FLEECE ON EARTH v. DEPT. OF EMPLOYMENT AND TRAINING, 05-367.

• Decision Date: 04 May 2007
• Docket Number: No. 05-367.,05-367.
• Citation: 2007 VT 29,923 A.2d 594
• Parties: FLEECE ON EARTH v. DEPARTMENT OF EMPLOYMENT AND TRAINING.
• Court: Vermont Supreme Court

923 A.2d 594

2007 VT 29

FLEECE ON EARTH v. DEPARTMENT OF EMPLOYMENT AND TRAINING.

No. 05-367.

Supreme Court of Vermont.

May 4, 2007.

COPYRIGHT MATERIAL OMITTED

Patricia A. McDonald, Chair.

Erin H. Gallivan of Meub Associates, Inc., Rutland, for Plaintiff-Appellant.

William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant Attorney General, Montpelier, for Defendant-Appellee.

John A. Facey, III of Kenlan, Schweibert & Facey, P.C., Rutland, and Martin J. Newhouse and Andrew R. Grainger of New England Legal Foundation, Boston, Massachusetts, for Amici Curiae New England Legal Foundation and National

Federation of Independent Business Legal Foundation.

Present: DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ., and EATON, D.J., Specially Assigned.

SKOGLUND, J.

¶ 1. Fleece on Earth (FOE) appeals from an Employment Security Board decision which held that the workers who make clothing for FOE are employees for purposes of assessing unemployment taxes on FOE. FOE contends that the Board erred in determining that the home knitters and sewers qualified as employees for this purpose. We affirm the decision while rejecting one part of the Board's analysis.

¶ 2. FOE is a children's wear company that retails children's clothing. FOE's owner designs all of the clothing sold by FOE. FOE's products are made by knitters and sewers who work at home and are paid by the piece. FOE provides the patterns and yarn for the knitters and patterns and pre-cut fabric for the sewers. The knitters and sewers work on their own machines, at their own pace. FOE sets the price per piece, but some workers have negotiated higher prices. Most of the sewers and knitters present FOE with a bill each month, detailing the number of items completed and how much FOE owes for the work. FOE retains the right to reject pieces that do not conform to its specifications.

¶ 3. The company came to the attention of the Department of Labor and Industry (the department) when one of FOE's knitters filed for unemployment benefits when she left another job. As part of the application process, she listed FOE as one of her employers. The department determined that FOE owed back taxes for its contract knitters and sewers. FOE contested the determination, and the case went to a hearing before an administrative law judge (ALJ). The ALJ upheld the department's assessment of contributions. FOE appealed to the Employment Security Board. The Board corrected the ALJ on one conclusion but affirmed the determination in all other respects. FOE appeals.

¶ 4. We review determinations by the Employment Security Board with a great degree of deference. The Board's decision is "entitled to great weight on appeal." Cook v. Dep't of Employment & Training, 143 Vt. 497, 501, 468 A.2d 569, 571 (1983). To the extent that the appeal challenges the Board's findings, the Court construes the record in a manner most favorable to the Board's conclusions, Harrington v. Dep't of Employment Sec., 142 Vt. 340, 344, 455 A.2d 333, 336 (1982), and affirms the Board's findings if they are supported by credible evidence, "even if there is substantial evidence to the contrary." Cook, 143 Vt. at 501, 468 A.2d at 571. We must uphold the Board's judgment absent a clear showing that it is mistaken. Bouchard v. Dep't of Employment & Training, 174 Vt. 588, 589, 816 A.2d 508, 510 (2002) (mem.) (decisions within the Board's expertise "presumed to be correct, valid, and reasonable" absent "clear showing to the contrary").

I.

¶ 5. This case illustrates the tension between the protection of unemployment compensation for workers and the economic realities faced by small businesses that utilize the services of home workers. We begin with a review of the purpose of Vermont's law on unemployment compensation. Chapter 17 of Title 21, Vermont's Unemployment Compensation Law, was first enacted in 1936. It is a remedial law, having benevolent objectives, and must be given liberal construction. Littlefield v. Dep't of Employment & Training, 145 Vt. 247, 253, 487 A.2d 507, 510 (1984); Jones v. Dep't of Employment Sec., 140 Vt. 552, 554, 442 A.2d 463, 464 (1982). The law is designed "to remove economic disabilities and distress resulting from involuntary unemployment, . . . and to assist those workers who become jobless for reasons beyond their control." Donahue v. Dep't of Employment Sec., 142 Vt. 351, 354, 454 A.2d 1244, 1246 (1982). Therefore, "no claimant should be excluded unless the law clearly intends such an exclusion." Jones, 140 Vt. at 554, 442 A.2d at 464.

