Colo. Custom Maid, LLC v. Indus. Claim Appeals Office

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ADVANCE SHEET HEADNOTE
May 28, 2019
2019 CO 43
No. 17SC350, Colo. Custom Maid v. ICAO & Div. of Unemp’t Ins.—Unemployment
Tax Liability
The supreme court determines whether Colorado Custom Maid (CCM), which
considers itself a referral service, employs house cleaners for purposes of the Colorado
Employment Security Act (CESA). Because the realities of CCM’s relationship with its
cleaners are those of an employment relationship, the court concludes that CCM is liable
for unemployment taxes on wages paid to the cleaners. In so doing, the court
disapproves the notion that to determine whether an individual is an employee under
the CESA, section 8-70-115(1)(b) requires a “threshold” showing that the services being
provided by the putative employee are being provided for the benefit of the putative
employer.
The Supreme Court of the State of Colorado
2 East 14th Avenue • Denver, Colorado 80203
2019 CO 43
Supreme Court Case No. 17SC350
Certiorari to the Colorado Court of Appeals
Court of Appeals Case No. 16CA75
Petitioner:
Colorado Custom Maid, LLC,
v.
Respondents:
Industrial Claim Appeals Office and Division of Unemployment Insurance.
Judgment Affirmed
en banc
May 28, 2019
Attorneys for Petitioner:
James Abrams, LLC
James Abrams
Denver, Colorado
Attorneys for Respondent Industrial Claim Appeals Office:
Philip J. Weiser, Attorney General
Emmy Langley, Assistant Solicitor General
Denver, Colorado
No appearance on behalf of Division of Unemployment Insurance.
JUSTICE HART delivered the Opinion of the Court.
JUSTICE HOOD does not participate.
¶1 Colorado Custom Maid (CCM) places house cleaners with clients who need their
homes cleaned. In doing so, it has tried to avoid becoming the house cleaners’ employer,
hoping instead to maintain the relationship as one between a referral service and a group
of independent contractors so that it could avoid paying unemployment taxes on the
money it paid to those cleaners.
¶2 In 2014, the Colorado Department of Labor and Employment Division of
Employment and Training (Division) concluded that, despite CCM’s efforts to
characterize them as independent contractors, CCM’s cleaners were in fact employees for
whom the company should be paying unemployment taxes. After evaluating the
dynamics of the relationship between CCM and its cleaners, we agree. We therefore
affirm the court of appeals’ decision, which itself affirmed the conclusion of an Industrial
Claim Appeals Office Panel (Panel) that the realities of CCM’s relationship with its
cleaners establish an employment relationship.
I. Facts and Procedural History
¶3 CCM describes itself as a referral service that matches house cleaners with
homeowners. The company recruits potential cleaners and, after checking their work and
criminal histories, enters into contracts that specify that the cleaners are independent
subcontractors. When a homeowner contacts CCM, the company assesses how
frequently the home will be cleaned, determines how long each cleaning will take, and
sets a price for the cleaning. CCM then assigns one of its contracted cleaners to the home.
Each time a home is cleaned, the homeowner writes a check to CCM and CCM in turn
gives the cleaner forty-seven percent of what it was paid by the homeowner.
2
¶4 In May 2014, the Division conducted an audit of CCM for the three preceding years
to determine whether CCM properly classified its cleaners as independent contractors.
The Division concluded that the cleaners should have been classified as employees under
the Colorado Employment Security Act (CESA) and required CCM to pay
unemployment taxes on the amounts it had paid to the cleaners during those years.
¶5 CCM appealed. A hearing officer reversed the Division’s decision, concluding
that CCM had proven, as required by section 8-70-115(1)(b), C.R.S. (2018), that the
cleaners were free from CCM’s control and direction and that they customarily engaged
in an independent business of providing cleaning services. The Division appealed.
¶6 The Panel reversed the hearing officer’s decision because it determined that the
hearing officer made two significant errors. First, the Panel concluded that the hearing
officer failed to make sufficient factual findings to determine whether the cleaners were
in fact customarily engaged in independent businesses. Second, the Panel held that the
hearing officer failed to consider the totality of the circumstances, or the dynamics of the
relationship between CCM and the cleaners, in concluding that the cleaners were
customarily engaged in an independent business. See Indus. Claim Appeals Office v.
Softrock Geological Servs., Inc., 2014 CO 30, ¶ 2, 325 P.3d 560, 562 (requiring a totality of the
circumstances test that evaluates the dynamics of the relationship between the putative
employer and employee to determine whether an individual is engaged in an
independent trade or business).
