Needle Inc. v. Department of Workforce Services, Workforce Appeals Board

2016 UT App 85THE UTAH COURT OF APPEALS
NEEDLE INC.,
Petitioner,
v.
DEPARTMENT OF WORKFORCE SERVICES,
WORKFORCE APPEALS BOARD,
Respondent.
Opinion
No. 20141157-CA
Filed April 28, 2016
Original Proceeding in this Court
Elizabeth T. Dunning and Steven M. Lau, Attorneys
for Petitioner
Suzan Pixton, Attorney for Respondent
JUDGE STEPHEN L. ROTH authored this Opinion, in which JUDGE
GREGORY K. ORME and SENIOR JUDGE RUSSELL W. BENCH
concurred.1
ROTH, Judge:
¶1 Needle, Inc., seeks review of the Utah Workforce Appeals
Board’s (the Board) decision upholding an administrative law
judge’s (the ALJ) determination that individuals working as
online product advocates for Needle’s retail clients are
employees, not independent contractors. We decline to disturb
the Board’s decision.
1. Senior Judge Russell W. Bench sat by special assignment as
authorized by law. See generally Utah R. Jud. Admin. 11-201(6).
Needle v. Department of Workforce Services
BACKGROUND
¶2 Needle is a software company that has developed a
‚customer engagement software‛ platform that it licenses to
online retailers of products and services. This platform enables
customers visiting a retailer’s website to interact in real-time
‚chats‛2 with persons knowledgeable about the retailer’s
products and services. Needle assists the online retailers in
advertising for, locating, and recruiting ‚advocates‛ to perform
these interactive chats. These advocates are generally enthusiasts
of the retailer’s products who are often identified because they
have established an online presence through such media as
Facebook, blogs, and online products reviews, that
demonstrated their familiarity and experience with particular
products and services. Needle does not require that the
advocates work in an industry related to the products; rather, it
selects advocates primarily due to their product expertise,
regardless of how that expertise may have been acquired.
Needle also supervises the advocate application process, though
the online retailer makes the final decision whether to hire any
potential advocate.
¶3 Once the advocates complete Needle’s application process
and are approved by the online retailer, they are ‚signed up as
contractors‛ to Needle itself. Needle owns and maintains the
software through which the browser-based chat platform
operates, and it licenses the software to each retailer for use. The
advocates are expected to provide their own computers and
internet access. Needle does not set working hours or quotas,
nor does it provide office space. Instead, the advocates work at
their own pace and during hours of their own choosing from
wherever they find convenient. Most advocates work ‚very part-
2. A ‚chat‛ is an internet-based ‚real-time conversation,
typically as a series of short text exchanges.‛ See Chat,
Dictionary.com, http://dictionary.reference.com/browse/chat?s=t
[https://perma.cc/N99Y-EUTH].
20141157-CA 2 2016 UT App 85Needle v. Department of Workforce Services
time‛ and are not expected to work exclusively for Needle or for
Needle’s online retailer clients. However, if an advocate has a
period of inactivity longer than ninety days, he or she is required
to re-certify with the particular online retailer in order to
continue to work. The online retailers pay Needle for the
advocates’ work on a per-chat basis, and Needle in turn pays the
advocates per chat. At the end of each year, Needle provides
each advocate with a 1099 form.3 Advocates also earn points that
can be redeemed for products or services directly from the
online retailer.
¶4 In addition, Needle’s platform monitors the advocates’
performance according to criteria specified by the retailer. While
neither the retailer nor Needle has ‚control over the content of
the chats‛—the chats are ‚unscripted‛ and ‚undirected‛—the
platform is programmed to preferentially route chats to
advocates who are rated as having performed well according to
the pre-selected metrics. Thus, the number of chats in which an
advocate is able to participate depends both on the volume of
customers requesting live chats at a particular time and the
advocate’s own performance rating.
3. Needle did not identify the specific 1099 form it provided
to the advocates. However, given the context, we presume
that it provided 1099-MISC forms. A 1099-MISC form is a
tax form that reports earnings paid to an independent contractor
or a person who is self-employed but has performed
work for another. The person or entity that pays for the services
fills out and provides the 1099-MISC form to the
worker for earnings paid during the tax year. See Form 1099-
MISC, Miscellaneous Income, https://www.irs.gov/uac/About-
Form-1099MISC [https://perma.cc/U5KG-YH65]; Form 1099-
MISC & Independent Contractors, https://www.irs.gov/Help-&-
Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-
Tax-Questions-&-Answers/Small-Business,-Self-Employed,-Other-
Business/Form-1099-MISC-&-Independent-Contractors/Form-1099-
MISC-&-Independent-Contractors [https://perma.cc/AV9C-F74V].
20141157-CA 3 2016 UT App 85Needle v. Department of Workforce Services
¶5 Needle claimed that its advocates were independent
contractors for purposes of the unemployment compensation
regulatory scheme. The Department of Workforce Services field
auditor determined, however, that Needle’s advocates should
instead be classified as employees and included in the audit the
advocates’ earnings as part of the total wages subject to
unemployment compensation contributions. A hearing officer
affirmed the auditor’s decision, concluding that the advocates
were not ‚independently established in a business activity that
exist[s] separate and apart from Needle.‛ Needle appealed this
decision, and after a hearing in March 2014, the ALJ affirmed the
hearing officer’s decision that the advocates were employees.
Needle then appealed the ALJ’s decision to the Board. The
Board, with minor changes, adopted the ALJ’s factual findings,
reasoning, and conclusions and determined that the advocates
were not established in an ‚independent business separate from
Needle‛ and were therefore not independent contractors for
unemployment compensation purposes. Needle seeks review of
the Board’s decision.
ISSUES AND STANDARDS OF REVIEW
¶6 Needle argues that the Board erred when it determined
that the advocates were employees rather than independent
contractors. In particular, Needle contends that the Board’s
decision is based on facts ‚not supported by substantial evidence
when viewed in light of the whole record before the court.‛ See
Utah Code Ann. § 63G-4-403(4)(g) (LexisNexis 2014). It also
argues that the Board’s decision and its underlying
determinations are ‚otherwise arbitrary or capricious.‛ See id.
