Q.D.-A., Inc. v. Indiana Department of Workforce Development , 114 N.E.3d 840 ( 2019 )

FILED
Jan 23 2019, 2:29 pm
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
IN THE
Indiana Supreme Court
Supreme Court Case No. 19S-EX-43
Q.D.-A., Inc.
Appellant
–v–
Indiana Department of Workforce Development
Appellee
Argued: September 13, 2018 | Decided: January 23, 2019
Appeal from the Indiana Department of Workforce Development,
Unemployment Insurance Appeals,
No. 93484
The Honorable Suzanne E. Manning, Liability Administrative Law Judge
On Petition to Transfer from the Indiana Court of Appeals,
No. 93A02-1703-EX-556
Opinion by Justice Massa
Chief Justice Rush and Justices David and Goff concur.
Justice Slaughter concurs in result.
Massa, Justice.
Q.D.-A. matches drivers with customers who need large vehicles
driven to them. Because Q.D.-A. classified these drivers as independent
contractors, it did not pay unemployment taxes for them under the
Indiana Unemployment Compensation Act. The Act presumes a worker is
an employee unless the employer can show three things: (A) the worker is
free from the employer’s control and direction, (B) the worker performs a
service outside the usual course of the employer’s business, and (C) the
worker receives a commission or operates an independently established
trade, occupation, or profession.
After a driver for Q.D.-A. filed for unemployment benefits under the
Act, the Department of Workforce Development told the company that it
had misclassified him as an independent contractor. But because Q.D.-A.
proved the Act’s three-part test, we hold that he was an independent
contractor.
Facts and Procedural History
Q.D.-A. is a business that connects drivers with customers who need
too-large-to-tow vehicles driven to them. Consistent with its typical
practice, Q.D.-A. contracted with a Driver to pair him with customers
needing this drive-away service. Under this contract—which explicitly
called him an independent contractor—Driver could choose his own
hours and the routes he believed were safest and most direct, contract
with Q.D.-A.’s competitors, decline any work offered by Q.D.-A.,
negotiate his pay for each trip, and hire other drivers to complete his
deliveries if they were qualified under federal regulations. Because
Q.D.-A. believed these terms made Driver an independent contractor
instead of an employee, it did not pay unemployment taxes for him.
After parting ways with Q.D.-A., Driver filed for unemployment
benefits with the Department of Workforce Development. Because
Q.D.-A. did not pay unemployment taxes for Driver, the Department
investigated to determine whether Q.D.-A. should have classified Driver
as an employee. After examining their contract and speaking with Driver
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and representatives from Q.D.-A., the Department analyzed their
relationship under the statutory “ABC Test.”
To prevail under this test, Q.D.-A. needed to show that (A) Driver was
free from its control and direction, (B) Driver performed his work outside
the company’s usual course of business, and (C) Driver was customarily
engaged in an independently established trade or business of the work
performed. See Ind. Code § 22-4-8-1(b). After looking at all the evidence,
the Department determined that Q.D.-A. failed to prove any of those three
prongs. According to the Department, Driver was an employee.
Q.D.-A. protested. At a hearing before a Liability Administrative Law
Judge (or LALJ), the Department’s sole witness, the investigator who
classified Driver as an employee, acknowledged that
• She knew nothing about Q.D.-A.’s two-day orientation or
internal policies,
• She believed Q.D.-A. showed control over Driver when it
required him to follow state and federal regulations,
• Driver’s unilateral ability to choose how to do his job could
be considered the “opposite” of control,
• It would be “very odd” for an employer to allow an
employee to hire someone else to do his job, and
• Q.D.-A. acted as a “middleman” between drivers and
customers.
Tr. Vol. 2, pp. 19, 22–23, 29, 31, 32, 40.
