79 Hawai'i 208, Locations, Inc. v. Hawai'i Dept. of Labor and Indus. Relations

• Citation: 900 P.2d 784
• Decision Date: 28 July 1995
• Docket Number: No. 17275,17275
• Parties: 79 Hawai'i 208 LOCATIONS, INCORPORATED, Appellant-Appellee, v. HAWAI'I DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS, Appellee-Appellant.
• Court: Supreme Court of Hawai'i

Page 784

900 P.2d 784

79 Hawai'i 208

LOCATIONS, INCORPORATED, Appellant-Appellee, v. HAWAI'I DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS Appellee-Appellant.

No. 17275.

Supreme Court of Hawai'i.

July 28, 1995.

Leo B. Young, Deputy Atty. Gen., Honolulu, for appellee-appellant Dept. of Labor and Indus. Relations, State of Hawai'i.

Ellen Godbey Carson (Paul Alston, with her on the brief, of Alston, Hunt, Floyd & Ing), Honolulu, for appellant-appellee Locations, Inc.

Wayne M. Pitluck and Dana K.N. Sato of Pitluck & Kido, on the brief, Honolulu, for amicus curiae, Hawai'i Ass'n of Realtors.

Before MOON, C.J., LEVINSON and NAKAYAMA, JJ., Circuit Judge HUDDY, in place of KLEIN, J., recused, and Circuit Judge CRANDALL, in place of RAMIL, J., recused.

MOON, Chief Justice.

Appellant State of Hawai'i, Department of Labor and Industrial Relations (the DLIR), appeals from the judgment of the circuit court, reversing its declaratory ruling. The DLIR contends on appeal that the circuit court erred in its determination that licensed real estate agents who perform sales activities pursuant to "independent contractor agreements" with appellee Locations, Inc. (Locations) are "independent contractors" and not "employees" for purposes of Hawai'i's workers' compensation laws.

As a matter of law, we hold that Locations-agents ¹ are independent contractors and not employees. Accordingly, we affirm the circuit court's judgment.

I. BACKGROUND

Locations, a real estate sales company, petitioned the DLIR for a declaratory ruling that, for purposes of Hawai'i's workers' compensation laws, the licensed real estate agents who perform sales activities pursuant to "independent contractor agreements" with Locations are not "employees" and, therefore, that Locations need not provide mandatory workers' compensation coverage for them.

Based upon undisputed facts submitted solely by Locations, the DLIR ruled that Locations-agents are "employees" for workers' compensation purposes. Locations thereafter timely appealed the DLIR's declaratory ruling to the circuit court. The circuit court granted Locations's appeal, reversed the DLIR's declaratory ruling, and concluded that "Locations, Inc.'s licensed real estate agents, hired pursuant to independent contractor agreements, are independent contractors and not employees for purposes of Hawai'i's Workers Compensation laws." The DLIR timely appeals from the circuit court's final judgment.

II. STANDARD OF REVIEW

Review of a decision made by the circuit court upon its review of an agency's decision is a secondary appeal.... The standard of review is one in which this court

must determine whether the circuit court was right or wrong in its decision, applying the standards set forth in HRS § 91-14(g) ² to the agency's decision. This court's review is further qualified by the principle that the agency's decision carries a presumption of validity and appellant has the heavy burden of making a convincing showing that the decision is invalid because it is unjust and unreasonable in its consequences.

Sussel v. Civil Service Comm'n, 74 Haw. 599, 608, 851 P.2d 311, 316, reconsideration denied, 74 Haw. 650, 857 P.2d 600 (1993) (internal brackets and quotation marks omitted) (quoting Chock v. Bitterman, 5 Haw.App. 59, 64, 678 P.2d 576, 580, cert. denied, 67 Haw. 685, 744 P.2d 781 (1984)).

The circuit court's determination that Locations-agents are independent contractors and not employees is a question of law freely reviewable by an appellate court under HRS § 91-14(g)(4). See Sussel, 74 Haw. at 610, 851 P.2d at 317, (citing Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 119, 839 P.2d 10, 28, reconsideration denied, 74 Haw. 650, 843 P.2d 144 (1992)).

III. DISCUSSION

A. Hawai'i's Workers' Compensation Laws Pertain Only to

Employer-Employee Relationships.

Although licensed real estate agents are considered independent contractors under myriad state and federal statutes, ³ Hawai'i's workers' compensation laws, codified in HRS chapter 386, do not specify whether such agents are employees or independent contractors. For purposes of coverage, HRS chapter 386, pertains only to "employees" who are "individual[s] in the employment of another person." HRS § 386-1 (1985). With respect to independent contractors, this court has held that a party who hires an independent contractor is not an employer, and thus, "does not fall within the provisions of HRS § 386-5 which exempts employers from liability to [their] employees." Makaneole v. Gampon, 70 Haw. 501, 508, 777 P.2d 1183, 1187 (1989). It therefore follows that a party who contracts with an independent contractor need not provide workers' compensation coverage for that independent contractor.

