Spa v. Dep't of Workforce Servs., 20160341-CA.

• Decision Date: 17 August 2017
• Docket Number: No. 20160341-CA.,20160341-CA.
• Court: Utah Court of Appeals
• Parties: AURA SPA & BOUTIQUE, Petitioner, v. DEPARTMENT OF WORKFORCE SERVICES, Workforce Appeals Board, Respondent.

402 P.3d 813

AURA SPA & BOUTIQUE, Petitioner,

v.DEPARTMENT OF WORKFORCE SERVICES, Workforce Appeals Board, Respondent.

No. 20160341-CA.

Court of Appeals of Utah.

Filed August 17, 2017

David E. Ross II, Park City, Attorney for Petitioner.

Suzan Pixton and Nathan R. White, Salt Lake City, Attorneys for Respondent.

Judge Gregory K. Orme authored this Opinion, in which Judges J. Frederic Voros Jr. and Michele M. Christiansen concurred.¹

Opinion

ORME, Judge:

¶ 1 Aura Spa & Boutique (the Spa) petitions for judicial review of the Workforce Appeals Board's decision that concluded the Spa's workers were employees rather than independent contractors for purposes of Utah's employment security regime. We decline to disturb the board's determination.

¶ 2 The Spa offered massages and various esthetic services to its customers. In providing these services, the Spa contracted with individual massage therapists and estheticians, paying them a commission for the services they rendered. The Spa set the prices for the services, and it provided advertising, clientele, equipment, supplies, clerical support, and business premises where the workers performed their services for customers who wished to come to the Spa. Additionally, the Spa required its workers to carry liability insurance and maintain their professional licenses, both at their own expense.

¶ 3 In 2014, the Department of Workforce Services (DWS) randomly selected the Spa for an audit. During its investigation, DWS distributed questionnaires to the Spa's workers to determine whether the workers were the Spa's employees for purposes of unemployment compensation. After reviewing the pertinent information, the DWS auditor concluded that the workers were not independent contractors but were instead employees of the Spa. The Spa appealed, and a DWS hearing officer affirmed the decision.

¶ 4 The Spa appealed the hearing officer's decision, and an administrative law judge (the ALJ) conducted a hearing. The owner of the Spa testified, but none of the Spa's workers did. After the hearing, the ALJ issued a written decision, holding that the workers received wages subject to the Employment Security Act (the Act), see Utah Code Ann. § 35A-4-204(3) (LexisNexis 2015); that the workers were employees rather than independent contractors for purposes of the Act; that the Spa directed and controlled its workers; and that the Spa was responsible for providing its employees with unemployment benefits through the payment of appropriate premiums for unemployment insurance. The ALJ concluded that the Spa failed to provide any legally competent evidence to support its claims to the contrary, noting that it "provided only hearsay testimony about the services provided by the [workers]." The Spa appealed the ALJ's decision, and the Workforce Appeals Board affirmed. The Spa now seeks our review of the board's disposition.

¶ 5 "The determination whether a claimant is an independent contractor involves a fact-sensitive inquiry into the unique facts of a particular employment relationship." Evolocity, Inc. v. Department of Workforce Services , 2015 UT App 61, ¶ 6, 347 P.3d 406. Due to the "individuality of fact patterns and the vagaries of various vocations," BMS Ltd. 1999, Inc. v. Department of Workforce Services , 2014 UT App 111, ¶ 13, 327 P.3d 578, we will not disturb the board's decision unless the challenging party shows "that a finding is not supported by legally sufficient evidence even when the evidence is viewed in a light most favorable to the finding," Evolocity , 2015 UT App 61, ¶ 6, 347 P.3d 406 (citation and internal quotation marks omitted).

¶ 6 The Spa contends that the board erred in determining that its workers were employees rather than independent contractors. To establish that a worker is an independent contractor, the business owner has the burden to show that

(a) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the contract of hire for services; and

(b) the individual has been and will continue to be free from control or direction over the means of performance of those services, both under the individual's contract of hire and in fact.

Utah Code Ann. § 35A-4-204(3)(a)–(b).

¶ 7 The Spa asserts that its workers were independently established. It relies on a copy of a worker's advertisement for massage services unrelated to the Spa; its workers' responses to the DWS questionnaire, which consistently suggested circumstances consistent with independence;² and the Spa owner's hearing testimony.

¶ 8 DWS's regulations identify seven factors to consider in determining whether a worker is independently established. See Utah Admin. Code R994-204-303(1)(b). Specifically, the factors require the reviewing entity to examine whether the worker has a separate place of business; has substantially invested in his or her own equipment; has independent clients; can realize a profit or loss; advertises his or her own services; has obtained the required and customary professional licenses; and maintains records that validate business expenses. Id. R994-204-303(1)(b)(i)–(vii). Significantly, the burden is not on DWS to establish that the workers are covered employees under the Act; the burden is on the employer to establish that the workers are independent contractors not subject to the Act. See Utah Code Ann. § 35A-4-204(3).

¶ 9 The board found that all seven factors tended to show the workers were not independently established. In reaching its conclusion, the board noted that there was no legally competent evidence demonstrating that any of the workers maintained a separate place of business, rendered services to independent clients, advertised their services, or filed taxes as independent business entities. Additionally, while the board noted that the workers were free to use their own massage beds and lotions if they preferred, it concluded that the Spa "provided all the tools and equipment necessary for the workers to perform their jobs." The board further determined that the workers faced "no risk of a loss," noting that the workers were paid "[i]f they provided the service," but otherwise stood to gain or lose nothing by reason of their affiliation with the Spa. Finally, the board noted that all massage therapists and estheticians, whether employees or independent contractors, are required to maintain professional licenses. In the board's view, this fact, especially coupled with the fact that none of the Spa's workers obtained separate business licenses,³ also favored a conclusion that the Spa's workers were employees.

¶ 10 In this judicial review proceeding, the Spa challenges the board's decision by relying on the evidence it presented at the administrative hearing. But the Spa fails to show that the board's decision was not supported by sufficient evidence, much less that the decision was outside "the realm of reasonableness and rationality." See Prosper Team, Inc. v. Department of Workforce Services , 2011 UT App 142, ¶ 6, 256 P.3d 246 (citation and internal quotation marks omitted).

¶ 11 While the Spa argues that the board's decision was not supported by sufficient evidence, its primary argument is that the board erroneously refused to consider legally competent evidence that, according to the Spa, would have tipped the decision in its favor. This argument implicates the so-called residuum rule. The residuum rule requires that an administrative board's findings of fact "be supported by a residuum of legal evidence competent in a court of law" even if the board has received and considered evidence of a lesser quality. See InnoSys, Inc. v. Department of Workforce Services , 2011 UT App 169, ¶ 9, 257 P.3d 489 (citation and internal quotation marks omitted). While hearsay "is clearly admissible in administrative proceedings," id. (citation and internal quotation marks omitted), the ensuing findings of fact may not rely exclusively on inadmissible hearsay evidence, see Prosper, Inc. v. Department of Workforce Services , 2007 UT App 281, ¶ 11, 168 P.3d 344 ; Utah Admin. Code R994-508-111(4).

¶ 12 Hearsay consists of "a statement that: (1) the declarant does not make while testifying at the current trial or hearing; and (2) a party offers in evidence to prove the truth of the matter asserted in the statement." Utah R. Evid....