Byrne Trucking, Inc. v. Employment Division

JOHNSON, J.,

specially concurring.

The majority rests its decision on the opinion of this court in Republic Development Co. v. Employment Div., 32 Or App 263, 574 P2d 660 (1978), with which I disagree. That opinion is based upon an irrational initial premise, an erroneous interpretation of Baker v. Cameron, 240 Or 354, 401 P2d 691 (1965), and an unwarranted disregard of Kirkpatrick v. Peet, 247 Or 204, 428 P2d 405 (1967). The rule resulting from our opinion in Republic is more confusing than the present state of the law, is likely to lead to a wholesale disruption of existing business arrangements and extend unemployment insurance and taxes to many persons whom the act was never intended to cover. The lengthy opinion in Republicans unnecessary. The case is on all fours with and should be decided by citing Baker without the court’s erroneous adoption of a rule encompassing facts not before it.

*235THE INITIAL PREMISE

ORS 657.040 states that in order to qualify for the (2)(a) exemption, an individual must be "customarily engaged in an independently established business * * In Republic, my brethren state that in the absence of case law, this language "can fairly be read to require that the claimed exempt service be performed by one who usually in the course of his affairs performs the same services for consumers of his product without intervention of the economic activities or interests of others upon which he is dependent to furnish the demand for which he is the supplier.” 32 Or App at 268.

That conclusion must come as a surprise to anyone familiar with the common usage of the English language and the industrial revolution. To most people, an individual who is engaged in "an independently established business” would broadly mean an individual who is an entrepreneur and would not be confined to persons who produce or market products for ultimate consumption. As a result of the industrial revolution there is hardly a product that is marketed for ultimate consumption that is not affected by the intervention of a myriad of independent enterprises. The absurdity of the logic in Republic is illustrated by its application here. We hold the owner-operators are employes because they provide a service to Byrne Brothers which is in turn producing a final product, i.e. the transportation of goods. By the same reasoning, why are not the truck manufacturers, distributors and dealers employes of Byrne Brothers, as they supply a service used in producing Byrne Brothers’ final product. Why isn’t Byrne Brothers the employe of its customer who requires delivery of the goods in order to manufacture the customer’s final product. Indeed, under the reasoning of Republic we could conceivably have an endless chain wherein everyone is an employe and no one is the employer.

*236BAKER AND KIRKPATRICK

The linchpin of our opinion in Republic is the following paragraph interpreting Baker.

"Although the language usually quoted from Bakeris a quote from the Willcox article cited in footnote 4, supra, the real key to the case is these words:
" * * [T]he Commission’s records, however, reveal a different picture. They show that a substantial number of these men are not "customarily” entrepreneurs, "engaged in an independently established business.” They "customarily” work for only one, two or three employers. When work for such employers is not available these men become unemployed.'' ” (Emphasis supplied.) 240 Or at 366.
"If one reads the emphasized sentence as referring to only the relationship between 'these men’ and Baker, it is a false statement, for the record was clear that they always could (and at least occasionally did), perform exactly the same service for Baker’s competitors. The only sense in which the statement is true is that 'these men’ were economically dependent for a market for their services on people or firms like Baker who marketed the ultimate product to consumers. They were thus employes.” 32 Or App at 270-71.

This conclusion is fallacious since Baker did not "market” the ultimate product. Baker was the materialman. The product was marketed by the salesman; the ultimate product was installed by the applicators. The salesmen and applicators were held to be Baker’s employes, not vice versa.

There is nothing "false” in the Supreme Court’s analysis in Baker. Bakeris premised on a theme that runs through all of these cases and was expressly stated in Kirkpatrick. ORS 657.040 is to be interpreted as not merely incorporating the common law test for determining master and servant, but in light of the policy of the act which is to provide unemployment insurance to all persons who "are peculiarly subjected to the hazard of unemployment because of the nature of their occupation.” Kirkpatrick v. Peet, supra, 247 Or at 212, Contrary to our reasoning in Republic, the *237court in Baker did not ignore the facts that the salesmen and applicators occasionally employed others and that they occasionally rendered services to Baker’s competitors. It is clear that they considered such facts as significant indicia that the salesmen and applicators had independently established businesses.

