Nationwide Mutual Insurance Co. et al. v. Darden
503 U.S. 318 (1992)
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Rule of Law:
When a federal statute uses the term 'employee' without providing a helpful definition, courts must infer that Congress intended to incorporate the traditional common-law agency test for determining a master-servant relationship.
Facts:
- From 1962 to 1980, Robert Darden operated as an insurance agent for Nationwide Mutual Insurance Co. under several contracts.
- The contracts required Darden to sell only Nationwide insurance policies.
- In exchange for his exclusivity, Nationwide paid Darden commissions and enrolled him in a company retirement plan.
- The retirement plan included a forfeiture clause, stating Darden would lose his benefits if, within one year of termination and 25 miles of his prior business, he sold insurance for Nationwide's competitors.
- The plan also disqualified Darden from receiving benefits if he ever induced a Nationwide policyholder to cancel a policy after his termination.
- In November 1980, Nationwide exercised its contractual right to terminate its relationship with Darden.
- One month later, Darden became an independent insurance agent, selling policies for Nationwide's competitors from his previous office location.
- Nationwide subsequently informed Darden that his new business activities disqualified him from receiving his retirement plan benefits.
Procedural Posture:
- Robert Darden sued Nationwide Mutual Insurance Co. in the U.S. District Court for the Eastern District of North Carolina to recover benefits under ERISA.
- The District Court (court of first instance) granted summary judgment to Nationwide, finding Darden was an independent contractor under common-law principles.
- Darden, as appellant, appealed to the U.S. Court of Appeals for the Fourth Circuit, and Nationwide was the appellee.
- The Fourth Circuit (intermediate appellate court) vacated the district court's judgment, created a new three-part test based on ERISA's purpose, and remanded the case.
- On remand, the District Court applied the new test and ruled in favor of Darden, finding he was an 'employee'.
- Nationwide, as appellant, appealed again to the Fourth Circuit, with Darden as the appellee; the Fourth Circuit affirmed the District Court's decision.
- Nationwide petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.
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Issue:
Does the term 'employee' as used in the Employee Retirement Income Security Act of 1974 (ERISA) incorporate the traditional common-law agency definition, or should it be interpreted more broadly in light of the statute's remedial purposes?
Opinions:
Majority - Justice Souter
Yes, the term 'employee' under ERISA should be interpreted according to the traditional common-law agency test. The definition of 'employee' provided in ERISA—'any individual employed by an employer'—is circular and provides no guidance. Citing Community for Creative Non-Violence v. Reid, the Court held that when Congress uses a term with a settled common-law meaning without defining it otherwise, it is presumed that Congress intended to incorporate that established meaning. The Court rejected the Fourth Circuit’s purpose-driven test, which was based on a worker's reasonable expectations and reliance, finding it to be circular and unpredictable. The Court distinguished prior cases that had used a broader definition by noting that Congress had subsequently amended the statutes in those cases to explicitly adopt the common-law agency standard, indicating a legislative preference for that test.
Analysis:
This decision solidifies the default rule for defining 'employee' across federal statutes that lack a specific definition. It establishes that courts should apply the multi-factor common-law agency test, focusing on the hiring party's right to control the worker, rather than creating novel tests based on a statute's perceived remedial purpose. This provides greater predictability for employers in determining their statutory obligations under laws like ERISA. However, it also limits the scope of protection for workers in non-traditional employment relationships who might not meet the strict criteria of the common-law test.
