Uninsured Employer's Fund v. George Barnett

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Moon, Judge Baker and Senior Judge Cole
Argued at Richmond, Virginia
UNINSURED EMPLOYER'S FUND
v. Record No. 2638-95-2
GEORGE BARNETT,
WILLIAM A. HAWTHORNE,
W.A. HAWTHORNE LOGGING, INC.,
UPTON TIMBER, INC. AND
AETNA CASUALTY & SURETY COMPANY MEMORANDUM OPINION *
BY MARVIN F. COLE
WILLIAM A. HAWTHORNE AND JULY 9, 1996
W.A. HAWTHORNE LOGGING, INC.
v. Record No. 2902-95-2
GEORGE BARNETT, UPTON TIMBER, INC.,
AETNA CASUALTY & SURETY COMPANY AND
UNINSURED EMPLOYER'S FUND
FROM THE VIRGINIA WORKERS' COMPENSATION COMMISSION
Christopher D. Eib, Assistant Attorney
General (James S. Gilmore, III, Attorney
General; Richard L. Walton, Jr., Senior
Assistant Attorney General; John J. Beall,
Jr., Senior Assistant Attorney General, on
brief), for Uninsured Employer's Fund.
Ruth Nathanson Carter (Charles F. Midkiff;
Midkiff & Hiner, P.C., on brief), for William
A. Hawthorne and W.A. Hawthorne Logging, Inc.
F. Brawner Greer (John M. Oakey, Jr.;
McGuire, Woods, Battle & Boothe, L.L.P., on
brief), for Upton Timber, Inc. and Aetna
Casualty & Surety Company.
B. Mayes Marks, Jr. (B. Mayes Marks, Jr.,
P.C., on brief), for George Barnett.
*
Pursuant to Code § 17-116.010 this opinion is not
designated for publication.
The Uninsured Employer's Fund ("the Fund"), William A.
Hawthorne ("Hawthorne") and W.A. Hawthorne Logging, Inc.
("Hawthorne Logging") appeal a decision of the Workers'
Compensation Commission awarding compensation to George Barnett
("Barnett"). The Fund contends that the commission erred in
finding that Upton Timber, Inc. ("Upton") was not Barnett's
statutory employer on the ground that Upton was not in the same
trade, business, or occupation as Hawthorne and Hawthorne
Logging. (Record No. 2638-95-2). Hawthorne and Hawthorne
Logging contend that the commission erred in ruling that (1)
Barnett was their employee; and (2) Upton was not Barnett's
statutory employer. Hawthorne also contends that the commission
erred in entering the award against him. (Record No. 2902-95-2).
For the reasons set forth herein, we affirm the commission's
decision as to all issues raised by the parties, except we vacate
the award entered against Hawthorne and W.A. Hawthorne Logging,
Inc. and remand for the commission to determine whether the award
should be given against William A. Hawthorne as an individual or
W.A. Hawthorne Logging, Inc., a corporation.
Facts
On May 13, 1994, Hawthorne, Barnett and Barnett's co-workers
were cutting timber. Hawthorne was operating the skidder.
Barnett sustained multiple injuries when he was struck by a tree
limb. Hawthorne believed that the tree that hit Barnett was
charcoal wood.
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At the time of the accident, Barnett had worked for
Hawthorne Logging for approximately one year. He worked five
days per week, eight and one-half hours per day, averaging $250
per week. Barnett stated that Hawthorne paid him every Friday in
cash. He was paid $50 for each load of timber hauled. At 6:30
a.m. every day, Barnett, along with his co-workers, arrived at
Hawthorne's home and rode together in Hawthorne's truck to the
work site. Hawthorne provided the trucks, saws, and equipment
and acted as Barnett's boss, having the power to fire him.
On February 25, 1994, Barnett and his co-workers, Steve
Matthews and James Taylor, signed a document acknowledging that
they were independent contractors and working under contract with
W.A. Hawthorne Logging, Inc., a Virginia corporation. Hawthorne
Logging agreed to pay them for each load of wood they hauled.
According to the testimony of Barnett, he could not read the
document and no one read or explained it to him before he signed
it. He further testified that Hawthorne told him to sign the
document for tax purposes and never mentioned the words
"independent contractor." 1
After Barnett signed the February 25, 1994 document, the
work and conditions of the job he performed did not change.
