State Ex Rel. Aaron Rents, Inc. v. Ohio Bureau of Workers' Compensation

[Cite as State ex rel. Aaron Rents, Inc. v. Ohio Bur. of Workers’ Comp., 129 Ohio St.3d 130,
2011-Ohio-3140.]
THE STATE EX REL. AARON RENTS, INC., APPELLANT, v. OHIO BUREAU OF
WORKERS’ COMPENSATION, APPELLEE.
[Cite as State ex rel. Aaron Rents, Inc. v. Ohio Bur. of Workers’ Comp.,
129 Ohio St.3d 130, 2011-Ohio-3140.]
Bureau of Workers’ Compensation — Explanation of orders of the bureau
required — Limited writ granted — Retroactive reclassification of
employees.
(No. 2010-0439 — Submitted May 10, 2011 — Decided July 5, 2011.)
APPEAL from the Court of Appeals for Franklin County, No. 09AP-232,
2010-Ohio-218.
__________________
Per Curiam.
{¶ 1} Appellant, Aaron Rents, Inc. (“ARI”), challenges an order from
appellee, Ohio Bureau of Workers’ Compensation, that retroactively reclassified
the jobs of certain ARI employees for purposes of workers’ compensation
premiums. ARI specializes in lease-to-own sales of consumer items. When ARI
established operations in Ohio, its principal category of merchandise was
furniture. Consistent with that enterprise, the bureau assigned ARI two
classifications from its manual of occupational classifications — numbers 8044
(Store: Furniture) and 8810 (clerical workers). In listing its payroll, ARI, in turn,
placed each employee in one of those two categories.
{¶ 2} In 2006, the bureau conducted a routine audit of ARI’s records.
The auditor apparently concluded that ARI had incorrectly listed many of its
employees as number 8810 clerical workers. The auditor, however, did not inform
ARI, which was contrary to normal procedure. ARI, moreover, was not given a
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copy of the audit report, because the bureau found that the report, for several
reasons, “did not pass the audit quality review process.”
{¶ 3} ARI continued to classify its employees in the same manner as
before for the next two years. In March 2008, the bureau again audited ARI,
examining records from July 1, 2004, through December 31, 2007. In its 2008
audit report, the bureau found that ARI’s emphasis had shifted from furniture to
consumer electronics. As a result, the bureau substituted manual number 8017
(Store: Retail) for previously assigned number 8044 (Store: Furniture). Other
changes placed delivery drivers into a separate category and introduced several
other new classifications to accommodate an expanded service department.
{¶ 4} The most contentious element of the bureau’s report was its
conclusion that ARI should never have classified its sales and managerial staff as
clerical employees under manual number 8810. The report recommended that
these employees be reclassified under manual number 8017 and recommended
that the reclassification apply retroactively to July 2004. This retroactive
reclassification, however, meant that ARI would owe millions of dollars in back
premiums, since new manual number 8017 had a significantly higher premium
rate than number 8810. ARI objected to the audit’s findings and requested a
hearing before the bureau’s Adjudicating Committee. ARI urged the committee to
apply the reclassification prospectively, citing the bureau’s problematic 2006
audit that might have alerted ARI two years earlier to a potential impropriety. In
the alternative, it asserted that Ohio Adm.Code 4123-17-17(C) limited
retrospective reclassification to the 24 months preceding the current payroll-
reporting period, which would prohibit the collection of any alleged
underpayment prior to January 1, 2006.
{¶ 5} The committee upheld the new classifications but limited the
retroactive application period to January 1, 2006, through December 31, 2007,
citing “the delay of processing the audit findings and the lack of proof that the
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January Term, 2011
Bureau ever provided written notice of the initial April 2006 audit or findings.”
The order was affirmed by the administrator’s designee. ARI filed a complaint in
mandamus in the Court of Appeals for Franklin County. ARI asserted that the
bureau had abused its discretion by failing to adequately explain why it rejected
ARI’s request for prospective reclassification only. ARI argued that the bureau’s
explanation as to why it limited the period of retroactive reclassification did not
constitute an explanation as to why retroactive reclassification should be imposed
at all. The court of appeals disagreed and denied the writ, prompting ARI’s appeal
as of right to this court.
