Egemo v. Flores , 1991 S.D. LEXIS 75 ( 1991 )

SABERS, Justice

(dissenting).

I dissent.

The majority overrules the circuit court, the Department of Labor and common sense to endorse the legal fiction that an immigrant woodcutter unable to read English is an “independent contractor” ineligible for worker’s compensation. The reasoning behind this result misses “the forest for the trees.” It places too much emphasis on some facts, ignores other facts and generally fails to perceive the pattern which emerges when all relevant facts are viewed in perspective.

It is clear that a worker who punches a clock every morning at a factory is an employee of the factory. It is equally clear that a worker who comes to the same factory twice a year to repair the plumbing is an independent contractor. The problem is that many workplace arrangements, including the one in this case, do not conform perfectly to either of these two models, but fall somewhere in between, sharing some characteristics of each.

In marginal cases, as we acknowledged in Dumire v. Martin, 84 S.D. 572, 174 N.W.2d 215, 217 (1970), there is no “hard and fast rule” or bright line for separating sheep from goats. Instead, the court must determine on a case-by-case basis which employment category more closely fits the facts considering the totality of relevant circumstances. 174 N.W.2d at 216-17; Steen v. Potts, 75 S.D. 184, 61 N.W.2d 825, 826-27 (1953). The majority opinion correctly notes that several South Dakota cases have generated various lists of relevant factors to be considered. See e.g., Appeal of Hendrickson’s Health Care Service, 462 N,W.2d 655, 658-59 (S.D.1990) (opinion by Wuest, J., holding that nurses and nurse’s aides who provided in-home health care to business clients were employees of the business, not independent contractors); Dumire; Steen; Schlichting v. Radke, 67 S.D. 212, 291 N.W. 585, 586 (1940); Cockran v. Rice, 26 S.D. 393, 128 N.W. 583, 585 (1910). It is less important to come up with the “right” list of factors than to understand the fundamental purpose of the inquiry: to determine the real underlying economic relationship between the parties, irrespective of what either party chooses to call it.

In doing so, the court should not be naive about the economic facts of life. An employer’s superior bargaining position may enable him to deceptively structure an employment relationship to his own tax or liability advantage, and the worker may be in no position to object — even if he understands what the employer is doing or that it is not in the worker’s best interest.

In this case, Flores was a cutter working with other cutters on parcels of forest service land in a manner coordinated and controlled by Egemo, according to standards set by Egemo, at a piece rate determined by Egemo, in pursuit of the logging business owned by Egemo. Flores established no “cutting business” in the Black Hills before or after working for Egemo. He had no other “customers” while he worked for Egemo. The record does not reveal that he sought other customers or that he even had a sales tax license. All of these considerations establish that Flores lacked the “free[dom] from control” and the “independently established trade” associated with independent contractors. Hendrickson’s Health Care, 462 N.W.2d at 658.

Egemo’s own brief frequently lapses into calling Flores and the other cutters “his workers.” There is no mention of “his independent contractors.” This is an admission against interest — that Egemo does not believe his own fiction.

The majority opinion grasps at many straws. For example, it makes much of the fact that Flores supplied his own chain saw and other equipment and the fact that Egemo withheld no taxes from the money he paid Flores. This fails to take into account that requiring workers to use their own tools and paying them in tax-free dollars are practices which are not only in the employer’s control but which actually simplify the employer’s business. Therefore, reliance on such factors to conclude anything about the worker’s degree of independence and control is hazardous at best. Moreover, even if lack of tax withholding from Flores’ piece rate paycheck was “indicative of an independent contractor/con-tractee relationship,” the fact that Flores was paid by piece rate in the first place, rather than by “an entire contract for a gross sum,” was indicative of an employer/employee relationship. Schlichting v. Radke, 291 N.W. at 586; Cockran v. Rice, 128 N.W. at 585. The majority opinion also emphasizes Flores’ freedom to determine his own work schedule. It does not stop to consider how little this proves given that Flores was paid for his productivity, not his time. See Halverson v. Sonotone Corp., 71 S.D. 568, 27 N.W.2d 596, 598-599 (1947).

The bottom line is that the majority opinion misapplies the test, which is whether employer retained the right to exercise “control or direction over the performance of [claimant’s] services[.]” Hendrickson’s Health Care, 462 N.W.2d at 658. Under this test as applied to any fair reading of these facts, Flores was an employee, not an independent contractor, because Egemo retained the right to exercise control over the progress of Flores’ work. The so-called “Independent Contractor Agreement” was no obstacle to Egemo’s control since he could always claim breach of contract and exclude Flores from the job site.

In fact, several of the key factors relied upon by the majority to demonstrate independent contractor status indicate that Egemo was playing fast and loose with tax and labor laws. If this independent contractor fiction really is the “custom” in the entire logging industry, it raises disturbing questions which go beyond the scope of this case and perhaps ought to be investigated by federal and state officials charged with the enforcement of laws relating to Worker’s Compensation, Unemployment Compensation, Fair Labor Standards, Social Security, state sales and use tax and federal income tax.

The initial effect of the majority’s decision is to deny Flores the worker’s compensation benefits for injury and income loss which are commonly available to other South Dakota workers. It places the burden of his care and support on the taxpayers of Lawrence County and the State of South Dakota instead of on the logging industry where it belongs.

The ultimate effect of the majority’s decision is to exempt the Black Hills logging industry from the worker protection laws with which every other non-farm industry in South Dakota must comply. One can read every line of the 62 titles in South Dakota’s Codified Laws without ever discovering such a legislative intent. Unless the state and national legislatures expressly exempt the Black Hills logging industry from these worker protection laws, the industry should voluntarily comply. If it does not, it should be ushered, or dragged kicking and screaming, into compliance and into the twentieth century.

Taking account of the whole picture in this case, I am at a loss to discover any error in the trial court’s well-supported conclusion that the employment status of Flores is functionally much closer to “employee” than to “independent contractor.” ^* Regrettably, the substantial analytical and rhetorical powers of the majority opinion obscure the obvious rather than reveal it, preventing the majority from seeing “the forest for the trees.”

I would affirm the circuit court, the Department of Labor and common sense.

* The majority opinion correctly cites, but fails to give effect to, the “long-standing rule that our worker’s compensation laws are remedial in character and entitled to a liberal construction" (citing Kennedy v. Hubbard Milling Co., 465 N.W.2d 792, 797 (S.D.1991) (Henderson, J., dissenting); and Lawler v. Windmill Restaurant, 435 N.W.2d 708, 709 (S.D.1989)). See also Keil v. Nelson, 355 N.W.2d 525, 528 (S.D.1984). This court has recently shown its willingness to enforce this rule of construction — at least where it was the worker seeking to avoid worker’s compensation coverage in order to pursue a more lucrative settlement at tort. In Jensen v. Sport Bowl, 469 N.W.2d 370 (S.D.1991), we were so convinced that the legislature intended worker’s compensation coverage to be universal that we unanimously upheld summary judgment against an injured minor who offered to prove that his employment was illegal under federal child labor laws. Now it appears that our conviction has deserted us in the face of the superior capacity of an employer to create a more plausible paper trail. Without a trace of irony, we now reverse a judgment following trial on the merits which relied in part on the same "long-standing rule" of presumptive coverage. Some future commentator more cynical than this writer may perceive a new "Jensen-Egemo rule” for disputed coverage: Employer wins.