Henry Indus., Inc. v. Deparment of Labor & Indus. of State

• Decision Date: 29 August 2016
• Docket Number: No. 73234–0–I,73234–0–I
• Citation: 195 Wash.App. 593,381 P.3d 172
• Parties: Henry Industries, Inc., Appellant, v. Deparment of Labor and Industries of the State of Washington, Respondent.
• Court: Washington Court of Appeals

195 Wash.App. 593

381 P.3d 172

Henry Industries, Inc., Appellant,

v.Deparment of Labor and Industries of the State of Washington, Respondent.

No. 73234–0–I

Court of Appeals of Washington, Division 1.

FILED: August 29, 2016

Michael John Killeen, Megan Marie Gentry, Davis Wright Tremaine LLP, 1201 3rd Ave., Ste. 2200, Seattle, WA, 98101–3045, Molly E. Walsh, Stinson Leonard Street LLP, 1201 Walnut Street, Suite 2900, Kansas City, MO, 64106, Stephanie N. Scheck, Stinson Leonard Street LLP, 1625 N. Waterfront Pkwy., Suite 200, Wichita, KS, 67206, for Appellant.

Katy Janelle Dixon, Office of the Attorney General, 800 5th Ave., Ste. 2000, Seattle, WA, 98104–3188, for Respondent.

Cox, J.¶1 At issue in this appeal is whether 33 drivers who contracted with Henry Industries Inc. (HII) to perform courier services for third parties are “workers” under the Industrial Insurance Act (IIA). The Department of Labor and Industries decided that these drivers are “workers” under the act. The Department then assessed penalties against HII for its failure to pay the premiums due for them for 2010, the year audited. The Board of Industrial Insurance Appeals (BIIA) agreed. We hold that substantial evidence supports the BIIA's findings of fact and that these findings support the BIIA's conclusions of law. We affirm.

¶2 HII provides warehouse, logistic, and courier services to PharMerica, a pharmacy selling pharmaceutical products and packages to long-term healthcare facilities in Washington. HII contracts with independent contractors who actually drive on various routes to deliver pharmaceutical products for PharMerica.

¶3 HII uses “route drivers” and “stat drivers” to fulfill PharMerica's delivery needs. Route drivers make repeated deliveries, generally at the same time six days per week, and are paid a flat fee. Stat drivers make deliveries on an on call basis.

¶4 HII requires all drivers to sign a standard form cartage agreement that primarily sets forth the terms and conditions of the parties' relationship. For example, the agreement states that the driver is an independent contractor. It also requires the driver to provide a vehicle for the performance of the required services. It requires the driver to adhere to a “Manner of Performance of Service” that specifies detailed requirements. Among them is a requirement to “successfully complete all background screening requirements as set forth in this Agreement.”¹ The driver must also “successfully complete all alcohol and drug screening requirements.”² The driver also agrees to deliver route schedules to HII and its customers and further agrees to modify the schedules to meet the customers' requirements. There are additional requirements that we discuss later in this opinion.

¶5 Route drivers arrive at the pharmacy at designated times, ensure that serial numbers match the tags on the packages, load their vehicles, and drive their routes to deliver the packages. Stat drivers are called by HII dispatch when an order is ready for delivery. The driver picks up the item, confirms the pickup with dispatch, makes the delivery, and then confirms the delivery with dispatch.

¶6 The Department of Labor and Industries audited HII for calendar year 2010, determining that HII did not report 33 drivers as “workers” covered by the IIA. In October 2011, the Department assessed penalties against HII for its failure to pay workers' compensation premiums for these 33 drivers for calendar year 2010, the year audited. In January 2013, the Department modified its assessment of penalties.

¶7 HII appealed the Department's modified assessments order to the BIIA. An administrative law judge conducted a hearing and issued a proposed decision and order in HII's favor. The Department petitioned for review. The BIIA disagreed with its administrative law judge and issued its own decision and order, affirming the Department's modified assessment order.

¶8 HII timely sought judicial review in the superior court, which affirmed the BIIA's decision and order.

¶9 HII appeals from the superior court's judgment.

