Daoud Oufafa v. Taxi, LLC D/B/A Taxi 7(aka Taxicab) ( 2023 )

RENDERED: FEBRUARY 16, 2023
TO BE PUBLISHED
Supreme Court of Kentucky
2022-SC-0003-WC
DAOUD OUFAFA APPELLANT
ON APPEAL FROM COURT OF APPEALS
V. NOS. 2020-CA-0942 & 2020-CA-0946
WORKERS’ COMPENSATION BOARD NO. 19-WC-00222
TAXI, LLC D/B/A TAXI 7 (AKA TAXICAB); APPELLEES
AIG; COMMONWEALTH OF KENTUCKY EX
REL. DANIEL J. CAMERON, ATTORNEY
GENERAL; W. GREG HARVEY;
UNINSURED EMPLOYERS’ FUND; AND
WORKERS’ COMPENSATION BOARD
OPINION OF THE COURT BY JUSTICE KELLER
REVERSING AND REMANDING
Appellant, Daoud Oufafa was working as a Taxi 7 driver when he was
shot in the shoulder, causing permanent damage. Oufafa was denied workers’
compensation benefits by Taxi 7 on the grounds that he was an independent
contractor, not an employee. An ALJ determined that Taxi 7 was correct to
deny Oufafa benefits. The Workers’ Compensation Board reversed and
remanded, however, concluding that the ALJ was clearly erroneous in his
findings. The Court of Appeals reversed the Board and determined under its
own analysis that Oufafa was an independent contractor, as the ALJ had
determined. Oufafa appeals the decision of the Court of Appeals to this Court.
For the reasons stated herein, the order of the ALJ is vacated and the case is
remanded back to the ALJ pursuant to this Opinion.
I. BACKGROUND
Daoud Oufafa moved from Morocco to the United States in 2011. He has
a high school education, two young children, and a wife. After moving to the
United States, he worked several jobs doing unskilled labor. In 2016, Oufafa
sought to work for Taxi 7, a business seeking drivers for its taxicabs. Taxi 7 is
insured though AIG. Oufafa went to the Louisville Taxi 7 office and met with
the office’s head, Michael Cregan. Oufafa showed Cregan his license and
provided him with his résumé and a background check. Cregan requested
Oufafa take a drug test. After these requirements were satisfied, Cregan gave
Oufafa two documents to fill out to start working for Taxi 7. Oufafa filled out
the required documents and began driving for Taxi 7.
Taxi 7 generates revenue by leasing taxis to its drivers.1 Taxi 7 identifies
its drivers as independent contractors. The documents provided to Oufafa
included a section in which he, in agreeing to work for Taxi 7, also agreed that
for the purposes of workers’ compensation, he was not an employee. This
section must be hand-written by the signer, and Oufafa did hand-write the
section. He testified that he nonetheless did not understand to what he was
agreeing.
1 Although the ALJ found that the only money Taxi 7 made was through leasing
taxis, there is some conflicting deposition testimony regarding whether Taxi 7 or its
parent company make money from the processing fee on credit card payment for rides.
2
Despite this, Taxi 7 operates as a hub for business for its drivers, who
may use their leased cabs only for Taxi 7 rides. Taxi 7 operates the dispatch
system for the taxicab drivers using their taxis. When a dispatch comes to a
driver for a requested ride, the driver only has access to a zone number
associated with a general area in Jefferson County. Once a driver accepts a
ride, he or she is provided with a specific address and passenger identity for
that ride. If the driver then decides to reject the ride, their account is locked for
15 to 30 minutes, and they may accept no new rides through the dispatch
service in that time.2 If a driver repeatedly declines drives, they are
reprimanded by Taxi 7, and some are fired.
Oufafa testified at a hearing before the ALJ that 90–95% of his rides
came through Taxi 7’s dispatch service. The remainder came from customers
he picked up on the sidewalks who waved him down for a ride. Any time a
customer complained, that complaint was made to Cregan who would address
it with the driver. Customers could pay either with a credit card (for which the
payment would go through Taxi 7’s processing system) or directly to the driver
(through cash or digital vendors, such as Venmo, Cashapp, etc.).
On the morning of January 5, 2018, at 5:00 A.M., Oufafa received a
dispatch requesting a ride. Oufafa accepted, and when he arrived, the
customer asked Oufafa to take him to the Newburg area of Louisville. When
they arrived, the customer then asked Oufafa to take him to Iroquois Park.
