Zak v. Dep't of Workforce Servs. & Workforce Appeals Bd.

• Decision Date: 28 March 2019
• Docket Number: No. 20171040-CA,20171040-CA
• Citation: 440 P.3d 891
• Parties: Pany ZAK, Petitioner, v. DEPARTMENT OF WORKFORCE SERVICES AND WORKFORCE APPEALS BOARD, Respondents.
• Court: Utah Court of Appeals

440 P.3d 891

Pany ZAK, Petitioner,

v.DEPARTMENT OF WORKFORCE SERVICES AND WORKFORCE APPEALS BOARD, Respondents.

No. 20171040-CA

Court of Appeals of Utah.

Filed March 28, 2019

Pany Zak, Petitioner Pro Se

Nathan R. White, Attorney for Respondents

Judge Michele M. Christiansen Forster authored this Opinion, in which Judges David N. Mortensen and Diana Hagen concurred.

Opinion

CHRISTIANSEN FORSTER, Judge:

¶1 While many hands make light work, they may also accrue liability for contributions to the state’s unemployment compensation fund. The Department of Workforce Services (Department) determined that Pany Zak’s day spa workers were employees and not independent contractors. Because the workers were employees, the Department concluded that their wages were subject to state unemployment compensation fund contributions and the Workforce Appeals Board (Board) affirmed. Zak petitions for judicial review. We decline to disturb the Board’s decision.

¶2 Zak operated a by-appointment-only day spa business out of her home and offered a variety of spa-related services to customers. While Zak provided most of the services herself, she hired other workers and contacted them when more hands were needed. When Zak contacted the workers with an opportunity to perform services in her spa, the workers were free to reject the offer. But if the workers accepted, Zak expected them to render their services at her place of business and she would pay the workers a percentage of the sale or a commission.

¶3 Under this arrangement, the customers belonged to Zak and the workers were directed not to hand out their own business cards to the customers. Zak set the price of services, set the rate or amount of commissions to workers, collected payment from customers, and paid the workers. When customers called the day spa, Zak or her boyfriend who lived with her answered the call and scheduled the appointment. If a customer failed to show up for an appointment with a worker or was dissatisfied with the services provided by a worker, Zak did not pay that worker.

¶4 When providing a service, workers paid no "booth" fees and otherwise did not rent space in Zak’s day spa. Rather, Zak provided a room and massage table to the workers at no cost, and made available, at a cost to the workers, some spa-related products. If a customer paid by credit card, Zak charged the workers a credit card processing fee.

¶5 Zak generally found workers by placing classified advertisements and soliciting resumes. She then had the workers sign an agreement in which they agreed to be "classified as Contract Labor." The agreement further stated that Zak’s day spa "is not considered [the worker’s] employer and will not be held responsible for any tax payments" related to the workers' employment. Zak issued the workers a 1099-MISC¹ form but did not know what types of tax forms the workers filed with the Internal Revenue Service. Zak offered the workers no instruction or training on how to perform services and did not ask them to show her their own business licenses. Indeed, Zak allowed the workers to provide services in their own unique styles.

¶6 In 2016, the Department commenced an audit to determine whether Zak’s workers should be classified as independent contractors or as Zak’s employees. After an investigation, the auditor determined that Zak’s workers were employees and, consequently, that the workers' wages were subject to state unemployment compensation fund contributions. Zak appealed the audit to the Department. Considering Zak’s appeal, a hearing officer within the Department reviewed documents from the original investigation and consulted with Zak. The hearing officer weighed the circumstances surrounding Zak’s relationship with the day spa workers against several factors used to aid in the determination of a worker’s independent contractor status. The officer affirmed the auditor’s determination that Zak’s spa workers were employees and not independent contractors.

