If you are being told which agency to buy insurance from, it may cross the
line into a restraint of trade violation, according to small business
Mortgage Field: Unfair Business Practices?
By David Brauner, Editor
If you are being told which agency to buy
insurance from, it may cross the line into a restraint of trade violation,
according to small business experts. The IRS may have something to say about it
“I’m really angry at being told where I can and cannot purchase my insurance
from,” said one mortgage field services independent contractor who wishes to
remain anonymous for fear of retribution in the form of loss of work. “I’m mad
because I’m getting lousy customer service and paying more with agencies on the
‘approved list.’ But if I don’t play ball, they will cut off my work. As an
independent business owner, I’m being forced to make a decision that is not in
the best interests of my company in order to keep getting work. They are
exerting too much control over my business and that stinks.”
At least one representative of the Small Business Administration (SBA) – SCORE
in San Diego and one seasoned attorney agree that there may indeed be legal
issues at play. SCORE provides free expert mentoring and counseling to small
business owners under the umbrella of the SBA nationwide.
representative from SCORE told Working RE that a
good first step for the independent contractor is to ask the supplier what the
basis for their decision is, regarding the restriction on where they may purchase
their insurance. This retired insurance executive from SCORE said that it
is not uncommon for vendors to require a certain type of insurance, such as
errors and omissions and general liability, and certain levels of coverage from
independent contractors, but vendors usually do not dictate who they can purchase it from. This may
cross the line into the area of restraint of trade, this expert says. He
suggests doing a Google search for any applicable state laws by searching
"restraint of trade" and your state name.
insurance and business attorney practicing over 30 years suggests contractors
make an inquiry with the Attorney General’s office in their state and in the
state of the vendor to see if the policy is in violation of any laws and if
there is any interest in pursuing the matter.
Independent Contractor or Employee
According to the SCORE counselor, the Internal Revenue Service (IRS) may
also want to investigate whether the line between independent contractor and
employee is being blurred. The IRS has cracked down in recent years with
penalties and fines for businesses who misclassify employees as independent
contractors to avoid paying payroll taxes. The issue comes down to the level of
control exerted by the company on an individual, according to this SCORE expert
and according to the IRS.
According to the
EMPLOYMENT DETERMINATION GUIDE, found on the San Diego SBA website, the
determination in this case appears gray. The Guide asks: “Is the worker free to
make business decisions which affect his or her ability to profit from the work?
An individual is normally an independent contractor when he or she is free to
make business decisions which impact his or her ability to profit or suffer a
This involves real economic
risk, not just the risk of not getting paid. These decisions would normally
involve the acquisition, use, and/or disposition of equipment, facilities, and
stock in trade which are under his or her control. Further examples of the
ability to make economic business decisions include the amount and type of
advertising for the business, the priority in which assignments are worked,
and selection of the types and amounts of insurance coverage for the business.”
The Guide says a “no” answer is one indication that the individual is not in a
business for himself or herself and would therefore normally be an employee.
Other questions are: “When a worker is required to follow company procedure
manuals and/or is given specific instructions on how to perform the work, the
worker is normally an Employee.” And “Work which is a necessary part of the
regular trade or business is normally done by employees. For
example, a sales clerk is
selling shoes in a shoe store. A shoe store owner could not operate without
sales clerks to sell shoes. On the other hand, a plumber engaged to fix the
pipes in the bathroom of the store is performing a service on a onetime or
occasional basis that is not an essential part of the purpose of the business
enterprise. A certified public accountant engaged to prepare tax returns and
financial statements for the business would also be an example of an independent
The IRS agent we spoke
with said you can ask for a “finding” from the IRS on the issue by completing
submitting Form SS-8.
This form asks many of the same questions. Independent contractors working in
the mortgage field services industry may find the questions interesting with
respect to the amount of control being exerted on their businesses.
About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP.org, a
leading provider of E&O Insurance for mortgage field inspectors, appraisers,
home inspectors and other real estate professionals in 49 states. He has
covered the appraisal profession for over 16 years. He can be contacted at
email@example.com or (888) 347-5273.
Calif. Insurance Lic. #0C89873.
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