2 While this seems to be disputed later, the depositions of both Cregan and
Oufafa support this fact.
3
Oufafa told the customer that he needed to finish and pay for the current ride
before proceeding on a second ride. When the customer replied he only had a
$100 bill, Oufafa suggested that the customer hand him the bill, and Oufafa
would give him change upon arriving at the second location. The customer
became angry, pulled a gun, and demanded all of Oufafa’s cash. Oufafa
complied. The customer hit Oufafa in the shoulder, and the gun discharged.
Oufafa was shot in the shoulder. As a result, Oufafa is permanently paralyzed
from the waist down.
Following the injury, Oufafa required extensive medical care. He testified
that he would require lifelong physical therapy and care due to his disability.
To pay for this, Oufafa sought workers’ compensation. Taxi 7 denied his claim
due to his status as an independent contractor rather than an employee.
Oufafa challenged that ruling, asserting to the Department of Workers’ Claims
that he was an employee of Taxi 7, not an independent contractor, despite the
language in his contract. If Oufafa was an employee, then his medical expenses
could be covered.
After a hearing on the matter, an ALJ determined that Oufafa was an
independent contractor. In coming to that conclusion, the ALJ pieced together
a test from Ratliff v. Redmon, 396 S.W.2d 320 (Ky. 1965) (outlining a nine-
factor test for employee/independent contractor determinations), and
Chambers v. Wooten’s IGA Foodliner, 436 S.W.2d 265, 266 (Ky. 1969) (holding
that four of the Ratliff factors are most important to an independent
contractor/employee determination). The test implemented by the ALJ was
4
comprised of four primary factors and six supplemental factors to determine
whether Oufafa was an employee. Pursuant to Chambers, the four primary
factors the ALJ considered were:
1. The nature of the work as it relates to the business of the alleged
employer,
2. Extent of control exercised by the alleged employer,
3. Degree of professional skill the work requires, and
4. Intent of the parties.
The ALJ found that the four primary factors were split, two to two in
favor of each outcome. He thus proceeded to analyze six other factors. The six
factors that the ALJ considered pursuant to Ratliff were:
1. Whether the worker is engaged in a distinct occupation or
business,
2. Whether the type of work is usually done in the locality under the
supervision of an employer or by a specialist, without supervision,
3. Whether the worker or the alleged employer supplies the
instrumentalities, tools, and place of work,
4. Length of employment,
5. Method of payment, whether by the time or job, and
6. Whether the work is a part of the regular business of the alleged
employer.
The ALJ acknowledged that the sixth factor was, in essence, the same inquiry
as the first of the Chambers factors. In the course of analyzing the ten total
5
factors, the ALJ found that Taxi 7 was a taxi leasing company as opposed to a
taxicab company; this factual finding affected his analysis of several of the
Chambers/Ratliff factors. After his analysis, the ALJ wrote: “The predominant
factors are split. The remaining Ratliff factors weigh slightly in favor of a finding
of independent contractor.” Accordingly, and with great sympathy, the ALJ
denied benefits to Oufafa. After the order was entered, the ALJ amended it to
reflect that AIG was dismissed as a party to the case.
On appeal, the Workers’ Compensation Board reversed the ALJ,
concluding that the ALJ’s finding that Taxi 7 was a taxi leasing company was
“clearly erroneous.” The Board found that Taxi 7 was a taxicab company (as
opposed to a taxicab leasing company), and that this finding was inextricably
linked to the entire analysis regarding Oufafa’s employment status. The Board
ultimately remanded to the ALJ to analyze Oufafa’s role again in light of their
reversal of that factual finding. The Board also ordered that the ALJ “look to
the nature of the work Oufafa performed in relation to the regular business of
Taxi 7 as a taxicab company” when he analyzed the control factor specifically.
Further, the Board concluded that the ALJ erred by finding that the parties
manifested their intent in the contracts signed, stating, “depending on the
factors of the given case, a claimant labeled by an employer as an independent
contractor in a contract of hire may, in reality, be no more ‘independent’ than
any other at-will employee in Kentucky.” Taxi 7 appealed the Board’s decision.
The Court of Appeals reversed the Board in a split decision. The Court of
Appeals reinstated the ALJ’s opinion, holding that because Taxi 7’s primary
6
source of revenue was through leasing taxis to drivers, it was reasonable for
the ALJ to conclude that Taxi 7 was a taxi leasing company. The Court of
Appeals went further, however, holding on its own that Oufafa was an
independent contractor rather than an employee. It did so by relying on the
definition of “work” as tied directly to renumeration, holding that Oufafa “never
performed ‘work’ for Taxi 7 as that term is defined in KRS Chapter 342.” The
Court of Appeals went on to write that “[Taxi 7’s] income is unaffected by how
much or how little its lessees work,” which “does not support a finding that
Taxi 7 was Oufafa’s employer.”