{¶ 6} For purposes of workers’ compensation premiums, every business
is classified by degree of hazard and placed into a corresponding category,
commonly referred to as a manual classification. R.C. 4123.29(A)(1). These
classifications have been established by the National Council on Compensation
Insurance and have assigned rates that reflect the risk of injury due to the hazards
associated with that industrial pursuit. Id. The total payroll in each of the
classifications assigned to a given employer is a key element in determining the
amount of premium that the employer pays to secure workers’ compensation
coverage. R.C. 4123.29(A)(2).
{¶ 7} In 2008, the bureau reassigned ARI’s sales and managerial
employees to a different manual classification. This reclassification was initially
made retroactive to 2004, but it was later limited to the period from January 1,
2006, through December 31, 2007. This change in time frame was based on Ohio
Adm.Code 4123-17-17(C), which provides:
{¶ 8} “The bureau shall have the right * * * to inspect, examine or audit
* * * employers for the purpose of verifying the correctness of reports made by
employers of wage expenditures * * *. The bureau shall also have the right to
make adjustments as to classifications, allocation of wage expenditures to
classifications, amount of wage expenditures, premium rates or amount of
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premium. * * * Except as provided in Rule 4123-17-28 of the Administrative
Code, no adjustments shall be made in an employer’s account which result in
increasing any amount of premium above the amount of contributions made by
the employer to the fund for the periods involved, except in reference to
adjustments for the semi-annual or adjustment periods ending within twenty-four
months immediately prior to the beginning of the current payroll reporting period.
The twenty-four month period shall be determined * * * from the date that the
bureau provides written notice to the employer of the bureau’s intent to inspect,
examine, or audit the employer’s records.” (Emphasis added.)
{¶ 9} Under Ohio Adm.Code 4123-17-17 (C), the bureau can make
adjustments to an employer’s account either prospectively or retroactively. State
ex rel. Granville Volunteer Fire Dept., Inc. v. Indus. Comm. (1992), 64 Ohio St.3d
518, 520-521, 597 N.E.2d 127. ARI objects to retroactive reclassification and
argues, among other things, that its ability to challenge the bureau’s decision has
been compromised because the order does not explain why retroactive rather than
prospective reclassification was favored. We agree.
{¶ 10} We “generally defer[] to the [bureau’s] expertise in premium
matters,” but we will intercede when an occupational classification has been made
in an arbitrary, capricious, or discriminatory manner. State ex rel. Progressive
Sweeping Contractors, Inc. v. Ohio Bur. of Workers’ Comp. (1994), 68 Ohio
St.3d 393, 396, 627 N.E.2d 550. The agency’s expertise, moreover, “does not
supersede the duty this court has imposed upon the Industrial Commission and the
bureau to adequately explain their decisions.” State ex rel. Craftsmen Basement
Finishing Sys., Inc. v. Ryan, 121 Ohio St.3d 492, 2009-Ohio-1676, 905 N.E.2d
639, ¶ 15. An order must “inform the parties and potentially a reviewing court of
the basis of the [agency’s] decision.” State ex rel. Yellow Freight Sys., Inc. v.
Indus. Comm. (1994), 71 Ohio St.3d 139, 142, 642 N.E.2d 378.
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January Term, 2011
{¶ 11} ARI contends that without an explanation why its request for
prospective application was denied, it cannot know whether the imposition was
arbitrary, capricious, or, in this case, punitive. ARI fears that the bureau
retroactively reclassified its employees as punishment for what the bureau
believed was ARI’s deliberate misclassification of its workers. ARI asserts that if
that is the case, it deserves to know so that it can prove that the misclassification
was unintentional and consistent with what it believed the bureau desired initially.
{¶ 12} ARI’s points are valid. There is no way to know why the bureau
exercised its reclassification discretion as it did. Further explanation as to why
the bureau reached its decision is necessary before we can determine whether an
abuse of discretion occurred.
{¶ 13} The judgment of the court of appeals is reversed, and a limited writ
is granted ordering the bureau to vacate its order, further consider the matter, and
issue an amended order including an explanation for its decision.
Judgment reversed
and limited writ granted.
O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O’DONNELL,
LANZINGER, CUPP, and MCGEE BROWN, JJ., concur.
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Millisor & Nobil Co., L.P.A., Daniel P. O’Brien, Mark E. Snyder, and
Nicole H. Farley, for appellant.
Michael DeWine, Attorney General, and Gerald H. Waterman, Assistant
Attorney General, for appellee.
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