No. 92-394
IN THE SUPREME COURT OF THE STATE OF MONTANA
DAVE POTTER,
Petitioner and Appellant, - - .
Respondents and Respondents.
APPEAL FROM: D i s t r i c t C o u r t of the Fourth Judicial District,
In and for the County of ~avalli,
The Honorable Douglas G. Harkin, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Judith A, Loring, Attorney at Law, Stevensville,
Montana
For Respondents:
Daniel B , McGregor, Legal Services Div., Department
of Labor & Industry, Helena, Montana
Julio K. Morales, Morales ~ a Office, Missoula, Montana
w
James Park Taylor, Attorney a t Law, Missoula, Montana
Submitted on Briefs: November 3 9 1992
.,
Decided: May 27, 1993
Filed:
Justice John Conway Harrison delivered the Opinion of the Court.
This is an appeal from the Fourth Judicial District, Ravalli
County, the Honorable Douglas G. Harkin presiding. Appellant Dave
Potter (Potter) appeals an order affirming a Board of Labor Appeals
decision that in 1987 he was an independent contractor, not an
employee, and therefore was not eligible for unemployment insurance
benefits. We affirm.
On May 23, 1988, the Department of Labor and Industry (the
Department) determined that Potter, a carpenter and mason, had been
an independent contractor in 1987. Potter appealed this
determination. The Board of Labor Appeals (the Board) adopted the
Department's determination after a telephone hearing on August 30,
1988. Potter petitioned for review in district court, but after
discovery the Department agreed to vacate its earlier decision and
conduct a second, in-person hearing.
Participants in the second hearing, held on January 28, 1991,
included the Department and four of the other respondents in this
appeal: John Bruton, Ed Kopfman, Beneke Construction, and Mort
Arkava. All of the respondents had hired Potter in 1987 for
specific carpentry or masonry projects. The sixth respondent, John
Lohden Construction, was not present but did provide documents
describing the association between Potter and John Lohden
Construction as an independent contractor relationship. The
hearing officer sustained the Department's May 23, 1988
determination that in 1987 Potter was an independent contractor in
his association with the respondents. Potter appealed to the
2
Board, which adopted the hearing officer's findings on June 6,
1991.
Potter again petitioned for judicial review in district court.
The court reviewed the parties' briefs and on June 30, 1992 entered
judgment upholding the determination that Potter was an independent
contractor when he performed services for the respondent employers.
STANDARD OF REVIEW
Under Section 39-51-2410(5), MCA, the findings of the Board as
to the facts are conclusive, if supported by evidence and in the
absence of fraud, and the jurisdiction of a reviewing court is
confined to questions of law. "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 the
evidence." Gypsy Highview Gathering System, Inc. v. Stokes (1986),
221 Mont. 11, 14, 716 P.2d 620, 623. Thus, the District Court must
limit its review of the Board's findings to a consideration of
whether they are supported by substantial evidence, and the same
standard applies to this Court. Gv~svHishview Gatherinq System,
716 P.2d at 623. See also Thornton v. Commissioner of Dep't of
Labor & Industry (1980), 190 Mont. 442, 446, 621 P.2d 1062, 1065
("This Court may not substitute its judgment for that of the trial
court or agency as to the weight of the evidence on questions of
fact."). With regard to questions of law, however, our task is to
determine whether the agency's interpretation of the law is
correct. Steer, Inc. v. Dep't of Revenue (1990), 245 Mont. 470,
803 P.2d 601.
Here, the threshold issue is whether Potter's status as
independent contractor or employee is a question of law or a
question of fact. When the facts surrounding a person's
arrangement with employers are relatively undisputed, the question
is one of law, and this Court is not bound by the conclusions of
the District Court or the Board, as it would be regarding a
question of fact. Solheim v. Tom Davis Ranch (1984), 208 Mont.
265, 272, 677 P,2d 1034, 1038. See also Carlson v. Cain (19831,
204 Mont. 311, 317, 664 P.2d 913, 916 ("[WJhere there is no dispute
as to what the arrangement is, the question of employee or
independent contractor status is one of law for the court.").
When the facts are disputed, as here, the "substantial
evidence1' test is appropriate. In Hammerquist v. Employment
Security Division (1988), 230 Mont. 347, 350, 749 P.2d 535, 537,
for example, we held that a hearing officer had applied the proper
"legal standardr1 determining that a construction worker was an
in
employee and not a partner of a building contractor, but we also
held that 'lsubstantial evidence supports the hearing officeris
finding and conclusion that no partnership or joint venture
exists," See also Connolly v. Board of Labor Appeals (1987), 226
Mont. 201, 734 P.2d 1211 (substantial evidence test applied to a
Board determination of employee misconduct).
