Larry's Post Co. v. Unemployment Insurance Division

No. 88-510
IN THE SUPREME COURT OF THE STATE OF MONTANA

1989

LARRY'S POST COMPANY, INC.,
Appellant,
-vs-
UNEMPLOYMENT INSURANCE DIVISION,
CONTRIBUTIONS BUREAU,
Respondent.

APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Michael Keedy, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
C. Eugene ~hillips;Murphy, Robinson, Heckathorn and
Phillips, Kalispell, Montana
For Respondent :

Karl Nagel, Dept. of Labor & Industry, Helena,
Montana

Submitted on Briefs: Feb. 3, 1989
Decided: July 18, 1989
Mr. Justice William E. Hunt, Sr., delivered the Opinion of
the Court.

Larry's Post Company, Inc. appeals from a judgment of
the District Court of the Eleventh Judicial District,
Flathead County, which affirmed the determination of the
Board of Labor Appeals that services performed by individuals
who contracted with Larry's to harvest timber constituted
employment within the meaning of the unemployment insurance
laws. We affirm.
Larry's raises the following issues on appeal:
1. Were the facts found by the appeals referee and
adopted by the Board of Labor Appeals supported by the
evidence?
2. Do the facts substantiate the finding of an
employment relationship for the purpose of unemployment
insurance?
Appellant Larry's Post Company, Inc. operated a post
yard in Flathead County near Columbia Falls. It was engaged
in the business of procuring, cutting, pointing, curing,
treating and selling fence posts, poles and rails.
Larry's arranged with landowners to cut and remove
timber from certain private properties. In exchange for the
right to harvest timber, Larry's paid each landowner a
stumpage fee.
When the right to harvest a particular tract was
procured, Larry's contracted with woodcutters to cut and
remove the timber. Tom Finch, whose claim for unemployment
insurance benefits initiated this matter, contracted with
Larry's to cut timber for approximately four weeks in 1986.
Finch performed services for Larry's after quitting his job
at the Superior Lumber Mill and while awaiting the completion
of contractual arrangements with the state of Montana to
begin harvesting timber on state lands.
Although Larry's usually executed written contracts with
its woodcutters, a written contract was not entered into with
Finch. The evidence indicates, however, that Larry's dealt
with Finch on the same terms that it dealt with woodcutters
who signed written agreements.
Each cutting agreement granted the woodcutter the
exclusive privilege of cutting post and pole timber from
areas designated by Larry's. The woodcutter was required to
conform to performance specifications stipulated by the
contract, the landowner and statutes. Any failure to
conform to these specifications constituted cause for
termination.
The woodcutters were allowed to set their own hours.
They could also provide services to others, although no
evidence was submitted showing that any woodcutter was under
contract with any other firm while under contract with
Larry ' s .
The woodcutters were permitted to hire assistants or
subcontract out all or part of the work. Tom inch was
assisted by his son, whom he paid for that assistance.
However, no evidence was introduced regarding whether inch
or any other woodcutter paid employment taxes or whether they
withheld taxes from the earnings of their assistants or
subcontractors.
The woodcutters were permitted to sell to other buyers
the timber cut under the contract with Larry's. When a
woodcutter sold his posts and poles to another, he was
obliged to pay stumpage fees to Larry's.
Larry's paid the woodcutters on a regularly scheduled
basis--every two weeks--for cut posts and poles. All
contractors were paid the same rate. The woodcutters did not
negotiate prices, nor was the work awarded on the basis of
competitive bids. Certain costs, including stumpage fees
paid to the landowner, were deducted from each woodcutter's
paycheck.
The woodcutters provided their own transportation to and
from the cutting site. They also furnished their own tools
and equipment, usually a chain saw and other tools common to
the woodcutting trade. However, if a woodcutter did not own
the appropriate tools, he could rent them from Larry's. The
rental cost was deducted from his paycheck.
Other than equipment and transportation, the woodcutters
did not make a significant investment in the job. They did
not purchase stumpage prior to harvest; they paid only for
the stumpage they cut; they were under no liability if they
were unwilling or unable to complete their contracts; they