In its analysis, the Court of Appeals did not use the Chambers/Ratliff
factors. Holding that Oufafa was an independent contractor, the Court of
Appeals wrote, “The bottom line for this Court is that Oufafa controlled his own
compensation . . . . That he should bear these associated risks is in keeping
with the ‘theory of risk spreading embodied in compensation.’” One judge
dissented without opinion. Oufafa appealed the Court of Appeals decision to
this Court. Following the appeal, this Court ordered that the parties submit
supplemental briefs regarding whether this Court’s adoption of the economic
realities test in Mouanda v. Jani-King International, 653 S.W.3d 65 (Ky. 2022)
should affect this Court’s assessment of the case at bar.
II. ANALYSIS
Oufafa argues to this Court that the Court of Appeals erred in reversing
the Board. Oufafa claims that the Board was correct in its conclusion that the
ALJ’s finding that Taxi 7 is a taxi leasing company was clearly erroneous.
7
Oufafa further argues that the Court of Appeals should not have undertaken
its own analysis of Oufafa’s employment status, and that even if it could have,
the analysis was incorrect. Additionally, Oufafa argues that this Court should
adopt the economic realities test in workers’ compensation cases and
determine under that test that Oufafa is an employee. Oufafa argues in the
alternative that this Court should adopt the economic realities test and remand
with instructions that the ALJ both implement the economic realities test, as
well as follow the instructions from the Board in its order for remand.
Taxi 7 argues, by contrast, that the ALJ’s taxi-leasing-company finding
was supported by substantial evidence, and that the ALJ’s opinion should be
reinstated. Taxi 7 also argues that the Court of Appeals correctly determined
that Oufafa was an independent contractor. Taxi 7 additionally claims that the
Board’s direction to the ALJ about the weight to be given to the contract
between Oufafa and Taxi 7 in analyzing the intent of the parties was not
properly before either the Board or the Court of Appeals. Regarding the
economic realities test, Taxi 7 argues against using it in the workers’
compensation context. However, Taxi 7 maintains that even under that test, we
should affirm the Court of Appeals’ holding that Oufafa is an independent
contractor.
AIG, still a party to this case on appeal, argues consistently with Taxi 7
on the merits of the case at bar. It argues additionally, however, that if this
Court remands back to the ALJ, then AIG should not be a party to the suit
given its earlier dismissal.
8
This Court’s review of the Court of Appeals is constrained by our
standard of review.
In workers’ compensation cases, this Court’s standard of review
depends upon whether the issue on appeal is a question of law or
fact. In reviewing an ALJ’s decision on a question of law or
interpretation and application of a law to the facts at hand, our
standard of review is de novo. With regard to questions of fact,
“[t]he ALJ as fact finder has the sole authority to judge the weight,
credibility, substance, and inferences to be drawn from the
evidence.”
Apple Valley Sanitation, Inc. v. Stambaugh, 645 S.W.3d 434, 438 (Ky. 2022).
Below, the Board and Court of Appeals reviewed for issues of fact. However,
these reviewing bodies operated under the auspices of the Ratliff/Chambers
framework, as well as the definition of “work,” in their reviews. The approaches
used by the ALJ, Board, and Court of Appeals are wrought with difficulty in
application. In cases such as Oufafa’s, a worker’s status as an employee comes
to a splitting of hairs or conjecture. In order to bring more clarity to this area of
the law, we hereby adopt the economic realities test to determine whether a
worker is an employee or independent contractor for the purposes of workers’
compensation.
The ALJ’s searching and thorough analysis is an excellent example of the
haggard state of the law. First, the ALJ analyzed the Chambers factors. Then,
with an evenly split set, the ALJ looked to six of the Ratliff factors. The analysis
was a multi-level attempt to decipher the reality of the relationship between
Oufafa and Taxi 7. The Court of Appeals, by contrast, attempted to classify
Oufafa by relying solely on the statutory definition of “work.”
