Fur Breeders Agric. Coop. v. Dep't of Workforce Servs. ( 2018 )

2018 UT App 49THE UTAH COURT OF APPEALS
FUR BREEDERS AGRICULTURAL COOPERATIVE,
Petitioner,
v.
DEPARTMENT OF WORKFORCE SERVICES,
Respondent.
Opinion
No. 20161064-CA
Filed March 29, 2018
Original Proceeding in this Court
R. Scott Rawlings, Attorney for Petitioner
Nathan R. White, Attorney for Respondent
JUDGE RYAN M. HARRIS authored this Opinion, in which JUDGES
MICHELE M. CHRISTIANSEN and JILL M. POHLMAN concurred.
HARRIS, Judge:
¶1 Fur Breeders Agricultural Cooperative (FBAC)
occasionally hires off-duty police officers to provide a security
presence at its facilities, and pays those officers an hourly wage
for their services. The Utah Department of Workforce Services
(DWS) considers these officers to be employees of FBAC, and
has charged FBAC with making unemployment insurance
contributions related to its payments to the officers. FBAC
disagrees with that determination, and maintains that the
officers are not its employees, and that it should not be required
to make unemployment insurance contributions related to its
payments to the officers. A DWS hearing officer, an
administrative law judge, and the DWS Board of Appeals (the
Board) all determined that the officers were FBAC’s employees.
FBAC seeks judicial review of the Board’s determination.
Fur Breeders Agric. Coop. v. Department of Workforce Services
¶2 Upon review, we conclude that the Board’s analysis was
flawed, in that it improperly framed the relevant question.
Instead of asking whether the off-duty officers were
“independent” from FBAC, as the governing statute and
regulation require, the Board engaged in an analysis geared
toward ascertaining whether the officers were independent from
anyone. In this opinion, we set aside the Board’s order, provide
instruction as to the proper framing of the question, and direct
the Board to revisit the matter with the proper framework in
mind.
BACKGROUND
¶3 FBAC is a business that manufactures and distributes
animal feed to farmers who raise animals for their fur. On
occasion, animal rights activist groups have been known to
attempt to damage or destroy property belonging to businesses
like FBAC. In an effort to prevent such damage, FBAC
sometimes hires off-duty police officers to provide security
services and a “greater police presence” at its facilities. It finds
these officers through the Unified Police Department of Greater
Salt Lake (UPD), a police department that serves many Salt Lake
County cities and communities.
¶4 UPD has a voluntary “secondary employment program”
through which it allows and coordinates after-hours off-duty
work opportunities for its officers. Any UPD officer who wishes
to engage in police or security services for private entities during
off-duty hours must use UPD’s secondary employment
program; UPD prohibits its officers from engaging in any such
services outside the program. Any UPD officers who wish to
engage in off-duty police work must sign up for the secondary
employment program, and UPD then places those officers with
an individual or entity who wishes to engage their services.
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¶5 On occasion, FBAC contacts UPD and asks to retain the
services of several off-duty officers. Upon receiving such
requests, UPD provides FBAC with the names of available
officers, and FBAC engages the officers directly and pays them
an hourly wage. All payments are made directly from FBAC to
the individual officers. The officers remain employees of UPD,
and perform services for FBAC (and others) only in their off-
duty hours. All of the officers who provided services to FBAC in
their off-duty hours during the relevant time period also
provided similar occasional off-duty services to other companies
during the same time period.
¶6 FBAC provides no training to the officers. FBAC also does
not provide the officers with any instructions as to how to
perform their services, and does not require the officers to
perform their services in any particular pace or sequence. In
addition, FBAC does not furnish any equipment to the officers;
all equipment used by the officers during their work for FBAC,
including their uniforms, firearms, and police vehicles, was
provided either by UPD or by the officers themselves.
¶7 In July 2016, a DWS hearing officer determined that the
officers were “employees” of FBAC, such that payments made
by FBAC to the officers were subject to unemployment insurance
contributions. FBAC appealed the hearing officer’s decision to an
administrative law judge, who determined in October 2016 that
the officers were FBAC’s employees. FBAC then appealed to the
Board, which in December 2016 affirmed the administrative law
judge’s determination. FBAC now seeks review in this court.
ISSUE AND STANDARD OF REVIEW
¶8 While FBAC purports to raise several issues in its appeal,
this case can essentially be narrowed to one dispositive issue:
whether the Board correctly framed the question before deciding
that the officers were FBAC’s employees. We view this question-
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framing issue as one of statutory and regulatory interpretation,
and therefore one to which we grant no deference to the Board.