§ 63G-4-403(4)(h)(iv). We will uphold the Board’s decision if its
factual findings and determinations are supported by
‚substantial evidence when viewed in light of the whole record.‛
Id. § 63G-4-403(4)(g). ‚Substantial evidence is that quantum and
quality of relevant evidence that is adequate to convince a
reasonable mind to support a conclusion‛ and ‚is more than a
mere scintilla‛ but ‚something less than the weight of the
evidence.‛ Rosen v. Saratoga Springs City, 2012 UT App 291, ¶ 9,
20141157-CA 4 2016 UT App 85Needle v. Department of Workforce Services
288 P.3d 606 (citation and internal quotation marks omitted). We
also defer to the Board’s credibility determinations and its
resolution of conflicts in the evidence, see Allen v. Department of
Workforce Servs., 2005 UT App 186, ¶ 20, 112 P.3d 1238, and we
will not overturn the Board’s determinations simply because we
think ‚another conclusion from the evidence is permissible,‛
Allied Constr. & Dev., Inc. v. Labor Comm’n Appeals Bd., 2013 UT
App 224, ¶ 2, 310 P.3d 1230 (citation and internal quotation
marks omitted).
¶7 Needle also argues that the Board ‚erroneously
interpreted or applied the law‛ pertaining to the determination
of independent contractor status under Utah Code section 35A-
4-204 and rule R994-204-303 of the Utah Administrative Code.
See Utah Code Ann. § 63G-4-403(4)(d). We generally review the
Board’s interpretation and application of statutes and
regulations for correctness. BMS Ltd. 1999 Inc. v. Department of
Workforce Servs., 2014 UT App 111, ¶¶ 8, 10, 327 P.3d 578.
However, due to the ‚fact-intensive inquiry‛ involved in
applying the law to the facts in cases where an employment
relationship is at issue, see Carbon County v. Workforce Appeals Bd.,
2013 UT 41, ¶ 7, 308 P.3d 477 (citation and internal quotation
marks omitted), we afford the Board deference in its
intermediate determinations and will affirm its ultimate decision
‚so long as it is within the bounds of reasonableness and
rationality,‛ Prosper Team Inc., v. Department of Workforce Servs.,
2011 UT App 142, ¶ 6, 256 P.3d 246 (citation and internal
quotation marks omitted); Tasters Ltd. v. Department of Emp’t Sec.,
863 P.2d 12, 19 (Utah Ct. App. 1993) (‚*T+his court will reverse
the Board’s ultimate determination, and upset its intermediate
conclusions, only if we conclude they are irrational or
unreasonable.‛). And ‚[w]e do not reweigh the evidence or
substitute our decision for that of [the Board] but instead will
uphold its determinations if they are supported by the record
evidence.‛ Evolocity Inc. v. Department of Workforce Servs., 2015
UT App 61, ¶ 6, 347 P.3d 406.
20141157-CA 5 2016 UT App 85Needle v. Department of Workforce Services
ANALYSIS
I. Applicable Rules and Law
¶8 In Utah, there is a presumption that persons who perform
‚[s]ervices . . . for wages or under any contract of hire‛ are
employees. Utah Code Ann. § 35A-4-204(3) (LexisNexis 2011); see
also BMS Ltd. 1999, 2014 UT App 111, ¶ 6. Needle’s advocates
perform services under contract and are therefore presumed to
be employees for purposes of unemployment compensation. In
order to overcome that presumption, Needle must demonstrate
that the individuals performing services are, instead,
independent contractors. See BMS Ltd. 1999, 2014 UT App 111,
¶ 6. An independent contractor is one who is ‚regularly‛ and
‚customarily engaged in an independently established trade,‛
and an independently established trade is one that is ‚created
and exists apart from a relationship with a particular employer
and does not depend on a relationship with any one employer
for its continued existence.‛ Utah Admin. Code R994-204-
303(1)(a).
¶9 To establish that an individual is an independent
contractor, Needle bears the burden to show both of the
following:
(a) the individual is customarily engaged in an
independently established trade, occupation,
profession, or business of the same nature as that
involved in the contract of hire for services; and
(b) the individual has been and 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)(a), (b) (emphasis added).
Because the factors are conjunctive, both parts of the test—the
independently established trade prong and the control or
20141157-CA 6 2016 UT App 85Needle v. Department of Workforce Services
direction prong—must be met for an individual to qualify as an
independent contractor. See Petro-Hunt LLC v. Department of
Workforce Servs., 2008 UT App 391, ¶¶ 22, 31, 197 P.3d 107. As a
result, if the employer does not ‚prove*+ to the satisfaction of the
Department that the worker is customarily engaged in an
independently established trade . . . of the same nature as the
service in question,‛ Utah Admin. Code R994-204-303(1)(c), then
the court need not analyze the second prong of the independent
contractor test—direction or control, see Petro-Hunt, 2008 UT
App 391, ¶ 31.
¶10 The Department of Workforce Services has promulgated a
list of factors to be used ‚as aids‛ in the analysis of each prong of
the independent contractor determination. Utah Admin. Code
R994-204-303. Because we agree with the Board that the
independently established trade prong is determinative in this
case, we address only the factors pertinent to that analysis. The
factors are whether the worker (1) maintains a separate place of
business, (2) provides his or her own tools and equipment, (3)
has clients other than the employing entity, (4) has the potential
for either profit or loss, (5) advertises, (6) has or requires
professional or other licenses to engage in the particular
business, and (7) maintains business records and tax forms. Id.R994-204-303(1)(b)(i)–(vii). The rules instruct the Department to
apply ‚[s]pecial scrutiny *to+ the facts‛ in order to ‚assure that
the form of a service relationship does not obscure its
substance.‛ Id. R994-204-303. And because the factors are
‚intended only as aids,‛ ‚*t+he degree of importance of each
factor‛ will vary ‚depending on the service and the factual
context in which it is performed.‛ Id. In other words, in
reviewing the Department’s decision on this topic, courts must
consider the working relationship in its totality, and the factors
in the context of that relationship. The factors should not be
rigidly or blindly applied; neither should they be mathematically
tabulated at the end of the analysis to arrive at the ultimate
determination—whether the ‚substance‛ of the working
relationship is characteristic of an independent contractor
relationship. Id.; see also BMS Ltd. 1999, 2014 UT App 111, ¶ 12
20141157-CA 7 2016 UT App 85Needle v. Department of Workforce Services
(‚*T+he application of the *independent contractor] test is more
sophisticated than simply tallying the factors for and against.‛).