¶7 On remand, the hearing officer made additional factual findings and again
concluded that the cleaners were independent contractors. The Division appealed, and
3
the Panel once again reversed the hearing officer’s decision. Although the Panel adopted
some of the hearing officer’s factual findings, it set several of them aside. The Panel
determined that a number of the hearing officer’s findings were not supported by the
evidentiary record and others were contradicted by factual concessions made by CCM.
After conducting its own review of the factual record, the Panel found that the cleaners
were employees, not independent contractors, under the totality of the circumstances.
CCM appealed the second Panel determination.
¶8 The court of appeals agreed with the Panel’s conclusions. Colo. Custom Maid, LLC
v. Indus. Claim Appeals Office, No. 16CA0075, ¶¶ 1, 8, 18, 38 (Colo. App. March 9, 2017).
The court first examined whether the cleaners performed services for the benefit of CCM.
Id. at ¶ 8. To this question, the court answered yes. Id. at ¶ 15. The court held that CCM
derived a purposeful benefit from the cleaners’ work because it maintained an ongoing
relationship with the cleaners and the clients. Id. at ¶ 16. Having addressed what it
characterized as a “threshold matter,” id. at ¶ 10, the court then employed section
8-70-115(1)(b)’s two-prong test to determine whether there was substantial evidence to
support the Panel’s finding that the cleaners were (1) free from CCM’s control and
direction in the performance of their cleaning services and (2) engaged in an independent
trade or business. Id. at ¶¶ 22–25. In making this determination, the court of appeals
recognized that the Panel set aside a number of the hearing officer’s factual findings but
concluded that the Panel did not err in doing so because the majority of those set aside
were contradicted by undisputed evidence in the record. Id. at ¶¶ 31–38. Ultimately, the
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court of appeals concluded that there was sufficient evidence to support the Panel’s
conclusion that the cleaners were employees for purposes of CESA. Id. at ¶ 38.
¶9 CCM petitioned for certiorari and we granted the petition.1
II. Analysis
¶10 We begin by setting out the standard of review, both for our consideration of the
Panel’s determination and for the Panel’s review of the hearing officer’s findings. We
then offer a brief overview of the statutory framework for determining whether
employers may classify individuals as independent contractors rather than employees
for CESA unemployment tax purposes. In doing so, we disapprove the notion, first
suggested by the court of appeals in Employer Services and accepted by the division here,
that the statute requires a “threshold” showing that the services being provided by a
putative employee are being provided for the benefit of the putative employer. Id. at
¶ 10; see Div. of Unemp’t Ins., Emp’r Servs. v. Indus. Claim Appeals Office, 2015 COA 149,
¶ 10, 361 P.3d 1150, 1152 (hereinafter Employer Services). Finally, we apply the two-prong
test provided in section 8-70-115(1)(b), C.R.S. (2018), and conclude that there was
1 We granted certiorari to review the following issue:
Whether the Court of Appeals erred in finding that, for the purpose of
assessing unemployment tax premiums under the Colorado
Employment Security Act, individuals (cleaners) who performed
cleaning services in private homes were employees of the referral
service, Colorado Custom Maid, which linked them with clients who are
homeowners seeking cleaning services.
5
substantial evidence to support the Panel’s determination that the cleaners were
employees.
A. Standard of Review
¶11 To rebut CESA’s presumption of employment, the employer has the burden of
demonstrating that a putative employee is in fact an independent contractor. See Softrock,
¶ 9, 325 P.3d at 563. Whether an employer has met this burden is a question of fact. Id.;
see W. Logistics, Inc. v. Indus. Claim Appeals Office, 2014 CO 31, ¶ 11, 325 P.3d 550, 552. We
will not disturb the Panel’s conclusion that the cleaners were employees if it properly
applied the law and the findings of fact support its conclusion. § 8-74-107(6)(c), (d), C.R.S.
(2018); see Softrock, ¶ 9, 325 P.3d at 563; W. Logistics, ¶ 11, 325 P.3d at 552; see also Allen Co.,
Inc. v. Indus. Comm’n, 762 P.2d 677, 680 (Colo. 1988) (holding that the ICAO’s decision
“should not be disturbed if it is supported by substantial evidence”).
¶12 In the administrative hearing process, evidentiary facts found by the hearing
officer must not be set aside by a panel of the ICAO unless they are “contrary to the
weight of the evidence.” § 24-4-105(15)(b), C.R.S. (2018); Samaritan Inst. v. Prince-Walker,
883 P.2d 3, 9 (Colo. 1994). Ultimate facts, which are “conclusions of law or mixed
questions of law and fact that are based on evidentiary facts and determine the rights and
liabilities of the parties,” require less deference by the Panel to the hearing officer. Federico
v. Brannan Sand & Gravel Co., 788 P.2d 1268, 1272 (Colo. 1990). The Panel is entitled to
make its own determination as to ultimate facts, so long as that determination “has a
reasonable basis in law and is supported by substantial evidence in the record.”