¶7 Zak appealed the Department’s decision to an administrative law judge (the ALJ). The ALJ affirmed the Department’s decision, determining that Zak was an employer and that Zak’s day spa workers were employees. As a result, the ALJ determined that Zak’s business was subject to unemployment contributions. The ALJ observed that Zak had the burden to establish that the workers were "independently established in their own trade, occupation, profession, or business providing similar services as those provided to [Zak] at the same time the services were provided to [Zak]." See Aura Spa & Boutique v. Department of Workforce Services , 2017 UT App 152, ¶ 8, 402 P.3d 813 ; see also Utah Code Ann. § 35A-4-204(3) (LexisNexis Supp. 2018). Zak’s evidence in support of this factor consisted of her own testimony that the workers told her they had their own places of business and business licenses. In addition, Zak offered two resumes from workers she had hired that indicated those workers were self-employed. The ALJ determined that this evidence was hearsay and thus was "insufficient to establish a finding of fact that [the workers] had their own businesses, had other clients, or had business licenses."

¶8 Zak then appealed the ALJ’s decision to the Board. The Board adopted in full the factual findings of the ALJ and affirmed the ALJ’s reasoning and conclusions of law. Zak seeks review of that decision in this court. Zak primarily argues that the Board erred when it concluded that the day spa workers were employees and not independent contractors with independently established businesses.²

¶9 The Employment Security Act generally makes "[s]ervices performed by an individual for wages or under any contract of hire" subject to contributions to the state unemployment compensation fund. Utah Code Ann. § 35A-4-204(3). Zak does not dispute that her relationship with the spa workers included payment of wages under a contract for hire. Consequently, the services of the workers are subject to the Employment Security Act "unless it is shown to the satisfaction of the [Unemployment Insurance Division] that" an exception for independent contractors applies. See id. ; see also Evolocity, Inc. v. Department of Workforce Services , 2015 UT App 61, ¶ 9, 347 P.3d 406 (observing that "Utah law presumes that a paid or contracted worker is an employee unless the putative employer can demonstrate that the worker (1) is independently established in work of the same nature and (2) has been free from control or direction over the means of performing the work" (quotation simplified)). Accordingly, Zak bears the burden to rebut the presumption that the workers were employees. See Aura , 2017 UT App 152, ¶ 8, 402 P.3d 813.

¶10 "The determination whether a [worker] is an independent contractor involves a fact-sensitive inquiry into the unique facts of a particular employment relationship." Evolocity , 2015 UT App 61, ¶ 6, 347 P.3d 406. We accordingly grant deference to the Board "in its weighing of the relevant factors to arrive at its ultimate decision" and "we will disturb that decision only if it is clearly erroneous or falls outside the scope of the afforded deference." Id.

¶11 The Board considered seven factors to aid in its determination that the workers were independent contractors. See Utah Admin. Code R944-204-303(1)(b). These 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.

Aura , 2017 UT App 152, ¶ 8, 402 P.3d 813. The Board considered the evidence presented and, importantly, the lack of evidence supporting the conclusion that any of the workers were independent contractors under each of the seven factors.

¶12 Zak separately addresses each factor in her briefing but does not challenge any of the record evidence. Instead, she asks us to consider the same evidence presented in the administrative proceedings and reach a different conclusion—that the workers were more like independent contractors.

However, "[w]e do not reweigh the evidence or substitute our decision for that of the Department but instead will uphold its determinations if they are supported by the record evidence." Evolocity , 2015 UT App 61, ¶ 6, 347 P.3d 406. Affirming the Department’s decision, the Board adopted in full its factual determinations. Because Zak does not confront the record evidence supporting the Board’s decision, we decline to address the majority of Zak’s challenges.

¶13 With regard to the first factor—the worker’s separate place of business—Zak argues that the Board improperly ignored some of her evidence when it labeled that evidence hearsay. In other words, she contends that the Board refused to consider legally competent evidence, an argument that implicates the residuum rule. See Aura , 2017 UT App 152, ¶ 11, 402 P.3d 813. "The residuum rule requires that an administrative board’s findings of fact be...