¶11 Needle challenges the Board’s determination regarding
every factor except licensing. We address each challenged factor
separately to determine whether there is substantial evidence to
support the Board’s finding on that factor and, for those factors
where Needle has argued it, we also address whether the Board
correctly interpreted and applied the law. We then consider
whether the Board’s ultimate determination that the advocates
are not independent contractors, but employees, was sufficiently
supported.
II. Factors
A. Separate Place of Business
¶12 This factor requires the Board to determine whether ‚*t+he
worker has a place of business separate from that of the
employer.‛ Utah Admin. Code R994-204-303(1)(b)(i). The Board
found that ‚*t+here was no evidence presented during the
hearing that the advocates had a separate place of business.‛ It
also recognized that the ALJ had noted that ‚this factor is not
critical,‛ because the advocates ‚do not need a place of business
but rather work from their homes or anywhere else there is an
[i]nternet connection.‛ Needle contends that the Board
misinterpreted and misapplied this factor and that the Board’s
determination is not based on ‚substantial evidence.‛
¶13 Needle first argues that the Board’s determination
resulted from its misinterpretation of the rule. In particular,
Needle contends that the Board inappropriately focused on
‚whether the advocate has a fixed location from which he or she
does business‛ rather than ‚whether the advocate performs
services from Needle’s place of business.‛
¶14 The plain language of the rule suggests that this factor
focuses on two related considerations. The first looks at whether
the work is performed at a location separate from the employer’s
20141157-CA 8 2016 UT App 85Needle v. Department of Workforce Services
place of business. And the second seems to consider who is
responsible to provide the workplace. Cf. Petro-Hunt LLC v.
Department of Workforce Servs., 2008 UT App 391, ¶ 24, 197 P.3d
107 (upholding the Board’s determination that an employee did
not perform her services at a location separate from the
employer where she performed ‚all of her Petro-Hunt
responsibilities in the company’s office during normal business
hours, she worked forty to sixty hours a week, and she did not
maintain a separate place of business‛). To the extent that the
Board has interpreted this factor to require the advocates to have
their own dedicated physical office or business space, we agree
with Needle that such an interpretation seems to require more
than is contemplated by the rule; in certain working
relationships, it is enough that the workers perform their work at
a separate location of their choice, regardless of whether that
location is an office space in a separate building, the worker’s
home, or any other suitable location. However, it seems clear
from the Board’s findings that it understood that the advocates
performed their work at a location separate from Needle and
that Needle was not responsible for providing them with a
working location. Indeed, the Board found that Needle did not
provide a working location for the advocates, that the advocates
were responsible for providing the location from which to work,
and that ‚the individuals do not need a place of business but
rather work from their homes or anywhere else where there is an
[i]nternet connection.‛ Because these findings go directly to the
core considerations of this factor, there is no basis to conclude
that the Board misinterpreted what was required.
¶15 Needle next asserts that the Board misunderstood the
evidence. In particular, it takes issue with the Board’s finding
that Needle ‚does not have a place of business‛ and its
determination that ‚*t+here was no evidence presented during
the hearing that the advocates had a separate place of business.‛
But the Board’s finding regarding Needle’s place of business,
while admittedly contrary to the evidence presented, does not
affect its overall determination that the advocates perform their
services from a location separate from Needle. Whether or not
20141157-CA 9 2016 UT App 85Needle v. Department of Workforce Services
Needle has a fixed place of business, it is clear from the Board’s
findings that it recognized that the advocates perform their work
at a location separate from any Needle facility, as the factor
requires. Furthermore, the Board’s statement that ‚no evidence‛
was presented that the advocates ‚had a separate place of
business‛ is accurate; Needle offered testimony that the
advocates may perform their services from any location with
internet access, but it presented no evidence that any advocate
had an established business location.
¶16 Finally, Needle contends that the Board’s determination
that ‚this factor was not critical‛ in the overall independent
contractor calculus is clearly erroneous as well as being
contradictory to the ALJ’s determination that this factor weighs
in favor of independence. We disagree. Rather, a fair reading of
the Board’s determination seems to be that, while the evidence
regarding this factor suggests independence, it is not ‚critical‛ to
the overall determination of independent contractor status,
because the advocates’ specific ‚type of work‛ means that they
‚do not need [an established+ place of business‛ to perform their
services. Assessing the relative weight of the statutory factors is
well within the Board’s purview. See BMS Ltd. 1999 Inc. v.
Department of Workforce Servs., 2014 UT App 111, ¶ 12, 327 P.3d
578 (noting that ‚the relevance of a given factor will differ
depending on the nature of the work performed‛). Accordingly,
we see no reason to disturb the Board’s determination regarding
this factor.
B. Tools and Equipment
¶17 This factor requires the Board to determine whether ‚*t+he
worker has a substantial investment in the tools, equipment, or
facilities customarily required to perform the services.‛ Utah
Admin. Code R994-204-303(1)(b)(ii). The Board found that
although the advocates ‚are required to have a computer and
access to the internet,‛ ‚it is assumed the advocates already had
those tools‛ because most advocates were first identified by
Needle due to their online presence ‚through Facebook or a
blog.‛ The Board also found that the ‚only other tool‛ required
20141157-CA 10 2016 UT App 85Needle v. Department of Workforce Services
to do the work was supplied by Needle in the form of its own
software platform, which the Board characterized as ‚a
necessary tool‛ because ‚the advocates could not interact with
customers‛ without it. The Board concluded that while this
factor weighs in favor of employee status, it ‚is certainly not a
deciding factor in and of itself.‛ Needle argues that the Board
misinterpreted the regulation and that the Board’s findings and
determinations regarding this factor were not supported by
substantial evidence.
