B & R Sales, Inc. v. Wash. State Dep't of Labor & Indus.

• Citation: 344 P.3d 741,186 Wash.App. 367
• Decision Date: 10 March 2015
• Docket Number: No. 45765–2–II.,45765–2–II.
• Court: Court of Appeals of Washington
• Parties: B & R SALES, INC., Appellant, v. WASHINGTON STATE DEPARTMENT OF LABOR & INDUSTRIES, Respondent.

186 Wash.App. 367

344 P.3d 741

B & R SALES, INC., Appellant

v.WASHINGTON STATE DEPARTMENT OF LABOR & INDUSTRIES, Respondent.

No. 45765–2–II.

Court of Appeals of Washington, Division 2.

March 10, 2015.

Aaron Kazuo Owada, AMS Law PC, Lacey, Jennifer Liu Truong, AMS Law PC, Seattle, WA, for Appellant.

Katy Janelle Dixon, Office of the Attorney General, Seattle, WA, for Respondent.

Opinion

MAXA, J.

¶ 1 B & R Sales, Inc. appeals the superior court's order affirming the decision of the Board of Industrial Insurance Appeals (Board) that B & R was required to pay industrial insurance premiums for the independent contractors B & R hired to install floor coverings for its customers. The Board's decision was based on a finding that the contractors were “workers” performing personal labor under RCW 51.08.180. B & R argues that the contractors did not qualify as “workers” because they could not perform the contracted work without the use of expensive specialized tools and customized vans, and therefore the essence of their contracts was not personal labor. B & R also argues that the contractors were excluded from mandatory workers' compensation coverage under RCW 51.12.020.

¶ 2 We hold that the contractors were “workers” under RCW 51.08.180 because the primary object of their contracts was their personal labor despite their use of expensive specialized tools and equipment. We further hold that B & R waived its RCW 51.12.020 argument because it did not make that argument to the Board. Therefore, we affirm the Board and the superior court.¹

FACTS

Premium Assessment

¶ 3 B & R is a business that sells and installs floor coverings. In 2008, B & R contracted with 17 independent contractors to install materials sold to its clients. Fourteen of the contractors were sole proprietors, and the remaining three were a partnership, a corporation, and a limited liability company. B & R also employs an installer that does the same job as the contractor installers.

¶ 4 The floor covering installation process requires the physical labor, skill, and expertise of a professional installer. And B & R's independent contractors were contractually required to provide the tools they needed for installations. Some of the contractors' tools were specialized, unique to the installation trade, and available only from specialty stores serving professional installers. These tools included large vinyl rollers, power stretchers for carpet, and a specialized saw with a diamond blade for cutting ceramic tile. The contractors' other tools included saws, trimmers, files, and nail guns. The aggregate value of each contractor's tools ranged from $7,000 to $20,000. In addition, the contractors were required under the contract to supply a customized van capable of transporting and storing their supplies and equipment as well as the materials to be installed.

¶ 5 Each B & R contractor had the right under the contractor agreement to hire additional employees to perform the installation work. However, no evidence was presented that any of the contractors hired additional employees.

¶ 6 In 2009, the Department of Labor and Industries (DLI) performed an audit on B & R and discovered that B & R had not paid industrial insurance premiums for any of its contract installers in 2008. DLI determined that each of the contract installers was a “worker” under RCW 51.08.180. An auditor assessed industrial insurance premiums, interest, and penalties against B & R in the amount of $87,752.23. After B & R requested reconsideration, DLI reaffirmed its order in May 2011.

Appeal to the Board of Industrial Insurance Appeals

¶ 7 B & R appealed DLI's assessment. An industrial insurance appeals judge reversed DLLs order. Both B & R and DLI petitioned for review to the Board. The Board issued a decision and made a finding of fact that the essence of the agreements between B & R and the 17 contractors was the contractors' personal labor. The Board concluded that two installers, Michael Schultz and Charles Soule, were not B & R's workers before June 12, 2008 (the effective date of an amendment to RCW 51.08.180 ), but were B & R's workers after that date.²

Appeal to Superior Court

¶ 8 B & R appealed the Board's decision and order to the superior court. After reviewing the record before the Board and the parties' pleadings, the superior court issued findings of fact, conclusions of law, and a judgment affirming the Board's decision and order.

¶ 9 B & R appeals.

ANALYSIS

A. Standard of Review

1. Superior Court Review

¶ 10 B & R argues that the superior court erred by applying the substantial evidence standard to the Board's findings of fact. B & R relies on RCW 51.52.115, which provides that the hearing of. industrial insurance appeals in the superior court shall be de novo. We hold that the superior court used the correct standard of review.

