Workers' Compensation Board Abuse Investigation Unit v. Nate Holyoke Builders, Inc.

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2015 ME 99
Docket: WCB-14-203
Argued: February 10, 2015
Decided: August 4, 2015

Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, and HJELM, JJ.
Concurrence: SAUFLEY, C.J.

WORKERS’ COMPENSATION BOARD ABUSE INVESTIGATION UNIT

v.

NATE HOLYOKE BUILDERS, INC., et al.

JABAR, J.

[¶1] The Workers’ Compensation Board Abuse Investigation Unit (AIU)

appeals from a decision of the Workers’ Compensation Board Appellate Division

vacating the Workers’ Compensation Board’s (Dunn, HO) imposition of a $30,000

penalty on Nate Holyoke and his construction company, Nate Holyoke Builders,

Inc. (collectively Holyoke), for violating the insurance coverage requirements of

the Workers’ Compensation Act (WCA). The AIU contends that the Appellate

Division erred in construing 39-A M.R.S § 105-A(3) (2014) as a limitation on the

Board’s authority to sanction construction contractors that misclassify employees

as independent contractors. Holyoke cross-appeals, arguing that the Board erred in

finding that Holyoke misclassified nine employees as independent construction

subcontractors, and that the Board and Appellate Division both erred in
2

determining that Holyoke failed to “secure . . . compensation” for all of its

employees, in violation of 39-A M.R.S. §§ 401 and 403 (2011). 1 Holyoke

additionally contends that its reliance on the Board’s predeterminations should

estop the Board from imposing sanctions.

[¶2] We conclude that Holyoke complied with sections 401 and 403 by

maintaining workers’ compensation insurance policies that would have provided

compensation to any worker who was determined to be an employee entitled to

benefits. Because Holyoke complied with the WCA’s coverage requirements, we

do not address Holyoke’s estoppel contention, the proper classification of

Holyoke’s workers, or the correct construction of section 105-A(3). We therefore

affirm the Appellate Division’s decision vacating the Board’s imposition of

penalties on Holyoke, albeit for a different reason than that expressed by the

Appellate Division.

I. FACTS

[¶3] Nate Holyoke Builders, Inc. has historically had some workers whom it

classified as employees and other workers whom it classified as independent

contractors. In 2009, after being assessed a workers’ compensation insurance

premium adjustment of $50,000 and learning that its insurer required
1
Title 39-A M.R.S. §§ 401 and 403 have both been amended since the AIU complained against
Holyoke in 2011, though the amendments are not relevant in this case. See, e.g., P.L. 2013, ch. 87, § 1
(effective Oct. 9, 2013) (codified at 39-A M.R.S. § 401(1)(C) (2014)); P.L. 2013, ch. 172, § 1 (effective
Oct. 9, 2013) (codified at 39-A M.R.S. § 403(4-A) (2014)).
 3

predeterminations of independent contractor status in order to calculate premiums,

Holyoke began requiring the workers whom it classified as independent

contractors to obtain predeterminations from the Board.2 In 2010 and 2011, the

Board granted predeterminations of independent contractor or construction

subcontractor status to the workers whom Holyoke classified as independent

contractors. Those workers then presented Holyoke with certificates of that status.

[¶4] During this two-year period, the company maintained workers’

compensation insurance policies and paid premiums that were based in part on

payroll to workers classified as employees. The premiums that Holyoke paid did

not reflect remuneration remitted to workers classified as independent contractors.

However, Holyoke’s workers’ compensation policies provided for the payment of

benefits to any worker who was entitled to them pursuant to the WCA, even if that

worker was initially classified as an independent contractor for payroll and

premium purposes. The policies specified that their premium basis included

payroll and remuneration paid to any person engaged in work that could give rise

to an entitlement to the payment of benefits. The policies further specified that

2
Pursuant to 39-A M.R.S. § 105 (2014), a worker may apply to the Board for a predetermination of
independent contractor or construction subcontractor status. If granted, the predetermination “creates a
rebuttable presumption that the determination is correct in any later claim for benefits.” Id. § 105(1)(A),
(1-A)(A). If the predetermination does not withstand scrutiny when raised in a claim for benefits, the
insurer will either return excess premium collected or charge the employer a premium adjustment. Id.
§ 105(2). The predetermination statute thus guarantees that if an insurer pays benefits to an employee
who was misclassified as an independent contractor, the insurer can be compensated for those payments
by assessing premium adjustments against the employer.
4

their final premiums would be calculated after an audit to determine the premium

basis and “the proper classifications” applicable to the covered work. In the event

that Holyoke’s estimated premiums were less than its final premium, the company

would be liable for the difference.3

[¶5] In October 2010, the Board selected Holyoke for an audit to verify its

compliance with the insurance coverage requirements of the WCA. After finding

that some of the workers whom Holyoke classified as independent contractors had

not secured individual workers’ compensation policies, the Board’s auditor

recommended that the Board verify the predetermined status of those workers.