¶18 Needle first contends that the Board misinterpreted and
misapplied the rule. In particular, it contends that the Board
appears to have interpreted the rule to mean that the advocates
must supply ‚every single tool and piece of equipment‛ when
the rule requires only that ‚advocates make a substantial
investment in tools required to perform services,‛ which it
asserts the advocates undisputedly do by providing a computer
and an internet connection. In essence, Needle contends that this
factor should not weigh in favor of employment simply because
the Board found that Needle provided a ‚necessary tool.‛ While
we agree with Needle that the plain language of the rule does
not appear to require the worker to provide every tool and piece
of equipment—the qualifier in the rule is ‚substantial
investment‛—we do not understand that the Board discounted
the advocates’ investments simply because it found that Needle
provided a ‚necessary tool.‛ Rather, a fair reading of the Board’s
determination is that it simply weighed the evidence regarding
the Needle platform—a tool that is the sine qua non of the
advocates’ ability to participate in chats for Needle’s retailers—
more heavily in its calculus than the advocates’ ownership of a
computer and internet access. It is not a misinterpretation of the
rule to weigh the evidence as supporting one determination over
the other. See Evolocity Inc. v. Department of Workforce Servs., 2015
UT App 61, ¶¶ 12–13, 347 P.3d 406 (concluding that the Board’s
decision that the alleged employee had not made a ‚substantial
investment‛ was not clearly erroneous where, although the
alleged employee used her own computer, telephone, and
internet service, the company furnished other equipment, most
20141157-CA 11 2016 UT App 85Needle v. Department of Workforce Services
notably the software ‚necessary for *the alleged employee+ to
perform her work‛).
¶19 Along these lines, Needle also asserts that it was error for
the Board to discount ‚the advocates’ investment in their
computers and internet‛ merely because the advocates likely
‚had computers and internet connections before contracting
with Needle.‛ It contends that we rejected a similar analysis in
Tasters Ltd. v. Department of Employment Security, 863 P.2d 12(Utah Ct. App. 1993), and that, due to advances in technology,
doing business often ‚requires no more than a computer and
internet connection‛ and, therefore, such an investment should
be considered substantial in relation to what the job requires.
Needle is correct that in Tasters, in considering whether food
demonstrators were independent contractors, we rejected the
argument that ‚household‛ tools do not carry the same weight
as more specialized tools, such as a power drill, for example. Id.
at 26. We also determined that even though the actual
investment was small per food demonstrator (between $50 and
$200) and the tools could be ‚used in the home as well as on the
job,‛ the demonstrators’ investments in their tools were
‚essential,‛ given that most demonstrators made ‚less than six
hundred dollars per year performing demonstrations‛ and that
‚if a demonstrator did not invest in the equipment, he or she
would be unable to perform any demonstrations.‛ Id. at 25. But
in Tasters, there was no argument that this factor should have
weighed in favor of an independent contractor relationship even
though the demonstrators had all of the equipment in their
homes before contracting with Tasters. Rather, the arguments
regarding tools and equipment in Tasters related to whether the
‚cost of the equipment‛ that the demonstrators were required to
purchase represented a ‚real, essential, and adequate
investment‛4 and whether, because they were classified as
4. Tasters Ltd. v. Department of Employment Security, 863 P.2d 12(Utah Ct. App. 1993), was decided under a prior statutory
scheme. Under this prior scheme, the ‚investment‛ factor was
(continued…)
20141157-CA 12 2016 UT App 85Needle v. Department of Workforce Services
household rather than industrial tools, they should have been
given ‛equal‛ instead of ‚minimal‛ weight in the overall
analysis.
¶20 Here, we do not understand the Board to have decided
that even though the advocates likely had the computers and
internet access before contracting with Needle, they had no
investment in the ‚tools . . . customarily required‛ to perform
advocate services. Rather, the Board’s reasoning seems to be that
the investment into a computer and internet service is not a
‚substantial investment‛ where the evidence supported
reasonable inferences that the advocates did not invest in those
tools to be able to provide product advocacy services. Evidence
was presented that Needle identified potential advocates
through those potential advocates’ posts and contributions to
social media platforms, which supports a reasonable inference
that the advocates’ investment in both a computer and internet
access had occurred prior to and independent of their work for
Needle. Further, computers and internet access are now common
appurtenances of most citizens’ daily lives, used for shopping,
schoolwork, social connection, and entertainment, including
online interaction. As a consequence, it was not error for the
Board to conclude that the acquisition of a computer and
internet access was not a ‚substantial investment‛ in the tools of
a trade. This is particularly so where Needle offered testimony
that the advocates’ work was itself ‚very part-time‛ and where
Needle presented no evidence that the advocates had acquired
either computers or internet access for reasons other than the
advocates’ personal use.
(…continued)
separate from the ‚tools‛ factor. See Utah Code Ann. § 35-4-
22(j)(5) (Michie Supp. 1989). In the prior scheme, ‚investment‛
required the Board to decide ‚whether the individual has a real,
essential, and adequate investment in the business or has a lack
of investment and depends on the employer for such facilities.‛
Id. § 35-4-22(j)(5)(O).
20141157-CA 13 2016 UT App 85Needle v. Department of Workforce Services
¶21 Needle also contends that the Board’s determination is
not supported by ‚substantial evidence.‛ It contends that the
Board ‚ignore*d+ the nature of the relationship between Needle,
its client and the advocates‛ when it determined that Needle
provided a ‚necessary tool‛; that the platform is not
‚necessary . . . because the advocates could have performed their
services using any number of similar software platforms‛; and
that the Board ‚ignore*d+ the evidence showing that some
advocates invest substantially more‛ in required tools by way of
investing ‚thousands of dollars in the products for which they
are advocates.‛
¶22 First, regardless of the ‚nature‛ of Needle’s role in
relation to the advocates and its retail clients, Needle owns the
software that enables the advocates to perform the services that
Needle licenses to its clients as part of the advocacy package.