¶ 11 Washington's Industrial Insurance Act (IIA), Title 51 RCW, includes general judicial review provisions that apply to workers' compensation claims. Arriaga v. Dep't of Labor & Indus., 183 Wash.App. 817, 822, 335 P.3d 977 (2014). RCW 51.52.115 provides that the hearing in the superior court shall be de novo, but based only on the evidence offered before the Board. However, the IIA also contains a specific provision for judicial review of DLI's assessment decisions. RCW 51.48.131, which is entitled “Notice of assessment for default in payments by employer—Appeal” provides:

Further appeals taken from a final decision of the board under this section are governed by the provisions relating to judicial review of administrative decisions contained in RCW 34.05.510 through 34.05.598.

The referenced statutory provisions are in the Administrative Procedures Act (APA), chapter 34.05 RCW.

¶ 12 Based on RCW 51.48.131, Washington courts consistently have held that the APA governs judicial review of the Board's decisions regarding assessment of industrial insurance premiums. E.g., Xenith Grp., Inc. v. Dep't of Labor & Indus., 167 Wash.App. 389, 393, 269 P.3d 414 (2012) (premium assessments based on a finding of “worker” status); Probst v. Dep't of Labor & Indus., 155 Wash.App. 908, 918, 230 P.3d 271 (2010) ; Dep't of Labor & Indus. v. Mitchell Bros. Truck Line, Inc., 113 Wash.App. 700, 704, 54 P.3d 711 (2002).³ Accordingly, we hold that the APA, not RCW 51.52.115, determines the superior court's standard of review in an appeal of DLI's assessments.

¶ 13 Under the APA, the superior court applies a substantial evidence standard in reviewing an agency's findings of fact. RCW 34.05.570(3)(e) provides that the superior court can grant relief from an agency order if “[t]he order is not supported by evidence that is substantial when viewed in light of the whole record before the court.” Accordingly, we hold that the superior court properly applied a substantial evidence standard in reviewing the Board's findings of fact.

2. Appellate Review

¶ 14 As noted above, the APA governs judicial review of the Board's decision in an industrial insurance assessment case. RCW 51.48.131 ; Xenith Grp., 167 Wash.App. at 393, 269 P.3d 414. On appeal from the superior court, we sit in the same position as the superior court and review the agency's order based on the administrative record rather than the superior court's decision. Xenith Grp., 167 Wash.App. at 393, 269 P.3d 414.

An employer challenging the validity of the agency action assessing industrial insurance premiums bears the burden of showing that the premiums were assessed incorrectly. RCW 34.05.570(1)(a) ; Jamison v. Dep't of Labor & Indus.,

65 Wash.App. 125, 133, 827 P.2d 1085 (1992).

¶ 15 RCW 34.05.570(3) sets out nine grounds for invalidating an administrative order. Two grounds are applicable here: (1) the agency's order is not supported by substantial evidence, RCW 34.05.570(3)(e), and (2) the agency erroneously interpreted or applied the law. RCW 34.05.570(3)(d). We review the Board's findings of fact under a substantial evidence standard, which addresses whether the record contains evidence sufficient to persuade a fair-minded, rational person of the finding's truth. Xenith Grp., 167 Wash.App. at 393, 269 P.3d 414. We review the Board's legal conclusions de novo, but give “substantial weight to the agency's interpretation when the subject area falls within the agency's area of expertise.” Mitchell Bros., 113 Wash.App. at 704, 54 P.3d 711.

B. “Workers” Under RCW 51.08.180

¶ 16 B & R argues that the independent contractors were not “workers” under RCW 51.08.180, which defines “worker” as: “every person in this state who is engaged in the employment of or who is working under an independent contract, the essence of which is his or her personal labor for an employer.... ” (Emphasis added.)⁴ B & R claims that the essence of the contractors' contracts was not personal labor because the contractors could not perform the contracted work without the use of expensive specialized tools and customized vans. We disagree.

1. Standard of Review

¶ 17 The two other divisions of our court have applied different standards of review regarding the determination of “worker” status under RCW 51. 08.180. In Dana's Housekeeping v. Department of Labor & Industries, Division One of this court stated that “[w]hether the essence of the work is personal labor is a factual determination.” 76 Wash.App. 600, 608, 886 P.2d 1147 (1995). In Silliman v. Argus Services, Inc., Division Three of this court stated that whether services constitute “personal labor” within the meaning of RCW 51.08.180 is a mixed question of law and fact: “[w]hat services Argus provided is a question of fact; whether these services constitute ‘personal labor’ within the meaning of the statute is a question of law.” 105 Wash.App. 232, 236, 19 P.3d 428 (2001). The court in Silliman did not mention Dana's Housekeeping.

¶ 18 This division has not squarely addressed this issue.⁵ We now apply the mixed question of law and fact standard as articulated in Silliman . The nature of the contracts, what services the...