The U.S. Court of Appeals for the Ninth Circuit recently held that a defendant could not be held vicariously liable under the federal Telephone Consumer Protection Act (TCPA) because the phone calls at issue were made by a company whose telemarketers were independent contractors, and thus were not acting as the defendant’s agents under the federal common law of agency.

A copy of the opinion is available at: Link to Opinion. 

A company that sold automobile service contracts, sometimes called extended warranties, contracted with a telemarketing company to sell its products. The agreement set forth mandatory “authorized sales and marketing methodologies” and provided that the telemarketer could not use any method that violated state or federal law, including “robo-calling.” 

A resident of Reno, Nevada who had registered his cellular telephone number on the Federal Trade Commission’s national do-not-call registry filed a class-action lawsuit against the seller and telemarketing company, alleging that he had received four calls to his cellular phones from the seller using an “automatic telephone dialing system” in violation of the TCPA. 

The TCPA, 47 U.S.C. § 227(b)(1)(A), makes it unlawful for a person to make a phone call, except for emergency calls or calls made with the express consent of the person called, using an “automatic telephone dialing system or an artificial or prerecorded voice” to any cellular telephone number. The regulations implementing the TCPA prohibit any person from soliciting or making a sales call to any residential number registered on the national do-not-call registry. 47 C.F.R. § 64.1200(c)(2).

The trial court entered a default against the telemarketing company because its attorneys withdrew and then the company failed to retain new counsel. The court granted the plaintiff leave to amend and the amended complaint added another Nevada resident as co-plaintiff and also added the seller as a defendant, alleging that it was vicariously liable for the telemarketer’s calls.

The seller moved for summary judgment, which the trial court granted, and the plaintiffs appealed to the Ninth Circuit. 

On appeal, the seller argued that it could not be held vicariously liable for the telemarking company’s calls.

The Ninth Circuit explained that it had “previously clarified that ‘a defendant may be held vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller.’”

The Court analyzed the distinction between an agent with actual authority, citing the Restatement (Third) of Agency, and an individual acting as an independent contractor, “who does not have the traditional agency relationship with the principal necessary for vicarious liability. … Generally, a principal is not vicariously liable for the actions of an independent contractor, because the principal does not have sufficient control over an independent contractor.” While courts look to the “totality of the circumstances,” the “’essential ingredient … is the extent of control exercised by the employer.’”

The Ninth Circuit then “adopt[ed] the following 10 factors as relevant to 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 business.”

After applying the 10 factors, the Court found that the telemarketing company “and its telemarketers were not acting as [the seller’s] agents when they placed the calls at issue in this case.”

The Ninth Circuit reasoned that while the seller exercised some control over the telemarketing company by requiring that certain records be kept, reports provided, security measures taken to protect consumer information, payments collected and approval of scripts, this was insufficient. The seller “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.” This limited control of the telemarketers supported independent contractor status.

Next, the Court found that the telemarketing company “was an independent business, separate and apart from [the seller] … and it was engaged in the ‘distinct occupation’ of selling [vehicle service contracts] through telemarketing” because it sold for many clients, not just the seller, during the relevant time period. This factor strongly suggested that the “telemarketers were independent contractors rather than employees.” 

The calls made by the telemarketers were not directly supervised by the seller, which also weighed in favor of independent contractor status. 

The Court did not address “the skill required to place the calls or sell a [vehicle service contract]” because the record was devoid of any such evidence. 

Regarding tools and instrumentalities, the Ninth Circuit found that while the seller provided some, the telemarketing company “provided far more …, including its own phones, computers, furniture, and office space.” This factor also supported independent contractor status.

The Court next found that while the relationship lasted three years, the contract was for one year, with either party having the ability to cancel by giving 30 days notice. Such “designated impermanency of the relationship supports a finding of independent contractor status.” 

Next, the Ninth Circuit found that because the telemarketing company “was paid a commission for each sale, rather than for the time the telemarketers worked[,] [t]his is a strong indicator that the telemarketers were independent contractors.”

The Court did find, however, that because selling vehicle service contracts through telemarketers was a “regular part” of the seller’s business, “this factor tends to favor finding an agency relationship.” 

Although the record was unclear regarding the “subjective intent of the parties,” the fact that the telemarketing company sold vehicle service contracts for several sellers reflected that the telemarketing company’s “intent was to have its telemarketers operate as independent contractors for many different companies.” 

The Ninth Circuit found that the 10th and final factor, that the seller “is a business, … favors finding an agency relationship.”

Adding up the factors, the Ninth Circuit concluded that it was “clear that [the telemarketing company’s] telemarketers were independent contractors rather than agents.” Because the telemarketers were independent contractors and not the seller’s agents, the Court held that the seller could not be held vicariously liable for the telemarketing company’s calls that violated the TCPA.

Accordingly, the trial court’s judgment was affirmed.