Needle offered testimony that it was this platform that advocates
were required to ‚log into‛ and that the platform then provided
the advocates ‚access to the *retail+ customers who are
requesting chats‛ by ‚rout*ing+‛ ‚those chat requests . . . through
*the Needle+ technology platform to the advocate.‛ Thus,
regardless of how Needle’s relationship to the advocates and its
retailers is labeled, the Board’s determination that ‚the
advocates could not interact with customers through a client’s
website without the use of the software platform provided by
*Needle+‛ is supported by the evidence Needle presented to the
Board. Moreover, nothing in the plain language of this factor
requires the Board to consider the ‚nature‛ of the putative
employer’s role in relation to its alleged employees and clients in
the way Needle claims.
¶23 Needle’s argument that its platform is not ‚necessary,‛
because the advocates could provide the same services through
other software platforms, is similarly unpersuasive. The
advocates were contracted to work for and were paid by Needle.
Regardless of whether the advocates ‚could have‛ performed
the same services for another employer through a different
platform, the fact remains that the advocates provided advocacy
services to Needle by using the proprietary platform Needle
20141157-CA 14 2016 UT App 85Needle v. Department of Workforce Services
licensed to the online retailers. The fact that other software
platforms might hypothetically be available to do a similar job
does not undercut the fact that the Needle platform was the core
mechanism by which the advocates, the online retailers, and
their customers were connected. Thus, in the working
relationship at issue, Needle’s platform was a ‚necessary‛ tool.
¶24 Finally, although Needle claims that the Board ignored
evidence that the advocates also invested substantially in the
products of the retailers for whom they advocated, Needle
presented no more than anecdotal or hypothetical evidence
regarding product purchases the advocates might have made in
the course of their employment with Needle. More to the point,
Needle did not show that the product purchases an advocate
might have made that contributed to his or her qualifications for
advocate work for a particular retailer were ever made with that
goal in mind. Rather, absent evidence to the contrary, the
reasonable inference is that the advocates had acquired specific
products for personal use and that such purchases resulted in
familiarity with the product and enough enthusiasm to motivate
them to voluntarily post reviews or engage with others online.
Indeed, it was often the advocates’ pre-employment reviews of
retailers’ products as consumers that attracted Needle’s attention
and offers of work in the first place. Thus, we cannot conclude
that product acquisition is a category of investment in tools and
equipment that the Board improperly ‚ignored.‛
¶25 Accordingly, we conclude that the Board’s interpretation
of the tools and equipment factor was not unreasonable, and its
determination that this factor weighs in favor of employment is
supported by substantial evidence.
C. Other Clients
¶26 This factor requires the Board to determine whether ‚*t+he
worker regularly performs services of the same nature for other
customers or clients and is not required to work exclusively for
one employer.‛ Utah Admin. Code R994-204-303(1)(b)(iii). The
Board found that ‚there is no evidence any advocates have other
20141157-CA 15 2016 UT App 85Needle v. Department of Workforce Services
clients for whom they provide similar services.‛ The Board
assumed that, owing to the ‚very few hours‛ the advocates
worked for Needle, the advocates had other employment, but
observed that ‚there is no evidence *the other employment+ is
related in any way to the services the advocates provide to
. . . [Needle].‛ Needle argues that the Board misinterpreted the
evidence before it regarding the ‚business‛ that its advocates
were in and that the Board also misapplied this factor by
ignoring evidence that the advocates were not ‚required to work
exclusively for Needle.‛
¶27 As indicated, the Board acknowledged that the advocates
worked part time and presumed they had other work apart from
their work for Needle. But this factor to requires more than just
the ability to work for someone other than the employer; the
rules require that a worker’s ‚independently established
trade . . . is created and exists apart from a relationship with a
particular employer and does not depend on a relationship with
any one employer for its continued existence.‛ Utah Admin.
Code R994-204-303(1)(a); see also Leach v. Board of Review of Indus.
Comm’n, 260 P.2d 744, 748 (Utah 1953) (stating that an
‚independently established business must exist independent of
the services under consideration in the sense that it is the
whole—of which the particular service is a part‛). In this regard,
it is not sufficient that a worker is merely ‚free to perform work
for other clients‛; rather, the worker must actually ‚‘regularly
perform[]’ work for other clients,‛ and the other work must be of
the ‚‘same nature’‛ as that provided in the employment
relationship at issue. Evolocity Inc. v. Department of Workforce
Servs., 2015 UT App 61, ¶¶ 14–15, 347 P.3d 406 (quoting Utah
Admin. Code R994-204-303(1)(b)(iii)). For example, in Evolocity,
we concluded it was not error for the Department of Workforce
Services to determine that the claimant ‚did not perform work
for clients other than Evolocity‛ where there was no evidence
that her short-term, part-time work for the United States Census
Bureau was ‚of the same nature as the work she performed for
Evolocity‛ and where, even though the claimant was ‚free to
work for other clients,‛ there was no evidence that she was
20141157-CA 16 2016 UT App 85Needle v. Department of Workforce Services
‚regularly perform[ing]‛ work for others. Id. (citation and
internal quotation marks omitted); see also Petro-Hunt LLC v.
Department of Workforce Servs., 2008 UT App 391, ¶¶ 26–27, 197
P.3d 107 (concluding that this factor weighed in favor of
employment where the employee ‚did not have any other clients
besides Petro-Hunt‛ and where her employment contract also
contained a non-compete clause ‚which *the employee+ believed
prevented her from performing similar services to any other
client for a period of 12 months‛). Thus, Needle must show that
the advocates provided services of a similar nature to other
clients in order to establish that this factor weighs in favor of
independence.
¶28 Needle contends that the Board’s determination rested
upon a misunderstanding of the evidence. In particular, Needle
contends that the Board improperly focused on ‚[w]hether [the
advocates] provide[d+ other chat services‛ when, instead,
according to Needle, the advocates are in the business of ‚selling
their expertise,‛ essentially as online entrepreneurs, in which
chat advocacy plays only a part. Needle contends that this
distinction is important because it means that whether the
advocates provide ‚other chat services‛ is too narrow a question
and therefore ‚irrelevant to whether *an advocate+ is in an
independent business.‛ In an effort to demonstrate this
distinction, Needle compares the advocates’ business to that of a
college professor who is hired to provide expert witness services
in litigation, where ‚*t+he fact that *the college professor+ did no
other work as an expert witness‛ would not transform him into
an employee of the entity that hired him. Needle contends that,
like the college professor, it is the advocates’ online-centered
expertise that is sought. In this regard, Needle points to evidence
it presented to the Board regarding one of its product advocates
who is also a ‚professional level online gamer‛ and ‚derives
income from that *video gaming+ expertise‛ by providing
consulting services to a gaming company in addition to being an
advocate for Needle. Needle essentially argues that this person’s
chat advocacy is simply one component of a larger business of
selling his broader online gaming expertise.