9
Neither the Court of Appeals’ approach nor the Ratliff/Chambers factors
adequately capture the reality of Oufafa’s working relationship. The ALJ
himself recognized the apparent difficulty with applying these factors to this
case: “Although it gives the undersigned no pleasure to do so[,] the analysis
dictates the result[.]” The ALJ’s analysis under the factors was encumbered by
a weighty reliance given to the documents outlining the contractual
relationship between the parties. Although the ALJ in this case did not go so
far, relying too heavily on documentation alone cuts against the true inquiry at
hand: regardless of the attempts of an employer to tie a worker’s hands with
paper, what is the nature of their employment relationship? If this were not the
basic inquiry, then independent contractor/employee questions would always
come down to the words on a page, regardless of how employers operate their
businesses. The likelihood of abuse is high under such a test.
Apparently sympathetic to the difficulty of untangling the
Ratliffe/Chambers factors, the Court of Appeals attempted to determine the
true nature of Oufafa’s employment with no reference to the factors. Instead,
that court looked to a basic definition of “work” under KRS 342.0011(34).3
Although the use of KRS 342.0011(34) may have provided some insight into the
nature of the employment relationship at issue, it also ignored other glaring,
relevant facts (including, for example, the level of control held by an employer
over a worker). Using KRS 342.0011(34) alone is clearly an untenable solution.
3 This shift in analytical framework alone evinces the need for clarification in
the law. Our fact-finding and reviewing bodies must rely on the same premises.
10
At the time of this case’s consideration, there are currently two different
tests in Kentucky for determining whether a worker is an independent
contractor or an employee. Using different tests—although consistent, as
discussed below—could lead to outcomes in which under workers’
compensation, workers are legally considered independent contractors, while
for the purposes of wage and hour laws, they are employees. This offends
common sense. If we adopt the Court of Appeals’ approach, even more diverse
outcomes are risked. In this instance, the law demands consistency within
itself and reliable outcomes. Extending our use of the economic realities test
achieves these goal (both for workers’ rights broadly, and among the lower
courts).
Considering the economic realities test in the context of workers’
compensation is not novel. This Court first entertained the possibility of
adopting the economic realities test for workers’ compensation claims in
Purchase Transportation Services v. Estate of Wilson, 39 S.W.3d 816, 819 (Ky.
2001). In Purchase Transportation Services, the estate of Wilson, a deceased
taxi driver, sought workers’ compensation benefits after she was murdered
while driving her taxi. Id. at 816–17. In that case, under the Ratliff factors, this
Court affirmed the ALJ’s finding that Wilson was an employee, not an
independent contractor. Id. at 819. This Court’s mention of the economic
realities test was only cursory: “Radio Cab argues that when determining a
worker’s status as an employee or independent contractor under the Fair Labor
Standards Act of 1966, other jurisdictions apply an ‘economic reality’ test
11
which differs from that set forth in Ratliff v. Redmon, supra.” Id. 4 Despite
mentioning the test, this Court did not then adopt it—though it did not
foreclose the test’s future adoption, either. The Court simply held that the ALJ
“conducted a proper” analysis without further discussing the proposed
economic realities test. Id. Since that case’s rendering, however, this Court has
adopted the economic realities test to determine independent contractor or
employee status (albeit outside of the workers’ compensation context).
Oufafa’s case presents the first opportunity since our Opinion in
Mouanda for this Court to reconcile the apparent conflict in our interpretation
of the same terms across different (though related) labor laws. Mouanda, 653
S.W.3d 65. In Mouanda, this Court adopted the economic realities test to
determine the difference between employees and independent contractors in
the context of the Kentucky Wage and Hour Act (KWHA). That test has six
factors:
1. The permanency of the relationship between the parties,
2. The degree of skill required for the rendering of the services,
3. The worker’s investment in equipment or materials for the task,
4. The worker’s opportunity for profit or loss, depending upon his skill,
4 Interestingly, although the facts underlying both Purchase Transportation
Services and the case at bar are remarkably similar, the taxi companies in each case
harbor different opinions regarding whether the economic realities test should be
implemented in workers’ compensation cases and to what effect. The notable
distinction between the cases seems to be whether the ALJ initially found in the
respective companies’ favor or not under the Ratliff test.
12
5. The degree of the alleged employer’s right to control the manner in
which the work is performed, and
6. Whether the service rendered is an integral part of the alleged
employer’s business.
