No. 89-281
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
JOE JOHNSON,
Petitioner and Appellant,
-vs-
MONTANA DEPARTMENT OF LABOR & INDUSTRY,
Respondent and Respondent.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable Thomas McKittrick, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Larsen & Neill; Kenneth R. Neill, Great Falls, Montana
For Respondent:
Claren Neal, Dept. of Labor & Industry, Helena, Montana
k- Submitted on Briefs: Oct. 25, 1989
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Justice John Conway Harrison delivered the Opinion of the
Court.
Joe Johnson, a Great Falls homeowner, appeals the
decision of the District Court confirming a holding by the
Board of Labor Appeals. The decision upheld a finding that a
carpenter who had worked on the remodeling of Johnson's home
was his employee and Johnson therefore owed unemployment
insurance tax on the employee's wages. We reverse.
Only one issue is presented:
Did the District Court err when it found
that there was substantial evidence to
support the decision of the Board of
Labor Appeals that Mike Voeller, the
worker in question, was an employee and
not an independent contractor u ~ d e r the
AB test of § 39-51-201 (14), MCA?
Joseph V. Johnson, the petitioner and appellant, is a
food broker in Great Falls, Montana. When Johnson and his
wife, Mary, bought a new home they contacted their former
neighbor, a building contractor, to see if he would be
interested in remodeling the new house. The neiqhbor
declined the job, but indicated his son, Mike Voeller, might
be able to do the carpentry work. Johnson then contacted
Mike Voeller who, along with a Mr. Pontdt, agreed to do the
remodeling job.
At the time they engaged Voeller and Pontdt to remodel,
the Johnsons were not sure exactly what they wanted done to
their new home or how much they could afford. They did know
they wanted the kitchen enlarged and remodeled and a bedroom,
bathroom, porch and deck added. After reviewing the project
and discussing finances, the parties agreed that the work
would be done on an hourly basis rather than by bid, with
Voeller and Pontdt each receiving $7 per hour and the
Johnsons paying for materials.
Voeller and Pontdt each had their own contracting
businesses. Although he had not formally incorporated,
Voeller called himself Mike Voeller, Inc. Voeller had his
own tools and a small shop in his home. Both before and
after the Johnson job Voeller performed independent
contracting jobs as a carpenter, doing remodeling, roofing,
siding and cabinet making. For several months immediately
preceding the Johnson job, Voeller worked for wages as a
carpenter for a firm known variously as B-A-C, M-S-C, and
Hallmark. During the three years Voeller did carpentry work,
the only time he ever worked for wages was his stint with
B-A-C. After Voeller completed the B-A-C and Johnson jobs,
he applied for unemployment benefits thinking he was entitled
to unemployment benefits from his work at B-A-C. However,
Voeller did not believe his work for Johnson entitled him to
unemployment benefits.
The direction Voeller and Pontdt received from Johnson
was minimal. Johnson would discuss options with the
carpenters, and Voeller and Pondtd would tell Johnson whether
they could or could not carry out his idea. Voeller and
Pontdt would arrange for and hire other building
professionals such as the electrician, perfa-taper and
plumber, all of whom were also paid on an hourly basis. As
the work progressed Johnson would, as customary, approve the
final construction plans and select the finish materials to
be used.
When Voeller applied for unemployment the Department of
Labor and Industry determined Voeller to be Johnson's
employee, based on questionnaires completed by the two men.
The Department found, therefore, that Johnson owed the
Department for past unpaid unemployment contributions during
the period Voeller worked for Johnson.
A redetermination hearing before an Appeal's Referee
confirmed Voeller's status as an employee. Johnson then
appealed the determination to the Board of Labor Appeals.
Following a telephone hearing, the Board of Labor Appeals
hearing officer affirmed the Department's conclusion, finding
Voeller an employee under 55 39-51-203 (4) and 39-51-201 (14),
MCA . On judicial review the District Court upheld the
earlier findings that Voeller and others similarly situated
were Johnson's employees, and Johnson now appeals the court's
decision.
The standard of review for cases involving claims
before the Board of Labor Appeals is found in Title 39, Part
24 of Chapter 51:
In any judicial proceeding under
39-51-2406 through 39-51-2410, the
findings of the board as to facts, if
supported by evidence and in the absence
of fraud, shall be conclusive and the
jurisdiction of said court shall be
confined to questions of law.