Barnett still worked the same days and hours, used the same
transportation and equipment, was paid in the same manner, and
1
On February 18, 1994, Barnett also signed a document
containing the hand-written words, "We the undersigned are
working for ourselves."
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was still subject to being fired by Hawthorne.
Matthews testified that in February 1994, he, Barnett, and
Taylor all agreed to work for Hawthorne as independent
contractors rather than employees. He confirmed that Hawthorne
paid them each Friday, by the load, and they divided the money.
Matthews also stated that the manner in which he and the other
workers performed work for Hawthorne and got paid by Hawthorne
did not change after they signed the February 25, 1994 document.
The only difference was that they received one check, which was
cashed and divided among the men, rather than each of them
receiving an individual check.
Taylor testified that before February 25, 1994, he worked as
Hawthorne's employee and, after that date, he worked as an
independent contractor. He acknowledged that he used Hawthorne's
equipment on the job at all times.
Hawthorne, president of W.A. Hawthorne Logging, Inc.,
testified that his corporation is in the business of cutting and
hauling timber and selling charcoal wood and pulp wood.
Hawthorne contended that he explained the February 25, 1994
document to Barnett before Barnett signed it. Hawthorne stated
that he told Barnett that, as of that date, he and the other
workers were no longer employees, because Hawthorne could not
afford to pay for workers' compensation insurance, and they would
work as independent contractors. Hawthorne testified that after
February 25, 1994, he paid the workers $50 or $60 per load,
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depending upon who hauled the load. After February 25, 1994,
Hawthorne gave one check to Matthews or Taylor, which they
signed. Hawthorne would then cash the check and give the money
to the workers to divide up. After February 25, 1994,
Hawthorne's accountants reported Barnett's wages on a 1099 form.
Hawthorne admitted that he appeared on the work site almost
every day to check on the workers. He also admitted that he told
them what to do and corrected their mistakes. Hawthorne used and
insured the same trucks and equipment both before and after
Barnett, Matthews, and Taylor signed the February 25, 1994
document. Hawthorne paid for gas and necessary repairs for the
trucks and equipment used on the jobs performed by Hawthorne
Logging. Hawthorne also admitted that, both before and after the
workers signed the February 25, 1994 document, he was under the
same agreement to pay them $50 or $60 per load. Both before and
after the February 25, 1994 document was signed, Hawthorne
negotiated with Richard Short, owner of Upton, for contracts to
cut timber. Both before and after the February 25, 1994 document
was signed, the workers, including Barnett, worked on job sites
contracted by Hawthorne with Upton, using Hawthorne's vehicles
and equipment. Barnett, Taylor, Matthews, and two others worked
for Hawthorne before the February 25, 1994 document was signed.
On the date of Barnett's accident, Hawthorne had contracted
with Upton to cut timber for Upton on a specific tract of land.
Hawthorne believed he got paid for the charcoal wood he cut and
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hauled that day, and he then in turn paid Upton. The May 17,
1994 receipt covering loads of logs paid for by Upton to
Hawthorne or sold directly as charcoal wood by Hawthorne
reflected that, between May 11, 1994 and May 16, 1994, Hawthorne
sold nine loads of charcoal wood to Imperial Products, which paid
Hawthorne directly. Barnett did not know of the existence of
Upton or its relationship with Hawthorne until his January 1995
deposition.
Richard Short, a one-third owner and employee of Upton,
testified that he purchases standing timber for Upton. Upton's
business consists of purchasing stands of timber and employing
logging companies to cut and haul the logs to mills. In May
1994, Upton employed one secretary and two foresters. Upton did
not employ any workers who cut or hauled timber, nor did Upton
own any equipment to perform such work.
There were several ways Upton generated income as of May
1994. First, it would buy and sell a tract of timber outright.
Second, Upton would enter into a stumpage agreement with a
logging company. Such an agreement required that the logging
company buy the timber from Upton, which the logging company then
cut and sold directly to a mill. Third, Upton would have an
agreement with the logging company for it to cut and haul logs
owned by Upton to a mill for which the mill paid Upton, who then
took a commission and paid the logging company the remainder.
Upton never entered into a written contract with Hawthorne.