Here, the District Court reviewed the hearing officer's
findings of fact, which were adopted by the Board, and found that
they were supported in the hearing transcript and were therefore
conclusive. This Court also is bound by those findings, to the
extent that they are supported by substantial evidence. Larry%
Post co. V. Unemployment Insurance Div. (1989), 238 Mont. 190, 193,
777 P.2d 325, 327. If the factual findings are supported
substantial evidence, we must then determine whether the Board's
legal conclusion as to Potter's status was correct. Steer, Inc.,
THE INDEPENDENT CONTRACTOR I S S U E
Potter was hired by the respondent employers in 1987 for the
following projects:
John Bruton: Build shelves and a check-out counter for
Bruton's pharmacy
Ed Kopfman: Lay a cabin foundation slab and remodel
the cabin
Beneke
Construction: Form and pour concrete walls
John Lohden
Construction: Roof a building
Mort Arkava: Lay blocks for a house, grout a wall, and
pour concrete for a garage floor
Potter states that he was paid by the hour f o r his work on all
of these projects; that the employers provided most of the tools
and all of the materials needed for each job; and that Beneke
Construction and Lohden Construction hired him as one of several
employees for their respective projects.
The test for determining whether an individual is an
independent contractor is stated in 5 39-51-201(14), MCA:
"Independent contractorw 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.
Potter clearly meets the second of these criteria. He admits
that until 1987 he operated his own business, and most of the
respondent employers testified that they had hired him before 1987
as an independent contractor. The hearing officer found that
Potter was "independently established in a business11 in 1987
because he performed similar work for several persons and "offered
his carpentry/masonry services to any person or groups needing help
with work he was able to perform."
Potter claims that in 1987 he "chose to give up his own
independent b u s i n e ~ sand work only as an vlhourly
~~ employee." He
explains that in 1986 he hired a helper, Steve Anderson, whom he
believed to be an independent contractor. The Department, however,
determined that Anderson was an employee and that Potter was
required to make unemployment insurance contributions. Potter
decided then to become an employee himself. In practice, this
meant that he asked employers to pay him by the hour instead of by
the job. He did not specifically tell them that he was no longer
operating his own business, nor did he ask any employer to withhold
payroll taxes or to make employer contributions.
We hold that substantial evidence supports the hearing
officer's finding that Potter had an independently established
business in 1987.
As to the first criterion, freedom from control, we recognize
four factors to be considered:
(1) direct evidence of the right or exercise of control;
6
(2) method of payment;
(3) furnishing of equipment; and
(4) right to fire.
Johnson v. Dept. of Labor and Industry (1989), 240 Mont. 288, 292,
783 P.2d 1355, 1358, citing Sharp v. Hoerner Waldorf Corp. (1978),
178 Mont. 419, 425, 584 P.2d 1298, 1301-1302. Independent
contractor status is usually established only by "a convincing
accumulation of these and other tests," while a finding of employee
status can often be "solidly proved on the strength of one of the
four items. Sharp, 584 P.2d at 1302; Walling v. Hardy
Construction (1991), 247 Mont. 441, 807 P.2d 1335. We have
consistently held, however, that statutes used as guides in
determining a worker's status Itmust not be distorted to allow
persons who are truly independent in their operation to be held
employees merely for tax purposes and resulting benefits derived
from an employer-employee relationship." St. Regis Paper Company
v. Unemployment Compensation Commln (l97l), 157 Mont. 548, 552, 487
P.2d 524, 526, quoted in Johnson, 783 P.2d at 1358.
The hearing officer concluded that three of the four factors
indicated that Potter was an independent contractor in 1987.
First, he found direct evidence of Potter's right of control in the
following facts: each of the employers was interested only in the
completed project; most of them were not capable of directing
Potter's day-to-day work activities; and Potter usually performed
the work on his own time schedule.
Potter argues that each of the respondent employers possessed
and exercised the right to control his work because each one hired
him for a specific job, and most of them were at the job site
daily, supervising his work and giving directions.
The traditional test of employee status is whether the
employer controls only the end result of the work, which indicates
that the worker is an independent contractor, or whether the
employer controls the means by which the work is accomplished,
which indicates that the worker is an employee. Johnson, 783 P.2d
at 1358. An employer of an independent contractor, however, "is
entitled to as much control of the details of the work as is
necessary to ensure that he gets the end result that he bargained
for." Walling, 807 P.2d at 1339.