STANDARD OF REVIEW

¶10 The Administrative Procedure Act governs judicial review of BIIA decisions on industrial insurance premium assessments.³ On appeal from the superior court, this court “sit[s] in the same position as the superior court and review[s] the agency's order based on the administrative record rather than the superior court's decision.”⁴ “An employer challenging the validity of the agency action assessing industrial insurance premiums bears the burden of showing that the premiums were assessed incorrectly.”⁵

¶11 We review the BIIA's findings of fact under the substantial evidence standard, which is evidence sufficient to persuade a fair-minded, rational person of the finding's truth.⁶ We also “view the evidence in the light most favorable to the party who prevailed in the highest forum that exercised fact-finding authority.”⁷

¶12 The BIIA's conclusions of law must also flow from its findings.⁸ We review de novo the BIIA's legal conclusions, but give “ ‘substantial weight to the agency's interpretation when the subject area falls within the agency's area of expertise.’ ”⁹

¶13 Washington courts have expressed differing views on how to review whether an individual is a “worker” under RCW 51.08.180. In deciding the question of the proper standard of review to apply, we are guided by the supreme court's decision in Tapper v. Employment Security Department.¹⁰

¶14 That case involved judicial review of an administrative agency decision. Review in such cases is governed by the Administrative Procedure Act (APA), which specifies the standards of review of both factual findings and legal conclusions of such an agency.

¶15 The supreme court had to review whether the agency's Commissioner had correctly decided that a worker was discharged due to “misconduct connected with his or her work.”¹¹ That is the statutory standard for determining whether a claimant is disqualified from receiving unemployment benefits.

¶16 The supreme court concluded that whether a particular employee met this statutory standard is a mixed question of law and fact.¹² That is so, according to the court, because it requires an application of legal precepts—the definition of “misconduct connected with his or her work”—to factual circumstances—the details of the employee's discharge.¹³

¶17 According to the court, reviewing such a mixed question requires, first, establishing the relevant facts.¹⁴ Second, the court determines the relevant law.¹⁵ Third, the court applies the law to the established relevant facts.¹⁶

¶18 Similar reasoning applies here to our review of the BIIA's decision and order. As in Tapper, we review this administrative agency's decision and order on the basis of the review standards specified in the APA. Specifically, we review the BIIA's factual findings for substantial evidence and its legal conclusions de novo.

¶19 Here, the question is whether the 33 drivers meet the statutory standard of “worker” under RCW 51.08.180. If so, that triggers HII's obligation to pay workers' compensation premiums for these drivers.

¶20 Specifically, this statutory definition requires that each driver is “working under an independent contract, the essence of which is his or her personal labor.”¹⁷ We conclude that whether a particular driver meets these requirements is a mixed question of law and fact. As in Tapper, this requires the application of legal precepts—the statutory definition of “worker”—to the factual circumstances of a case. These factual circumstances include the factual details underlying whether the drivers are “working under an independent contract.”¹⁸ Likewise, these factual circumstances include the factual details underlying whether “the essence [of the work] is his or her personal labor.”¹⁹

¶21 Accordingly, we first determine whether substantial evidence supports the BIIA's findings on these two related factual inquiries. We then apply the relevant law to the findings that are supported by substantial evidence.

¶22 In their briefing to this court, the parties agree that a mixed question of law and fact is before us. But they differ on what falls into each category. In doing so, they either rely on or challenge three court of appeals decisions, each of which originates from a different division of this court.²⁰

¶23 We disagree with these court of appeals decisions to the extent they differ from Tapper. First, none mentions the analysis in Tapper, which we conclude controls for the reasons we just discussed. Second, each of the court of appeals decisions focuses on parts of the statutory definition of “worker.” In our view, that focus is too narrow. That is because such focus does not include the full scope of the definition of “worker.” For these reasons, we apply the Tapper analysis to our review in this case.

“WORKER”

¶24 HII primarily argues that the drivers' personal labor was not the essence of their contracts with HII. Rather, it claims that the drivers are not “workers” under the IIA because “the use of vehicles is critical to completing the delivery services” they provide. This argument is unpersuasive.

¶25 RCW 51.08.180 defines “worker” as follows:

“Worker” means every person in this state who is engaged in the employment of an employer under this title, whether by way of manual labor or otherwise in the course of his or her employment; also every person in this state ... who is working under an independent contract, the essence of which is his or her personal labor ....^{[21 ]}

¶26 Our first inquiry is whether substantial evidence supports the BIIA's findings of fact. We focus on Finding of Fact 5, to which HII assigns error:

During the first, second, third and fourth quarters of 2010 the individuals were working under independent contracts, the essence of which was their personal labor.^{[22 ]}

¶27 In this case, the parties agree that all 33 drivers work under independent contracts. So, we need not further review the underlying facts...