BKU Enterprises, Inc., Matter of

Decision Date11 March 1994
Docket NumberNo. 930231,930231
Citation513 N.W.2d 382
PartiesIn the Matter of BKU ENTERPRISES, INC. BKU ENTERPRISES, INC., Appellant, v. JOB SERVICE NORTH DAKOTA, Appellee. Civ.
CourtNorth Dakota Supreme Court

David F. Knutson of Vogel, Brantner, Kelly, Knutson, Weir & Bye, Ltd., Fargo, for appellant.

Douglas A. Bahr, Asst. Atty. Gen., Atty. General's Office, Bismarck, for appellee.

SANDSTROM, Justice.

BKU Enterprises, Inc., appeals from a district court judgment affirming Job Service of North Dakota's decision that BKU's "independent dealers" were employees subject to job insurance taxes. We affirm.

BKU is a distributor of Kirby vacuum cleaners in the Fargo area. BKU enters into written contracts with "dealers," who sell the vacuums to customers through in-home demonstrations. The contract designates the dealer as an independent contractor. Dealers set their own schedules and need not regularly report work hours to BKU. Although BKU provides regularly scheduled training sessions for its dealers, attendance is not required. Dealers generally take vacuums from BKU on consignment. BKU provides a suggested retail price list, but dealers can sell the vacuums for more or less. When a sale is made, payment is given to BKU, which then pays the dealer a profit: the difference between the wholesale price and the price paid by the customer. If a customer pays by check, the check must be payable to BKU. The dealers do not have sales tax permits, and BKU remits the sales tax to the taxing authorities.

The dealers are not provided with cars, telephones, or office space. Most work out of their homes, with sales and demonstrations taking place in the customers' homes. The dealers have little or no investment in their business. BKU supplies financing forms, sales brochures, and business cards to the dealers, and also provides warranty service on vacuums sold by the dealers.

Under the written agreement, the dealer may only use the Kirby name and trademark "in the name of" BKU, and upon termination may not claim to be "affiliated with anyone who is authorized to sell or service Kirby Products." The dealer must perform services under the agreement personally, and must compile and forward customer records for warranty purposes. The dealer is also required to "comply with all directives ... with regard to said warranty." Under the agreement, BKU may reject installment contract sales, and agrees to purchase trade-ins accepted by the dealers according to a written schedule. Although the agreement is for a one-year period, with automatic renewals, it permits either party to terminate the agreement without cause upon two-days' written notice.

In 1991, following a claim for unemployment benefits by a former "dealer," Job Service began investigating BKU's failure to pay job insurance taxes on its dealers. BKU requested a hearing, which was held on March 11, 1992. The Director of the Job Insurance Division issued a "Determination" concluding BKU's dealers were employees, not independent contractors. BKU appealed to Job Service, which affirmed the "Determination." BKU appealed to the district court, which affirmed the decision of Job Service. BKU appealed to this Court.

When an administrative agency decision is appealed from the district court, we review the decision of the agency, not the district court. Midwest Property Recovery, Inc. v. Job Service, 475 N.W.2d 918, 920 (N.D.1991). We limit our review to the record before the agency. Midwest Property.

This Court recently outlined the standard of review in administrative appeals:

"Ordinarily, a determination of an administrative agency is presumed to be correct.... Our review is governed by NDCC 28-32-19. Courts must affirm an administrative agency decision unless one of the six factors listed in NDCC 28-32-19 is present.... In reviewing an administrative order, 'there are three critical questions: (1) are the findings of fact supported by a preponderance of the evidence; (2) are the conclusions of law sustained by the findings of fact; and (3) is the agency decision supported by the conclusions of law?' Matter of Prettyman, 410 N.W.2d 533, 536 (N.D.1987). Where the subject of an agency decision is a technical one, the expertise of the agency is entitled to respect.... We determine only whether the agency reasonably made its factual determinations from the greater weight of all the evidence in the entire record."

Turnbow v. Job Service North Dakota, 479 N.W.2d 827, 828 (N.D.1992) (citations and footnote omitted). The unemployment compensation law is remedial in nature and must be liberally construed in favor of the employee. Turnbow at 829; Schaefer v. Job Service North Dakota, 463 N.W.2d 665, 666 (N.D.1990).

The sole issue presented upon appeal is whether BKU's dealers are employees or independent contractors. If they are employees, BKU must pay unemployment taxes for them.

The relevant statute is N.D.C.C. Sec. 52-01-01(17)(e):

"Services performed by an individual for wages or under any contract of hire must be deemed to be employment subject to the North Dakota Unemployment Compensation Law unless it is shown that the individual is an independent contractor as determined by the 'common law' test."

Under the statute, Job Service bears the initial burden of showing the work is performed for wages or under a contract of hire; the employer, however, bears the burden of showing the worker is an independent contractor. E.g., Turnbow at 829; Midwest Property Recovery at 923. Applying the liberal interpretations of "wages" and "any contract of hire" under unemployment compensation law, BKU's dealers clearly performed services for wages or under a contract of hire. See N.D.C.C. Sec. 52-01-01(31); Turnbow at 829; Speedway, Inc. v. Job Service North Dakota, 454 N.W.2d 526, 528-529 (N.D.1990). Accordingly, the question in this case is whether BKU carried its burden of proving its dealers are independent contractors under the common law test.

Under N.D.A.C. Sec. 27-02-14-01(5)(a), the common law test focuses upon the employer's right to direct and control the means and manner of performing the work 1:

"Generally, an employment relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what must be done but how it must be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. However, the right to terminate a contract before completion to prevent and minimize damages for a potential breach or actual breach of contract does not, by itself, suggest an employment relationship. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. The fact that the contract must be performed at a specific location, such as a building site, does not, by itself, constitute furnishing a place to work if the nature of the work to be done precludes a separate site or is the customary practice in the industry. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, the individual is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee. Individuals such as physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and auctioneers, engaged in the pursuit of an independent trade, business, or profession, in which they offer their services to the public, are independent contractors and not employees."

Subsection (b) of N.D.A.C. Sec. 27-02-14-01(5) lists twenty factors to be used as guidelines to determine if sufficient control is present to establish an employer-employee relationship. 2 BKU does not challenge the administrative rule, and relies on the twenty factors in arguing it has proven lack of control. 3

Whether a worker is an independent contractor or an employee is a mixed question of fact and law. Turnbow at 830; Midwest Property Recovery at 923. When reviewing a mixed question of fact and law, the underlying predicate facts are treated as findings of fact, and the conclusion whether those facts meet the legal standard is a question of law. See Salter v. North Dakota Department of Transportation, 505 N.W.2d 111, 112 (N.D.1993). Whether an employer has retained the right to direct and control the services performed by workers is a finding of fact. Turnbow at 831; Midwest Property Recovery at 924.

BKU initially argues its contract with its independent dealers explicitly provides the dealers are independent contractors. The label used by the parties does not decide the issue; the important consideration is how the relationship between the parties actually operates. Turnbow at 830; Midwest Property Recovery at 923.

BKU also argues a greater number of the twenty factors in N.D.A.C. Sec. 27-02-14-01(5)(b) support a finding of independent contractor status, and therefore Job Service erred in finding the dealers were employees. Under the facts of this case, many of the twenty factors would support a finding of independent contractor status. Fact finding, however, is not the blind factoring of numerical quotients. Rather, fact finding is the weighing of evidence, which of necessity requires the fact finder to give greater importance to some factors than others. The...

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