The DLIR has observed that:

Work[ers'] compensation laws are highly remedial in character. Their paramount purpose is to provide compensation for an employee for all work-connected injuries, regardless of questions of negligence and proximate cause. Courts should therefore give them a liberal construction in order to accomplish their beneficent purposes.

Evanson v. University of Hawai'i, 52 Haw. 595, 600, 483 P.2d 187, 191 (1971) (citations omitted). Consequently, the DLIR contends that "the term 'employee' as used in the workers' compensation context, should be liberally construed to achieve the beneficent intent of workers' compensation statutes." Although Locations does not dispute this contention, and although we recognize the beneficent purposes and the remedial nature of Hawai'i's workers' compensation laws, "[t]he rule of liberal construction cannot be strained to the point of extending it to employments not within its scope or intent." Florida Indus. Comm'n v. Schoenberg, 117 So.2d 538, 541 (Fla.Dist.Ct.App.1960). Simply stated, there can be no workers' compensation coverage absent an employment relationship. See Harter v. County of Hawai'i, 63 Haw. 374, 378 n. 3, 628 P.2d 629, 632 n. 3 (1981) (the relationship between employer and employee must be entered into in a deliberate manner with the informed consent of both parties).

B. Determining the Existence of an Employer-Employee Relationship

Although the relationship between Locations and Locations-agents is based on independent contractor agreements, it is well-settled that the existence of independent contractor agreements, standing alone, would not exempt Locations from providing workers' compensation coverage if the true nature of the relationship is that of employer-employee. This court has recognized that an employment relationship may exist even in situations in which the parties have "agreed" not to label themselves as employer and employee.

For example, in Bailey's Bakery v. Borthwick, 38 Haw. 16 (1948), a bakery unilaterally redesignated its deliverypersons as "vendees," purportedly in an attempt to avoid paying into Hawai'i's unemployment fund. Prior to the redesignation, the drivers for the bakery had delivered bread to retailers and had worked for stated hours and wages. Under the new delivery system, the bakery ceased to furnish delivery equipment, but sold or financed the purchase of such equipment to drivers who wished to purchase them. The drivers were responsible for collecting payment from the retailers. The drivers retained the differential between the wholesale price charged to the retailers and the reduced price charged to the driver at the plant, both amounts being fixed by the bakery. Although the bakery exercised no control over the delivery equipment or the manner of its operation, the bakery exercised complete control over the deliveries themselves, including the delivery routes, which were divided so that there was no competition between drivers. Bread prices were also fixed by the bakery. Id. at 18-19.

In determining the existence of an employment relationship, this court in Bailey's Bakery applied the "control test," consistent with the test set forth in Tomondong v. Ikezaki, 32 Haw. 373 (1932). Under the control test, an employment relationship is established when "the person in whose behalf the work is done has the power, express or implied, to dictate the means and methods by which the work is to be accomplished." Id. at 380. In contrast,

[o]ne who contracts with another to do a specific piece of work for him [or her], and who furnishes and has the absolute control of his [or her] assistants, and who executes the work entirely in accord with his [or her] own ideas, or with a plan previously given him [or her] by the person for whom the work is done, without being subject to the latter's orders in respect of the details of the work, with absolute control thereof, is not a servant of his [or her] employer, but is an independent contractor.

Id. at 378. Subsequent to its examination of the relationship between the bakery and its redesignated deliverypersons, this court held that "the relation ... [was] that of master and servant ... not that of [independent contractor and contractee]." Bailey's Bakery, 38 Haw. at 16.

In subsequent cases, this court has continued to follow the control test to determine the existence of an employment relationship. See Kepa v. Hawai'i Welding, 56 Haw. 544, 548, 545 P.2d 687, 691 (1976) ("The paramount consideration in determining whether the alleged special employer is in fact a special employer of the worker in work[ers'] compensation lent employee cases [is] whether the alleged special employer exercised control over the details of the work of the loaned employee and such control strongly supports the inference that a special employment [relationship] exists"); Yoshino v. Saga Food Serv., 59 Haw. 139, 143, 577 P.2d 787, 790 (1978) (The control test "looks to the degree of control exercised by each employer with regard to the employee."); Harter, 63 Haw. at 379, 628 P.2d at 632 (the control test is the primary guideline for determining whether an employer is a special employer for workers' compensation purposes).

C. The DLIR...