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Parsons v. Public Employees Insurance Agency Inc.

April 28, 1997

STEVEN M. PARSONS, APPELLANT,
v.
PUBLIC EMPLOYEES INSURANCE AGENCY, INC., A WASHINGTON CORPORATION, RESPONDENT.



Appeal from Superior Court of King County. Docket No: 93-2-25114-9. Date filed: 11/21/95. Judge signing: Hon. Laura Inveen.

Authored by H. Joseph Coleman. Concurring: William W. Baker, Susan R. Agid.

The opinion of the court was delivered by: Coleman

COLEMAN, J. -- Steven Parsons appeals the summary judgment dismissal of his wrongful discharge claim against Public Employees Insurance Agency, Inc. (PEIA). Parsons was hired as an at-will independent contractor in PEIA's 311 agent program. PEIA fired Parsons after he obtained a determination by the IRS that he should be treated as an employee for federal tax purposes. PEIA argued below that certain tax exemptions would be lost if it treated any agent in the 311 program as an employee. The lower court granted PEIA's motion for summary judgment, concluding that this constituted a legitimate reason to fire Parsons. Because Parsons' treatment as an independent contractor was authorized by federal tax laws, PEIA's actions do not violate public policy. We therefore affirm.

Parsons worked as an insurance agent in PEIA's 311 Independent Agent Sales Program from October 1989 to February 1993. PEIA coordinates and manages insurance agent programs for PEMCO. Its 311 agents are paid solely on commission for servicing and selling PEMCO products. By written agreement, Parsons was hired as an at-will independent contractor:

Notwithstanding any other provision in this agreement, either party may terminate this agreement upon the written notice to the other party[.]

Nothing contained in this Agreement shall be construed to create the relation of Employer and Employee between the Company and the Agent[.] Because they were considered independent contractors, PEIA did not withhold taxes from its 311 agents' earnings.

Section 530 of the Revenue Act of 1978 creates a "safe harbor" that terminates certain employment tax liabilities if the principal/taxpayer consistently treats all individuals holding substantially similar positions as independent contractors. I.R.C. sec. 530. In practice, PEIA has consistently treated all 311 agents as independent contractors. To maintain the 311 program's eligibility for section 530's safe harbor provisions, PEIA could not treat any 311 agent as an employee.

In 1990, the State Department of Revenue informed Parsons that he was liable for state business and occupation taxes on his earnings. But when Parsons requested that the Department reconsider its position, it determined that Parsons did not need to file B&O taxes because he was considered an employee under the Revenue Code of Washington.

In 1992, Parsons sought a clarification of his employment status from the Internal Revenue Service. To do this, he completed an IRS Form SS-8, entitled "Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding." The IRS investigated and determined that Parsons was not an independent contractor for federal withholding purposes. The IRS thus directed PEIA to treat Parsons as an employee by issuing a W-2 form each year and withholding the appropriate taxes.

PEIA then terminated Parsons' position in the 311 program. In response to Parsons' request to discuss his termination, PEMCO's President sent a letter stating:

Steve, you made all the decisions which now affect your status without consulting our company officials and your actions resulted in a determination by the I.R.S. adverse to your desires.

The 311 program for agents does not accommodate employee positions as described by the I.R.S. and hence, you no longer fit the 311 program. In another letter, a PEMCO manager stated that "it is unfortunate that this action was necessary, however as we explained, the 311 program is designed to utilize independent contractors and is not designed for employees."

The Department of Treasury subsequently determined that all 311 agents were employees. But the Department informed PEIA that it could continue to take advantage of I.R.C. section 530 because its safe harbor provisions prevent the IRS from reclassifying workers who had been consistently treated as independent contractors in good faith. PEIA retained the other 311 agents, continuing to treat them as independent contractors for tax purposes.

Parsons sued PEIA, seeking damages for wrongful discharge. Parsons alleged that PEIA had violated public policy by firing him in retaliation for his tax status clarification request and his report to the IRS. PEIA moved for summary judgment, arguing that Parsons was an at-will employee and that his discharge contravened no clear mandate of public policy. PEIA also claimed that Parsons' "whistleblowing" claim could ...


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