20141157-CA 17 2016 UT App 85Needle v. Department of Workforce Services
¶29 But Needle fails to acknowledge the central difference
between the college professor example and its Utah advocates as
a group: the reason the college professor would not have been an
employee of the entity that hired him to be an expert witness is
the fact that the college professor was already established in the
independent business of being a professor with relevant
expertise. Here, other than the isolated example of the gaming
professional, Needle has not shown that its Utah advocates are
actually established in any relevant internet business apart from
their work for Needle.5 Moreover, when the goal is to provide
the Board ‚substantial evidence‛ from which to make its
findings and determinations, and where the employment
relationship at issue in this case is between one employer and a
class of employees, one isolated example from that class hardly
seems to fit the bill. Certainly, Needle did not provide other
evidence to the Board to suggest that the majority of advocates
or that the advocates as a class of employees in fact ‚regularly
perform[] services of the same nature for other customers or
clients.‛6 See Utah Admin. Code R994-203-303(1)(b)(iii).
5. Because it is not necessary to our decision, we do not decide
whether the online gaming professional is engaged in the sort of
broader business contemplated by this or other factors.
6. The Board itself stated that it would have considered evidence
that the advocates were engaged more broadly in selling either
skills related to online chat systems or internet-related skills in
general, had it been provided the evidence to do so. The Board
particularly noted that if Needle had presented evidence that, for
example, a ‚hypothetical Coach bag enthusiast sold Coach bags
or was otherwise involved in some type of enterprise providing
advocate or chat representative services for any other product,‛
‚there could be an argument‛ that the enthusiast was
‚customarily engaged‛ in providing services of the same nature
to other clients.
20141157-CA 18 2016 UT App 85Needle v. Department of Workforce Services
¶30 As a consequence, because Needle did not provide
substantial evidence to the Board to demonstrate that its
advocates are actually and ‚regularly perform*ing+‛ related
services for other clients—whether chat services, product
expertise, or a broader sort of internet expertise related service—
it was not error for the Board to afford little weight to the
evidence that the advocates were not required to work
exclusively for Needle. See id. Accordingly, we decline to disturb
the Board’s determination that this factor weighs in favor of
employment.
D. Profit or Loss
¶31 This factor requires the Board to determine if ‚*t+he
worker can realize a profit or risks a loss from expenses and
debts incurred through an independently established business
activity.‛ Utah Admin. Code R994-204-303(1)(b)(iv). The Board
found that there was ‚no evidence the advocates could
experience a loss as there were no costs associated with the
services they provided‛ and that ‚*t+he amount of profit they
made was determined by the number of encounters they had
with customers.‛ Needle argues that the Board misinterpreted
and misapplied the rule. In particular, it contends that the
disjunctive ‚or‛ in the plain language of the rule means this
factor should support a finding of independence if it is shown
that the worker can either realize a profit or risk a loss. Needle
asserts that because its advocates can realize a profit, this factor
should support a finding of independence, regardless of whether
the advocates risk a loss. It also contends that its advocates do
risk a loss and that the Board improperly discounted the related
evidence.
¶32 The Board seemed to interpret this factor to require that
the profit or loss must be tied to expenses or debts incurred
through the business activity. In other words, it reasoned that it
is not enough for a worker to be able to realize a profit or suffer a
loss in earnings simply through performing more or less
20141157-CA 19 2016 UT App 85Needle v. Department of Workforce Services
piecework7 of this kind. Rather, the profit or loss must occur as a
consequence of expenses or debts related to the independent
business activity. Our case law supports this interpretation. For
example, in Evolocity, we declined to disturb the Board’s
determination that the employee could not realize a profit or loss
where she incurred no debts or expenses related to her work and
where she could not ‚increase the amount she was paid‛
because she was paid ‚a set salary every two weeks.‛ Evolocity
Inc. v. Department of Workforce Servs., 2015 UT App 61, ¶¶ 18–19,
347 P.3d 406. Similarly, in Petro-Hunt, we concluded that because
‚all the money‛ the alleged employee received ‚was pure profit
with no accompanying risk of loss,‛ Petro-Hunt had failed to
show that the Board erred when it determined that this factor
‚weighed in favor of employment.‛ Petro-Hunt LLC v.
Department of Workforce Servs., 2008 UT App 391, ¶ 28, 197 P.3d
107. Thus, unless an employer is able to show that there is a risk
of loss that accompanies the potential for profit, this factor
cannot support a determination of independence.
¶33 Here, Needle has not demonstrated that its advocates risk
a loss. Needle only cursorily contends that the Board’s
conclusion ‚that the advocates could not risk a loss is not
supported by substantial evidence.‛ In particular, Needle asserts
that the Board’s finding that the advocates could not risk loss is
supported only by ‚the speculation that the advocates already
had a computer and internet before becoming advocates‛ and
that this finding is ‚contradicted by the record,‛ which shows
the advocates had ‚to provide a computer and internet
connection, and in many cases had to make substantial
investment in developing their expertise prior to becoming
advocates.‛ But it is Needle’s burden to provide substantial
evidence on the record to support a contrary position, and it has
7. ‚Piecework‛ is ‚work in which you are paid for each thing
you make or do and not for the amount of time you work.‛
Piecework, Merriam-Webster.com, http://www.merriam-webster.
com/dictionary/piecework [https://perma.cc/4SCE-42UG].
