Considering vicarious liability under the Telephone Consumer Protection Act (TCPA), the U.S. Court of Appeals for the Ninth Circuit weighed the ten nonexhaustive factors found in the Restatement (Second) of Agency to hold that the telemarketers at a marketing vendor company were acting as independent contractors and not agents of the defendant.

Royal Administration Services sells vehicle service contracts—a promise to perform or pay for certain repairs or services on a car—through automobile dealers and marketing vendors. One of Royal’s 20 different marketing vendors was All American Auto Protection, which sold VSCs for many companies.

AAAP’s telemarketers would place a call and first sell a consumer on the concept of a VSC before selecting a particular service plan from one of its many vendors. Royal and AAAP entered into an agreement in October 2011. AAAP was authorized to sell Royal VSCs and promised not to violate any state or federal law, including the use of illegal robocalls.

Two consumers living in Nevada whose telephone numbers are both listed on the National Do Not Call Registry alleged they received multiple calls from AAAP and filed suit, asserting violations of the TCPA. After a default judgment was entered against AAAP and the company filed for bankruptcy protection, the plaintiffs amended their complaint to add Royal as a defendant, contending the company was vicariously liable for the calls under the statute.

Royal filed a motion for summary judgment, arguing that it could not be liable for AAAP’s calls. A district court judge agreed, but the plaintiffs appealed. After considering whether the plaintiffs established an agency relationship between Royal and AAAP as defined by federal common law, the Ninth Circuit affirmed.

Noting the “essential ingredient” in the relationship is the extent of control exercised by the principal, the panel adopted the nonexhaustive list of ten factors of the Restatement (Second) of Agency to guide the determination of whether an individual providing services for a principal is an agent or an independent contractor:

“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 the business.”

“Applying these factors, we find AAAP and its telemarketers were not acting as Royal’s agents when they placed the calls at issue in this case,” the Ninth Circuit concluded.

The panel acknowledged that Royal exercised “some amount” of control, as AAAP was required to keep records of its interactions with consumers who purchased Royal VSCs, send Royal weekly reports on VSC sales, and provide notice of requests to cancel Royal VSCs. Royal also mandated that AAAP implement security measures to protect consumer data and required that AAAP telemarketers use only scripts and materials approved by Royal when selling its products.

“However, Royal did not have the right to control the hours the telemarketers worked nor did it set quotas for the number of calls or sales the telemarketers had to make,” the court said. “Thus, Royal had only limited control of AAAP’s telemarketers. Significantly, Royal did not have any control of a telemarketer’s call until the telemarketer decided to pitch a Royal VSC to the consumer.”

Further, the complaint alleged that one of the consumers was pitched a “Diamond New Car” VSC—a plan not sold by Royal through AAAP. “Thus, there is no evidence that AAAP telemarketers ever tried to sell Royals VSCs to Appellants,” the court said. “Accordingly, Royal never specifically controlled any part of any of the calls at issue in this case.”

Second, AAAP was an independent business, separate and apart from Royal, and engaged in the “distinct occupation” of selling VSCs through telemarketing, with many different clients. This factor “strongly suggests” the telemarketers were independent contractors and not employees, the court said, as did the third factor, that the calls made by AAAP’s telemarketers were not normally done under the supervision of Royal.

The record contained no evidence regarding the skill required to make the telemarketing calls, leading the Ninth Circuit to skip this factor. Royal provided AAAP some tools and instrumentalities necessary to complete the sales (such as limited training and scripts for sales pitches), but “AAAP provided far more tools and instrumentalities, including its own phones, computers, furniture, and office space,” the court said, further supporting the finding of independent contractor status.

Weighing the sixth factor, the panel noted the original contract between the parties was set to last only one year. Although it was extended to last a total of three years, the limited nature of the original contract demonstrates there was a contemplated end to the relationship, the court said. AAAP was paid a commission for each sale of a Royal VSC, rather than for the time its telemarketers worked, both factors indicating an independent contractor relationship.

The eighth factor weighed in favor of an agency relationship, however, as Royal specifically contracted out all its direct sales to different vendors and AAAP’s sales were a regular part of its business. Tipping the ninth factor away from agency status, AAAP sold VSCs for multiple companies, indicating its intent to have its telemarketers operate as independent contractors for many different companies, the court said. Finally, Royal is a business, which favored an agency relationship.

“Taking these factors into account, it is clear that AAAP’s telemarketers were independent contractors rather than agents,” the panel wrote. “AAAP was its own independent business that sold VSCs for multiple companies without the direct supervision of a Royal employee. AAAP provided its own equipment, set its own hours, and only received payment if one of its telemarketers actually made a sale. Finally, although Royal had some control over AAAP’s telemarketers, it did not specifically control the calls at issue in this case, because the telemarketers never attempted to sell a Royal VSC during those calls. Because AAAP’s telemarketers were independent contractors, rather than Royal’s agents, Royal cannot be held vicariously liable for any calls the telemarketers made in violation of the TCPA.”

To read the opinion in Jones v. Royal Administration Services, Inc., click here.

Why it matters: An independent contractor gone rogue is a familiar backdrop for TCPA cases. This decision should help companies defend these types of claims and underscores that the “essential ingredient” for vicarious liability is control. Thus, a business should carefully consider its agreements and relationships with independent contractors who engage in marketing to ensure the business is shielded from TCPA liability for the acts of the independent contractor.