In re Chatham Woods Holdings, LLC

• Decision Date: 16 May 2008
• Docket Number: No. 07-046.,07-046.
• Citation: 2008 VT 70,955 A.2d 1183
• Parties: In re CHATHAM WOODS HOLDINGS, LLC.
• Court: Vermont Supreme Court

955 A.2d 1183

2008 VT 70

In re CHATHAM WOODS HOLDINGS, LLC.

No. 07-046.

Supreme Court of Vermont.

May 16, 2008.

Edward D. Fitzpatrick, Daniel P. O'Rourke of Bergeron, Paradis & Fitzpatrick,

LLP, Essex Junction, for Plaintiff-Appellant.

Barbara R. Blackman, Jeffrey S. Marlin of Lynn, Thomas & Mihalich, P.C., Burlington, for Defendant-Appellee.

Present: REIBER, C.J., and DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

REIBER, C.J.

¶ 1. Plaintiff Chatham Woods Holdings, LLC appeals from a decision affirming additional premium charges on a workers' compensation insurance policy issued by Peerless Insurance Company. The Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration (Commissioner) concluded that Peerless was correct in classifying certain subcontractors as employees of Chatham Woods for purposes of workers' compensation and thus was justified in charging Chatham Woods additional premiums. Chatham Woods argues that it is not responsible for the additional premiums because: (1) the subcontractors are sole proprietors and are thus excluded from the statutory definition of employee under 21 V.S.A. § 601(14)(F); and (2) if the sole-proprietor exclusion does not apply, then Chatham Woods is not a statutory employer of the subcontractors under 21 V.S.A. § 601(3). For the reasons set forth below, we affirm the Commissioner's decision.

¶ 2. Chatham Woods is a real-estate-development company that acquires land and secures state and local permits to subdivide the land. In the past, it has not routinely involved itself in the building process. Instead, it generally sells developed land along with permits to a builder. In this case, however, when Chatham Woods could not find a suitable purchaser for a development project, it began building and selling residential units itself. Except for excavation, the two owners of Chatham Woods did not directly participate in the construction of the units, but instead subcontracted the work to various construction companies. Among the companies hired to construct the residential units were the three companies relevant to this dispute. Ken Nelson Construction is a framing business whose sole proprietor and employee is Kenneth Nelson. Mr. Nelson elected not to purchase workers' compensation insurance for himself during the relevant time period. Roofing Solutions is a roofing business whose sole proprietor and employee is Mathew Yarbenet. Like Mr. Nelson, Mr. Yarbenet elected not to purchase workers' compensation insurance for himself. BK Construction, Inc. is owned by Bryan Howes. He performed framing work for Chatham Woods and had no employees. Although not technically a sole proprietor, Mr. Howes obtained an exclusion from workers' compensation coverage from the Commissioner of Labor and Industry allowing him not to purchase coverage for himself. Chatham Woods believes its argument concerning the exemption for sole proprietors extends by analogy to the exemption granted to BK Construction.

¶ 3. Vermont's workers' compensation laws mandate that employers secure insurance for their employees to protect the employees in the event of work-related injuries. 21 V.S.A. § 687(a). Workers' compensation statutes strike a bargain between limiting recovery amounts and guaranteeing speedy compensation. Longe v. Boise Cascade Corp., 171 Vt. 214, 221, 762 A.2d 1248, 1255 (2000). Chatham Woods obtained workers' compensation insurance from Peerless for the Williston project. In an audit of this policy, Peerless concluded that the three individuals associated with Nelson, Roofing Solutions, and BK Construction were employees of Chatham Woods, rather than independent contractors. The audit determined that Chatham Woods was required to provide additional workers' compensation coverage that was not included in the original assessment. Peerless charged Chatham Woods an additional premium of $22,640 for these three employees.

¶ 4. Chatham Woods appealed the additional premium charge to the Workers' Compensation Appeals Board. The Board affirmed the additional charge. Chatham Woods then appealed to the Commissioner. The Commissioner designated a hearing officer to hear the appeal. After an evidentiary hearing, the hearing officer issued a proposed decision to affirm the Board. The hearing officer applied the "nature-of-the-business" test and the "right-to-control" test to determine whether the subcontractors were acting as employees or as independent contractors. See Frazier v. Preferred Operators, Inc., 2004 VT 95, ¶ 11, 177 Vt. 571, 861 A.2d 1130 (mem.) (applying the nature-of-the-business test); RLI Ins. Co. v. Agency of Transp., 171 Vt. 553, 554, 762 A.2d 475, 477 (2000) (mem.) ("When determining whether a worker is an employee or an independent contractor, we have relied on the `right to control' test."). According to the hearing officer, although Chatham Woods may have satisfied the right-to-control test, it failed the nature-of-the-business test. The hearing officer found that the subcontractors' work "pertained" to and was a "major part of, or process in" Chatham Woods' overall business of "developing land, building residential units, and selling them to buyers." The hearing officer then concluded that the three individuals were not independent contractors but rather statutory employees of Chatham Woods, which was, therefore, required to secure additional workers' compensation insurance.