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At various times, Upton entered into all three payment
arrangements with Hawthorne. A May 17, 1994 receipt reflected
money paid by Upton to Hawthorne for that week. The May 17, 1994
receipt reflected that, between May 11, 1994 and May 16, 1994,
Hawthorne bought nine loads of wood from Upton, which Hawthorne
hauled to Imperial Products, and one load of wood from Upton,
which Hawthorne hauled to Chesapeake. The mills paid Hawthorne
for these loads, and Hawthorne paid Upton for the logs he had cut
and delivered to these mills. Hawthorne paid Upton for these
loads through deductions from the total amount Upton owed
Hawthorne for that week. Short stated that three receipts, dated
May 13, 1994, each represented a load of charcoal wood hauled by
Hawthorne to Imperial Products on that date, for which Imperial
Products paid Hawthorne, and Hawthorne paid Upton. Based upon
the description of the tree that hit Barnett, Short believed it
was intended for charcoal. Therefore, he believed that the tree
would have been one purchased by Hawthorne from Upton and hauled
and sold by Hawthorne to Imperial Products, who paid Hawthorne.
Upton had no arrangement with Imperial Products at the time of
Barnett's injury.
The deputy commissioner ruled that Barnett was an employee
of Hawthorne and Hawthorne Logging at the time of his May 13,
1994 accident. He did not explain how Barnett could have been
employed by both William A. Hawthorne as an individual and W.A.
Hawthorne Logging, Inc. at the same time to do the same work for
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the same pay. The deputy commissioner found that the February
25, 1994 agreement signed by Barnett was not controlling, where,
in this case, the manner in which Hawthorne controlled the work,
the manner in which the men were paid, and the manner in which
they performed their work did not change after they signed the
agreement. The deputy commissioner also held that Upton was not
Barnett's statutory employer under Code § 65.2-302, finding that
Upton was not in the same trade, business, or occupation as
Hawthorne Logging. He based his decision upon the evidence that
Upton owned no trucks or cutting equipment and did not have any
employees who cut or hauled timber to the mills. The deputy
commissioner entered an award in favor of Barnett and against
Hawthorne and Hawthorne Logging. The full commission affirmed
the deputy commissioner's decision as to all issues.
I. Upton's Status as Statutory Employer
"The test [for determining whether an owner
or contractor is a statutory employer] is not
one of whether the subcontractor's activity
is useful, necessary, or even absolutely
indispensable to the statutory employer's
business, since, after all, this could be
said of practically any repair, construction
or transportation service. The test (except
in cases where the work is obviously a
subcontracted fraction of a main contract) is
whether this indispensable activity is, in
that business, normally carried on through
employees rather than independent
contractors."
Shell Oil Co. v. Leftwich, 212 Va. 715, 722, 187 S.E.2d 162, 167
(1972) (citation omitted). The Shell Oil test has two prongs:
the "normal-work test" and the "subcontracted fraction test."
8
Cinnamon v. International Business Machines Corp., 238 Va. 471,
476, 384 S.E.2d 618, 620 (1989). The facts of this case did not
satisfy either of these tests.
Upton did not have any employees who normally carried out
the type of work which caused Barnett's injury, i.e., the cutting
of standing charcoal wood trees. In fact, Upton never had
employees who cut timber. Upton did not normally cut and haul
timber through its employees. This work, although necessary to
Upton's business, was done by independent contractors, such as
Hawthorne Logging. Therefore, the evidence did not satisfy the
"normal-work test."
Furthermore, because the undisputed facts showed that Upton
was not obligated by a main contract with an owner to complete a
whole project, the "subcontracted fraction test" did not apply.
No contracts existed between Upton and Imperial Products or any
other mill requiring Upton to cut timber and haul it to a
particular mill. Most importantly, at the time of Barnett's
accident, Hawthorne Logging was not performing work for Upton.
Hawthorne Logging bought the charcoal trees from Upton pursuant
to the stumpage agreement, cut them, and hauled them to the mill.
The mill paid Hawthorne Logging directly for the cut wood.
Upton received no money from and had no relationship with these
mills. Selling charcoal trees, such as the one that injured
Barnett, was Hawthorne Logging's business, not Upton's. These
undisputed facts provide credible evidence to support the
9
commission's decision that Upton was not Barnett's statutory
employer.