When an agency “has erroneously interpreted or applied the
law,” “[t]he appellate court shall grant relief” from the decision
reached by that agency. Utah Code Ann. § 63G-4-403(4)(d)
(LexisNexis 2016). We review whether an agency properly
interpreted or applied the law for correctness. Petersen v. Utah
Labor Comm’n, 2017 UT 87, ¶ 8. 1
ANALYSIS
¶9 Under Utah law, individuals performing services for
wages “under any contract of hire” are considered to be
employees unless they meet both parts of a two-part test: they
must be both (1) “customarily engaged in an independently
1. DWS argues that we should not review the threshold legal
question for correctness, but should instead apply the same
deference to the Board’s framing of the question that we
typically apply to its ultimate “determinations.” See, e.g.,
Evolocity, Inc. v. Department of Workforce Services, 2015 UT App 61,
¶ 6, 347 P.3d 406 (noting that “[w]e do not reweigh the evidence
or substitute our decision for that of [an agency board] but
instead will uphold its determinations if they are supported by
the record evidence”); Tasters Ltd. v. Department of Emp’t Sec., 863
P.2d 12, 19 (Utah Ct. App. 1993) (noting that we defer to the
“intermediate conclusions” and “ultimate determination[s]” of
an agency board if they are not “irrational” or “unreasonable”).
DWS cited no case law supporting that proposition, and we are
aware of none. To the contrary, when the Board bases a
determination on its “interpretation of the applicable statutes,”
this “presents a question of law that we review for correctness.”
Carlos v. Department of Workforce Services, 2013 UT App 279, ¶ 5,
316 P.3d 957.
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established trade, occupation, profession, or business of the same
nature as that involved in the contract of hire for services”; and
(2) “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) (LexisNexis 2015). The administrative law judge
determined that, while FBAC would prevail on the second
element of the test because it had not provided the officers with
any control or direction, FBAC could not make the showing
required under the first element of the statutory test because the
officers’ “main occupation or profession was as a police officer
working for the UPD and it has not been demonstrated [that]
they were customarily engaged in an independently established
business.” The Board affirmed the determination of the
administrative law judge, also resting its conclusion on the first
element of the test, concluding that “the officers are not
independently established in their own business.”
¶10 In interpreting the governing statute, the Board properly
looked to regulatory guidance in the Utah Administrative Code.
See Utah Admin. Code R994-204-303. There, several factors have
been developed to aid in the determination of whether a worker
is an “employee” under the two-part statutory test. Id. R994-204-
303(1)(b). The regulation specifically notes that the question is
governed by the two-part statutory test, id. R994-204-303
(“whether the worker is independently established in a like
trade, occupation, profession or business and is free from control
and direction”), and that the “factors listed” in the regulation
“are intended only as aids” in applying the statutory test, id.
¶11 Importantly for present purposes, with regard to the first
element of the statutory test, the regulation emphasizes that the
“independence” question is to be answered by reference to the
relationship between the worker and the “alleged employer.” See
id. R994-204-303(1)(a) (stating that “[a]n individual will be
considered customarily engaged in an independently established
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trade . . . if the individual is . . . regularly engaged in a trade . . .
of the same nature as the service performed, and the trade . . . is
established independently of the alleged employer” (emphasis
added)); see also Evolocity, Inc. v. Department of Workforce Services,
2015 UT App 61, ¶ 20, 347 P.3d 406 (stating that the “ultimate
inquiry” is whether the worker had a business that “exists apart
from a relationship with [the putative employer] and does not
depend on a relationship with [the putative employer] for its
continued existence”).
¶12 The regulation then lists seven factors that may, “if
applicable,” aid in the determination of whether a worker is
“customarily engaged in an independently established trade”:
(i) Separate Place of Business. The worker has a
place of business separate from that of the
employer.
(ii) Tools and Equipment. The worker has a
substantial investment in the tools, equipment, or
facilities customarily required to perform the
services. However, “tools of the trade” used by
certain trades or crafts do not necessarily
demonstrate independence.
(iii) Other Clients. The worker regularly performs
services of the same nature for other customers or
clients and is not required to work exclusively for
one employer.
(iv) Profit or Loss. The worker can realize a profit
or risks a loss from expenses and debts incurred
through an independently established business
activity.
(v) Advertising. The worker advertises services in
telephone directories, newspapers, magazines, the
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Internet, or by other methods clearly
demonstrating an effort to generate business.
(vi) Licenses. The worker has obtained any
required and customary business, trade, or
professional licenses.
(vii) Business Records and Tax Forms. The worker
maintains records or documents that validate
expenses, business asset valuation or income
earned so he or she may file self-employment and
other business tax forms with the Internal Revenue
Service and other agencies.
Utah Admin. Code R994-204-303(1)(b)(i)–(vii). The administrative
law judge and the Board both examined these factors, and
determined that the officers were not “independently
established” and were therefore “employees” of FBAC.
¶13 In examining these factors, however, the Board appears to
have overlooked the admonition of the regulation that the
“independence” inquiry is governed by reference to the
relationship between the worker and the “alleged employer,”
rather than by reference to any relationship that the worker
might have with any other individual or entity. After all, the
question presented is whether FBAC (and not UPD or some
other entity) should be required to make contributions to
unemployment insurance related to the payments FBAC made
to the officers for their security services, something FBAC is
obligated to do only if the officers are its “employees.” In
answering this question, it is relevant and important to examine
the relationship between the officers and FBAC. By contrast, the
officers’ relationship with UPD, or with any other entity for
whom they might perform off-duty security services, is of only
minimal or tangential relevance.