¶ 5. Chatham Woods appealed this proposed decision to the Commissioner. The Commissioner adopted in full the findings of fact and conclusions of law of the hearing officer, rejecting Chatham Woods' argument that the subcontractors were excluded from coverage due to their status as sole proprietors. In reaching this conclusion, the Commissioner first considered the exemption granted to BK Construction. The Commissioner found that the approval BK Construction obtained from the Commissioner of Labor and Industry to exempt its executive officer from provisions of workers' compensation laws only removed the obligation of BK Construction as an employer to obtain coverage for its employees, but it did not affect Chatham Woods' obligations as an employer under 21 V.S.A. § 601(3). Similarly, the Commissioner reasoned that the sole-proprietor exclusion provided by § 601(14)(F) only exempted Nelson and Roofing Solutions from providing coverage to their sole-proprietor employees, but did not exempt Chatham Woods from having to provide coverage for the same individuals.¹ The Commissioner further concluded that Chatham Woods was the statutory employer of the subcontractors under § 601(3) because the work they performed "was part of, or process in, the overall business of [Chatham Woods]." Accordingly, the Commissioner affirmed the Board's decision. This appeal followed.

¶ 6. On review, we will generally defer to administrative bodies, both in their findings of fact and their interpretations of their governing statutes and regulations. In re Cent. Vt. Med. Ctr., 174 Vt. 607, 608, 816 A.2d 531, 535 (2002) (mem.). The Commissioner's decisions are "presumed to be correct, valid and reasonable, absent a clear and convincing showing to the contrary." Id. (citing In re Prof'l Nurses Serv., Inc., 164 Vt. 529, 532, 671 A.2d 1289, 1291 (1996)). This Court may reverse an order by the Commissioner if it: "(1) was issued pursuant to unconstitutional statutory provisions; (2) was in excess of statutory authority; (3) was issued on unlawful procedure; or (4) is not supported by substantial evidence in the record." 8 V.S.A. § 16.

¶ 7. Chatham Woods argues first that it was not required to purchase workers' compensation insurance for Roofing Solutions and Nelson because they were excluded from the statutory definition of employee. Under 21 V.S.A. § 601(14)(F)² "`employee' ... shall not include ... the sole proprietor ... of an unincorporated business, unless such sole proprietor or partner notifies the commissioner of his or her wish to be included within the provisions of this chapter ...." Chatham Woods states that "the statute on its face compels the conclusion that Chatham Woods need not provide workers' compensation insurance for sole proprietors." Similarly, Chatham Woods argues that the exemption BK Construction received from the Department of Labor and Industry eliminates Chatham Woods' obligation to provide coverage. With respect to both claims, we agree with the Commissioner that these exemptions only affect the scope of the contractors' obligations to provide coverage for individuals under the contractors' employment. These exemptions do not affect the obligations Chatham Woods has towards those same individuals when they are working for Chatham Woods.³

¶ 8. In reaching this holding, we defer to the Commissioner's interpretation, In re Central Vermont Medical Center, 174 Vt. at 608, 816 A.2d at 535, and we are conscious that Vermont's workers' compensation statute is "`remedial in nature and must be liberally construed to provide injured employees with benefits unless the law is clear to the contrary.'" Murray v. Luzenac Corp., 2003 VT 37, ¶ 4, 175 Vt 529, 830 A.2d 1 (mem.) (quoting St. Paul Fire & Marine Ins. Co. v. Surdam, 156 Vt. 585, 590, 595 A.2d 264, 266 (1991)). Here, the Commissioner's interpretation of § 601(14)(F) furthers the remedial objectives of the workers' compensation statute. The Commissioner's reading of this section tends towards inclusivity, while the interpretation put forward by Chatham Woods would tend to exclude certain individuals from coverage.

¶ 9. The purpose of the workers' compensation statute is to provide employees with a remedy independent of proof of fault, and employers with a limited and determinate liability. Longe, 171 Vt. at 221, 762 A.2d at 1255. To effectuate this purpose we favor an "all embracing" definition of employee and employer where such a construction is reasonable. Fotinopoulos v. Dep't of Corr., 174 Vt. 510, 512, 811 A.2d...