After the audit, the Board’s Predeterminations Unit for a second time issued

predeterminations to the workers in question.

II. PROCEDURAL BACKGROUND

[¶6] In September 2011, the AIU filed a complaint alleging that Holyoke

had violated 39-A M.R.S. §§ 401 and 403 “by failing to obtain or maintain

approved workers’ compensation insurance coverage for its employees.” At a

3
Pursuant to the Workers’ Compensation Rating Act (WCRA), 24-A M.R.S. §§ 2381 to 2387-B
(2014), a workers’ compensation insurer may adopt a rate, defined as “the cost of insurance per exposure
base unit,” 24-A M.R.S. § 2381-C(8), that provides for retrospective premium adjustments based on the
insured’s experience during the policy period, 24-A M.R.S. § 2382-D(5). Because workers’
compensation benefits are payable only to an “employee,” 39-A M.R.S. § 201(1) (2014), and
“independent contractors” are excepted from the WCA’s broad definition of “employee,” 39-A M.R.S.
§§ 102(11), (13-A) (2014), a policy’s exposure base depends on the correct classification of the insured’s
workers. Holyoke’s policies allowed its insurers to assess their risk exposure by reaching conclusions
about the correct classification of Holyoke’s workers within the meaning of the WCA. If, after an audit,
an insurer concluded that Holyoke had misclassified an employee as an independent contractor, it could
assess a retrospective premium adjustment based on the remuneration paid to the misclassified worker.
 5

prehearing conference and throughout a series of evidentiary hearings, Holyoke

argued that no violation of the WCA’s insurance coverage requirements could

occur as a matter of law when an employer maintained a workers’ compensation

insurance policy that would pay benefits to any worker determined to be an

employee entitled to benefits, regardless of whether the worker was initially

classified as an employee or an independent contractor for payroll and premium

purposes. In an order dated November 14, 2011, the hearing officer rejected

Holyoke’s argument, concluding, “It is not sufficient to have a policy on

some . . . workers and to assume that others would be covered should they later

make a claim and prevail.”

[¶7] The hearing officer issued a similar order in November 2012, reasoning

that section 401(1)’s mandate that an employer “secure the payment of

compensation . . . with respect to all employees” required that an employer

“provide . . . coverage to [its] employees concurrent with their employment.” He

suggested that Holyoke’s contention “would permit a large employer to insure only

one worker and pay later if others were deemed employees,” and hypothesized that

such an interpretation of the WCA’s coverage requirements would undermine the

funding mechanism of the workers’ compensation system.

[¶8] The hearing officer determined that Holyoke had misclassified nine

workers and violated the WCA’s coverage requirements by failing to secure
6

insurance coverage for those misclassified workers. As a sanction, he imposed a

civil penalty of $30,000. See 39-A M.R.S. § 324(3)(B) (2014).

[¶9] Holyoke appealed to the Appellate Division. See 39-A M.R.S.

§ 321-B(1)(A) (2014). In a decision issued on April 24, 2014, the Appellate

Division interpreted section 401 to require that an employer purchase workers’

compensation coverage for all employees—including those erroneously

predetermined to be independent contractors—concurrent with their employment,

reasoning that any other interpretation would render the word “all” in section

401(1) meaningless and defeat the risk-spreading objective of the WCA’s coverage

requirements. Though the Appellate Division affirmed the determination that

Holyoke had misclassified workers as independent contractors, it vacated the

penalty, concluding that the Board’s authority to impose sanctions for

misclassification of construction subcontractors is specifically governed by

39-A M.R.S. § 105-A(3) rather than the general section 324(3) penalty provision,

and that section 105-A(3) is ambiguous with respect to the extent of the Board’s

authority.

[¶10] Holyoke and the AIU both petitioned for our review of the Appellate

Division’s decision pursuant to 39-A M.R.S. § 322(1) (2014) and M.R. App. P.