On the other hand, Q.D.-A.’s director of administration and dispatch
supervisor both testified that
• Q.D.-A. provided neither direction to Driver on how he
should perform his job nor evaluation of his performance,
• Q.D.-A. permitted Driver to outsource his work to other
drivers,
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• Driver could negotiate his pay for each trip and could work
for more than one drive-away company,
• Driver paid for all incidental expenses (like lodging, meals,
tolls, and fuel) and provided all equipment (like any
vehicle he towed to drive back home, hitch equipment, tow
bars, light connectors, safety triangles, and fire
extinguishers),
• Driver could refuse any jobs offered to him with no
repercussions and could call in at his convenience to see if
any jobs were available,
• The primary purpose of the orientation and internal
policies is “to go over the regulations brought on by the
federal government,”
• Q.D.-A. only employs individuals to “pair the customer
with the contractor,”
• Although Q.D.-A. registered as a motor carrier with
the federal government and has a Department of
Transportation (DOT) number, it is “very common” in
the industry for “contractors [to] contract with a motor
carrier or the middle man who has the DOT number,”
• All drive-away companies must comply with federal
regulations, and
• Driver was personally liable to follow federal regulations.
Tr. Vol. 2, pp. 42–53, 66–67, 70, 74, 76, 80, 85.
After the hearing, the LALJ affirmed the Department’s classification,
concluding that even though Q.D.-A. had established that Driver ran an
independently established business, it had failed to prove the two other
prongs. First, the LALJ reasoned, Q.D.-A. controlled Driver because it
provided “a two-day orientation to its independent contractors,” trained
them on federal regulations and employer policies, and required them to
perform a driving test. Ex. Vol. 4, p.102. And second, the LALJ opined,
Driver performed work within Q.D.-A.’s usual course of business because
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Q.D.-A. “is a provider of one-way transportation of commodities” and
“[t]he independent contractors provide those services to the clients on
behalf of the employer.” Id.Q.D.-A. appealed, and a divided panel of our Court of Appeals
reversed, holding that Q.D.-A. satisfied the ABC Test. Q. D.-A., Inc. v.
Indiana Dep’t of Workforce Dev., 96 N.E.3d 620, 627 (Ind. Ct. App. 2018),
vacated. First, the majority determined, Q.D.-A.’s “one-time orientation
session” and “incorporation of federal regulations” into its policies did
“not demonstrate the kind of ongoing control over work methods needed
to show control and direction.” Id. at 626. Second, Q.D.-A. and Driver
offered “complementary” yet distinct services because, the majority
reasoned, Q.D.-A. “functions as an intermediary or middleman” when it
employs people to pair customers and drivers. Id. at 627. And third, the
majority noted, neither party disputed the LALJ’s finding that Driver
“was customarily engaged in an independently established trade,
occupation, profession, or business of transporting commodities.” Id.The dissent pointed to another Court of Appeals opinion seemingly in
conflict with the panel’s decision here. Id. at 627–29. See Company v. Indiana
Dep’t of Workforce Dev., 86 N.E.3d 204, 209 (Ind. Ct. App. 2017) (holding
that an LALJ’s conclusion that a drive-away driver was an employee of a
company was reasonable). Since we agree that “[t]he Court of Appeals has
entered a decision in conflict with another decision of the Court of
Appeals on the same important issue,” Ind. Appellate Rule 57(H)(1), we
grant the Department’s petition to transfer. In resolving this conflict in
decisions, we also reverse the LALJ.
Standard of Review
Under the Unemployment Compensation Act, “[a]ny decision of the
liability administrative law judge shall be conclusive and binding as to all
questions of fact.” I.C. § 22-4-32-9(a) (2018). But when challenged as
contrary to law, we review the LALJ’s decision for the “sufficiency of the
facts found to sustain the decision” and the “sufficiency of the evidence to
sustain the finding of facts.” I.C. § 22-4-32-12 (1990). Under this standard,
we review an LALJ’s (1) findings of basic fact to ensure “substantial
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evidence” supports those findings, (2) conclusions of law for correctness,
and (3) inferences or conclusions from basic facts, often called “mixed
questions of law and fact,” for reasonableness. McClain v. Review Bd. of
Indiana Dep't of Workforce Dev., 693 N.E.2d 1314, 1317–18 (Ind. 1998).