faced little opportunity for profit or loss other than their
success or failure in performing efficiently.
Each contract provided that the agreement could be
terminated at any time by either party. Tom Finch's
agreement with Larry's ended in June, 1986, when the property
on which he was working was sold by the landowner and was no
longer available for timber harvesting. From that time until
September, 1986, Finch was self-employed, buying stumpage and
cutting timber on state lands.
In October, 1986, Finch filed a claim for unemployment
insurance benefits. His claim was denied because he left the
Superior Lumber Mill to engage in self-employment. In
November, 1986, he sought a redetermination of the claim,
this time including his earnings from Larry's as requalifying
wages. The Unemployment Insurance ~ivisionthen initiated an
investigation, resulting in the Division's determination
that, as the services performed by inch for Larry's
constituted employment, he was eligible for unemployment
insurance benefits.
In May, 1987, Larry's appealed the decision. A hearing
was held before an appeals referee from the Department of
Labor and Industry. The appeals referee also concluded that
the work performed by Finch constituted employment.
In August, 1987, Larry's again appealed, this time to
the Board of Labor Appeals. In the absence of a request for
oral argument, the Board reviewed the matter and affirmed the
referee's decision.
Larry's then sought judicial review of the
determination. After briefing, the District Court dismissed
the petition and affirmed the agency decision. Larry's
appeals to this Court.
The standard of review of decisions by the Board of
Labor Appeals is set out in S 39-51-2410(5), MCA, which
provides in pertinent part:
(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.
Thus, as mandated by statute, we are bound by those facts
found by the Board of Labor Appeals that are supported by the
evidence. "Supported by the evidence" means supported by
substantial evidence, that is, more than a scintilla of
evidence but less than a preponderance. Gypsy ~ighview
Gathering Sys. v. Stokes (19861, 221 Mont. 11, 15, 716 P.2d
620, 623.
Larry's argues that several of the findings made by the
appeals referee and adopted by the Board are not supported by
the evidence. Specifically, Larry's refers to those findings
ir, which the appeals referee stated that no evidence was
presented regarding certain matters. Larry's argues that "no
evidence" is not the same as "substantial evidence" and
cannot be the basis of any finding of fact.
The so-called "non-findings" that Larry's challenges
are :
[I] [Tlhere was no evidence or testimony submitted
showing that any woodcutter was ever under contract
with any other firm while under contract with
Larry's Post Company.
[21 [Tlhere is no evidence or testimony on the
record that the woodcutters pay any employment
taxes (workers' compensation, unemployment
insurance, social security) . Nor was any evidence
or testimony submitted showing that the woodcutters
withhold taxes from their assistants/subcontractors
earnings.
[31 There is no testimony or evidence in the
record showing that woodcutters post a hazard
reduction bond as required by Section 76-13-408,
et. seq., MCA.
[4] There was no evidence or testimony submitted
showing that the woodcutters negotiated prices or
that work is awarded on the basis of competitive
bids.
These "non-findings" are especially pertinent to the
present case. Each reflects an element indicative of an
individual's status as an independent contractor. The
appeals referee's finding of a lack of evidence on these
points tends to demonstrate that an employment relationship
existed between Larry's and the woodcutters.
Furthermore, Larry's, as the employer, had the burden of
proving that the services performed by the woodcutters did
not constitute employment. Section 39-51-203(4), MCA (1985).
The very fact that Larry's neglected to introduce evidence
indicating that the woodcutters were independent
contractors--evidence showing that not only did the
woodcutters have an ~pportunity to work elsewhere, they
actually did so; evidence showing that while the woodcutters
occasionally had other individuals assist them, those
individuals were actual employees of the woodcutters;
evidence showing that the price of the posts was negotiated
between two entities of similar bargaining power or that the
contracts were awarded on the basis of competitive bids;
evidence showing that the woodcutters were required to invest