23(a), (b)(1). We granted their petitions, and this appeal ensued. See 39-A M.R.S.

§ 322(3) (2014); M.R. App. P. 23(c).
 7

III. DISCUSSION

A. Operative Decision

[¶11] Before addressing the merits of this appeal, we take this opportunity

to clarify which decision in the workers’ compensation appeals process is

“operative” for the purposes of our appellate review. In light of the similarity of

the current and former statutes authorizing review of Board decisions by the

Appellate Division and by us, and the paucity of our workers’ compensation

precedents since the revival of the Appellate Division, we look to the relevant

history of the WCA and to cases that were appealed to us from the former

Workers’ Compensation Commission Appellate Division.

[¶12] The Workers’ Compensation Board Appellate Division was created

by an amendment to the WCA that became effective in 2012. P.L. 2011, ch. 647,

§ 20 (codified at 39-A M.R.S. §§ 321-A, 321-B (2014)) (effective Aug. 30, 2012).

Pursuant to that amendment, “appeals from decisions of individual hearing

officers . . . proceed to the Appellate Division as a matter of right,” Estate of

Sullwold v. Salvation Army, 2013 ME 28, ¶ 5, 63 A.3d 1061, and appeals from

decisions of the Appellate Division proceed to us on a discretionary basis,

P.L. 2011, ch. 647, § 21 (codified at 39-A M.R.S. § 322(1)); M.R. App. P. 23(b)(2)

& Advisory Note–August 2012. These procedures for review of Board decisions

mirror the procedures in effect from 1981 to 1993, which allowed an appeal from a
8

decision of the former Workers’ Compensation Commission to proceed as of right

to the former Appellate Division, and then to us on a discretionary basis. See

P.L 1981, ch. 514, § 6 (codified at 39 M.R.S. §§ 103-A, 103-B, 103-C, 103-D,

103-E (Supp. 1982-1983)) (effective Sept. 18, 1981); see also Hanover Ins. Co. v.

Workers’ Comp. Bd., 1997 ME 104, ¶ 10, 695 A.2d 556 (describing those

procedures); Mathieu v. Bath Iron Works, 667 A.2d 862, 865 (Me. 1995) (same).

[¶13] Based on this similarity in structure and process, we will utilize the

procedures that we followed from 1981 to 1993 in reviewing appeals from

decisions of the Appellate Division. When we consider a decision of the Appellate

Division reviewing a decision of a hearing officer pursuant to 39-A M.R.S.

§ 322(1), we will not review the Appellate Division’s decision, but will instead

review the record before the hearing officer and independently assess the hearing

officer’s decision. See Keene v. Fairchild Co., 593 A.2d 655, 658 (Me. 1991);

Lagasse v. Hannaford Bros. Co., 497 A.2d 1112, 1119 (Me. 1985)

B. Standard of Review

[¶14] The hearing officer’s interpretation of the WCA is a matter of law,

which we review de novo. Estate of Sullwold v. Salvation Army, 2015 ME 4, ¶ 7,

108 A.3d 1265. When construing the WCA, our purpose is to give effect to the

Legislature’s intent. Estate of Joyce v. Commercial Welding Co., 2012 ME 62,

¶ 12, 55 A.3d 411. “In so doing, we first look to the plain meaning of the statutory
 9

language, and construe that language to avoid absurd, illogical or inconsistent

results.” Id. (quotation marks omitted). We look beyond a statute’s plain meaning

only if the statutory language is ambiguous. Id. “A statute is ambiguous if it is

reasonably susceptible to different interpretations.” Id.

[¶15] With these principles in mind, we turn to the substantive issue

presented by this appeal, namely, whether the hearing officer erred in determining

that Holyoke violated the WCA’s insurance coverage requirements.

C. The Insurance Coverage Requirements of the WCA

[¶16] Because the statutes at issue in this case are unambiguous, we need go

no further in our examination of them than their plain meaning.

[¶17] Title 39-A M.R.S. § 401 provides, in relevant part:

1. Private employers. Every private employer . . . is subject
to this Act and shall secure the payment of compensation in
conformity with this section and sections 402 to 407 with respect to
all employees, subject to the provisions of this section. . . .

3. Failure to conform. The failure of any private employer
. . . to procure insurance coverage for the payment of compensation
pursuant to sections 402 to 407 constitutes failure to secure payment
of compensation provided for by this Act within the meaning of
section 324, subsection 3, and subjects the employer . . . to the
penalties prescribed by that section. . . .