Since the LALJ’s conclusion of whether Driver met the ABC Test is a
mixed question of law and fact, we review it for reasonableness. And
because deciding whether a worker is an employee or independent
contractor falls within the special competence of the Department, we show
“greater deference” to the reasonableness of the Department’s
determination. Id. at 1318. But even when showing this heightened
deference, we will not blindly sustain the determination of the
Department and will reverse “if the underlying facts are not supported by
substantial evidence,” if “the logic of the inference is faulty,” or “if the
agency proceeds under an incorrect view of the law.” Id.Discussion and Decision
The Unemployment Compensation Act requires employers to pay
unemployment taxes for employees but does not require them to pay
those taxes for independent contractors. I.C. §§ 22-4-10-1(a), -4-2, -8-1. The
Act’s ABC Test—so called because of its former statutory placement—
presumes a worker is an employee unless an employer can establish three
prongs:
(1) The individual has been and will continue to be free from
control and direction in connection with the performance
of such service, both under the individual’s contract of
service and in fact.
(2) The service is performed outside the usual course of the
business for which the service is performed.
(3) The individual:
(A) is customarily engaged in an independently
established trade, occupation, profession,
or business of the same nature as that
involved in the service performed; or
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(B) is a sales agent who receives remuneration
solely upon a commission basis and who is
the master of the individual’s own time and
effort.
I.C. § 22-4-8-1(b). Finding that Q.D.-A. has established all three prongs, we
hold that Driver was an independent contractor.
A. Driver was not under Q.D.-A.’s control or
direction.
First, to show that Driver was an independent contractor, Q.D.-A. must
demonstrate it lacked control and direction over Driver, both under
contract and in fact. See I.C. § 22-4-8-1(b)(1).
Under contract, Q.D.-A. and Driver “expressly understood and agreed”
that Driver was an independent contractor. Ex. Vol. 3, p.16. This contract
required Driver to provide all his own equipment and gave him ultimate
control over how to complete his work. And the contract allowed Driver
to provide drive-away services for any competitor and hire his own sub-
contractors to complete his deliveries. Under contract, Q.D.-A. lacked
control over Driver.
To show that it lacked control over Driver in fact, Q.D.-A. must show
that it did not control the “‘manner, method, and means’” in which he
performed his services. Circle Health Partners, Inc. v. Unemployment Ins.
Appeals of Indiana Dep’t of Workforce Dev., 47 N.E.3d 1239, 1243 (Ind. Ct.
App. 2015) (quoting Alumiwall Corp. v. Indiana Emp’t Sec. Bd., 130 Ind.
App. 535, 541, 167 N.E.2d 60, 62 (1960)). First, despite the Department
arguing that Q.D.-A. controlled Driver because it required him to follow
federal regulations, we agree with the United States Court of Appeals for
the District of Columbia Circuit that “[g]overnment regulations constitute
supervision not by the employer but by the state.” Local 777, Democratic
Union Org. Comm., Seafarers Int’l Union of N. Am., AFL-CIO v. NLRB, 603
F.2d 862, 875 (1978). The LALJ saw no evidence that the orientation or
company policies went beyond echoing government regulations.
Q.D.-A.’s Director of Administration testified that the purpose of the
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orientation was “to go over the regulations brought on by the federal
government” and the company policies merely reiterated “federal motor
carrier regulations.” Tr. Vol. 2, pp. 45, 46. The Department’s sole witness,
on the other hand, testified that she knew nothing about Q.D.-A.’s
orientation or policies. Since Q.D.-A.’s orientation and policies merely
relayed government regulations to Driver that he was already required to
obey, Q.D.-A. did not control him by requiring him to follow them.
Independent of this government-regulation analysis, we hold Q.D.-A.’s
control over Driver insufficient to form an employer-employee
relationship because requiring work to be completed “in a good and
workmanlike manner . . . is inherent in all services performed by one for
another.” Alumiwall, 130 Ind. App. at 541, 167 N.E.2d at 62. Q.D.-A. merely
required Driver to complete his work in this competent manner by asking
him to successfully complete the trips.
