Home & Cmty. Servs. of Hawai‘i, Inc. v. Dep't of Labor & Indus. Relations

• Decision Date: 28 January 2016
• Docket Number: NO. CAAP–14–0001311.,CAAP–14–0001311.
• Citation: 137 Hawai'i 125,366 P.3d 181
• Parties: HOME & COMMUNITY SERVICES OF HAWAI‘I, INC., a Hawai‘i corporation, Preferred Home & Community Based Services, Inc., a Hawai‘i corporation, and Aloha Habilitation Services, Inc., a Hawai‘i corporation, Petitioners/Appellants/Appellants, v. DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS, Respondents/Appellees/Appellees.
• Court: Hawaii Court of Appeals

137 Hawai'i 125

366 P.3d 181

HOME & COMMUNITY SERVICES OF HAWAI‘I, INC., a Hawai‘i corporation, Preferred Home & Community Based Services, Inc., a Hawai‘i corporation, and Aloha Habilitation Services, Inc., a Hawai‘i corporation, Petitioners/Appellants/Appellants,

v.DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS, Respondents/Appellees/Appellees.

NO. CAAP–14–0001311.

Intermediate Court of Appeals of Hawai‘i.

Jan. 28, 2016.

Kenneth M. Nakasone, Thao T. Tran, Nicholas R. Monlux, (Kobayashi Sugita & Goda), Honolulu, on the briefs, for Petitioners/Appellants/Appellants.

Frances E.H. Lum, J. Gerard Lam, Deputy Attorneys General, on the briefs, for Respondent/Appellee/Appellee.

FOLEY, Presiding J. and FUJISE, J., with REIFURTH, J. concurring separately.

Opinion of the Court by FOLEY, J.

Petitioners/Appellants/Appellants Home & Community Services of Hawai‘i, Inc., Preferred Home & Community Based Services, Inc., and Aloha Habilitation Services, Inc. (collectively, Service Providers ) appeal from the Decision and Order (D & O ) issued by the Labor and Industrial Relations Appeals Board (LIRAB ) on November 7, 2014.

On appeal, Service Providers contend the LIRAB erred in affirming the Declaratory Ruling that Service Providers' subcontractors were not excluded from the definition of "employment" under the statutory exemption found in Hawai‘i Revised Statutes (HRS ) § 386–1 (Supp.2003).¹

I. BACKGROUND

The Department of Human Services (DHS ), a State agency that receives and manages Medicaid funding to provide home and community-based services to disabled adults under the Social Security Act, 42 C.F.R. Part 441 Subpart G, contracted with Service Providers to provide Medicaid Waiver attendant and in-home day care services to qualified disabled individuals.² The DHS's contracts allowed Service Providers to hire subcontractors to provide the direct services to disabled individuals. Under the DHS contracts, Service Providers received payments directly from DHS, and Service Providers were responsible for paying the subcontractors.

Between 2004 and 2006, Service Providers obtained workers' compensation insurance from Intervenor/Appellee/Appellee Hawai‘i Employers' Mutual Insurance Company, Inc. (HEMIC ) for their employees, but did not obtain insurance coverage for their subcontractors. On February 17, 2005, then-Director of Respondent/Appellee/Appellee Department of Labor and Industrial Relations (DLIR ) Nelson B. Befitel issued a declaratory ruling in In re Manawa Lea Health Services, Inc. (the Manawa Lea Decision ), concluding that an entity similar to Service Providers, which had also used subcontractors to provide Medicaid Waiver services, did not fall within the domestic exemption under the then-existing HRS § 386–1. Following the Manawa Lea Decision, HEMIC sought unpaid workers' compensation insurance premiums from Service Providers for their subcontractors for the period of time between 2004 and 2006.

On May 13, 2008, Service Providers petitioned DLIR for a declaratory ruling establishing:

1. In the years 2004, 2005 and 2006, [Service Providers'] subcontractors who perform Medicaid Waiver Services ("Subcontractors") were independent contractors and not employees of [Service Providers] in the performance of those services; and

2. That in the years 2004, 2006 [sic] and 2006, the Subcontractors who performed Medicaid Waiver Services were excluded from "employment" under the then existing "domestic" exemption of [HRS] § 386–1 when they performed those services.

The Director of DLIR, Darwin L.D. Ching (Director ), issued his Declaratory Ruling on October 22, 2008 (Director's Declaratory Ruling ) on the issue of "whether individuals who were subcontracted by [Service Providers] to perform Medicaid Waiver services in 2004, 2005, and 2006 were excluded from ‘employment’ under [HRS] § 386–1(6), commonly called the ‘domestic exception.’ " The Director concluded:

[T]he domestic exception only covers services provided to a recipient of social service payments where the recipient is: (1) a person who receives social services; and (2) that person also receives social service payments. As [Service Providers] are not recipients of social services, services provided by their workers are not covered by the domestic exception.

Service Providers filed their appeal of the Director's Declaratory Ruling to the LIRAB on November 10, 2008. The LIRAB issued its D & O on November 7, 2014 affirming the Director's Declaratory Ruling. Service Providers appealed to this court on November 21, 2014.

