Case Title: WYOMING DEPARTMENT OF EMPLOYMENT, UNEMPLOYMENT INSURANCE COMMISSION v. JOLLEY, COSTILLO, DRENNON ltd., d/b/a SIERRA ENGINEERING

Citation: 2010 WY 48, 229 P.3d 955

Docket Number: 458385

State: wyoming

Court: Wyoming Supreme Court

Date: 2010-04-22T00:00:00Z

Document:
WYOMING DEPARTMENT OF EMPLOYMENT, UNEMPLOYMENT INSURANCE COMMISSION  v. JOLLEY, COSTILLO, DRENNON ltd., d/b/a SIERRA ENGINEERING2010 WY 48229 P.3d 955Decided: 04/22/2010
APRIL 
TERM, A.D. 2010

 
 
WYOMING 
DEPARTMENT OF EMPLOYMENT, UNEMPLOYMENT INSURANCE 
COMMISSION,Appellant(Respondent),v.JOLLEY, CASTILLO, 
DRENNON, LTD., d/b/a SIERRA 
ENGINEERING,Appellee(Petitioner).

 
 
Appeal 
from the District Court of Natrona County

The 
Honorable David B. Park, Judge

 
 

Representing 
Appellant:

Bruce 
A. Salzburg, Wyoming Attorney General; Matthew J. Fermelia, Senior Assistant 
Attorney General; William L. Weaver, Senior Assistant Attorney General.  Argument by Mr. 
Weaver.

 
 

Representing 
Appellee:

Stephenson 
D. Emery of Williams, Porter, Day & Neville, P.C., Casper, 
Wyoming.

 
 
Before 
VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, 
JJ.

 
 

VOIGT, 
Chief Justice.

 
 
[¶1]      The Wyoming 
Department of Employment, Unemployment Insurance Commission (Commission) appeals 
the district court's reversal of the Commission's decision, which decision found 
that Jolley, Castillo, Drennon, Ltd., d/b/a Sierra Engineering (Sierra) had 
payroll for services performed by employees subjecting it to unemployment tax 
under the Wyoming Employment Security Law (WESL), found at Wyo. Stat. Ann. § 
27-3-101 (LexisNexis 2009), et. seq.  Finding that substantial evidence exists 
in the record to support the Commission's decision, we will reverse the district 
court's decision and affirm the Commission's decision. 

 
 
ISSUE

 
 
[¶2]      Is there 
substantial evidence in the record to support the Commission's decision that 
Sierra had payroll for services performed by employees covered by the WESL 
during calendar years 2004 through 2006?

 
 
FACTS

 
 
[¶3]      Sierra is a 
limited partnership which contracts with clients seeking to design, drill, and 
complete oil and gas wells in Wyoming and elsewhere.  Sierra separately contracts with its 
consultants to do the work requested by its clients and then links the 
consultants with its clients to perform the requested services.  In August of 2006, the Employer Services 
section of the Wyoming Department of Employment, Unemployment Tax Division (UI 
Tax Division) received a Joint Business Registration form from Sierra.1  Based on information provided in the 
form, the UI Tax Division notified Sierra that it had determined that Sierra had 
payroll for services performed in Wyoming by employees covered by the WESL and 
was therefore required to pay unemployment tax.2  Sierra appealed that determination and 
the Wyoming Department of Employment, Unemployment Insurance Division scheduled 
a contested case hearing for the matter.  
The issue to be determined at the hearing was "[w]hether [Sierra] [was] 
liable to pay quarterly unemployment insurance taxes to the [UI Tax Division] in 
reference to certain persons performing services for [Sierra]."  The resolution of the issue turned on 
whether the consultants were independent contractors as set forth in Wyo. Stat. 
Ann. 27-3-104(b) (LexisNexis 2009)3 or whether the consultants were 
Sierra's employees, which would subject Sierra to the WESL.  Following the hearing, the hearing 
officer issued a decision concluding that Sierra did not carry its burden to 
prove that the consultants were independent contractors under Wyo. Stat. Ann. § 
27-3-104, thus, Sierra was subject to the WESL.  Sierra appealed that decision to the 
Commission.

