Beale v. State, Dept. of Employment

• Court: Idaho Supreme Court
• Writing for the Court: JOHNSON; TROUT
• Citation: Beale v. State, Dept. of Employment, 951 P.2d 1264, 131 Idaho 37 (Idaho 1997)
• Decision Date: 24 December 1997
• Docket Number: E,No. 000124346-2,No. 23127,000124346-2,23127
• Parties: Re Charles E. Borland, SSN 436-42-3833, Claimant. Michael L. & Christine K. BEALE, d/b/a Chuck's Auto Sales & d/b/a Chris Beale's Day Care Center, Employer Acct.mployers-Appellants, v. STATE of Idaho, DEPARTMENT OF EMPLOYMENT, Respondent. Coeur d'Alene, October 1997 Term

Page 1264

951 P.2d 1264

131 Idaho 37

Re Charles E. Borland, SSN 436-42-3833, Claimant Michael L. & Christine K. BEALE, d/b/a Chuck's Auto Sales & d/b/a Chris Beale's Day Care Center, Employer Acct. No. 000124346-2, Employers-Appellants, v. STATE of Idaho, DEPARTMENT OF EMPLOYMENT, Respondent.

No. 23127.

Supreme Court of Idaho,

Coeur d'Alene, October 1997 Term.

Dec. 24, 1997.

Danny J. Radakovich, Lewiston, for employers-appellants.

Alan G. Lance, Attorney General, Paul F. Kime, Deputy Attorney General, Boise, for respondent. Paul F. Kime, argued.

JOHNSON, Justice.

This is an unemployment coverage, contribution, and compensation case. We conclude that there is substantial and competent evidence to support the findings of the Industrial Commission (the Commission) that the employers had employees who were covered by the unemployment compensation act (the act) and that one of the employees is entitled to unemployment compensation. We conclude that the Commission's calculation of the amount of unemployment contributions is not consistent with its decision concerning the employees engaged in covered employment. Therefore, we remand the case to the Commission for a recalculation of this amount.

I. THE BACKGROUND AND PRIOR PROCEEDINGS

Michael and Christine Beale (the Beales) operated two businesses, a used car lot (the car lot) and a day care facility (the day care). Charles Borland (Borland) began working at the car lot in October 1985. With the exception of two brief periods when he voluntarily quit, Borland continued working until August 1990, when he quit and sought unemployment compensation. In his response to Borland's unemployment claim, Michael Beale stated that he owned the car lot as a sole proprietor. The Department of Employment (the department) determined that Borland was eligible for benefits and that the Beales' employer account was chargeable for Borland's unemployment benefits. The department also determined that the Beales had failed to report wages for other employees for the purposes of unemployment contributions. The Beales protested these determinations The appeals examiner upheld the determinations.

Both the Beales and the department sought review of the appeals examiner's decision by the Commission. The Commission upheld the decision of the appeals examiner that the Beales were covered employers with respect to Borland, as well as drivers, mechanics, and day care workers, and that Borland was eligible for unemployment benefits.

The Beales appealed. This Court dismissed the appeal for a lack of finality because the Commission had not determined the period and amount of liability for the unemployment contributions. The case was remanded to the department to determine the remaining issues. The department determined that the Beales were liable from January 1, 1987 through June 30, 1990, and owed $3,171.05 for unpaid unemployment insurance tax contributions. The Beales protested this decision. The appeals examiner determined that the period of liability began on October 1, 1987, and reduced the amount due to $2,367.73. The Beales appealed to the Commission, which affirmed the appeals examiner's decision and incorporated the conclusions of law set forth in the Commission's prior decision. The Beales appealed.

Preliminarily, we note that the department contends the Beales did not appeal the Commission's determination of Borland's eligibility because they named only the department, and not Borland, as a respondent in their notice of appeal. Although it is true that the notice of appeal initially states that the appeal is against "the above-named respondent," the portion of the notice of appeal stating to whom the notice of appeal is addressed lists Borland as a respondent. The Beales served on Borland by mail a copy of the brief they submitted to this Court. Therefore, we conclude that the appeal includes Borland's eligibility.

II.

THE COMMISSION CORRECTLY ASSIGNED THE BURDEN OF PROOF.

The Beales assert that the Commission incorrectly assigned to them the burden of proof concerning whether Borland was a covered employee. We disagree.

The Beales agree that they bear the burden of proving that the drivers, mechanics, and day care workers fall within the exemption to covered employment. See Henggeler Packing Co. v. Department of Employment, 96 Idaho 392, 529 P.2d 1264 (1974). They contend, however, that because the issue of covered employment with respect to Borland originated from his claim for unemployment benefits, Borland bears the burden of showing that he was engaged in covered employment.

