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Equal Employment Opportunity Commission v. Zippo Manufacturing Co.

July 29, 1983



Seitz, Higginbotham, Jr., Circuit Judges and Brotman, District Judge.*fn*

Author: Higginbotham


HIGGINBOTHAM, JR., Circuit Judge.

J. Gordon Matheny and the Equal Employment Opportunity Commission ("EEOC"), on behalf of Jack A. Schelling, Arthur H. Schulte and Raymond J. Weinberg, appeal the district court's order granting Zippo Manufacturing Company's ("Zippo") summary judgment motion. Appellants claim that Zippo violated the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 623(a)(1), because it terminated them as District Managers ("DM") when they turned 65. The ADEA only covers employees. The district court found the appellant DMs to be independent contractors, not employees, outside the purview of ADEA. Thus, the critical issue raised by this appeal is whether the district court erred in its determination that DMs under contract with Zippo were independent contractors who are not covered by ADEA rather than employees within the meaning of ADEA. Appellants challenge also the district court's order granting Zippo's motion for summary judgment and assert that a genuine issue of material fact exists concerning the degree of control Zippo exercised over its DMs. Because we believe that the district court did not err as a matter of law, we will affirm its order.


Zippo manufactures cigarette lighters and accessories. It engages DMs who sell a significant portion of its products to wholesale distributors and general retailers. Zippo has divided the United States into twenty-four sales districts and has entered into DM agreements with individuals and corporations with the stipulation that DMs may sell Zippo products only to wholesalers and retailers within the sales district specified in their respective DM agreements. These agreements may be terminated by either party on thirty days written notice for any reason or without giving any reason for the termination. Although Zippo might terminate a DM for serious customer complaints, its primary reason for termination is poor sales volume.

All of the agreements between Zippo and its DMs are essentially the same. Zippo pays its DMs a straight commission as a percentage of sales and offers bonuses based on sales. Although Zippo reimburses new DMs for expenses incurred in attending an initial orientation meeting, it does not reimburse DMs attending Zippo's annual sales meetings. Nor does Zippo reimburse DMs for any sales travel expenses. Apart from commissions and bonuses, Zippo provides no other financial benefits to its DMs. Zippo neither provides a retirement plan, health insurance, life insurance, profit sharing, nor other benefits such as sick leave or paid vacations.

Zippo reports to the Internal Revenue Service the commissions it pays to DMs on Form 1099-NEC, Statement for Recipients of Nonemployee Compensation. Zippo does not withhold income tax from these commissions, and it does not pay any social security tax for DMs. The DMs involved in this action all filed tax forms with the IRS as sole proprietorships and reported their income and expenses on Form 1040, Schedule C, entitled Profit (or Loss) from Business or Profession. Finally, appellant DMs used Schedule SE to pay their own social security self-employment tax.

Zippo exercises virtually no control over the DMs in their sale of Zippo products. Retaining only experienced salespersons, Zippo has no need to train or to direct DMs about how to sell its products. DMs set their own working hours and days as well as vacation time without consultation with or accountability to Zippo. Moreover, DMs may freely operate under the business form of their choice whether it be a sole proprietorship, as most DMs are, a partnership or a corporation. They may hire employees without regard to Zippo. DMs provide and finance their own work facilities, such as office space, office furniture, secretarial assistance, telephone and automobile. Zippo does, however, offer to and furnishes DMs with Zippo stationery, business cards, order blanks and samples, but DMs are not required to use these materials.

The only significant accountability DMs provide to Zippo involves their volume of sales. Zippo's decision to renew a DM's contract depends upon the DM maintaining a volume of sales that Zippo considers satisfactory.

Appellants Schelling, Schultz, Weinberg and Matheny served as Zippo DMs for periods ranging from ten to over twenty years before being terminated pursuant to a clause contained in all DM agreements calling for the termination of an agreement when a DM reaches the age of 65. Zippo terminated appellants on thirty days written notice shortly after they turned 65.

As a consequence, appellants brought this action claiming that Zippo thereby discriminated against them in violation of ADEA, 29 U.S.C. § 623(a)(1). Zippo answered that appellants, as independent contractors, are not covered by ADEA which applies only to employees. After discovery and a pretrial conference, all parties moved for summary judgment. The District Court denied appellants' and granted Zippo's motion for summary judgment finding that appellants were independent contractors, not employees, for purposes of ADEA.

Appellants raise two issues in this appeal. First, they argue that the district court erred in granting Zippo's summary judgment motion because a genuine issue of material fact exists concerning the control Zippo exerted over appellants and the economic dependence of appellants upon Zippo. Second, they insist that the district court erred in applying an incorrect legal ...

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