Here, the record shows that none of the respondent employers
controlled the days or hours of Potter's work, and that all of them
except John Lohden Construction relied on Potter's expertise to
complete the job. For example, Lisa Beneke testified that Beneke
Construction had no experience with full-wall foundation forms and
therefore hired Potter for his expertise in using his own forms to
pour a full-wall foundation. The hearing officer found that Potter
usually was free to determine the individual means of accomplishing
the work he had agreed to do for these employers.
Second, the hearing officer found that Potter provided almost
all of the necessary tools, forms, and equipment for the respondent
employerss projects, and that his use of rental equipment owned by
Kopfman was not inconsistent with independent contractor status.
Potter claims that the only tools he provided were vlsmallhand
tools" and that each of the respondents furnished all the equipment
necessary for his particular project. In particular, he claims
that the two construction companies, Lohden and Beneke, provided
or
llalllt "90 percent" of the tools he used on their projects. On
the other hand, Potter admits that when he worked for Bruton, the
pharmacist, he used "a table saw that [Bruton] was considering
purchasing from [Potter],lt and he testified at the Department
hearing that he had supplied a cement mixer and a generator for the
Kopfman job .
The respondent employers testified that they had purchased
materials ordered by Potter and that Potter was free to hire
assistants or obtain needed equipment independently.
When an employer furnishes valuable equipment, an employment
relationship almost invariably exists. Solheim, 677 P.2d at 1038.
Here, however, the record indicates that among the respondent
employers, only Kopfman can be said to have furnished valuable
equipment.
Third, the hearing officer found that the respondent employers
did not have an absolute right to fire Potter, since either party
could terminate the relationship without Liability only if the end
result were not accomplished as agreed. In Solheim, 677 P.2d at
1039 (quoting Larson, Workmen's Compensation Law, Vol. lC, 5
44.35) , we described the right to fire as the power to control,
noting that:
The absolute 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.
Here, Potter asserts that he could have quit without incurring
liability: he also points out that Kopfman laid him off without
incurring liability. The respondent employers testified that they
believed they could terminate the relationship but were not sure of
the consequences. None of them had executed a written contract,
and damages for failure to perform had not been discussed.
The fact that neither Potter nor the employers were certain of
their rights indicates that the employers did not have an absolute
right to fire Potter. As we held in Solheim, 677 P.2d at 1039, the
absence of an absolute right to terminate the relationship without
liability supports the finding of an independent contractor
relationship. Also see Johnson, 783 P.2d at 1359 (testimony
indicating that neither party was certain of his rights as to the
ability to terminate supported a finding of an independent
contractor relationship).
With regard to the fourth factor, method of payment, the
hearing officer found that Potter Itwas free to bid or it appears
did bid the work performed based on his normal hourly rate." He
concluded that the fact that the respondent employers paid Potter
on an hourly basis was not conclusive evidence of an employer-
employee relationship.
Potter insists that he was paid by the hour and not for the
job, and that when he was an independent contractor he bid and was
paid by the job. All of the respondent employers except Beneke
Construction paid Potter weekly, for the number of hours worked.
Beneke Construction paid him hourly wages at the end of each job.
While payment on a time basis is strong evidence of employment
status, Solheim, 677 P.2d at 1038, we have observed before that in
the construction industry carpenters often work on an hourly basis.
Johnson, 738 P.2d at 1359. Hourly pay therefore is not conclusive
evidence of either an independent contractor or an employment
status.
In short, substantial evidence supports the hearing officer's
findings of fact with regard to the four factors we recognized in
Sham, Solheim, and Johnson. Because three of the factors
indicated that Potter was not an employee, and the fourth was not
conclusive, the District Court concluded correctly that Potter was
an independent contractor and therefore not entitled to
unemployment insurance benefits for 1987.
AFFIRMED.
We concur: I
/
Justices
Justice Terry N. Trieweiler dissenting.
I dissent from the opinion of the majority. I especially
disagree with the majority's treatment of appellant's relationship
with all of the respondents as if they were the same.
I conclude, based on the uncontroverted evidence, that Potter
established an employer/employee relationship with John Bruton, Ed
Kopfman, Beneke Construction, and John Lohden Construction as a
matter of law.
The majority correctly notes that 39-51-201(14), MCA,
establishes a two-part test for determining whether someone
rendering service for another is an independent contractor. It is
not sufficient that petitioner has been or is engaged in an
independent occupation or trade. He must also have been free from
control over the performance of his services.
