Great N. Constr., Inc. v. Dep't of Labor

• Decision Date: 09 December 2016
• Docket Number: No. 2015-417,2015-417
• Court: Vermont Supreme Court
• Parties: Great Northern Construction, Inc. v. Department of Labor

2016 VT 126

Great Northern Construction, Inc. v. Department of Labor

No. 2015-417

Supreme Court of Vermont

September Term, 2016

December 9, 2016

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

On Appeal from Employment Security Board

Maureen Tivnan, Chair

Claudine C. Safar and Anthea Dexter-Cooper of Monaghan Safar Ducham PLLC, Burlington, for Plaintiff-Appellant.

Dirk Anderson, Montpelier, for Defendant-Appellee.

PRESENT: Reiber, C.J., Dooley, Skoglund, Robinson and Eaton, JJ.

¶ 1. EATON, J. This is an appeal from an Employment Security Board (ESB) decision affirming a Department of Labor audit of the appellant, Great Northern Construction (GNC). The Department's auditor concluded that GNC had improperly classified two of its workers—Ray O'Connor and David LaPointe—as independent contractors rather than employees for the purposes of unemployment insurance taxes. In accordance with Vermont's Unemployment Compensation Law, 21 V.S.A. §§ 1301-1389, the Department issued GNC an assessment for unpaid taxes from 2011 to 2014 plus interest and a penalty. GNC sought review of the assessment before an administrative law judge, who upheld the Department's tax assessment, and GNC appealed that decision to the ESB. The ESB concluded that O'Connor and LaPointe were not independent contractors as LaPointe, O'Connor, and GNC all argued, but were employees according to Vermont's statutory definition of the term. We affirm the ESB concerning LaPointe but reverse as to O'Connor.

¶ 2. Vermont's Unemployment Compensation Law requires employers to make annual contributions to a state unemployment fund in the form of taxes on wages paid to employees but not on wages paid to self-employed workers. See 21 V.S.A. §§ 1321, 1358. The central issue in this case, then, is whether O'Connor and LaPointe were employees of GNC under the statutory definition of "employment." For the purpose of the Unemployment Compensation Law, "employment" is defined broadly as any "[s]ervices performed by an individual for wages," with the exception of services that satisfy the so-called ABC test set forth at 21 V.S.A. § 1301(6)(B). Under that test, a worker is presumed to be an employee unless the purported employer can demonstrate that: (A) the worker is free from the putative employer's control or direction; (B) the worker's services are outside the putative employer's usual course or location of business; and (C) the worker is independently established in the same business as the putative employer. 21 V.S.A. § 1301(6)(B). A worker who satisfies the ABC test is considered to be self-employed, and the employing entity therefore is not liable for unemployment insurance taxes for that worker. See 863 To Go, Inc. v. Dep't of Labor, 2014 VT 61, ¶¶ 9, 18, 196 Vt. 551, 99 A.3d 629.

¶ 3. GNC urges this Court to reverse on two grounds and hold that it is not liable for taxes on wages earned by O'Connor and LaPointe. First, GNC argues that it contracted with O'Connor's limited liability company (LLC), Ray O'Connor, LLC, and not with O'Connor the natural person. Thus, according to GNC, it is not liable for unemployment taxes paid to the LLC because an LLC is not an "individual" within the meaning of the unemployment statute and is therefore not subject to the ABC test. Second, GNC argues that the Board erred in its application of the ABC test to O'Connor and LaPointe.

¶ 4. The facts presented before the administrative law judge and affirmed by the ESB establish that GNC, a full-service professional contracting firm based in Burlington, was foundedin 1977 by Bob Schwartz, its current president. Originally, GNC's work involved restoring historic sites, and although it has since evolved into a general contracting firm, GNC continues to advertise itself as having "vast experience in challenging jobs with engineered details and a high degree of difficulty." To remain competitive in a broad range of jobs, GNC maintains relationships with skilled contract workers in addition to its five full-time employees.¹ The firm's relationships with two of those specialized workers, O'Connor and LaPointe, are the subject of this appeal.

¶ 5. O'Connor has been involved in the construction business in Vermont for approximately forty-five years. The ESB found that his particular expertise is in historic restoration, and in order to facilitate that trade and to make his bids more competitive, he owns a battery of specialized equipment.² Over the past decade, O'Connor has done extensive work on GNC projects. For example, in the three-year audit period from 2011 to 2014, O'Connor turned down only two or three jobs from GNC, and because he was so busy with GNC jobs during that time, he refused offers from other general contractors.