Section 39-51-2410 (51, MCA.
Accordingly, those facts, as the Board of Labor Appeals
found them to exist, will stand if supported by the evidence,
absent fraud. Recent case law has held that "supported by
the evidence" means supported by substantial evidence, which
is "something more than a scintilla of evidence, but may be
less than a preponderance of evidence." Gypsy Highway
Gathering System, Inc. v. Stokes (1986), 221 Mont. 11, 15,
716 P.2d 620, 623. See also Larry's Post Co., Inc. v.
Unemployment Insurance Division (Mont. 1989) , 777 P.2d 325,
46 St.Rep. 1193. While the substantial evidence test gives
deference to the agency fact finder, the court's judicial
review must nonetheless be "searching and careful, subjecting
the agency's decision to close judicial scrutiny." Cranston
v. Clark (9th Cir. 1985), 767 F.2d 1319, 1321 (citinq
Memorial, I n c . v . H a r r i s ( 9 t h C i r . 1 9 8 0 ) , 6 5 5 F.2d 905, 9 1 2 ) .
More i m p o r t a n t l y , w e cannot permit t h e l e t t e r of t h e
law t o t r a n s c e n d t h e s p i r i t o f the law. A s we n o t e d when
previously faced with t h i s question:
W f e e l t h a t whether a person performing
e
s e r v i c e s i s a n employee o r a n i n d e p e n d e n t
c o n t r a c t o r i s t h e q u e s t i o n b e f o r e u s , and
s t a t u t e s u s e d a s g u i d e s i n making s u c h
d e t e r m i n a t i o n s must n o t be d i s t o r t e d t o
a l l o w p e r s o n s who a r e t r u l y i n d e p e n d e n t
i n t h e i r o p e r a t i o n t o b e h e l d employees
m e r e l y f o r t a x p u r p o s e s and r e s u l t i n q
benefits derived from an
employer-employee r e l a t i o n s h i p .
St. Regis Paper Co. v. Unemployment Compensation Comm'n
( 1 9 7 1 ) , 157 Mont. 548, 552, 487 P.2d 524, 526.
The t w o - p a r t t e s t t o determine whether an i n d i v i d u a l i s
a n i n d e p e n d e n t c o n t r a c t o r i s found a t § 39-51-201 (14), MCA:
"Independent contractor" means an
i n d i v i d u a l who r e n d e r s s e r v i c e i n the
c o u r s e o f a n o c c u p a t i o n and:
( a ) h a s b e e n and w i l l continue t o
b e f r e e from c o n t r o l o r d i r e c t i o n over
t h e performance of t h e s e r v i c e s , both
u n d e r h i s c o n t r a c t and i n f a c t ; and
( b ) i s engaged i n an i n d e p e n d e n t l y
established trade, occupation,
profession, o r business.
This test, f o r m e r l y known a s t h e ARC t e s t , was amended
by t h e 1987 L e g i s l a t u r e d r o p p i n g a t h i r d p r o n g o f t h e t e s t . .
The amended v e r s i o n of S 39-51-201 (14), MCA, i s now c a l l e d
t h e AB t e s t , and i t s e m p h a s i s , a s u n d e r t h e ABC t e s t , and a t
common l a w , i s c o n t r o l . This Court has previously recognized
four factors to consider in determining if the right to
control exists: (1) d i r e c t e v i d e n c e o f r i g h t o r e x e r c i s e o f
control; ( 2 ) method o f payment; ( 3 ) f u r n i s h i n g of equipment;
and (4) right to fire. Sharp v. Hoerner Flaldorf Corp.
(1978), 178 Mont. 419, 425, 584 P.2d 1298, 1301-02 (citing
Larson's Workmen's Compensation Law, Vol. lA, S 44.31, p.
8-35).
The Hearings Examiner addressed the first factor,
exercise of or right to control, in his Finding of Fact No.
4: "The Appellant asked for advice from the carpenters as
well as directed their work or chose among options or
suggestions made by the carpenters as their work progressed.
The Appellant also chose, as needed, the finish materials
purchased and used." In affirming the decision, the District
Court relied on the same sort of evidence, finding in its
memorandum and order that:
[Tlhe record contains evidence that shows
the petitioner made numerous changes in
the scope and extent of the work to be
performed. The petitioner chose the
materials and paid the supplier directly
for supplies utilized. The petitioner
also had the right to approve the work
performed and indicated he had the right
to make workers work faster.