¶ 6. In this case, no worker made a claim against FOE; rather, the department began an investigation pursuant to the powers bestowed in chapter 17 of Title 21, and made an assessment of contributions as provided in § 1330. It is the employer herein, FOE, who contests the applicability of the unemployment compensation law to its operations.

¶ 7. All persons who receive wages, as defined by 21 V.S.A. § 1301(12), from an employer, as defined by § 1301(5), are presumed to be employees under § 1301(6)(B) and are therefore entitled to unemployment benefits. There is no dispute in this case that FOE pays wages to the home knitters and sewers. To rebut this presumption, and avoid responsibility for unemployment compensation assessments, an employer must prove that its workers meet all three elements of the statutory exception commonly known as the ABC test. 21 V.S.A. § 1301(6)(B); State v. Stevens, 116 Vt. 394, 398, 77 A.2d 844, 847 (1951). The failure of any one part of the test compels the conclusion that an employer-employee relationship exists. Vt. Inst. of Cmty. Involvement, Inc. v. Dep't of Employment Sec., 140 Vt. 94, 98, 436 A.2d 765, 767 (1981).

¶ 8. Section 1301(6)(B) of Title 21 describes the test:

Services performed by an individual for wages shall be deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the commissioner that:

(i) Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and

(ii) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(iii) Such individual is customarily engaged in an independently established trade, occupation, profession or business.

The language of this section has not changed since 1937.

¶ 9. As noted, the test is in the conjunctive, and thus, the "enterprise" must satisfy all three sections to avoid being subject to the requirements of the unemployment compensation law. Stevens, 116 Vt. at 397, 77 A.2d at 846. The Board found that, because FOE provides the patterns and material and may reject nonconforming products, the workers creating the products are subject to FOE's direction and control, and thus, FOE could not satisfy part A of the ABC test. The Board found that FOE had demonstrated that none of the workers worked in FOE's usual place of business, thus satisfying the second prong. With regard to the third prong, the Board determined that FOE could not prove that three of the six workers operated independently established businesses. Thus, the Board concluded that FOE failed to prevail on two of the three prongs of the ABC test.

II.

¶ 10. In evaluating the first part of the test, the ALJ and the Board considered the amount of control FOE exercised over the final product. This, FOE argues, was in error. The statute states that the amount of "control or direction over the performance of such services" will determine whether the worker is an employee. 21 V.S.A. § 1301(6)(B)(i) (emphasis added). FOE argues that the workers are free to work whatever hours and days they choose, and they can work as much or as little as they want. FOE notes that all of the workers invested in their own equipment, and either trained themselves or received training from sources other than FOE. It argues that the fact that FOE required the workers to conform to certain standards should not, in and of itself, turn them into employees rather than independent contractors. FOE contends that the Court should look to the common law master-servant guidelines to assist in determining when a worker is subject to an employer's direction and control. Without guidance from the common law, FOE asserts, there is simply no worker who is not an employee. FOE and the amici warn that the danger in this part of the test is that once an employer gives a worker any specific direction, the employer may become liable for unemployment taxes.

¶ 11. Part A of the test examines the degree of control and direction retained by the employing entity over the services performed. This Court has consistently held that the statutory scheme at issue here is broader than the common law master-servant relation, and it draws into its sweep workers who might be independent contractors under the common law. Stevens, 116 Vt. at 397-98, 77 A.2d at 847; see also Bluto v. Dep't of Employment Sec., 135 Vt. 205, 208, 373 A.2d 518, 520 (1977); Vt. Sec., Inc. v. Vt. Unemployment Compensation Comm'n, 118 Vt. 196, 200, 104 A.2d 915, 917 (1954). The essence of the distinction at common law has always been the right to control the details of the performance — the right to specify the means and methods used in the performance of the work — rather than simply the result. Rich v. Holmes, 104 Vt. 433, 437, 160 A. 173, 174 (1932); Thomas v. United States, 204 F.Supp. 896, 898 (D.Vt.1962). However, the control or direction element of the statutory ABC test is not the same as the common law "control" test for independent contractors. Vt. Inst. of Cmty. Involvement, 140 Vt. at 100, 436 A.2d at 768. Our case law tells us that the common law master-servant doctrine does not resolve the issue. Stevens, 116 Vt. at 398, 77 A.2d at 847.

¶ 12. For...