The Republic quotation from Baker is incomplete and misleading. The entire passage reads:

"The testimony of plaintiff Harry Baker and the salesmen and applicators furnishes strong support for the view that these workers are individual entrepreneurs, contracting with any and everyone who wanted their services; examples of free enterprise who are not dependent upon any employer to stay out of the ranks of the unemployed. The Commission’s records, however, reveal a different picture. They show that a substantial number of these men are not 'customarily entrepreneurs, 'engaged in an independently established business.’ They 'customarily’ work for only one, two or three employers. When work for such employers is not available these men become unemployed.” 240 Or at 366.

The court in Baker considered the evidence presented by the petitioner as indicative that the salesmen and applicators were independent entrepreneurs. It concluded, however, that the evidence from the Commission’s records that "these men become unemployed” was more compelling. Earlier in the Baker o^vcáoxi, the court discussed at length the fact that at least eight of the 44 applicators and salesmen had repeatedly become unemployed, that most of their income, other than that from Baker, came from concerns who "regarded them as employes,” and that many of these individuals worked for only one, two or three firms.

The observations of the Baker opinion made by this court in Republic are untenable. The only legitimate observations that can be made are: first, some independent entrepreneurial indicia were present, i.e. employment of others and by others, and capital in the form of automobiles and tools, but not in significant degree; second, there was compelling evidence that *238these individuals were subject to the unemployment risk.

Baker is a classic example of judicial application to specific facts of a broad public policy embodied in an ambiguous statute. The difficulty arises when lawyers and courts attempt, as we have in Republic, to discern a degree of preciseness from such decisions that rational implementation of the broad public policy does not permit. Economic independence is not an absolute and cannot be ascertained in terms of product. There is probably no enterprise or individual that is wholly independent. Independence is a matter of degree. There is no justification for our conclusion in Republic that "in Baker the Supreme Court analyzed the relationships involved in a manner that was substantially all encompassing of every purchase of services utilized in the preparation of a product for the consumer of that product * * *.”

In Kirkpatrick the court expressly stated what was implied in Baker — that 657.040(2)(a) is to be construed in light of the policy of the Unemployment Compensation Act. The court went on to refine in somewhat more specific terms than Baker the applicable criteria for finding an independently established business:

"* * * We understand this part of the statute [subsection (2)(a)] to mean that to exclude coverage it must be shown that the person engaged to perform services for another does so as an entrepreneur, i.e., where the enterprise calls for the investment of risk capital with the prospect of reaping returns or suffering a loss in the venture, the employment of others, and ordinarily the performance of service for more than one person. * * * "It is to be noted that the statute requires the occupation to be both 'independently established’ and 'customarily’ engaged in. This requirement is not met if the continued existence of the enterprise depends upon its relationship with a particular employer. If there is such dependence, the person employed does not have the prospect of supporting himself in the pursuit of his occupation if the person employing him terminates the *239relationship. It was the purpose of the Unemployment Insurance Act to provide relief where there was this type of risk of unemployment.” 247 Or at 213-14.

In Republic we ignore Kirkpatrick by attempting to distinguish it. We state:

"\Kirkpatrick\ was decided before subsection (2)(b) was added to the statute covering the factors Kirkpatrick dealt with, and for that reason alone, the case should not be regarded as meaningful as we have heretofore regarded it in some of our cases.” 32 Or App at 271.

This is an untenable statutory construction. While ORS 657.040(2)(b) added specific and independent criteria by which one can qualify for the exemption, the original language of subsection (2)(a) was retained intact. The fact that Kirkpatrick was decided before the enactment of (2)(b) is irrelevant. How can my brethren say in one breath that Baker is controlling and in the second say that Kirkpatrick is irrelevant because it was decided before the enactment of subsection (2)(b). Baker was also decided before the enactment of (2)(b).