As pointed out by the majority, in determining whether there
was freedom from control we consider four factors: "(1) direct
evidence of right or exercise of control; (2) method of payment;
(3) furnishing of equipment; and (4) right to fire." Johnson v Dept.
.
o f l a b o r & Indushy (l989), 240 Mont. 288, 292, 783 P.2d 1355, 1358.
While it is true that the first factor was disputed by each of
the alleged employers, it is not correct that the remaining factors
were disputed. Plaintiff testified, and all four of the above
employers agreed, that he was paid by the hour for his services,
rather than based on a contract bid. In SoIheim v Tom Davk Ranch
.
(1984), 208 Mont. 265, 273, 677 P.2d 1034, 1038, we held that:
Method of Payment. Payment on a time basis is
strong evidence of employment status. Sharp [ Hoerner
v
.
WaldoifCop. (1978)l 178 Mont. at 425, 584 P.2d at 1302;
Larson, Section 44.33 (a), p 8-74. Payment on a completed
.
project basis is consistent with, but not conclusive of,
independent contract status. Larson, Section 44.33(c),
p. 8-93.
Potter also testified that each of the above respondents
provided him with some of the tools or equipment that were
necessary for the work that he did for them. John Bruton
acknowledged that he provided the radial arm saw, and may have
provided a few other tools. Ed Kopfman did not discuss the issue
of tools. Lisa Beneke did not discuss tools, and John Lohden did
not bother to show up and testify about anything. Therefore, the
third part of the four-part test for control is also undisputed
with regard to these four respondents. We previously held in
Soheim that:
According to Larson, when an employer furnishes
valuable equipment, an employment relationship almost
invariably exists, but the test does not cut in both
directions with equal force. Proof showing a worker
furnished his own equipment is not necessarily fatal to
a finding of employee status. Larson, Section 44.34,
pp. 8-95 -8-104.
Finally, Potter testified that he could have terminated his
employment with any of the above respondents at any time without
incurring liability to them and that they could have terminated his
services without incurring further liability to him. He pointed
out, in fact, that both Lohden and Beneke did terminate his
services while work remained to be done. I do not agree with the
majority's conclusion that there was substantial evidence to
support the hearing officer's finding that these four respondents
did not have an absolute right to fire Potter. Lohden did not
appear, and therefore, never answered the questions. Beneke, when
asked, did not respond directly to the question. However, both
Kopfman and Bruton testified unequivocally that they could have
discharged Potter at any time without incurring liability and that
he could have quit at any time without incurring liability. In
Solheim, we pointed out that:
Larson states at Section 44.35 pp. 8-116 - 8-122.
"The power to fire ... is the power to control.
The absolute 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." ...
"Examples could be multiplied in which most of the
other indicia - method of payment, furnishing of
equipment, skilled nature of the work, sometimes
provision by the employee even of his own assistants and
insurance, and not infrequently contractual disavowals of
right of control and of employment relation - have
pointed toward independent contractorship; yet the one
element of right to fire, with its attendant implied
right to control, has carried the day for employment
relationship.
Solheim, 677 P.2d at 1039.
According to my reading of the record in this case, there was
no evidence to support the hearing officer's findings that three of
the four factors considered in determining whether the respondents
exercised control were not present. Based on my review of the
record, the undisputed evidence establishes that three of the four
factors were present. Therefore, as a matter of law, it must
necessarily be concluded that at the times in question Potter was
an employee of these four respondents. As we have previously held:
In Sharp v. Hoerner WaIdorfCorp. (1978), 178 Mont. 419,
584 P.2d 1298, this Court developed a four-part test for
determining whether or not an employer has the right of
control: (1) direct evidence of right or exercise of
control; (2) method of payment; (3) furnishing of
equipment; and (4) right to fire. Sharp, 178 Mont. at
425, 584 P.2d at 1301-02. A finding that an individual
is an independent contractor demands "'a convincing
accumulation of these and other tests, " while a finding
'
of employee status "'can if necessary often be solidly
proved on the strength of one of the four items. 'I Sharp,
178 Mont. at 425, 584 P.2d at 1302 (quoting 1C A. Larson,
W o r h e n l s Compensation Law 5 44.10 at 8-35 (1952)).
WaIlingv. Hardy Construction (1991), 247 Mont. 441, 447, 807 P.2d 1335,
Since, by the undisputed evidence there was not a significant
accumulation of these factors to support a finding of independent
contract status, I conclude that the petitioner, Dave Potter, was
an employee of the four respondents previously mentioned, and that
the judgment of the District Court in their favor should be
reversed.
I would affirm the District Court I conclusion that as to Mort
s
Arkava, Potter was an independent contractor.