in hazard reduction bonds--established that Larry's failed to
meet its burden. Under the circumstances, the challenged
findings were appropriate.
Larry's next argues that the facts found by the appeals
referee do not substantiate the finding of an employment
relationship. Larry's contends that the facts establish that
the woodcutters were independent contractors and, therefore,
not covered by the unemployment insurance laws.
The formula for determining whether individuals are
independent contractors or employees within the meaning of
the unemployment insurance laws is commonly known as the ABC
Test. The test is delineated in S 39-51-203 ( 4 ) , MCA ( 1 9 8 5 ) ,
which provides:
(4) Service performed by an individual for wages
is considered to be employment subject to this
chapter unless and until it is shown to the
satisfaction of the department that:
(a) such individual has been and will continue to
be free from control or direction over the
performance of such services, both under his
contract and in fact;
(b) such service is either outside the usual
course of the business for which such service is
performed or that such service is performed outside
of all the places of business of the enterprise for
which such service is performed; and
 (c) such individual is customarily engaged in an
independently established trade, occupation,
profession, or business.
Under the statute, employment is presumed. Refore an
individual will be deemed an independant contractor, elements
of all three subsections of the statute must be proven.
Pioneer Baseball League v. Friedricks (Mont. 1988) , 760 P.2d
93, 95, 45 St.Rep. 1573, 1576; Standard Chem. Mfg. Co. v.
Employment Sec. Div. (1980), 185 Mont. 241, 245, 605 P.2d
610, 613.
The first and most crucial element of the ABC test is
the right of the individual who performs services to retain
control and direction over his labor. Pioneer Baseball, 760
P.2d at 95, 45 St. Rep. at 1576. Control is necessarily
implied in every contract that gives the employer the right
to insist that services be performed according to
specifications. St. egis Paper Co. v. Unemployment
Compensation Comm'n (1971), 157 Mont. 548, 553, 487 P.2d
524, 527. Evidence of Larry's control over the woodcutters
was demorlstrated by the written contracts, which enumerated
several performance specifications. Further evidence of
Larry's control was illustrated by testimony indicating that
Larry's had the right to specify and change the size of the
posts to be cut, depending on the orders the post company
needed to fill. In addition, Larry's monitored the cutting
area to assure that the woodcutters followed all
stipulations. If a woodcutter failed to comply, Larry's
could withhold from the woodcutter's pay any amounts
necessary to bring the worker into compliance. ~ a i l u r e to
comply could also result in dismissal.
Evidence of employment was also found in the method by
which the wooClcutters were paid. Larry's paid the
woodcutters r twc weeks for the number of posts cut,
rather than by the job. Moreover, each woodcutter was paid
the same amount per post, in accordance with a price list
attached to the written contract. The woodcutters did not
negotiate the price to be paid per post, nor were the
contracts awarded on the basis of competitive bids--both
factors that, if present, would indicate an independent
contractorship. See pioneer Baseball, 760 P.2d at 95, 45
St.Rep. at 1576.
Further evidence of employment was indicated by the fact
that the woodcutters continued their relationship with
Larry's through a succession of jobs. heir contracts were
not renewed each time they were granted a new area in which
to cut--a factor that, if present, would point to independent
contractorship.
Perhaps the most important indication that Larry's
retained control over the woodcutters was the fact that the
relationship between the two was terminable at will without
liability on the part of either party. This fact signified
the existence of an employment relationship. ~ i r b yCo. of
Bozeman v. Employment Sec. D ~ V . (1980), 189Mont. 1, 9, 614
P.26 1040, 1044.
The above combination of factors demonstrated that
Larry's retained control over the woodcutters, thereby
establishing that their relationship was one of employment.
As Larry's failed to establish the first leg of the ABC Test,
we need not consider the remaining two branches. As noted
earlier, if the employer fails to prove all three elements of
the AEC test, the services performed will be considered
employment.
Affirmed.