All of the facts pointed to by the Hearings Examiner
and the District Court to support their finding of control
are usual and ordinary practices in the carpentry business.
The finding does not so much show control as it does indicate
a business practice. Mr. Voeller testified that Mr. Johnson
did not correct the carpenters as to details in the
performance of their work and expected them to use their
expertise as carpenters to carry out the remodeling project.
Mr. Johnson testified that he would tell Voeller and Pontdt
his ideas for remodeling and the two carpenters would t l .
e!
him if it was possible. In other words, Johnson told Voeller
and Pontdt what he wanted done but not - to do it.
how
This Court has often reiterated the control test in
these terms:
An independent contractor is one
who renders service in the course of an
occupation, and represents the will of
his employer only as to the result of his
work, and not as to the means whereby it
is accomplished, and is usually paid for
the job .
St. Regis Paper Co., 157 Mont. at 552, 487 P.2d at 526
(quoting Kimball v. Ind. Acc. Bd. (1960), 138 Mont. 445, 448,
375 P.2d 688, 690). It is evident that Johnson merely
controlled the result of the carpenters' work, not the
methods Voeller and Pontdt used to accomplish the end result.
As to the second factor, method of payment, evidence
showed that both carpenters were paid on an hourly basis and
usually submitted their hours to the Johnsons weekly. As a
general rule, payment on a time basis is strong evidence of
employment status while payment on a completed project basis
is consistent with, but not conclusive of, independent
contractor status. Solheim v. Tom Davis Ranch f1984), 208
Mont. 265, 273, 677 P.2d 1034, 1038.
There is testimony that the method of payment in the
carpentry industry is accomplished in one of three ways--on a
bid, hourly or cost-plus basis. Mr. Voeller testified that
he had done projects on both a bid and hourly basis, and that
he usually did smaller jobs on a bid basis. Voeller stated
that he commonly did larger jobs on an hourly basis and,
after discussion with Johnson, all parties decided that
hourly pay would be best on the Johnson job because the
Johnsons did not know exactly what they wanted done or how
much they could afford.
The third test regarding furnishing of equipment
preponderates in favor of an independent contractor status
between Voeller and Johnson. This Court has adopted the view
of Larson's Workmen's Compensation Law, Vol. lC, § 44.34, pp.
8-95 - 8-104, in -
Solheim, that an employment relationship
usually exists where the employer furnishes equipment, but an
employee furnishing his own equipment does not preclude an
employment relationship. In Solheim, we concluded that
furnishing equipment indicates an independent contractor
relationship. Solheim, 677 P.2d at 1039.
The right to fire is the final factor determining
control. In discussing this final element the Larson
treatise notes:
The right to terminate the relationship
without liability is not consistent with
the concept of independent contract,
under which the contractor should have
the legal right to complete the project
contracted for and to treat any attempt
to prevent completion as a breach of
contract.
Larson's Workmen's Compensation Law, Vol. lC, S 44.35, pp.
8-149 - 8-158.
Because the contract between the parties was oral, the
only evidence before the District Court and the hearings
examiners regarding termination comes from the testimony of
Voeller and Johnson. Reviewing the testimony, it is apparent
that neither man was certain of his rights as to the ability
to terminate. When asked by the examiner if Johnson could
have decided he no longer wanted Voeller's services, Voeller
replied that Johnson "probably" could have. Johnson's answer
when asked about his ability to fire the carpenters was
equally as tentative:
I think, like I testified earlier, if it
would have taken them, you know, a real
long time. To me it seemed like a long
time, and not being a carpenter, you
know, it's really questionable what a
long time is. I'm sure somewhere along
the line I could have, yes.
Johnson's reply indicates his belief that, had the carpenters
not lived up to their part of the bargain, he would have been
justified in terminating the business relationship. However,
neither man was directly asked if he believed Johnson could
fire Voeller without liability.
As discussed above, three of the four control factors
substantiate a finding of an independent contractor
relationship between Johnson and Voeller. First, Johnson did
not possess the right to control how Voeller accomplished the
remodeling job, only the right of a homeowner to tell the
carpenter what he wanted done as the house was remodeled.