Samaritan Inst., 883 P.2d at 9.
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B. Applicable Law
¶13 CESA requires employers to pay unemployment taxes on wages paid to
employees but not on compensation paid to independent contractors. §§ 8-76-101
to -102.5 C.R.S. (2018); see Softrock, ¶ 11, 325 P.3d at 563. The law starts with a presumption
that services performed by an individual for another “shall be deemed” covered
employment for unemployment tax liability purposes. § 8-70-115(1)(b). This
presumption can be overcome in one of two ways. First, a putative employer may rebut
the employment presumption by producing a written document signed by both parties
and containing nine expressly stated limitations on the relationship that distinguish it
from that of employer and employee.2 § 8-70-115(1)(c)(I)–(IX). In the absence of such a
2 These limitations include:
. . . that the person for whom services are performed does not:
(I) Require the individual to work exclusively for the person for whom
services are performed; except that the individual may choose to work
exclusively for the said person for a finite period of time specified in the
document;
(II) Establish a quality standard for the individual; except that such person
can provide plans and specifications regarding the work but cannot oversee
the actual work or instruct the individual as to how the work will be
performed;
(III) Pay a salary or hourly rate but rather a fixed or contract rate;
(IV) Terminate the work during the contract period unless the individual
violates the terms of the contract or fails to produce a result that meets the
specifications of the contract;
(V) Provide more than minimal training for the individual;
(VI) Provide tools or benefits to the individual; except that materials and
equipment may be supplied;
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signed document, the putative employer can offer facts to demonstrate by a
preponderance of the evidence that (1) the worker “is free from control and direction in
the performance of the service,” and (2) the worker “is customarily engaged in an
independent trade, occupation, profession, or business related to the service performed.”
§ 8-70-115(1)(b). While both elements must be demonstrated to overcome the
presumption of employment, the inquiries are necessarily interrelated—each requires an
expansive inquiry into the dynamics of the relationship between the putative employee
and employer to determine whether an employment relationship exists, and certain facts
about the relationship may be relevant to both elements. W. Logistics, ¶ 3, 325 P.3d at 551.
¶14 In evaluating whether an individual providing services is free from direction and
control, we consider the totality of the circumstances, focusing on whether the putative
employer has a general right to control and direct the individual in the performance of
the service. See Allen Co., 762 P.2d at 680; see also Dep’t of Labor & Emp’t Reg. 17.1.2, 7
Colo. Code Regs. 1101-2 (2018) (requiring the hearing officer and Panel to consider “[t]he
totality of the circumstances of the relationship between the company for whom services
(VII) Dictate the time of performance; except that a completion schedule
and a range of mutually agreeable work hours may be established;
(VIII) Pay the individual personally but rather makes checks payable to the
trade or business name of the individual; and
(IX) Combine his business operations in any way with the individual's
business, but instead maintains such operations as separate and distinct.
§ 8-70-115(1)(c)(I)–(IX).
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are performed and the worker” when assessing whether an individual is an employee or
independent contractor). An “employer’s firm hand in controlling the details of the
manner and method of job performance” evinces an overall right to control the actions of
an employee. Rent-A-Mom, Inc. v. Indus. Comm’n, 727 P.2d 403, 406 (Colo. App. 1986).
But control over the details of performance is not required. Indeed, we have explained
that simply the right to terminate a service contract without liability is an important factor
in determining “whether the individual is free of control and direction ‘because the right
immediately to discharge involves the right of control.’” Allen Co., 762 P.2d at 681
(quoting Indus. Comm’n v. Nw. Mut. Life Ins. Co., 88 P.2d 560, 564 (Colo. 1939)).
¶15 The second element of the showing a putative employer must make to overcome
the employment presumption is that the individual providing services is customarily
engaged in an independent trade or a business related to the services performed.