The tenable conclusion to be drawn from Baker and Kirkpatrick is that risk capital, employment of others and rendering services for others are relevant criteria, but no single criteria is controlling, nor is the presence of all three controlling.1 In Baker, all three criteria were present, but not in sufficient degree, particularly in view of the fact that the persons involved often join the ranks of the unemployed. In Revlon Service, Inc. v. Employment Div., 30 Or App 729, 567 P2d 1072 (1977), we stated:

"* * * The ultimate issue is whether the person performing the services is an entrepreneurial enterprise enjoying such a degree of economic independence that the enterprise can survive any relationship with the particular person contracting for the services. 30 Or App at 735.

*240APPLICATION OF BAKER AND KIRKPA TRICK TO THE PRESENT CASE

The owner-operators who are the subject of the assessment rendered services exclusively for Byrne Brothers. They employed others only on an occasional part-time basis. The only significant indicia of an independently established business was their investment of risk capital in equipment. The referee was in error in concluding that there was no investment of risk capital. In Kirkpatrick, the court clearly stated what was intended by the term "risk capital.” It is capital invested for a profit where the investor assumes the risk of loss, as distinguished from the loan type transaction with a fixed rate of interest and an absence of significant risk. The owner-operators here invested risk capital. The majority is correct, however, in its analysis that the risk capital ventured is merely incidental to the value of the services provided. The principal thing being supplied is the personal services of the owner-operator. The capital ventured is not significantly greater than that ventured in Baker by the salesmen for automobiles and by the applicators for tools and trucks. The case clearly falls within the factual holding of Baker.

The record in this case however indicates the fallacy of the Republic rule as applied to future cases. Petitioner also presented evidence of two other contractors who perform hauling for Byrne Brothers, but are not subject to the assessment. Following the majority opinion and our rationale in Republic, the Employment Division would be justified in asserting assessments to include these two individuals. One contractor owns two trucks and trailers. He employs the drivers and pays unemployment taxes with respect thereto. He devotes a small amount of time to managing the business, but his principal time is devoted to his door building business. He testified that his investment in the trucks is merely one of several enterprises in which he has invested. Another contractor owns 14 *241trucks, some of which are contracted to Byrne Brothers and others to competitors. To conclude that these two individuals are "employes” of Byrne Brothers because they render a service used in the "ultimate product” is unjustified and contrary to the purpose of the Unemployment Compensation Act. We might as well include all corporate stockholders. The purpose of the Unemployment Compensation Act was not to protect the investments of capitalist entrepreneurs, but to protect working persons who do not have resources in times of unemployment. Indeed, hypothetically under Republic, if one individual owned all the trucks contracted to Byrne Trucking, he would be an employe of Byrne Trucking. A more rational approach, and certainly more consistent with Baker, would be to inquire under the hypothetical whether Byrne Brothers would not be the employe.

I do concur with Republic that some of the prior decisions of this court are probably in error and should not be considered as precedent for the future. These cases are Klamath Dental Office, Inc. v. Morgan, 19 Or App 521, 528 P2d 91 (1974); Barger v. Morgan, 13 Or App 111, 507 P2d 821, rev den (1973); Michelet v. Morgan, 11 Or App 79, 501 P2d 984 (1972); Kuhlman v. Morgan, 9 Or App 184, 496 P2d 246 (1972); Culp v. Peet, 3 Or App 406, 474 P2d 13 (1970). I would also probably include Europorama v. Employment Division, 22 Or App 431, 539 P2d 1157 (1975) in that group. The fundamental mistake we made in those cases is that we departed from Baker. The thrust of Baker is that petitioner must not only prove some independence, but a substantial degree thereof. There is, however, nothing in Bakerjustify the overreaching rule propounded in Republic.

It is no longer likely that litigation will arise under subsection (2)(a) of ORS 657.040 where two of the criteria, employment of others and rendering of services for others, are both present in view of the fact that the contractor can probably qualify under subsection (2)(b).