Egemo v. Flores

Decision Date14 February 1991
Docket NumberNo. 17163,17163
Citation470 N.W.2d 817
PartiesDennis EGEMO and St. Paul Fire & Marine Insurance Company, Employer and Insurer, Appellants, v. Jose FLORES, Claimant and Appellee. . Considered on Briefs
CourtSouth Dakota Supreme Court

Richard O. Sharpe of Costello, Porter, Hill, Heisterkamp & Bushnell, Rapid City, for employer and insurer, appellants.

William Jason Groves, Rapid City, for claimant and appellee.

HERTZ, Acting Justice.

Dennis Egemo (Egemo) and St. Paul Fire & Marine Insurance Company appeal from a decision of the circuit court affirming the decision of the Department of Labor, Division of Labor and Management, Worker's Compensation Division (Department) holding that Jose Flores (Flores) is an employee for the purposes of the Worker's Compensation Act. On appeal, Egemo contends that Flores was actually an independent contractor, not an employee, and that Department and circuit court erred by considering the purpose of the worker's compensation statutes in reaching their decisions. We reverse and remand.


Egemo is a logging contractor working in the Black Hills National Forest. For the four years prior to the hearing in this matter, Egemo had an exclusive contract with Continental Lumber for the purchase of logs which were to be obtained from trees Egemo harvested from certain United States Forest Service land in the Black Hills. To perform this contract, Egemo hired individuals to harvest the trees and produce the logs to be sold to Continental Lumber. As is the custom in the Black Hills Forest, the cutters hired to cut the trees were hired as independent contractors. Egemo required that each of his cutters sign an agreement entitled "Independent Contractor Agreement," providing that persons assuming the duties of cutters, such as Flores, were hired strictly as independent contractors. In fact, all the individuals Egemo hired to complete his contract with Continental Lumber, such as cutters, truckers, skidders, buckers, stackers, and slashers, were hired using the same "Independent Contractor Agreement." Flores was paid by the ton of timber cut. In paying such individuals for their work, Egemo did not withhold income tax or social security tax, nor did he pay any unemployment insurance. At the end of the year, each individual's earnings were reported to the Internal Revenue Service on a Form 1099 as non-employee compensation.

The duties of a cutter require that each individual cutter provide his or her own chain saw, gas, oil, fire extinguisher, shovel, and safety equipment, and that each cutter maintain his or her own equipment. When the cutters began work on a new sale of forest service timber, the land in question would be divided into patches. Each cutter was assigned an initial patch by drawing lots from a hat, and would then work in that patch until all the designated timber was cut. After completing the first patch, Egemo would assign the next patch to each cutter based on the relative difficulty of each patch, in an attempt to equalize the luck of the draw. As each cutter worked in their respective patch, they were free to come and go as they pleased. Egemo did not direct the hours of the day that each cutter was to work, nor when they were to take breaks, or even when they could take days off. Egemo did not directly supervise any of the work performed by the cutters. The only requirement imposed on any of the cutters was to cut logs according to the specifications of the Forest Service and that of the contract with Continental Lumber.

In October, 1986, Flores came to the Black Hills of South Dakota where his brother Enrique had arranged work for him with Egemo. Enrique trained Flores to cut trees, and thereafter Flores worked by himself for Egemo. Flores worked for Egemo from October, 1986, to March, 1987, and then again resumed his employment with Egemo in October, 1987. Egemo testified that in accordance with his custom, he had Flores sign an agreement entitled "Independent Contractor Agreement," providing that cutters were hired as independent contractors. Egemo was unable to produce the independent contractor agreement signed by Flores. Although he denied having signed such an agreement, Flores testified that if he were given such an agreement he would have signed it. As an independent contractor, Egemo informed Flores that he was not covered by worker's compensation insurance. However, Egemo's contract with Continental Lumber required him to obtain a worker's compensation policy. Egemo obtained such a policy, but he was never charged, and did not pay, a premium because each of the people working for him was an independent contractor. At the hearing, Egemo testified that it was his intent to create an independent contractor/contractee relationship. Flores, however, testified that his goal was simply to earn a living. As a Mexican immigrant, Flores had less than a full command of the English language. Flores claimed that he could not read or write English, however, Department found there was testimony that he was better able to speak and understand the English language than he indicated.