20141157-CA 20 2016 UT App 85Needle v. Department of Workforce Services
not done so. Needle did not provide more than presumptive,
anecdotal, or hypothetical evidence that its advocates made
substantial investments in computers, internet service, or retailer
products to be able to provide product advocacy services to
clients like Needle or its customer-retailers. Nor did Needle
provide evidence of any other expenses or debts that the
advocates might have incurred to facilitate an independent
product advocacy business. Rather, as we have already
discussed, the Board’s inference that the advocates had invested
in computers, internet service, and retailer products independent
of their work for Needle was a reasonable one.
¶34 Furthermore, Needle’s contention that its advocates can
realize a ‚profit‛ is unpersuasive. The advocates are paid at
regular intervals on a per-chat basis, and are thus essentially
online pieceworkers. Nonetheless, Needle contends that its
advocates are able to realize a profit through their own efforts—
namely, by providing better quality chats or by logging in
during hours when fewer advocates traditionally work. But the
potential to add income through acts of worker initiative does
not necessarily move an employee toward independent
contractor status where the increases in income are purely
dependent, as here, on the quantity and quality of their
relationship with the particular employer. Rather, the increase or
decrease in income from the sort of decision involved in whether
to do more or fewer chats, or to choose more optimal times,
seems essentially automatic and does not involve the true
uncertainty of result that characterizes the sort of ‚risk‛ inherent
in the concepts of profit or loss. As a consequence, the profit
realized by the advocates, dependent on a simple choice to work
harder or smarter, seems to be ‚pure profit with no
accompanying risk of loss.‛ See Petro-Hunt, 2008 UT App 391,
¶ 28; see also Profit, Black’s Law Dictionary (10th ed. 2014)
(defining ‚profit‛ as ‚[t]he excess of revenues over expenditures
in a business transaction‛).
¶35 Thus, the Board’s rejection of Needle’s argument does not
seem irrational or unsubstantiated. And because Needle did not
provide the Board with substantial evidence to show that its
20141157-CA 21 2016 UT App 85Needle v. Department of Workforce Services
advocates risked a loss, it appears that the advocates are able to
realize only ‚pure profit with no accompanying risk of loss.‛ See
Petro-Hunt, 2008 UT App 391, ¶ 28. Accordingly, we decline to
disturb the Board’s determination that this factor weighed in
favor of employment.
E. Advertising
¶36 To meet this factor, Needle must show that ‚*t+he worker
advertises services in telephone directories, newspapers,
magazines, the Internet, or by other methods clearly
demonstrating an effort to generate business.‛ Utah Admin.
Code R994-204-303(1)(b)(v). The Board found that there was ‚no
evidence the advocates advertise their services‛ and rejected
Needle’s argument that having a ‚Facebook presence or a blog
presence . . . should be considered advertisement,‛ because there
was no evidence that ‚the Facebook page or blog contained
solicitations to work as an advocate.‛ Needle argues that the
Board misinterpreted the rule when it determined that the
advocates do not advertise and that the Board simply
misunderstood the nature of the advocates’ services.
¶37 First, Needle contends that the Board misinterpreted the
rule because the rule should not be interpreted so narrowly as to
‚require that every public presentation contain an explicit
solicitation for work in order to constitute ‘advertising.’‛ While
this may be generally true,8 the language of this factor as a whole
narrows the meaning of the word by requiring that
advertisements must be done in a way that ‚clearly
demonstrat[es] an effort to generate business.‛ We have also
8. See Advertise, Merriam-Webster.com, http://www.merriam-
webster.com/dictionary/advertise [https://perma.cc/BL98-5H6A]
(defining ‚advertise‛ as: ‚*1+ to make the public aware of
something (such as a product) that is being sold; [2] to make a
public announcement (in a newspaper, on the Internet, etc.)
about something that is wanted or available; [3] to cause people
to notice (something)‛).
20141157-CA 22 2016 UT App 85Needle v. Department of Workforce Services
interpreted this factor to require that the advertising specifically
demonstrate ‚an effort to generate business.‛ For example, in
Evolocity, we concluded that the employee was not advertising
her services where she only spoke ‚to friends and neighbors
about her work‛ and ‚invit[ed] several of them to work for
Evolocity‛ rather than ‚advertis*ing+ . . . in an effort to generate
business for herself.‛ Evolocity Inc. v. Department of Workforce
Servs., 2015 UT App 61, ¶ 16, 347 P.3d 406. Similarly, in New
Sleep Inc. v. Department of Employment Security, 703 P.2d 289(Utah 1985), the Utah Supreme Court found it significant that the
water bed installers at issue were not ‚known to be in the
business of installing water beds‛ and did not ‚[hold]
themselves out to the public generally as being tradesmen.‛ Id.
at 291.
¶38 Consequently, the evidence cannot support a
determination of independence if, for example—as Needle
argues here—the advertising consists of blog entries that merely
‚cause people to notice‛ that the blogger has developed a
particular interest or expertise. Nor would it be enough simply
to write a customer review of a product or participate in a forum
discussion regarding a particular brand, even one that the
reviewer considers him or herself knowledgeable about and
loyal to. Rather, there must be evidence that the generation of
public awareness regarding certain product-related postings was
‚clearly‛ done with intent to ‚generate business‛ for an
independently established enterprise. Accordingly, we conclude
that the Board did not misinterpret the rule when it required the
purported advertisements to include ‚solicitations to work as an
advocate.‛
¶39 Nonetheless, Needle argues that because the advocates
are ‚providing online product consulting services,‛ the
advocates’ posts and blogs that demonstrate product expertise
and enthusiasm should be considered advertisements. In this
regard, Needle asserts that the advocates were identified
precisely because of their Facebook posts and blogs. Needle also
compares the online activities of the advocates with the efforts of
photographers or lawyers who ‚often discuss and post examples
20141157-CA 23 2016 UT App 85Needle v. Department of Workforce Services
of their work on blogs, Twitter accounts, and Facebook,‛
contending that ‚*t+he fact that they do not explicitly solicit a
sale does not make [their online postings] any less of an
advertisement,‛ because the postings ‚allow potential customers
to see . . . the expertise in action.‛
¶40 Even assuming that such activities by photographers and
lawyers would amount to advertising under the language of this
factor, Needle has not persuaded us that the advocates’ online
activities demonstrated anything more than mere product
enthusiasm and expertise. Unlike photographers or lawyers who
maintain blogs in relation to an established photography
business or a legal practice, Needle has failed to show that the
advocates’ posts were made with the purpose of showcasing
their particular product expertise with the intent to attract
interested online retailers or businesses like Needle that might
be looking to hire product advocates. Rather, all that the
evidence demonstrates here is that the advocates had established
online presences indicating enthusiasm for and knowledge
regarding particular products and that their knowledge and
enthusiasm incidentally attracted Needle’s attention, without
being designed or calculated to do so. Thus, Needle has not
presented evidence that the advocates have publicly advertised
in any way ‚clearly demonstrating an effort to generate
business‛ as product advocates; rather, their employment by
Needle seems to be merely a coincidental result of each
advocate’s online activities for other purposes. Accordingly, we
conclude that the Board’s determination that this factor weighed
in favor of employment was not unreasonable.