Id. at 74. These factors are consistent with this Court’s delineated factors in
Ratliff. Id. at 75. In fact, the tests share five factors. Id. The fundamental
inquiry in both Ratliff and Jani-King is the same: “In assessing the true nature
of the parties’ relationship, courts must look at the practical, not just
contractual, realities of the relationship.” Id. at 80. Importantly, however, the
“central question” to the economic realities test is “the worker’s economic
dependence upon the business for which he is laboring,” an inquiry not
specifically captured under the ALJ’s in-depth analysis nor under our prior
caselaw. Id. at 74 (citation omitted). The narrowing of enumerated factors,
paired with this slight shift in focus, sets the economic realities test apart from
previous attempts to distinguish between independent contractors and
employees. While not inconsistent with the Ratliff/Chambers factors, the
economic realities test improves upon their attempts to discern the actuality of
the working relationship at issue while streamlining Kentucky’s approach to
employee/independent contractor designations.
Adopting the economic realities test in the workers’ compensation
context not only simplifies the definition of independent contractor across the
Commonwealth; doing so also serves the purpose of the Workers’
13
Compensation Act itself. In an Opinion clarifying the use of the
Ratliff/Chambers factors soon after their adoption, the Court of Appeals wrote,
The theory of compensation legislation is that the cost of all
industrial accidents should be borne by the consumer as a part of
the cost of the product. It follows that any worker whose services
form a regular and continuing part of the cost of that product, and
whose method of operation is not such an independent business
that it forms in itself a separate route through which his own costs
of industrial accident can be channelled [sic], is within the
presumptive area of intended protection.
Husman Snack Foods Co. v. Dillon, 591 S.W.2d 701, 703 (Ky. App. 1979) (citing
Larson, Workmen’s Compensation Laws 43.51 (1978)). Husman elaborated that
to serve the purpose of our workers’ compensation statutes, the Ratliff factors
should be construed with an eye toward whether the alleged employee’s work
formed the basis of the employer’s regular business. Id. It makes sense, thus,
to develop the law towards a test that more explicitly accounts for the centrality
of a worker’s dependence on an employer to incur the costs of risks associated
with work. Although the Ratliff/Chambers factors struggled to achieve this aim,
it may be captured within the economic realities test. To reiterate, the “central
question” to the economic realities test is “the worker’s economic dependence
upon the business for which he is laboring.” For claimants such as Oufafa who
work within ever-complex business schemes, that dependence is an integral
part of deciphering whether he was an employee of Taxi 7.
III. CONCLUSION
This Court did not limit itself when it recently adopted the economic
realities test. Mouanda acknowledges that the distinction between an employee
14
and independent contractor has broad-ranging consequences: “Designation as
an employee or independent contractor determines an individual’s entitlement,
or lack thereof, to many statutory employment protections.” Id. at 73 (emphasis
added). This Court hereby adopts the economic realities test to safeguard the
protections afforded by workers’ compensation. Accordingly, our holding in
Mouanda is extended to the workers’ compensation context.
Of course, it is outside of this Court’s authority to determine whether,
under the economic realities test, Oufafa is an employee. Because we adopt a
new test for analysis, this Court must remand the case back to the ALJ to
develop an analysis on the aforementioned factors. This Court also vacates the
ALJ’s underlying order. Because we vacate the order in total, AIG’s dismissal is
ineffectual, and it will remain a party to the case on remand. Further, because
of the differences in the tests applied, the ALJ may make any additional or
substituted factual findings as required given the new framework for analysis.
Given this direction on remand, we need not determine whether the ALJ erred
in finding that Taxi 7 is a taxi leasing company, nor need we opine as to the
Board’s further directions to the ALJ.
All sitting. All concur.
15
COUNSEL FOR APPELLANT:
Andrew Clarke Weeks
Legal Justice at Work PLLC
COUNSEL FOR APPELLEE, TAXI LLC D/B/A TAXI 7 (AKA TAXICAB):
Kyle L. Johnson
Fogle Keller Walker, PLLC
COUNSEL FOR APPELLEE, AIG:
Ronald Jude Pohl
Clarrisa Shirlann Wells
Pohl & Aubrey PSC
COUNSEL FOR APPELLEE, COMMONWEALTH OF KENTUCKY EX REL.
DANIEL J. CAMEREON, ATTORNEY GENERAL:
Daniel J. Cameron
Attorney General of Kentucky
APPELLEE, W. GREG HARVEY, ADMINISTRATIVE LAW JUDGE
COUNSEL FOR APPELLEE, UNINSURED EMPLOYERS’ FUND:
William Henry Jones, III
COUNSEL FOR APPELLEE, WORKERS COMPENSATION BOARD:
Michael W. Alvey
Chairman, Department of Workers’ Claims
16