On June 3, 1988, Flores was injured when cutting down a tree. The injury resulted when the tree he had just cut down started to fall, he stepped out of the way, and then stepped on a fallen log and fell, hurting his left leg and back. Flores then brought a claim for worker's compensation benefits before Department. By stipulation of the parties, the hearing before Department was limited to the issue of whether Flores was an employee or an independent contractor. Department conducted its hearing on February 10, 1989, and determined that Flores was an employee of Egemo. Findings of fact and conclusions of law were entered on May 2, 1989. Both parties then appealed Department's decision to the circuit court. The circuit court affirmed Department's decision, entering its findings of fact and conclusions of law on March 26, 1990. From this decision, Egemo appeals.


1. Did Department and the circuit court err in ruling that Flores was an employee at the time of his injury?

2. Did Department and the circuit court err in considering the purpose of the worker's compensation laws in their decisions?

1. Employment Status.

There is some dispute over the standard by which we review the determination that Flores was an employee at the time of his injury. In Permann v. Department of Labor, Unemployment Insurance Division, 411 N.W.2d 113 (S.D.1987), this court articulated the standard by which worker's compensation appeals are reviewed. When presented with a question of fact, this court must determine whether the agency's findings are clearly erroneous. Id. at 116-17. Further, "the question is not whether there is substantial evidence contrary to the agency finding, but whether there is substantial evidence to support the agency finding.... [T]he court shall give great weight to findings made and inferences drawn by an agency on questions of fact." Schlenker v. Boyd's Drug Mart, 458 N.W.2d 368, 371 (S.D.1990) (Henderson, J. concurring in result) (quoting Lawler v. Windmill Restaurant, 435 N.W.2d 708, 711 (S.D.1989) (Morgan, J., concurring specially) (Henderson, J., dissenting)). When the issue presented is a question of law, however, the decisions of the administrative agency and the circuit court are fully reviewable. Schlenker, 458 N.W.2d at 370; Permann, 411 N.W.2d at 117. Likewise, mixed questions of fact and law which require the application of a legal standard are fully reviewable. In re Groseth Int'l, 442 N.W.2d 229, 232 (S.D.1989) (Sabers, J., concurring in part and concurring specially in part); South Dakota Stockgrowers Ass'n v. Holloway, 438 N.W.2d 561, 563 (S.D.1989); Permann, 411 N.W.2d at 119.

The uncertainty over the proper standard of review results from conflicting language in two cases. In Dumire v. Martin, 84 S.D. 572, 577, 174 N.W.2d 215, 218 (1970), we stated: "The question of whether Dumire was an employee or an independent contractor was for the commissioner to determine under all the evidence and the inferences to be drawn therefrom. This determination we are bound to accept if there is any reasonable and substantial evidence to support it." However, in Steen v. Potts, 75 S.D. 184, 189, 61 N.W.2d 825, 828 (1953), we stated otherwise: "[T]he ruling determining the nature of the relation [is] a question of law[.]" In its memorandum decision which was incorporated into the findings of fact and conclusions of law, Department observed that it was bound by our decision in Dumire, noting that "[t]he question is for the trier of fact to determine under all of the evidence and inferences to be drawn therefrom." However, the circuit court considered the matter to be a question of law, based on Anton v. Industrial Commission of Arizona, 141 Ariz.566, 688 P.2d 192 (App.1984). See Steen, 75 S.D. at 189, 61 N.W.2d at 828; Higgins v. Monroe Evening News, 404 Mich. 1, 272 N.W.2d 537 (1978); Pribyl v. Standard Elec. Co., 246 Iowa 333, 67 N.W.2d 438 (1955).

The previous decisions of this court make it clear that the determination of whether one is an independent contractor or an employee is arrived at by the application of a legal test to an established set of facts. Dumire, 84 S.D. at 576, 174 N.W.2d at 217; Steen, 75 S.D. at 187-88, 61 N.W.2d at 826-27. Our review requires that we determine whether the facts established by Department satisfy the legal standard applicable to resolve disputes over whether an individual is an employee or independent contractor. Accordingly, we hold that the ultimate determination of whether an individual is an employee or an independent contractor is a mixed question of law and fact fully reviewable by this court. See Appeal of Hendrickson's Health Care Service, 462 N.W.2d 655, 658 (S.D.1990) (Henderson, J., concurring in part and dissenting in part); Permann, 411 N.W.2d at 119. With this standard in mind, we turn...

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