Q.D.-A. gave no guidance to Driver on how he should perform his
work and never evaluated or monitored him. See Twin States Pub. Co. v.
Indiana Unemployment Ins. Bd., 678 N.E.2d 110, 114 (Ind. Ct. App. 1997)
(holding that newspaper carriers were independent contractors when a
publishing company required only that they “deliver the guides by 5:00
p.m. on Tuesdays” and “place the guides in a dry place”), trans. denied. Cf.
Circle Health, 47 N.E.3d at 1245 (holding that health professionals were
employees when they were given, in precise order and exacting detail,
“eighteen specific steps to complete”); Bloomington Area Arts Council v.
Dep’t of Workforce Dev., Unemployment Ins. Appeals, 821 N.E.2d 843, 850–51
(Ind. Ct. App. 2005) (holding that instructors were employees when an art
education center monitored teacher performance and required them to
adhere to center-specific policies in its instructor’s manual).
Driver could refuse jobs with no repercussions, work for as many
drive-away companies as he wanted, negotiate his per-trip pay, and call in
at his own convenience for jobs. Cf. Circle Health, 47 N.E.3d at 1245
(holding that health professionals were employees when they could not
“conduct the screenings at times other than the hours scheduled for the
screenings”); Bloomington Area Arts Council, 821 N.E.2d at 850–51 (holding
that instructors were employees when an art education center decided if
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and when to offer classes and expected teachers “to find and pay a
substitute if one is necessary”).
Driver also provided his own tools and equipment, paid for any
incidental expenses, and could determine the payment and guidelines for
any drivers he hired who qualified under federal regulations. See
Alumiwall, 130 Ind. App. at 540–41, 167 N.E.2d at 62 (holding that siding
installers were independent contractors when they “provided their own
tools and equipment” and could “hire helpers and determine the wage
scale of such helpers”). Cf. Circle Health, 47 N.E.3d at 1245 (holding that
health professionals were employees when they could not “send others to
complete the work”).
In sum, Driver had total control over how—and even if—he completed
his work. No evidence shows Q.D.-A., in fact, controlled Driver in a way
that would make him an employee. Instead, as the Department’s
investigator herself contemplated, all these facts show the “opposite” of
control.
Because all evidence showed that Driver, under contract and in fact,
was free from Q.D.-A.’s direction and control, the LALJ’s contrary
conclusion was unreasonable.
B. Driver performed a service outside Q.D.-A.’s usual
course of business.
Second, for Q.D.-A. to establish that Driver was an independent
contractor, it must show that he performed a service outside its usual
course of business. See I.C. § 22-4-8-1(b)(2). With no Indiana case clearly
defining “course of business,” we adopt the definition applied by two of
our sister states under their respective ABC Tests: “if an enterprise
undertakes an activity, not as an isolated instance but as a regular or
continuous practice, the activity will constitute part of the enterprise’s
usual course of business irrespective of its substantiality in relation to the
other activities engaged in by the enterprise.” Appeal of Niadni, Inc., 93
A.3d 728, 732 (N.H. 2014) (alterations removed) (quoting Mattatuck
Museum v. Unemployment Comp., 679 A.2d 347, 351 (Conn. 1996)). In other
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words, if a company regularly or continually performs an activity, no
matter the scale, it is part of the company’s usual course of business. And
if a company regularly or continually performs activities showing it is
“engaged in various separate and independent kinds of businesses or
occupations,” it may have more than one course of business. Scott v.
Rhoads, 114 Ind. App. 150, 150, 51 N.E.2d 89, 91 (1943).
Consistent with this definition, our Court of Appeals in Twin States
held that the “delivery of shopping guides” by newspaper carriers was
outside a publishing company’s usual course of business. 678 N.E.2d at
114. There, the company did not regularly or continually deliver shopping
guides. Instead, that task was left exclusively to the carriers. And in
Bloomington Area Arts Council, the instruction of art classes was within an
art education center’s usual course of business when it “regularly offer[ed]
the art classes as part of its mission to provide access to the arts in the
community.” 821 N.E.2d at 852. Unlike the publishing company and
newspaper carriers in Twin States, both the art education center and the
teachers regularly or continually performed the same activity—providing
art classes to the public.