Under the act, covered employment and eligibility for benefits are conceptually distinct proceedings. Covered employment involves a determination under section 72-1316 of the Idaho Code (I.C.) whether a covered employer must contribute to the unemployment security fund. Personal eligibility depends on whether the eligibility requirements for benefits in I.C. § 72-1366 are met. I.C. § 72-1366 does not explicitly require, as a condition of receiving benefits, an employee to prove that the employee was engaged in covered employment.

The personal eligibility conditions of I.C. § 72-1366 assume that the worker was engaged in covered employment. In the case of a claim where the putative employer disputes that a worker was engaged in covered employment, covered employment cannot be assumed and the worker must show engagement in covered employment as part of the claim for benefits. Under I.C. § 72-1316(d), this requires that the worker show performance of services for remuneration.

If the putative employer does not dispute that the claimant received remuneration for services performed, then under I.C. § 72-1316(d) there is covered employment, subject to the putative employer showing that an exemption applies. In the present case, Borland met his burden of production by stating in his claim for benefits that he received remuneration for services. The Beales did not refute Borland's statement that he received remuneration from them. This shifted the burden to the Beales to show that the exemption applied. Therefore, we conclude that the Commission correctly assigned the burden of proof.

III.

THERE IS SUBSTANTIAL AND COMPETENT EVIDENCE TO SUPPORT THE COMMISSION'S FINDINGS CONCERNING COVERED EMPLOYMENT.

The Beales assert that the Commission incorrectly found that Borland, the drivers and the mechanics were employees of the Beales covered by the unemployment compensation act. We disagree.

The portion of the act defining covered employment first states that "covered employment means an individual's entire service ... performed by [the individual] for wages or under any contract of hire, written or oral, express or implied." I.C. § 72-1316(a). In essence, the act creates a default position that "[s]ervices performed by an individual for remuneration shall ... be covered employment." I.C. § 72-1316(d). This Court has stated that the term "covered employment" is "an expansive term" and "sweeps within its purview employee and independent contractor alike." Software Assoc., Inc. v. Department of Employment, 110 Idaho 315, 316, 715 P.2d 985, 986 (1986) (Software ). The act exempts from covered employment a worker who is both (1) free from direction and control in the performance of work, and (2) engaged in an independently established trade. I.C. § 72-1316(d). This Court, after recognizing that the act is social legislation, has stated that "[i]n construing ... social legislation, exemptions from coverage are narrowly construed." King v. Department of Employment, 110 Idaho 312, 313, 715 P.2d 982, 983 (1986). In King, the Court also examined the various statutory versions of the exemption and concluded that the history of I.C. § 72-1316(d) suggested that a narrow construction was appropriate. Id.

In Software, the Court stated that "the question of independent contractor status is not reached if the relationship in question is one of employer-employee." Software, 110 Idaho at 316, 715 P.2d at 986 (citing King v. Department of Employment, 110 Idaho 312, 715 P.2d 982 (1986)). In a footnote, the Software Court set out the following four factors as pertinent to the determination whether an employer-employee relationship exists: (1) the way that the business entity represented its relationship with the workers prior to the present litigation, including representations to the Internal Revenue Service; (2) statements made to the department; (3) method of payment, in particular whether federal, state, and FICA taxes are withheld from paychecks; and (4) whether life or health benefits are provided to the worker at the business entity's expense. Id.

Following the preliminary inquiry, a putative employer must prove that a worker is free from direction and control. In making this determination, the test is whether the putative employer has control over the "details of the work, the manner, method or mode of doing it, the means by which it is to be accomplished, or, specifically, the details, manner, means, or method of doing the work, as contrasted with the result thereof." Vendx Mktg., Inc. v. Department of Employment, 122 Idaho 890, 896, 841 P.2d 420, 426 (1992). In addition, the freedom from direction and control must exist in theory (under a contract of service) and in fact. I.C. § 72-1316(d)(1)(A). Finally, the employer must demonstrate that it lacked a right to control the workers. Totusek v. Department of Employment, 96 Idaho 699, 702, 535 P.2d 672, 675 (1975).

The putative employer must also prove that the workers are "engaged in an independently established trade, occupation, profession, or business," which is accomplished by considering, as a starting point, the following two factors set out by this Court:

1. Whether the worker has the authority to hire subordinates; and

2. Whether the worker owns major items of equipment or incurs substantial unreimbursed expenses.

Vendx, 122 Idaho at 896, 841 P.2d at 426...