II. Barnett's Status as Employee or Independent Contractor
"What constitutes an employee is a question of law; but
whether the facts bring a person within the law's designation, is
usually a question of fact." Baker v. Nussman, 152 Va. 293, 298,
147 S.E. 246, 247 (1929). On appellate review, the findings of
fact made by the commission will be upheld when supported by
credible evidence. James v. Capitol Steel Constr. Co., 8 Va.
App. 512, 515, 382 S.E.2d 487, 488 (1989).
Generally, an individual "'is an employee if he works for
wages or a salary and the person who hires him reserves the power
to fire him and the power to exercise control over the work to be
performed. The power of control is the most significant indicium
of the employment relationship.'" Behrensen v. Whitaker, 10 Va.
App. 364, 367, 392 S.E.2d 508, 509-10 (1990) (quoting Richmond
Newspapers, Inc. v. Gill, 224 Va. 92, 98, 294 S.E.2d 840, 843
(1982)). The employer-employee relationship exists if the power
to control includes not only the result to be accomplished, but
also the means and methods by which the result is to be
accomplished. Id. at 367, 392 S.E.2d at 510.
The testimony of Barnett, Hawthorne and the other employees
provides ample credible evidence to support the commission's
finding that, notwithstanding the February 25, 1994 agreement,
Hawthorne Logging retained the right to control not only the
10
result to be accomplished, but also the means and methods by
which the result was accomplished. Hawthorne Logging negotiated
contracts for hauling the cut timber. Hawthorne provided and
maintained the equipment and vehicles, transported the workers,
corrected their mistakes, regulated their hours, worked on the
job sites with them, paid them according to the number of loads
they hauled, and retained the right to fire them. Accordingly,
the commission did not err in ruling that Barnett was an employee
and not an independent contractor.
III. Hawthorne's Liability
Finally, we consider whether the commission erred in
entering the award against both William A. Hawthorne individually
and W.A. Hawthorne Logging, Inc., a Virginia corporation.
Barnett's counsel advised the commission and other parties to the
proceeding by letter dated July 29, 1994, that William A.
Hawthorne was incorporated at the time of Barnett's injury, and
requested that the corporation be added as a party defendant.
This was done as requested.
The parties did not develop the issue of the correct
employer to any great extent before the deputy commissioner. The
deputy commissioner made an award against William A. Hawthorne
and W.A. Hawthorne Logging, Inc. without any finding of facts as
to the actual employer and without explanation. Throughout the
hearing before the deputy commissioner, the employer was referred
to as William A. Hawthorne or W.A. Hawthorne Logging. During
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William A. Hawthorne's testimony, he referred to his actions with
the pronoun "I," making no differentiation between William A.
Hawthorne personally and William A. Hawthorne as president of the
corporation. Because the deputy commissioner and counsel for the
parties made no effort to determine whether Hawthorne and other
witnesses were speaking of Hawthorne as individual owner of
Hawthorne Logging or in his capacity as president of W.A.
Hawthorne Logging, Inc., we are unable to make such a
determination from the record before us. There is credible
evidence in the record to support both positions.
The independent legal existence of a corporation is a basic
principle of corporate law and we cannot ignore this separate
existence except in extraordinary circumstances and then "only
when necessary to promote justice." O'Hazza v. Exceutive Credit
Corp., 246 Va. 111, 115, 431 S.E.2d 318, 320 (1993). "[O]ne who
seeks to [ignore] the corporate entity must show that the
shareholder sought to be held personally liable has controlled or
used the corporation to evade a personal obligation, to
perpetrate fraud or a crime, to commit an injustice, or to gain
an unfair advantage." Id. This requires a factual examination
of the circumstances surrounding the corporation and the acts in
question. Id. at 115, 431 S.E.2d at 321. Accordingly, we remand
this case for the commission to make a factual determination,
hearing additional evidence if necessary, to decide whether the
claimant, George Barnett, was an employee of William A. Hawthorne
12
or W.A. Hawthorne Logging, Inc. on the date of the accident, May
13, 1994, and to enter an appropriate award in accordance with
its finding.
For these reasons, we affirm the commission's decision
except upon the issue whether the award should be entered against
William A. Hawthorne or W.A. Hawthorne Logging, Inc.
Affirmed in part,
vacated and remanded
in part.
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