 
 
[¶4]      On appeal, the 
Commission determined that some of Sierra's consultants conducted business with 
Sierra under separately formed entities while others conducted business as 
individuals.  Consequently, the 
Commission determined that the case needed to be remanded in order for the 
hearing officer "to review the actual contracts the employer had with 
consultants who are individuals."  
Furthermore, the Commission instructed the hearing officer to "take 
additional evidence and testimony relative to the subpoenaed contracts and 
payment records as to whether the services performed under each contract qualify 
as employment pursuant to the applicable sections of [WESL]."  On remand, the hearing officer reviewed 
the contracts and payroll records relating to Sierra's consultants as instructed 
by the Commission.  It is important 
to note that the hearing officer determined that an audit of Sierra's employment 
records had been performed by the UI Tax Division, which will be discussed more 
below.4  The hearing officer's decision grouped 
Sierra's consultants that were paid for services by Sierra, between the years 
2004 and 2006, into three general categories and then made individual findings 
of fact and conclusions of liability in respect to each individual 
consultant.  The three categories 
were:  (1) consultants that 
conducted business as a separate business entity; (2) consultants that conducted 
business as individuals but the record did not contain a written contract for 
services with Sierra; (3) consultants that conducted business as individuals and 
the record contained a written contract for services with Sierra.  The hearing officer also made separate 
findings in respect to numerous other individual consultants.  The hearing officer determined that 
wages paid to consultants in the first category, those that conducted business 
as a separate business entity, were not subject to the unemployment insurance 
tax because they are not "individuals"  as defined by Wyo. Stat. Ann. § 
27-3-104.  Regarding the second 
category of consultants, the hearing officer determined that Sierra failed to 
meet its burden of proving that they were independent contractors, in part, 
because none of the consultants had written contracts with Sierra.  Moreover, the only evidence supporting 
Sierra's contention that these consultants were independent contractors was 
affidavits submitted by the consultants, essentially attesting that they were 
independent contractors, which the hearing officer deemed to be "not probative, 
trustworthy, or credible."  Finally, 
in respect to the third category of consultants, the hearing officer determined 
that they "were not free from direction or control, did not represent themselves 
to the public as self-employed individuals, and could not substitute another 
individual to perform their services."  
Sierra appealed the hearing officer's decision to the 
Commission.

 
 
[¶5]      After its review, 
the Commission concluded as follows:

 
 
Contrary 
to the hearing officer's decision, we find that [the] UI Tax [Division] did not 
conduct an audit of Sierra's payments to consultants for the calendar years 2004 
through 2006.  In view of the fact 
that no audit has been made in this matter, we conclude that it is beyond the 
scope of this appeal for the Commission to make findings of fact and conclusions 
relative to specific consultants and the amount of remuneration they received 
from Sierra as a result of services performed by those consultants in Wyoming 
beginning January 1, 2004.

 
 
The 
Commission determined inter alia that 
Sierra did not direct and control every detail of the services performed by 
consultants, but Sierra did control at least some significant details; Sierra 
failed to prove by a preponderance of the evidence that all of its consultants 
represented themselves as independent contractors; and Sierra's consultants 
could substitute another individual to perform their services with the consent 
of Sierra and/or Sierra's client.  
The Commission further found that evidence in the record relating to 
eight specific consultants "fail[ed] to support Sierra's contention that all of 
its consultants are independent contractors."  Accordingly, the Commission concluded 
that "Sierra had payroll for services performed in Wyoming by employees covered 
by [the WESL] during calendar years 2004 through 2006."  Sierra appealed the Commission's 
decision to the district court.  

 
 
[¶6]      On appeal, the 
district court reversed the Commission's and hearing officer's decisions on the 
ground that "Sierra presented, at a minimum, a prima facie case. . . .  It is at this point that the burden of 
production shifted to the Division to rebut Sierra's contentions.  Bando v. Clure Bros. Furniture, 980 P.2d 323, 330 (Wyo. 1999).  The Division 
did not carry its burden."  This 
appeal by the Commission timely followed.5  

 
 
STANDARD 
OF REVIEW

            

[¶7]                              
When considering an appeal from a district court's review of an 
administrative agency's action, we give "no special deference to the district 
court's decision," but instead review the case as if it had come directly from 
the administrative agency.  Dale 
v. S & S Builders, LLC, 
2008 WY 84, ¶ 8, 188 P.3d 554, 557 (Wyo. 2008).  Our review of an administrative agency's 
action is governed by the Wyoming Administrative Procedure Act, which provides 
in pertinent part that the reviewing court shall:

 
 

(i)        
Compel 
agency action unlawfully withheld or unreasonably delayed; 
and

 
 
(ii)     Hold unlawful and set 
aside agency action, findings and conclusions found to 
be:

 
 
(A)   Arbitrary, 
capricious, an abuse of discretion or otherwise not in accordance with 
law;

 
 
(B)   Contrary 
to constitutional right, power, privilege or 
immunity;

 
 
(C)   In 
excess of statutory jurisdiction, authority or limitations or lacking statutory 
right;

 
 
(D)   Without 
observance of procedure required by law; or

 
 
(E)   Unsupported 
by substantial evidence in a case reviewed on the record of an agency hearing 
provided by statute.