¶ 6. The ESB also found that although GNC established overall project schedules for O'Connor and its other contract employees based on the nature of each project, O'Connor set his own day-to-day schedule and decided independently when to arrive at and depart from GNC job sites. Unlike other contract workers, O'Connor did not receive direction from GNC about how to complete projects, and he occasionally provided Schwartz with input as to "the methods and techniques" that each project required. O'Connor did not coordinate with other contractors apart from occasionally supplying them with materials or loaning them equipment.

¶ 7. Despite the fact that O'Connor did not have a formal written contract with GNC, he and Schwartz had an established negotiation process in which Schwartz would alert O'Connor when GNC was considering bidding on a project that required O'Connor's expertise. If O'Connor was available and interested, he would give Schwartz a time and cost estimate that included labor, amortization of his specialized equipment, and the cost of materials. If GNC accepted O'Connor's bid, he would purchase any necessary materials with a designated O'Connor, LLC, business credit card. O'Connor then relied on GNC to pay him according to invoices that he submitted, and although he ran his business as an LLC, the invoices requested that GNC "[m]ake all checks payable to Ray O'Connor."

¶ 8. In the same vein, O'Connor testified that he chose to organize as an LLC approximately a decade prior to the audit because doing so increased his earnings. Nevertheless, he also carried personal liability insurance and filed a Schedule C form with his federal tax return, indicating that he considered himself a self-employed individual. To that end, when Schwartz offered him a position at GNC as an employee, O'Connor declined because he "want[ed] control over [his] own activities," and because he believed that the added overhead costs to GNC of having more employees would have reduced the amount of money available to pay him.

¶ 9. Like O'Connor, LaPointe declined an offer of employment from GNC in an attempt to preserve his independent status. When GNC made the offer, however, LaPointe had recentlymoved to Vermont, and he did not have any relationship with Schwartz prior to beginning work for GNC. The ESB found that LaPointe, who specializes in restoration work, owns some specialized equipment similar to O'Connor's. The ESB also found that like O'Connor, LaPointe was free to accept or decline invitations to work on GNC projects; GNC offered as an example of LaPointe's freedom the fact that he declined, for religious reasons, to work on a GNC project that involved restoring a mural in a house of worship. LaPointe set his own schedule, was free to work for other businesses and reported to the Department auditor that his work was "NOT supervised."

¶ 10. The specifics of LaPointe's relationship with GNC, however, differed from those of its relationship with O'Connor. Although both submitted bids to GNC, LaPointe was paid hourly at a rate he pre-negotiated with Schwartz, whereas O'Connor was paid by the project according to his bid. LaPointe used his own equipment but did not supply his own materials, and unlike O'Connor, received punch lists³ from GNC for incomplete work. He is not registered with the Secretary of State as an independent business, does not have a formal business organization, has no professional licenses, and does not file a Schedule C with his federal tax returns. Significantly, the ESB found that between 2012 and 2014, LaPointe's income from GNC was substantial.⁴ He reported that he worked for only one other business—the name of which he wasuncertain—after he began working for GNC, and the Board concluded that "[i]f Mr. LaPointe did in fact work for others, the record suggests such work was sporadic and subordinate to his work for [GNC]."

¶ 11. GNC treated O'Connor and LaPointe as independent contractors through 2014, when an auditor for the Department of Labor determined that GNC had improperly failed to classify them as employees and issued an assessment of $13,670 representing unpaid unemployment insurance taxes, a penalty, and interest. GNC requested a hearing before an administrative law judge, who sustained the Department's determination that Ray O'Connor, LLC, qualified as an "individual" and that neither O'Connor nor LaPointe satisfied the ABC test and that they therefore qualified as GNC employees for tax purposes. GNC appealed that decision to the ESB, which affirmed. The ESB agreed that an LLC was an "individual" for purposes of the ABC test, that O'Connor failed parts A and B of the test, and that LaPointe did not meet any elements of the ABC test. This appeal followed.

¶ 12. This Court affords great deference to decisions of the ESB on appeal, and decisions within the Board's expertise are presumed...