Stripped of legal jargon, this question asks whether the worker is an independent
contractor with his or her own business that provides the particular services. In
answering this question, we again look to the totality of the circumstances surrounding
the relationship between the worker and the putative employer. See Softrock, ¶ 14, 325
P.3d at 564. As we noted in Softrock, consideration of the nine conditions in section
8-70-115(1)(c) is helpful here, since the legislature has directed that if the parties agree to
those nine conditions, the presumption of an employer-employee relationship is
overcome. Id. at ¶ 15, 325 P.3d at 564–65. But a review of these conditions alone does not
end our inquiry. “[T]he nine factors in section 8-70-115(1)(c) as well as any other
information relevant to the nature of the work and the relationship between the employer
9
and the individual” should be considered to determine whether an individual is engaged
in an independent trade or business. Id. at ¶ 17, 325 P.3d at 565. For example, courts have
considered whether the putative employee (1) had business cards, a business address, or
a business telephone number; (2) made a financial investment in the services such that he
or she could be vulnerable to financial loss in connection with performance of the service;
(3) had his or her own equipment; (4) set the price of the service; (5) employed assistants;
and (6) carried his or her own liability or workers’ compensation insurance. See Visible
Voices, Inc. v. Indus. Claim Appeals Office, 2014 COA 63, ¶ 26, 328 P.3d 307, 311–12 (Colo.
App. 2014).
¶16 CCM contends that before addressing the two-prong test above, section
8-70-115(1)(b) requires a preliminary showing that the service provided by the putative
employee was provided for the benefit of the putative employer. In support, CCM points
to the court of appeals’ decision in Employer Services, holding that CESA requires an initial
finding that an employee performed “an act done for the benefit or at the command of
another” for an employment relationship to exist. ¶ 10, 361 P.3d at 1152 (quoting Magin
v. Div. of Emp’t, 899 P.2d 369, 370 (Colo. App. 1995)). This benefit, the court explained,
must be “purposeful or intended,” not inadvertent. Id. at ¶ 15, 361 P.3d at 1152. Because
the putative employees in Employer Services, individuals seeking acting and modeling
work, did not perform acting or modeling services for the purpose of benefiting the
putative employer, a talent agency that referred the actors and models to job
opportunities, the court determined that the talent agency did not employ the artists but
merely arranged for them to provide services for third parties. Id. at ¶¶ 16–17, 361 P.3d
10
at 1152. CCM contends that, like the talent agency in Employer Services, it too does not
employ the cleaners. Instead, CCM merely refers the cleaners to third-party
homeowners. Because the intended benefit is derived by the homeowner, not by CCM,
CCM argues that the employment inquiry must end at this threshold question.
¶17 CCM’s reading of section 8-70-115(1)(b) is inconsistent with both the purposes of
the statute and our prior interpretations of the law. The presumption of employment
within the unemployment insurance statute exists because the legislature intended to
ensure complete coverage, protecting workers against the risks of involuntary
unemployment. See Softrock, ¶ 14, 325 P.3d at 564 (explaining that the purpose of CESA
is to “protect employees from the negative consequences of involuntary
unemployment”); see also § 8-70-102, C.R.S. (2018) (setting out the legislative purposes of
the unemployment insurance laws). Requiring the preliminary showing that CCM
advances here would have the opposite effect; it would permit a wide range of employers
to avoid paying unemployment taxes. Under CCM’s reading of the law, employers
across service industries could justify classifying employees as independent contractors
by alleging that the individuals perform services “for” the customers or clients, not “for”
the employer. There is no such loophole to be exploited in CESA. And creating one is
inconsistent with our prior caselaw, which has never required this threshold showing.
Instead, as we have explained here and in other decisions, section 8-70-115(1)(b) begins
with a presumption of employment that a putative employer can only rebut by making
the required statutory showings.
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C. Application
¶18 Applying these standards, did the Panel appropriately conclude that CCM had
failed to overcome the employment presumption by demonstrating that it did not
exercise direction and control over the cleaners and further that the cleaners were
customarily engaged in an independent business such that they are properly
characterized as independent contractors? It did.
¶19 We look first to the Panel’s conclusion that CCM exerted control over and directed
the cleaners in the performance of their work. In reaching that conclusion, the Panel set
aside the hearing officer’s finding that CCM is no longer involved in the client-cleaner
relationship after assigning a cleaner to a client. While recognizing that this is generally
true about the details of the cleaning, the Panel found that the evidence adduced at the
hearing shows that CCM exerts extensive control over the cleaners in the resolution of
client complaints. During the hearing, one cleaner, Andrea Hernandez, testified that she
was asked to assist a cleaner about whom CCM had received a complaint and “train her
to do the work properly.” Other cleaners who testified corroborated that CCM exercised
this kind of quality control. This type of oversight, the Panel concluded, is “exactly the
control and direction referred to by [section] 8-70-115(1)(b).”