 
 
Wyo. 
Stat. Ann. § 16-3-114(c) (LexisNexis 2009). . . .  Questions of law are reviewed de novo. 
 Sheth v. State ex rel. Wyo. 
Workers' Comp. Div., 11 P.3d 375, 378-79 (Wyo. 2000).  "Conclusions of law made by an 
administrative agency are affirmed only if they are in accord with the law. We 
do not afford any deference to the agency's determination, and we will correct 
any error made by the agency in either interpreting or applying the law."  Bailey v. State ex rel. Wyo. Workers' 
Safety & Comp. Div., 
2002 WY 145, ¶ 9, 55 P.3d 23, 26 (Wyo. 2002) (internal citations omitted) 
(quoting State ex rel. Workers' Safety & Comp. Div. v. Garl, 2001 WY 59, ¶ 9, 26 P.3d 1029, 1032 
(Wyo. 2001)).

 
 
With 
regard to factual questions, we recently reiterated in Dale v. S & S 
Builders how the substantial evidence standard of review should be 
applied:

 
 
Because 
contested case hearings under Wyoming's Administrative Procedures Act, are 
formal, trial-type proceedings, use of the substantial evidence standard for 
review of evidentiary matters is more in keeping with the original intent of the 
drafters of the administrative procedures 
act.

 
 
Thus, 
in the interests of simplifying the process of identifying the correct standard 
of review and bringing our approach closer to the original use of the two 
standards, we hold that henceforth the substantial evidence standard will be 
applied any time we review an evidentiary ruling. When the burdened party 
prevailed before the agency, we will determine if substantial evidence exists to 
support the finding for that party by considering whether there is relevant 
evidence in the entire record which a reasonable mind might accept in support of 
the agency's conclusions.  If the 
hearing examiner determines that the burdened party failed to meet his burden of 
proof, we will decide whether there is substantial evidence to support the 
agency's decision to reject the evidence offered by the burdened party by 
considering whether that conclusion was contrary to the overwhelming weight of 
the evidence in the record as a whole.

Dale, 2008 WY 84, ¶¶ 21-22, 188 P.3d  
at 561 (internal citations omitted).

 
 

In 
re Worker's Comp. Claim of Kaczmarek, 2009 
WY 110, ¶¶ 7-8, 215 P.3d 277, 280-81 (Wyo. 2009).

 
 
DISCUSSION

 
 
[¶8]      As noted above, 
on appeal to the Commission, the Commission limited the scope of its review to 
determining whether there was substantial evidence in the record to support the 
hearing officer's general conclusion that Sierra was subject to the WESL, 
because it paid wages for services performed in Wyoming from 2004 through 
2006.  The Commission did not make 
specific findings and conclusions of tax liability in relation to each 
individual consultant, because an audit of Sierra's employment records has yet 
to be completed by the UI Tax Division, wherein specific liability will be 
determined.  See supra ¶ 5.  We agree with the Commission in this 
respect and note that our review is limited in the same manner. 

 
 
[¶9]      We begin with a 
brief overview of the relevant statutes.  
Wyo. Stat. Ann. § 27-3-502(a) (LexisNexis 2009) provides that "Upon its 
own motion or application of an employing unit and after notice and opportunity 
for hearing, the department may determine if an employing unit is an employer 
and if services performed . . . qualify as employment."  An "employing unit" is defined as "any 
individual or type of organization employing one (1) or more individuals in this 
state . . . ."  Wyo. Stat. Ann. § 
27-3-102(a)(vii) (LexisNexis 2009).  
An "employer" is defined as, inter 
alia, "any employing unit . . . [f]or whom a worker performs service as an 
employee[.]"  Wyo. Stat. Ann. § 
27-3-103(a)(i) (LexisNexis 2009).  Most important to this appeal is Wyo. 
Stat. Ann. § 27-3-104(b), which states in pertinent part as 
follows:

 
 
(b)    An individual who performs 
service for wages is an employee for purposes of this act unless it is shown 
that the individual:

 
 
(i)      Is free from 
control or direction over the details of the performance of services by contract 
and by fact;

 
 
                                    
. . . .

 
 
(v)     Represents his services 
to the public as a self-employed individual or an independent contractor; 
and

 
 
(vi)    May substitute another 
individual to perform his services.

 
 
Finally, 
"wage" is defined as "remuneration payable for services from any source 
including commissions, bonuses and cash."  
Wyo. Stat. Ann. § 27-3-102(a)(xviii) (LexisNexis 2009). 