F. Business Records
¶41 This factor requires the employer to show that ‚*t+he
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 [IRS] and
other agencies.‛ Utah Admin. Code R994-204-303(1)(b)(vii). The
20141157-CA 24 2016 UT App 85Needle v. Department of Workforce Services
Board found that the advocates ‚are paid via a 1099 form‛ 9 but
stated, ‚[T]hat does not necessarily show that the individuals
made a considered decision to establish themselves as an
independent business.‛ Needle argues that the Board’s
determination is ‚inherently contradictory‛; it asserts that the
ALJ determined that this factor supported a determination of
independence and that even though the Board adopted the ALJ’s
findings, its reasoning appears to contradict the ALJ’s
determination. Needle contends that to the extent the Board
‚finds that this factor does not weigh in favor of a finding of
independence, the Board’s decision misinterprets the Rule and is
not supported by substantial evidence.‛
¶42 Rather than determining that this factor weighs against
independence, however, the Board’s reasoning seemed to be that
while 1099 forms do support independence, they are not
determinative, particularly where the decision to provide a 1099
form (rather than a W-2, for instance) has not been shown to
have been made by the advocates themselves and where there is
no other evidence of documentation, record maintenance, or
filings consistent with the operation of an independent business.
The plain language of the rule asks whether the worker
‚maintains records‛ in order to ‚file self-employment and other
business tax forms with the *IRS+ and other agencies.‛ Id.(emphases added). Needle offered testimony that its advocates
were provided 1099 forms and that it did not know whether its
advocates actually maintained records to track business expenses
for the purpose of filing ‚self-employment and other business
tax forms.‛ Thus, other than the passive receipt of the employer-
generated 1099 forms, there was no substantial evidence that the
advocates ‚file*d+ or maintain*ed+ records as a business or pa*id+
taxes as a business.‛
9. We note that this is something of a mischaracterization. The
advocates are paid via direct deposit. The 1099 forms annually
provided to the advocates simply memorialized the total income
paid to facilitate income reporting and tax collection.
20141157-CA 25 2016 UT App 85Needle v. Department of Workforce Services
¶43 Consequently, Needle’s contentions—that the Board
misinterpreted this factor and that its determination that the
factor weighed against independence was not supported by
substantial evidence—are without merit. We therefore decline to
disturb the Board’s determination on this factor.
III. The Board’s Ultimate Determination
¶44 Because we conclude that the Board’s determinations
regarding the individual factors were not unreasonable, we also
conclude that the Board’s overall determination that Needle’s
Utah advocates are employees rather than independent
contractors for purposes of Utah’s unemployment regulatory
scheme is reasonable. A worker’s status in this regard is
ultimately determined by the ‚substance‛ rather than the ‚form‛
of the relationship between the employer and the alleged
employee. See Utah Admin. Code R994-204-303; see also North
Am. Builders Inc. v. Unemployment Comp. Div., 453 P.2d 142, 145
(Utah 1969) (‚The significant aspect is the relationship between
the alleged employer and employee.‛). Here, the evidence before
the Board supports its conclusion that the ‚substance‛ of the
advocates’ relationship with Needle was that of employee rather
than independent contractor in the context of our carefully
defined and closely regulated state program. While the Board
found, as did the ALJ, that some of the evidence presented
suggested independence—for example, that the advocates do
not perform their work at Needle’s facility and that the
advocates are provided 1099 forms for tax purposes—it did not
find those factors to be critical to the overall analysis of the
employment relationship, particularly given the nature of the
services the advocates provided. Rather, the Board, like the ALJ,
concluded that the evidence, considered as a whole and factor by
factor, most reasonably supported a conclusion that the
advocates were not ‚independently established‛ in a business
that existed ‚apart from *their+ relationship with‛ Needle. See
Utah Admin. Code R994-204-303(1)(a). The Board reasonably
concluded, based on an appropriate interpretation of the
applicable factors, that Needle’s evidence did not establish
20141157-CA 26 2016 UT App 85Needle v. Department of Workforce Services
certain important indicia of an independently established
business—namely, that the advocates substantially invested in
tools of their trade, that they had other clients for whom they
performed similar services, that they could realize a profit or risk
a loss based on costs incurred that were related to an
independently established business, and that they advertised
their services in a way designed to generate business. Weighing
the factors together, the Board concluded that Needle failed to
demonstrate that the advocates were ‚customarily engaged in an
independently established trade‛ at the time they performed
their services for Needle. See id. We decline to disturb the
Board’s conclusion that the advocates were properly categorized
as employees for purposes of unemployment compensation.
CONCLUSION
¶45 Based on the evidence before it, the Board did not
arbitrarily or unreasonably determine that Needle’s advocates
were not ‚independently established‛ in businesses ‚of the same
nature‛ as the services they performed for Needle. See Utah
Code Ann. § 35A-4-204(3) (LexisNexis 2011). Thus, the Board
correctly declined to consider whether the advocates were free
from the ‚direction or control‛ of Needle. Id. Accordingly we
decline to disturb the Board’s decision that Needle’s Utah
advocates are employees rather than independent contractors in
the context of Utah’s unemployment compensation regulatory
scheme.
20141157-CA 27 2016 UT App 85