Here, the parties agree that Driver provided drive-away services. So, to
determine whether he performed a service within Q.D.-A.’s usual course
of business, we need only decide if Q.D.-A. also provided drive-away
services.
First, the Department argues that the way Q.D.-A. markets itself should
factor into whether it provided drive-away services. But this marketing
plays little, if any, direct role in analyzing the activities Q.D.-A. performs
on a regular or continual basis. To be sure, advertising can reflect services
a company offers to its customers. But we cannot uncritically rely on that
advertising to fully reflect the activities a company regularly or
continually performs.
Second, the Department argues that Q.D.-A.’s registration with the
DOT shows it provided drive-away services. But federal law compels this
registration for any “broker” who arranges motor carrier transportation
between parties. 49 U.S.C. § 13904(a) (2012). See also 49 U.S.C. § 13102(2)
(2008) (defining “broker” as “a person, other than a motor carrier or an
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employee or agent of a motor carrier, that as a principal or agent sells,
offers for sale, negotiates for, or holds itself out by solicitation,
advertisement, or otherwise as selling, providing, or arranging for,
transportation by motor carrier for compensation”). As the Department’s
witness agreed, independent contractors across the United States often
operate under the DOT registration of general contractors. In line with this
national practice, Driver operated under Q.D.-A.’s DOT broker
registration as an independent contractor. Altogether, no evidence shows
Q.D.-A. regularly or continually provided drive-away services.
This conclusion, while consistent with Twin States and Bloomington Area
Arts Council, directly conflicts with Company. In Company, a panel of our
Court of Appeals held that transporting and delivering RVs was within
the usual course of business of a company like Q.D.-A. 86 N.E.3d at 208.
The Company panel—citing the company’s DOT registration, the word
“transport” in its corporate name, and its competition with companies
offering the same services using employees—“seriously doubt[ed]” that
customers contacted the company to act as a “middle man.” Id. at 208–209.
Instead, according to the panel’s “common-sense standpoint,” these
customers would call the company to transport the RVs without caring
how the company accomplished the task. Id. at 209. In other words, the
panel supported its conclusion with speculative customer belief and facts
not relevant to activities the company regularly or continually performed.
By leaving the company’s activities unexamined, Company’s reasoning did
not answer the statutory question of whether its usual course of business
included delivering RVs.
Because Q.D.-A. did not regularly or continually provide drive-away
services, the LALJ unreasonably concluded that Driver performed a
service within Q.D.-A.’s usual course of business.
C. Driver ran an independently established business.
Third and finally, neither party disputes the LALJ’s finding that
Q.D.-A. “provided sufficient evidence to demonstrate that [Driver] was
customarily engaged in an independently established trade, occupation,
profession, or business of transporting commodities.” Ex. Vol. 4, p.102. See
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I.C. § 22-4-8-1(b)(3). So we assume Q.D.-A. meets this prong of the ABC
Test.
Conclusion
The LALJ unreasonably concluded that Driver was Q.D.-A.’s employee
under the Unemployment Compensation Act when Driver (1) was not
under Q.D.-A.’s control or direction, (2) performed a service outside Q.D.-
A.’s usual course of business, and (3) ran an independently established
business. We reverse.
Rush, C.J., and David and Goff, JJ., concur.
Slaughter, J., concurs in result.
ATTORNEYS FOR APPELLANT
Paul D. Borghesani
Angela N. Johnson
Andrew B. Murphy
Alexander E. Preller
Faegre Baker Daniels LLP
Indianapolis, Indiana
Minneapolis, Minnesota
ATTORNEYS FOR APPELLEE
Curtis T. Hill, Jr.
Attorney General of Indiana
Thomas M. Fisher
Solicitor General
Kian J. Hudson
Patricia C. McMath
Julia C. Payne
Andrea E. Rahman
Deputy Attorneys General
Indianapolis, Indiana
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