee' so as to

make applicable the common law definition. The Senate Report2 on that
amendment cited with approval our opinion in Radio City Music Hall Corp. v.
United States, 2 Cir., 135 F.2d 715, 717, where we said, 'The test lies in the
degree to which the principal may intervene to control the details of the agent's
performance; and that in the end is all that can be said, through the regulation
redundantly elaborated it.' In Ringling Bros.-Barnum & Bailey Combined
Shows v. Higgins, 2 Cir., 189 F.2d 865, 867, 869, we adhered to our Radio City
Music Hall test, going no further than to suggest as relevant 'such matters as the
right to control and direct the performance not only as to the result, but also as
to the details and means by which that is accomplished,' with emphasis on the
notion 'that it is the right to direct which is important and it is not necessary that
the employer actually direct or control the manner in which the services are
performed.' In that connection we referred to the Regulations and observed that
they treated 'insurance agents' as 'clear cases of independent contractors'.

So far as we can tell, this insurance agent operated under the contract which,
incidentally, categorized him as an 'independent contractor' and not an
'employee' in the usual pattern of such agents. Office facilities, forms and
stationery, were provided by the company; the contract was terminable upon
notice; no fixed hours were set; he could sell insurance of other companies only
under special circumstances; his advertisements had to be approved; a manual
of rules and regulations for the salesmen's guidance in selling and servicing
policies was furnished. Under the manual, the agent could not receive
payments, issue receipts or policies, pay out benefits, etc., without first assuring
himself of certain facts, or transmitting the required information to the
company. All paper work had to be done in strict conformity with the rules laid
down for issuing and servicing policies in the manual.

There is some dispute as to whether the agent was required to service

policyholders he had originally solicited. The Federal Security Administration
maintains, relying chiefly on the agency agreement and the agents' Manual, that
Zipser was a general employee with specific servicing duties. The Chairman of
the Appeals Council in an affidavit below testified: 'The soliciting agent was
required by the rules and regulations of the Society to collect first premiums
and to cooperate with the Society in the collection of subsequent premiums; to
perform services in connection with payment of death and disability claims;
furnish the Society with information necessary to determine whether the death
of the insured was the result of accident or suicide; whether an insured was
entitled to disability benefits; assist policyholders in reinstating lapsed policies,
in executing change of beneficiaries and changes of premium payment forms;
in executing and submitting proofs of loss; in handling settlement checks and
generally in servicing his policy holders.'

The Referee's original decision, on the other hand, said that, 'In addition to
obtaining new applications, the claimant performs other services in connection
with the Society's business; he assists policyholders in executing change of
beneficiary and change of premium payment forms, in executing and submitting
proofs of loss, in delivering settlement checks and in generally servicing his
policyholders. There is no evidence that such services are expressly required of
him.' Our reading of the agency agreement and of the agents Manual fails to
disclose any obligation on the agent's part to perform such services. The
Manual merely directs how they shall be performed. We do not think therefore
that the agreement or anything in the record supports the FSA's assertion that
Zipser was required to perform such services to original policyholders.
Insurance agents like Zipser are 'competent salesmen, almost entirely
dependent upon their own initiative, skill, and personality for success, working
upon their own time, at their own expense, and deriving their remuneration
from the results of their work.' As such they are not 'employees.' DimmittRickhoff-Bayer Real Estate Co. v. Finnegan, 8 Cir., 179 F.2d 882, certiorari
denied 340 U.S. 823, 71 S.Ct. 57, 95 L.Ed. 605, cf. United States v. Kane, 8
Cir., 171 F.2d 54. The company did not and, under the agreement, could not
have required the agent to work full time for it, canvass any particular territory,
or, with any particular frequency, contact any particular prospect, use any
particular sales technique, require regular reports, confine himself to selling a
particular amount or kind of policy. Zipser did not even have a minimum quota
to sell during the year. See Brady v. Periodical Publishers' Service Bureau, 6
Cir., 173 F.2d 776; Benson v. Social Security Board, 10 Cir., 172 F.2d 682;
Party Cab Co. v. United States, 7 Cir., 172 F.2d 87, 10 A.L.R.2d 358;
Broderick, Inc., v. Squire, 9 Cir., 163 F.2d 980; McGowan v. Lazeroff, 2 Cir.,
148 F.2d 512. See also the state cases holding insurance agents to be

independent contractors, not employees, e.g., Northwestern Mutual Life Ins.

Co. v. Tone, 125 Conn. 183, 4 A.2d 640, 121 A.L.R. 993.
5

We conclude that the agent here was not an employee under the Act and that
consequently his commissions should not have been deducted from the social
security benefits due him.

Affirmed.

Sec. 203:
'(d) Deductions, in such amounts and at such time or times as the Board shall
determine, shall be made from any payment or payments under this title to
which an individual is entitled, until the total of such deductions equals such
individual's benefit or benefits for any month in which such individual: (1)
rendered services for wages of not less than $15; * * * .
'(e) Deductions shall be made from any wife's or child's insurance benefit to
which a wife or child is entitled, until the total of such deductions equals such
wife's or child's insurance benefit or benefits for any month in which the
individual, with respect to whose wages such benefit was payable, rendered
services for wages of not less than $15.'

Sen. Rep. No. 1255, 80th Cong., 2d Sess., p. 4