20161064-CA 7 2018 UT App 49Fur Breeders Agric. Coop. v. Department of Workforce Services
¶14 Examination of two of the factors examined by the Board
illustrates the point. One factor listed in the regulation is
captioned “tools and equipment,” and invites the examiner to
inquire about whether “[t]he worker has a substantial
investment in the tools, equipment, or facilities customarily
required to perform the services.” Id. R994-204-303(1)(b)(ii). In
our view, and especially given that the basic question to be
answered concerns the officers’ level of independence from
FBAC (the “alleged employer”), this factor should be
approached by examining whether and to what extent the
alleged employer (here, FBAC) provided the tools and
equipment that the officers needed in order to perform their
services. As noted, there is no evidence that FBAC provided a
single tool or piece of equipment to the officers. Instead, the
record demonstrates that the officers brought all of their
equipment with them, including their uniforms, their police
vehicles, and their firearms.
¶15 Under this factor, the central inquiry is whether, and to
what extent, the alleged employer (FBAC) played a role in
providing the officers with their tools and equipment. If FBAC
did not provide tools or equipment, it becomes irrelevant
whether the officers obtained their tools through personal
payments or through some other third-party source (e.g., from
UPD). Yet in discussing this factor the Board focused entirely on
whether UPD had provided the tools and equipment to the
officers as opposed to whether the officers paid for that
equipment personally. This was erroneous. The Board concluded
that this factor “weighs in favor of employment,” but we cannot
see how that is the case given the absence of evidence that FBAC
provided any of the tools and equipment the officers used.
Where the worker brings his own tools and equipment, and does
not get them from the alleged employer, this factor should weigh
against employment, regardless of whether the worker is
fortunate enough to have some third-party benefactor, separate
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from the alleged employer, who has provided all or part of the
tools and equipment in question.
¶16 Another factor listed in the regulation is captioned
“licenses,” and invites the examiner to inquire whether “[t]he
worker has obtained any required and customary business,
trade, or professional licenses.” Id. R994-204-303(1)(b)(vi). Here,
the Board noted that the officers, as a prerequisite for working
for UPD, had already become “duly trained and certified to be
police officers,” and had received all of the licenses required for
employment as law enforcement officers. However, the Board
determined that because these licenses were required by UPD,
and because the officers were prohibited from operating an
independent business as security officers outside of UPD’s
secondary employment program, “[i]t stands to reason that . . .
police certification is not necessary or customary licensure for a
business owner seeking to operate in this market.” Accordingly,
because the officers had not obtained any licenses independently
from UPD, the Board determined that this factor “weigh[ed]
towards employment” by FBAC.
¶17 As with the “tools and equipment” factor, the Board here
lost sight of the overarching question, which is whether the
officers are “established independently of the alleged employer.”
Id. R994-204-303(1)(a). The officers reported for work at FBAC
already possessing any and all licensure and certification
required to perform security services as police officers; there is
certainly no evidence that the officers lacked any required
licensure or certification. The Board again here seems to have
been unduly distracted by whether the officers obtained any
licenses or certifications independently from UPD, which is
irrelevant to the overarching inquiry.
¶18 The two factors we have discussed here are merely
illustrative of how the Board’s improper framing of the question
infected its analysis. We suspect that the manner in which the
Board framed the question affected more than just these two
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illustrative factors. 2 But we do not intend, in this opinion, to
separately analyze and re-weigh all of the factors. That is the
task of the Board, to whose conclusions in that regard we usually
defer, at least where the Board asks the operative question in the
right way.
¶19 We therefore set aside the Board’s order, and direct the
Board to reconsider the question of whether these officers were
2. We note here the hypothetical scenario we discussed in Needle
Inc. v. Department of Workforce Services, 2016 UT App 85, ¶ 29, 372
P.3d 696. In that case, one of the parties raised the hypothetical
scenario of a full-time college professor hired by a litigant to
provide one-time expert testimony during a lawsuit. Id. ¶ 28.
Considering that situation, we noted that it would be illogical to
consider the professor to be an “employee of the [litigant] that
hired him to be an expert witness,” because “the college
professor was already established in the independent business of
being a professor with the relevant expertise.” Id. ¶ 29. However,
if the logic applied by the Board in this case were applied to this
hypothetical, we would be hard-pressed to avoid the conclusion
that, because the professor employed as an expert witness did
not provide his own equipment (instead having it furnished by
his university), did not independently obtain licenses (instead
having those licenses required by his university as prerequisites
for professorship), and did not have an independently
established place of business (instead working at the university),
the professor would qualify as an “employee” of the litigant who
hired him. That conclusion would misapprehend the law, and
would be highly illogical. We see little to distinguish the expert-
witness college professor’s situation from the situation presented
here, in which officers already established in the independent
business of law enforcement, with the equipment, expertise, and
licensure relevant to that position, are hired by a third party to
provide occasional police presence.
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employees of FBAC, and this time to consider that question in
light of the overarching statutory and regulatory command,
which is whether the officers are established independently of
the alleged employer (here, FBAC), and not whether the officers
are established independently from any other party, including
their usual full-time employer, UPD.
20161064-CA 11 2018 UT App 49