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TO MISCLASSIFY OR NOT TO?
By Jeffrey D. Snyder, Esquire
The Commonwealth Court’s Decision in Department of Labor and Industry, Uninsured Employers Guaranty Fund v. WCAB(Lin and Eastern Taste), decided on February 17, 2017, involved a questionable case at first impression, as to whether an individual who was remodeling a restaurant, was considered to be a misclassified independent contractor under the Construction Workplace Misclassification Act (Act 72) (CWMA), or was as alleged by the Claimant, an Employee of a restaurant that was undergoing remodeling.
The Commonwealth Court ultimately affirmed the initial Decision of the Workers’ Compensation Judge that the Claimant was not an Employee when injured, and that the CWMA did not apply to the facts of the case, as the Claimant was not working in the “construction industry”, as that term is not accurately defined under the CWMA.
A few facts always help.
The Claimant was injured while he was remodeling the Eastern Taste restaurant, which had yet to open for business.
Following his injury, he filed a Claim Petition against Eastern Taste, as well as later filing a Claim Petition against the Uninsured Employer Guaranty Fund (Fund).
Initially, before the Workers’ Compensation Judge, the Judge bifurcated the employment issue from the medical issues.
Following the bifurcation, the Claimant testified, with testimony being presented by the restaurant Owner, as well as another individual who was also working on remodeling the restaurant.
Based upon the fact testimony heard by the Workers’ Compensation Judge, the Judge found that certain facts were undisputed, to include:
The restaurant was, just a restaurant, and was not in the construction business or industry;
The Claimant had been hired to do remodeling, before the restaurant was even opened;
The most experienced person on the job, in terms of construction experience, was the Claimant;
The restaurant Owner’s husband, presuming the restaurant to be owned by a woman, had been in charge of what needed to be done in the course of the remodeling being undertaken;
The Claimant was paid on a per diem basis, as were three other individuals also involved in the remodeling; and,
The Claimant used his own tools, and his own van, with the restaurant Owner’s husband also having his own tools and materials.
Based upon the witness testimony that the WCJ heard, the WCJ determined that:
The Claimant was not an Employee of the restaurant;
The Claimant’s work was not in the regular course of the restaurant’s business;
The Claimant’s employment was casual in nature;
That the Claimant failed to sustain his burden of proving that he was an Employee of the restaurant; and,
That the Claimant was not considered to be an Employee under the CWMA, as the WCJ reasoned that the CWMA did not apply to the restaurant, as it was not in the construction industry.
Based upon the above conclusions, the WCJ denied the Claimant’s Claim Petitions, both against the restaurant, as well as against the Fund.
The Claimant appealed to the Appeal Board, which then issued an Opinion concluding that the Claimant was an Employee of the restaurant, and that the Claimant’s employment was not casual in nature.
Reversing the WCJ’s Decision, the Appeal Board remanded the case back to the WCJ for Findings and Conclusions that would support an Award of compensation.
In a not so subtle genuflection to the remand, the WCJ granted the Claimant’s Claim Petition, resulting in benefits being awarded to the Claimant.
The Fund then appealed to the Appeal Board, requesting that the Board’s Opinion be made final, for purpose of appealing to the Commonwealth Court. So holding, the case ascended to the Commonwealth Court under the Fund’s Appeal.
Before the Commonwealth Court, the Fund argued that the Board had engaged in impermissible fact-finding, an argument that resonated with the Commonwealth Court, which rebuked the Appeal Board’s conclusion that all of the Claimant’s construction experience had been in the role of an Employee, and that the Claimant had not been engaged in his own construction business, notwithstanding that, before the Workers’ Compensation Judge, there had been no evidence that the Claimant had established a business in which he held a proprietary interest.
Finding that the WCJ’s Findings and Conclusions that the Claimant was hired to do remodeling was supported by substantial evidence, the Commonwealth Court held that those Findings and Conclusions were binding on the Board and that the Board had erred by disregarding the Judge’s findings, thereby substituting its own findings that the Claimant was not hired to do anything specific from which it then inferred, erroneously, that the Claimant was working as a general laborer.
Following that the Board exceeded its authority by making its own findings, beyond those made by the WCJ, the Commonwealth Court did hold that the Board had engaged in impermissible fact-finding, relying on its own facts, to support its conclusion that the Claimant was an Employee, an erroneous conclusion in the opinion of the Commonwealth Court.
Concluding that the WCJ’s original findings were supported by substantial competent evidence and reasonable inferences deduced from substantial evidence, the Commonwealth Court held that the determination as to the existence of an Employer/Employee relationship is a question of law, and that the Court’s scope of review was plenary and the standard review isde novo.