[¶18] Title 39-A M.R.S. § 403 similarly provides:

An employer subject to this Act shall secure compensation and
other benefits to the employer’s employees in one or more of the ways
described in this section. The failure of any employer subject to this
10

Act to procure insurance coverage for the payment of compensation
and other benefits to the employer’s employees in one of the ways
described in this section constitutes failure to secure payment of
compensation provided for by this Act within the meaning of section
324, subsection 3 and subjects the employer to the penalties
prescribed by that section.

[¶19] Title 39-A M.R.S. § 324, which is referenced in sections 401(3) and

403, provides in relevant part:

3. Failure to secure payment. If any employer who is
required to secure the payment to that employer’s employees of the
compensation provided for by this Act fails to do so, the employer is
subject to . . . penalties . . . . The failure of any employer to procure
insurance coverage for the payment of compensation and other
benefits to the employer’s employees in compliance with sections 401
and 403 constitutes a failure to secure payment of compensation
within the meaning of this subsection.

[¶20] Holyoke and the AIU each argue that the legislative intent animating

the WCA’s coverage requirements is apparent from the plain language of sections

401 and 403, but they disagree about what that language means.

[¶21] Holyoke contends that an employer complies with the requirements of

sections 401 and 403 by purchasing a workers’ compensation policy that will pay

benefits to any worker who is entitled to receive them. It maintains that an

employer’s classification of workers for payroll purposes and the premium that the

employer pays to its workers’ compensation insurer are not relevant to the

employer’s compliance with the WCA’s coverage requirements.
 11

[¶22] The AIU argues that Holyoke’s interpretation of sections 401 and 403

“would foster abuse of the workers’ compensation system” by allowing employers

to classify a single worker as an employee and pay workers’ compensation

premiums that do not reflect the number of workers who are in fact employees or

the risks posed by those workers to the workers’ compensation system. 4 It

contends that an employer fulfills the obligation to “secure . . . compensation” for

all employees only by correctly classifying its workers at the time that it purchases

a workers’ compensation policy and paying premiums during the policy period that

reflect the remuneration paid to all employees.

[¶23] Contrary to the AIU’s contention, the plain language of sections

401(1) and 403 does not require an employer to correctly classify workers for

payroll purposes and to pay workers’ compensation premiums based on those

classifications. Those sections make no reference to the timing or manner of

worker classification or the timing of premium payments, but simply require an

employer to “secure the payment of compensation” for its employees pursuant to

39-A M.R.S. §§402 and 407 (2014). The text of sections 401(1) and 403

unambiguously obligates an employer to make arrangements for the payment of

4
The potential for abuse of the workers’ compensation system through worker misclassification is
mitigated when, as in this case, an insurer requires predeterminations of independent contractor status as a
prerequisite to insuring an employer who classifies some workers as independent contractors.
12

workers’ compensation benefits to its employees. It does not require that the

employer do so at any particular time.

[¶24] Section 403(1) provides that an employer complies with its obligation

to “secure compensation” to its employees “by insuring and keeping insured the

payment of such compensation . . . under a workers’ compensation insurance

policy . . . .” Title 39-A M.R.S. § 407 likewise provides that “[a]n employer with a

currently approved workers’ compensation policy . . . is deemed to be in

compliance with this Act . . . .” Pursuant to these sections, an employer complies

with the WCA’s coverage requirements by purchasing workers’ compensation

insurance that will provide coverage for all workers. The Act does not require an

employer to obtain a policy with premiums based on all workers, including those

initially deemed to be independent contractors.5

IV. CONCLUSION

[¶25] We conclude that Holyoke complied with the plain meaning of

sections 401(1) and 403 by maintaining workers’ compensation insurance policies

that would pay benefits to any worker who was entitled to them. “Workers’

5
Our opinion today concludes that sections 401(1) and 403 unambiguously require an employer to
arrange for the payment of workers’ compensation benefits to any worker who is entitled to them. In
light of this conclusion, we need not consider the relationship between the WCA’s coverage requirements
and the predetermination and premium adjustment procedures discussed supra at nn.2-3. We note,
however, that the Legislature addressed worker classification and timing-of-premium-payment issues
through those procedures, and did not incorporate related conditions into the WCA’s coverage
requirements. Thus, contrary to the AIU’s contentions, it is those procedures, rather than the WCA’s
coverage requirements, that remedy the misclassification of workers for underwriting and premium
purposes, and thereby protect the funding mechanism that enables the payment of benefits to employees.
 13

compensation insurance policy” is defined as a policy that guarantees the payment

of workers’ compensation benefits to those persons who are entitled to receive

them pursuant to the WCA. See 39-A M.R.S. § 102(19) (2014). At all relevant

times, Holyoke maintained workers’ compensation insurance policies that

guaranteed the payment of benefits required by the WCA.