Secondly, Voeller and Pontdt furnished all of the equipment
necessary to complete the job. Finally, Johnson's right to
fire the carpenters was not absolute. As to the other
factor, method of payment, while hourly pay usually evidences
employment, custom in the industry often finds carpenters
working on a per hour basis, and is not conclusive of either
an independent contractor or employment status. It must. be
remembered that the purpose of this test is not
[tlo widen the scope of the term
"employment" as used in the statute so as
to include therein persons not otherwise
included, but . .. to exclude from the
definition of the term "employment"
persons who might, except for the
application of these tests, be included
therein.
St. Regis Paper Co., 487 P.2d at 526 (quoting National
Trailer Convoy, Inc., v. Undercofler (Ga.App. 1964) , 137
S.E.2d 328, 331).
We hold that under the A portion of the AB test of
39-51-201 (14), MCA, Voeller meets the definition of an
independent contractor.
Thus, we turn to the I portion of the test which
3
requires the independent contractor to be engaged in an
independently established occupation. The District Court,
finding that the relationship between IToeller and Johnson
failed part A of the test, did not address p a r t B. The
record clearly demonstrates that Voeller i s engaged in a
t r a d e independent of Johnson's. J o h n s o n i s a food b r o k e r who
s e l l s groceries for a living. C o n t r a c t i n g and c a r p e n t r y h a v e
no r e l a t i o n whatsoever t o what J o h n s o n d o e s f o r a living.
V o e l l e r i s a c a r p e n t e r and h a s b e e n s i n c e 1985. Accordingly,
Voeller also satisfies the B portion of the independent
contractor test.
Having met the statutory requirements of
5 39-51-201(14), MCA, w e hold t h a t V o e l l e r i s an independent
c o n t r a c t o r r a t h e r t h a n employee of J o h n s o n a n d w e , t h e r e f o r e ,
reverse .
Justices
Justice R. C. McDonough dissents.
The majority have in essence reviewed this case de novo.
They have not applied the proper standard of judicial review.
The standard of review of this Board of Labor Appeals
determination is set out in 5 39-51-2410(5), MCA, as follows:
(5) In any judicial proceeding under
39-51-2406 through 39-51-2410, the findings of the
board as to the facts, if supported by evidence and
in the absence of fraud, shall be conclusive and
the jurisdiction of said court shall be confined to
questions of law.
This was the standard employed by the District Court as set
out in paragraph two of its Memorandum and Order.
"Supported by evidence" has been held by this Court to
mean supported by substantial evidence. Jordan v. Craighead
(1943), 114 Mont. 337, 136 P.2d 526. A finding of fact under
the circumstances here is binding on the Court if it is
"supported by substantial evidence, regardless of whether
there is substantial evidence or even a preponderance of
evidence to the contrary." Gypsy Highview Gathering System,
Inc. v. Stokes (1986), 221 Mont. 11, 716 P.2d 620, quoting
Jordan, 114 Mont. 337, 136 P.2d 526. Substantial evidence
"is something more than a scintilla of evidence, but it may
be less than a preponderance of the evidence."
Gypsy Highview Gathering System, Inc., 716 P.2d at 623.
Is there more than a scintilla of evidence here
supporting the factual findings of the Board of Labor Appeals
and the hearing examiner?
The burden here is on the appellant to show that the
worker is an independent contractor and there is a statutory
test to determine the worker's status. Section 39-51-201(4),
MCA, provides:
(14) "Independent contractor" means an
individual who renders service in the course of an
occupation and:
(a) has been and will continue to be free
from control or direction over the performance of
the services, both under his contract and in fact;
and
( b ) is engaged in an independently
established trade, occupation, profession, or
business.
We need only to discuss "(a)". As to that part, we have
cited four factors in determining degree of control in
workers' compensation cases which are also applicable here:
1) direct evidence of right or exercise of control; 2) method
of payment; 3) furnishing of equipment; and 4) right to fire.