¶20 The Panel also concluded that CCM has the right to control whom the cleaners
hire as assistants. One of CCM’s owners testified during the hearing that cleaners are
prohibited from acquiring helpers to assist with cleaning client homes without approval
from CCM because CCM’s “reputation is at stake.” Despite testimony that this
12
prohibition was violated at times, the Panel determined that CCM “retained the right to
control who was used as a helper.”
¶21 Finally, the Panel concluded, based on the hearing officer’s findings, that CCM
controls the collection and distribution of fees paid by the clients. CCM negotiates the
price with the client, collects the payment from the client, and pays the cleaners
forty-seven percent of the amount charged each time the cleaner provides services to a
client. Far from arranging a one-time referral of a cleaner to a client, CCM maintained a
continuous relationship with the client homeowners and with the cleaners. CCM
received payment each time the worker provided cleaning services for the client and
assignments were not for a limited time. Some cleaners “worked for CCM for years in an
open-ended relationship.” The Panel further noted that CCM set the price for cleaning
based on the amount of time the cleaning would take and the frequency of the cleaning
services, so that the payment to the cleaners was effectively an hourly rate. For all of
these reasons, the Panel concluded that the cleaners are dependent on CCM for continued
work at a salary set by CCM and the relationship bears the hallmarks of control and
direction characteristic of an employment relationship. Because these conclusions are
supported by the hearing officer’s findings of fact and the applicable legal standards, we
see no basis for setting them aside.
¶22 As to the Panel’s determination that CCM had not sufficiently demonstrated that
the cleaners were engaged in an independent business, we again see no basis for
disturbing that determination. In reaching that conclusion, the Panel reviewed and relied
on the following facts found by the hearing officer: the cleaners were paid in their
13
personal names, not in any independent business name; none of the cleaners had any of
the indicia of an independent business, such as cards, an address, financial investment,
or liability insurance; and the cleaners did not control the amount they were paid for their
work but instead received payments that were effectively hourly payments set by CCM.
Based on these findings, the Panel reasonably concluded that the cleaners were not
customarily engaged in an independent business.
¶23 CCM disagrees, primarily arguing that many of the cleaners had clients of their
own in addition to those they cleaned for through CCM. This, CCM contends, indicates
that the cleaners were engaged in an independent business. The Panel did acknowledge
in its findings that “most cleaners also have other work outside of their relationship with
CCM” and even considered that fact to “support a conclusion that the cleaners are
independent contractors.” Although it is true that maintaining outside clients supports
a finding that individuals are engaged in an independent trade, this factor is not
dispositive, but is just one of many to be considered. See Softrock, ¶ 18, 325 P.3d at 565
(rejecting the argument that “whether the individual actually provided services for
someone other than the employer is dispositive proof of an employer-employee
relationship”). And the Panel did consider it, but still concluded that, under the totality
of the circumstances, the cleaners were employees. We must defer to this ultimate factual
conclusion unless it lacks evidentiary support, which it does not.
¶24 CCM further contends that the Panel erred in substituting the hearing officer’s
findings with those of its own. Specifically, CCM argues that the Panel erred in finding
that CCM established a quality standard, that CCM paid the cleaners a salary, and that
14
CCM had control over the cleaners’ schedules and ability to hire assistants. While the
Panel and the hearing officer interpreted the facts differently, we cannot conclude that
the Panel erred in its ultimate conclusion that the cleaners were employees. As to the
particular facts that the Panel set aside, we are persuaded that they were either ultimate
facts, which did not require deference from the Panel, or evidentiary facts that were not
supported by the record. See Samaritan Inst., 883 P.2d at 9 (explaining the difference
between ultimate facts and evidentiary facts in the hearing process).
¶25 The Panel thoroughly considered the dynamics of the relationship between CCM
and the cleaners and meticulously reviewed the nine conditions of section 8-70-115(1)(c)
as well as other relevant facts developed in the hearing record to conclude that the
cleaners were employees under the totality of the circumstances. We are satisfied that
the hearing officer’s findings, the Panel’s findings, and the record evidence support the
Panel’s determination that CCM failed to meet its burden of establishing that the cleaners
were customarily engaged in an independent trade or business of providing cleaning
services.3 Softrock, ¶ 9, 325 P.3d at 563.
III. Conclusion
¶26 Because substantial evidence supports the Panel’s ultimate determination that
CCM failed to meet its burden of showing that CCM did not exercise direction and
3CCM requests that we award attorney fees for this appeal. We deny CCM’s request
because it neither prevails on appeal nor cites any legal or factual basis for such an award.
See C.A.R. 39.1.
15
control and that the cleaners were customarily engaged in an independent trade or
business related to their provision of cleaning services, we will not disturb that
determination on review. Accordingly, we affirm the judgment of the court of appeals.
16