Holding that Section 104 of the WC Act defines an Employee to be “synonymous with servant, and includes all natural persons who perform services for another for a valuable consideration, exclusive of… persons whose employment is casual in character and not in the regular course of the business of the Employer…” the Court noted that there is nobright line rule for determining whether a particular relationship is that of an Employer/Employee or Owner/Independent Contractor, although the Supreme Court inUniversal Am-Cam, Ltd. v. WCAB (Minteer), 762 A.2d 382 (Pa. 2000) had established several factors that have to be considered when making such a determination:
Control of manner of work is to be done;
Responsibility of result only;
Terms of agreement between the Parties;
The nature of the work or occupation;
Skilled required for performance;
Whether one is engaged in a distinct occupation of business;
Which Party supplied the tools;
Whether payment is by the time or by the job; and,
Whether work is part of the regular business of the Employer, and also the right to terminate the employment at any time.
The controlling takeaway from those factors is that “control over the work to be completed in the manner in which it is to be performed are the primary factors in determining Employee status,” and “…it is the existence of the right to control that is significant, irrespective of whether the control is actually exercised.”
Since the WCJ had originally found that the relationship between the Claimant and the restaurant was similar to that of the relationship between a Property Owner and Painters, Plumbers, Electricians, Carpenters, and other remodelers, it was reasonable for the Workers’ Compensation Judge to conclude that the restaurant Owner’s husband did not control the manner in which work was being completed and performed by the Claimant, as the restaurant Owner’s husband did not reserve control over the means of performing the contract, merely reserving control as to the result of the remodel.
The Commonwealth Court also considered that the Claimant had been hired to perform remodeling, with no expectation of working in the restaurant after the remodeling.
Keeping in mind that the Claimant bore the burden of proving an Employer/Employee relationship, and that all evidence has to be viewed in the light most favorable to the prevailing Party, the Commonwealth Court, in an Opinion authored by Judge Hearthway, held that the WCJ’s conclusion that the Claimant was not an Employee was reasonable, and that it could not, therefore, be construed to be in error as a matter of law.
Not finished, the Commonwealth Court also held, this being the issue of first impression, that the CWMA concerns the construction industry, effecting the determinations of whether someone is an independent contractor versus an Employee under the WC Act. Having already determined that the Claimant was not an Employee of the restaurant, the Commonwealth Court noted that an individual who performed services in the construction industry for remuneration will be deemed to be an independent contractor for purposes of workers’ compensation, with the converse being, that if a worker falls within the purview of the CWMA, and does not meet the requirements to be considered to be an independent contractor, then that individual is deemed to be an Employee for purpose of workers’ compensation.
Finding that the CWMA was not applicable, as the Workers’ Compensation Judge had concluded, the Commonwealth Court held that the restaurant was in the restaurant business and not in the construction business, and that the CWMA did not, therefore, apply to the facts of this case.
The dispositive question for determining whether one falls within the purview of the CWMA is whether the individual performed services for remuneration “in the construction industry,” a question that the Commonwealth Court held was one of first impression. Although the CWMA defines the term “construction,” it does not define the term “industry,” requiring the Commonwealth Court to construe that term according to its common and approved usage in accordance with the Statutory Construction Act of 1972, with “industry” being commonly defined as “skilled employment involving skill” and “a department or branch of a craft, art, business or manufacturer.”
Further noting that the CWMA was intended to limit those who would be deemed to be independent contractors, as opposed to Employees, it was intended to address concerns that Employers were, shockingly, misclassifying workers as independent contractors, rather than Employees, in order to avoid the payment of unemployment taxes, workers’ compensation premiums, and payroll.
The Court also noted that to apply the CWMA to any remodeling project would have the effect of potentially turning every individual that took on a remodeling project into becoming an Employer “in the construction industry,” significantly expanding the scope of what the Commonwealth Court interpreted the purpose of the CWMA to be.
This one is kind of a head-scratcher, as there are many Workers’ Compensation Judges who probably would have found the Claimant to be an Employee, simply to plug the hole in the dyke with insurance, whether against the restaurant or, alternatively, against the Fund.
Presumably, the restaurant had workers’ compensation insurance for its operations as a restaurant, employing restaurant workers in whatever capacities it would have required to continue operations as a restaurant.
Here, the restaurant was not actually open, and was not in operation, and was not, therefore, actually acting as a restaurant, although it would have done so after the remodeling project was complete.
Left unanswered by the Court’s Decision is the status of the Claimant, and the three other individuals who are doing the remodeling work, as there is no reference in the Opinion that they were working for a company, or a business, nor is it entirely clear how those individuals became associated with the remodeling project.
There is also no reference in the Opinion to any discussion, at any of the levels that this case ascended through, from a WCJ through Appeal Board to the Commonwealth Court, as to whether there was a contract in place for the work that was being performed for the remodeling project, as contracts usually require evidence of insurance, if even limited to general liability insurance for any work being performed by the remodelers, including the Claimant.
Post-injury, everyone scrambled for cover.
Better to make sure that contracts are in place, and that insurance is incorporated into the contracts, for the protection of all involved, both in terms of general liability insurance and workers’ compensation insurance.
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