See Sharp v. Hoerner Waldorf Corp. (1978), 178 Mont 419, 584
P.213 1298 (1978), and Solheim v. Tom Davis Ranch (1984), 208
Mont. 265, 677 P.2d 1034. We said in Sharp:
Larson's treatise enumerates four factors to
consider when attempting to determine right of
control in a given situation. Those factors are:
(1) direct evidence of right or exercise of
control; (2) method of payment; (3) furnishing of
equipment; and (4) right to fire. Larson, S
44.31., p. 8-35. The treatise further points out
that the consideration to be given these factors is
not a balancing process, rather ". . .independent
contractorship .. . is established usually only by
a convincing accumulation of these and other tests,
while employment . . . can if necessary often be
solidly proved on the strength of one of the four
items [above]." Larson, supra.
From the above it is clear that all four factors are needed
to show a worker is an independent contractor.
Looking at the factor of the furnishing of equipment,
the facts are clear the worker furnished his own tools or
equipment and this was a Finding (No. 5) by the examiner.
The appellant has met his burden as to this factor required
for finding the worker an independent contractor.
Second, as the method of payment here the worker was
paid by the hour. "It is a strong indication" the status was
that of employee. Sharp, 584 P.2d at 1302. Larson, § 44.33,
p. 8-41. The workers here were paid weekly for the hours
worked that week. This payment by the hour is more than a
scintilla of evidence. The appellant claims the reason the
hourly method was selected was because the appellants were
unclear as to the extent of what they wanted done and were
limited as to the amount of money they could spend. The
appellant did decide what work was to be done. The weight to
be given to the fact of hourly payment and its "strong
indication" and the weight to be given to appellant's reason
for doing it, is within the province of the fact finder,
neither one is conclusive either way.
Relative to direct evidence of right or exercise of
control, this also is a question of fact. Is there a
scintilla of evidence supporting direct control? Changes
were made by appellant during the course of the work.
Workers did as directed by the changes. The appellant paid
an hourly rate and expected the workers to do what he wished.
Appellant made day to day decisions as to materials used and
paid for them directly to supplier (amounting to over
$15,000.00). Appellant had the right to approve the work.
See transcript p. 32, lines 11-15 as follows:
RAY : You were done upon, er, upon--like the
inspection, did he inspect it and have any changes
made or what?
VOELLER: Oh ya, he had changes all the way through
it, you know, but when we were finally done, you
know, it was done. He looked at it and it was
done.
The appellant also felt he had the power to push them along
and insist they work faster. This is certainly more than a
scintilla of evidence of direct control and it would make a
prima facie case, Findings 3 and 4 of the examiner are
supported by this evidence.
Even if there was not substantial evidence to support
the findings of the examiner as to factors of control and
method of payment, there is no question there is more than a
scintilla of evidence to support Finding 6 of the examiner
which is as follows: "Either the appellant or the carpenters
could terminate the work relationship without liability."
There was no written agreement, only oral.
In the examination of Mike Voeller, a worker, by the
hearing examiner the following questions were asked and the
following answers given:
EXAMINER: During the course of the project could
you have decided you didn't want to do anymore and
stop?
VOELLER: Ya, I could have.
EXAMINER: All right. Could Mr. Johnson have just
decided he was . . . didn't want to employ you
anymore or be associated with you anymore and tell
you he wanted somebody else to do it?
VOELLER: He probably could've if he'd wanted, ya.
The following discourse also took place between appellant
Johnson and attorney for respondent.
BAY: Mr. Johnson, if you weren't happy with the
work or felt these workers weren't working fast
enough, could you have fired them?
JOHNSON: I think, like I testified earlier, if it
would have taken them, you know, a real long time.
To me it seemed like a long time, and not being a
carpenter, you know, it's really questionable what
a long time is. I'm sure somewhere along the line
I could have, yes.
This testimony of the two principal participants is more
than a scintilla of evidence that either one could have
terminated the relationship without liability. Mr. Voeller's
testing is quite clear taken as a whole. It is not precise
because of the word "probably" as to his understanding of
appellant's riqht. The witness is not a user of words but is
a trademan. Voeller certainly felt he could quit.
Of the four factors to be met by appellant only one, the
furnishing of equipment, has been met. The determinations by
the examiner against appellant of the other three questions
of fact are supported by substantial evidence.
Section 39-51--2410 , MCA, requires that courts accept
(5)
the findings of fact of the agency if those findings are
supported by substantial evidence. The District Court
applied the standard and so should we.
&& >
F &Justice
Justice William E. Hunt, Sr.:
I join in the dissent of Justice McDonough.