[¶26] In light of our conclusion that Holyoke complied with the coverage

requirements of the WCA, we do not address Holyoke’s estoppel contention, its

challenge to the Board’s finding that it misclassified workers, or the AIU’s

contention regarding the Board’s statutory authority to sanction construction

contractors that misclassify independent contractors.

The entry is:

The decision of the Workers’ Compensation Board
Appellate Division is (1) affirmed to the extent that
it vacated the Board’s imposition of penalties on
Holyoke, and (2) vacated insofar as it determined
that Holyoke violated the WCA’s coverage
requirements.

SAUFLEY, C.J., concurring.

[¶27] I concur in the Court’s opinion but write separately to encourage

legislative clarification of the appellate process in workers’ compensation cases.

See Johnson v. Home Depot USA, Inc., 2014 ME 140, ¶ 9, 106 A.3d 401
14

(recognizing the legislative intent to delegate broad authority to the Workers’

Compensation Board to interpret the Workers’ Compensation Act).

[¶28] The factual findings of a hearing officer are not ordinarily subject to

appeal, either before the Appellate Division of the Workers’ Compensation Board

or before the Law Court. See 39-A M.R.S. § 321-B(2) (2014). Thus, in any

appeal, the Appellate Division will focus on reviewing the hearing officer’s legal

interpretations.

[¶29] In each individual appeal, the Appellate Division comprises three

full-time hearing officers, none of whom were adjudicators in the case at issue,

who apply their collective expertise in understanding and interpreting workers’

compensation law to review a single hearing officer’s decision. See 39-A M.R.S.

§§ 321-A(2), 321-B(3) (2014). Given this design and composition, it seems logical

that the legal interpretation of the three-person Appellate Division, not the

individual hearing officer, would be reviewed on appeal to the Law Court, with

appropriate deference given to the Appellate Division in the event that a statute—

unlike those at issue here—is ambiguous. Cf. S.D. Warren Co. v. Bd. of Envtl.

Prot., 2005 ME 27, ¶¶ 3, 5-7, 868 A.2d 210 (deferring to statutory interpretation by

the Board of Environmental Protection in an appeal to the Board from a

Department of Environmental Protection ruling), aff’d, 547 U.S. 370 (2006).
 15

[¶30] However, the workers’ compensation statutes do not direct the Court

to review the Appellate Division’s legal interpretations. See 39-A M.R.S.

§§ 321-A to 322 (2014). Thus, the Court has appropriately applied existing Maine

law, which requires it to review, and potentially defer to, the legal analysis set forth

in the “operative decision.” Stewart v. Town of Sedgwick, 2000 ME 157, ¶ 4,

757 A.2d 773. Here, the operative decision is that of the single hearing officer

rather than the three hearing officers who used their collective wisdom to rule on

the law as the Appellate Division. See Estate of Sullwold v. Salvation Army,

2015 ME 4, ¶ 7, 108 A.3d 1265.

[¶31] In the matter before us, the distinction does not affect the outcome in

any way. Nonetheless, I encourage the Legislature to consider whether it is the

original hearing officer’s legal interpretation or the Appellate Division’s

interpretation that should be reviewed in an appeal to the Law Court, and to enact

any statutory measures that it may deem necessary to clarify the Court’s role in

workers’ compensation appeals.
16

On the briefs:

Paul H. Sighinolfi, Esq., John C. Rohde, Esq., and Seanna L. Crasnick, Esq.,
Workers Compensation Board, Augusta, for appellant Workers’
Compensation Board Abuse Investigation Unit

James D. Poliquin, Esq., Norman, Hanson & DeTroy, LLC, Portland, for
appellees Nate Holyoke Builders, Inc., et al.

At oral argument:

Paul H. Sighinolfi, Esq., for appellant Workers’ Compensation Board Abuse
Investigation Unit

James D. Poliquin, Esq., for appellee Nate Holyoke Builders, Inc., et al.

Workers Compensation Board Appellate Division case number 13-04
FOR CLERK REFERENCE ONLY