II. STANDARD OF REVIEW

A. Administrative Rulings

HRS § 91–14(g) (1993) provides:

Upon review of the record the court may affirm the decision of the agency or remand the case with instructions for further proceedings; or it may reverse or modify the decision and order if the substantial rights of the petitioners may have been prejudiced because the administrative findings, conclusions, decisions, or orders are:

(1) In violation of constitutional or statutory provisions; or

(2) In excess of the statutory authority or jurisdiction of the agency; or

(3) Made upon unlawful procedure; or

(4) Affected by other error of law; or

(5) Clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or

(6) Arbitrary, or capricious, or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

See Tauese v. State, Dep't of Labor and Indus. Relations, 113 Hawai‘i 1, 25, 147 P.3d 785, 809 (2006). Conclusions of law fall within subsections (1), (2), and (4), and are reviewed de novo under the right/wrong standard. Id. (citing Potter v. Hawai‘i Newspaper Agency, 89 Hawai‘i 411, 422, 974 P.2d 51, 62 (1999) ; Tate v. GTE Hawai‘ian Tel. Co., 77 Hawai‘i 100, 103, 881 P.2d 1246, 1249 (1994) (citing State v. Furutani, 76 Hawai‘i 172, 180, 873 P.2d 51, 59 (1994) ). Findings of fact are reviewed under subsection (5) to determine if the agency was clearly erroneous in view of reliable, probative, and substantial evidence on the whole record. Tauese, 113 Hawai‘i at 25, 147 P.3d at 809 (citing Poe v. Hawai‘i Labor Relations Bd., 87 Hawai‘i 191, 195, 953 P.2d 569, 573 (1998) ). Questions regarding procedural defects are reviewable to determine whether the decision was made upon unlawful procedure under subsection (3). Tauese, 113 Hawai‘i at 25, 147 P.3d at 809 (citing Potter, 89 Hawai‘i at 422, 974 P.2d at 62 ).

B. Statutory Interpretation in Administrative Appeals

The "interpretation of a statute is a question of law reviewable de novo. " Survivors of Iida v. Oriental Imports, Inc., 84 Hawai‘i 390, 396, 935 P.2d 105, 111 (App.1997) (internal quotation marks omitted) (quoting Sato v. Tawata, 79 Hawai‘i 14, 17, 897 P.2d 941, 944 (1995) ).

Our construction of statutes is guided by the following rules:

First, the fundamental starting point for statutory-interpretation is the language of the statute itself. Second, where the statutory language is plain and unambiguous, our sole duty is to give effect to its plain and obvious meaning. Third, implicit in the task of statutory construction is our foremost obligation to ascertain and give effect to the intention of the legislature, which is to be obtained primarily from the language contained in the statute itself. Fourth, when there is doubt, doubleness of meaning, or indistinctiveness or uncertainty of an expression used in a statute, an ambiguity exists.

First Ins. Co. of Hawai‘i v. A & B Props., 126 Hawai‘i 406, 414, 271 P.3d 1165, 1173 (2012) (quoting State v. Wheeler, 121 Hawai‘i 383, 390, 219 P.3d 1170, 1177 (2009) ).

"[W]hen, as in this case, an administrative agency is involved, we defer to the agency's interpretations of its rules unless deference would result in an absurd or unjust result, or be plainly erroneous or inconsistent with the underlying legislative purpose." Iida, 84 Hawai‘i at 396, 935 P.2d at 111 (internal quotation marks omitted) (quoting Int'l Bhd. Of Elec. Workers, Local 1357 v. Hawai‘ian Tel. Co., 68 Haw. 316, 323, 713 P.2d 943, 950 (1986) ).

III. DISCUSSION

Service Providers contend they are covered by the domestic exemption under the then-existing HRS § 386–1, and therefore do not have " employment" relationships with their subcontractors such that Service Providers would be required to comply with HRS chapter 386 (Workers' Compensation Law ). Service Providers argue that the LIRAB erred by misinterpreting the domestic exemption when it concluded that since Service Providers did not receive Medicaid Waiver social services, they were not covered by the domestic exception in effect prior to 2007.³ Service Providers argue that the LIRAB rested its erroneous conclusion on its misinterpretation of the statute as ambiguous, and that the plain language of the statute is clear and sufficient to resolve the issue of whether the subcontractors for Service Providers fell within the meaning of the domestic exemption to HRS § 386–1. Service Providers argue that they were recipients of social service payments under the terms of their contracts with DHS, clearly within the meaning of the domestic exemption.

The Director, in his Declaratory Ruling, found that "whether ‘recipients of social service payments' includes anyone receiving social service payments or just recipients of social services who also receive such payments is not plain and obvious." The Director concluded that the domestic exemption "covers services provided to a recipient of social service payments where the recipient is: (1) a person who receives social services; and (2) that person also receives social service payments." The LIRAB upheld the Director's determination. In its FOFs, the LIRAB stated:

28. Service Providers and the Director disagreed on what "recipient of social service payments" meant during the period 2004 to 2006. Service Providers contended that "recipient of social service payments" referred to entities like them that received social service payments from DHS. The Director interpreted the term "recipient of

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