 
 
[¶10]   The Commission's decision 
incorporated many findings of fact made by the hearing officer and set forth 
dozens of its own, relating to many of the consultants in order to show that 
they were employees, and not independent contractors, because they did not meet 
the three prongs of the independent contractor test set forth in Wyo. Stat. Ann. 
§ 27-3-104(b).  We find it 
unnecessary to address all of these findings because there are at least eight 
consultants who were undisputedly paid wages by Sierra for services performed in 
Wyoming between the years 2004 through 2006 and for whom there exists no 
evidence in the record to support a finding that they were independent 
contractors.  We recognize that, in 
litigating this issue, Sierra apparently treated its consultants as a "class" of 
workers rather than as individuals.  
Consequently, at oral arguments before this Court, Sierra asserted that 
it was sufficient to present evidence of the three-pronged independent 
contractor test in relation to the consultants as a "class" and that the burden 
then shifted to the Commission to present contrary evidence in respect to 
individual consultants that the Commission claimed were not independent 
contractors.  However, Wyo. Stat. 
Ann. § 27-3-104(b) states that any "individual who performs service for 
wages is an employee . . . unless it is shown that the individual" meets the three-pronged 
test.  (Emphasis added.)  By the plain language of the statute, it 
is the employer's burden to prove that each individual consultant meets the elements 
of Wyo. Stat. Ann. § 27-3-104(b).  
Wyo. Stat. Ann. § 27-3-104(b); see 
also DC Prod. Serv. v. Wyo. Dep't of Employment, 2002 WY 142, ¶ 9, 54 P.3d 768, 772 (Wyo. 2002); Hat Six Homes, Inc. 
v. State, Dep't of Employment, Unemployment Ins. Comm'n, 6 P.3d 1287, 1292 
(Wyo. 2000).  The Commission 
determined that the evidence Sierra provided for at least eight consultants 
"fail[ed] to support Sierra's contention that all of its consultants are 
independent contractors."  Our 
review of the record confirms the Commission's determination.  The only evidence in the record 
regarding these eight consultants are documents indicating how much each 
consultant was paid by Sierra and when those payments were made.  Essentially these documents prove that 
these eight consultants were paid remuneration during calendar years 2004 
through 2006, but do nothing to prove Sierra's contention that they were 
independent contractors.  
Substantial evidence exists in the record to support the Commission's 
decision that Sierra is subject to the WESL.

 
 
CONCLUSION

 
 
[¶11]   We find that the Commission's 
decision that Sierra had payroll for services paid in Wyoming during the years 
2004 through 2006 is supported by substantial evidence in the record and that 
Sierra failed to meet its burden of proving that all of its consultants were 
independent contractors.  As noted, 
an audit remains to be performed by the UI Tax Division to determine precisely 
which consultant's were in fact "employees" under the WESL and the amount of 
unemployment taxes Sierra owes for those "employees."  Having found that there is substantial 
evidence in the record to support the Commission's decision, we will reverse the 
district court's decision, affirm the Commission's decision, and remand the case 
to the district court for further remand to the Commission for further 
proceedings consistent with this opinion. 

 
 
FOOTNOTES

 
 

1Sierra completed a Joint Business Registration form in order to obtain a 
Certificate of Good Standing from the Unemployment Insurance Tax 
Division.

 
 

2The purpose of the WESL "is to lighten the economic load created by involuntary unemployment . . ." by ". . 
. creating unemployment reserve accounts to be used for the benefit of persons 
unemployed through no fault of their 
own."  Casper Iron & Metal, Inc. v. 
Unemployment Ins. Comm'n of Dep't of Employment, 845 P.2d 387, 393-94 (Wyo. 
1993) (emphasis in original).  

 
 

3Wyo. Stat. Ann. 27-3-104(b) provides: 

(b)    An individual who performs 
service for wages is an employee for purposes of this act unless it is shown 
that the individual:

(i)      Is free from 
control or direction over the details of the performance of services by contract 
and by fact;

. 
. . .

(v)     Represents his services 
to the public as a self-employed individual or an independent contractor; 
and

(vi)     May substitute another 
individual to perform his services.

 
 

4Audits of an employer's records are conducted to verify an employer's 
compliance with the WESL.  

 
 
Any unreported payments made to an individual, as found in an audit of an 
employing unit's records, shall be presumed to be unreported "wages" unless 
documentation is provided by the employing unit that the individual meets the 
statutory requirements of W.S. 27-3-104(b) as an independent contractor/self 
employed individual.  The burden is 
upon the employing unit to provide such documentation.  

 
 
Dep't of Employment Unemployment Tax Division/Unemployment Ins. Comm'n 
Rules and Regulations, Ch. 11, Sec. 2(a), (b) 
(2010).

 
 

5Wyo. Stat. Ann. § 27-3-506(d) (LexisNexis 2009) provides that a denial or 
redetermination of contribution liability, contribution rates or the charging of 
benefit payments by the Commission "is final unless within thirty (30) days 
after notice is mailed a petition for judicial review is filed in accordance 
with W.S. 27-3-407."