Title: Potter v. Hawaii Newspaper Agency

State: hawaii

Issuer: Hawaii Supreme Court

Document:

974 P.2d 51 (1999) 89 Hawai`i 411 Shawn POTTER, Claimant-Appellant, v. HAWAII NEWSPAPER AGENCY, Employer-Appellee, Self-Insured, and Travelers Insurance Company, Insurance Adjuster-Appellee. No. 21261 Supreme Court of Hawai`i. February 19, 1999. *53 Roy K.S. Chang and Harvey M. Demetrakopoulos (of Shim & Chang) on the briefs, for the claimant-appellant Shawn Potter. James N. Duca and Robert C. Kessner (of Kessner Duca Umebayashi Bain & Matsunaga), on the briefs for the employer-appellee Hawaii Newspaper Agency and Travelers Insurance Company. Before MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA, and RAMIL, JJ. Opinion of the Court by LEVINSON, J. This case arises from an accident that occurred when the fourteen-year-old claimant-appellant, Shawn Potter, was struck by an automobile while he was riding a moped. Potter was a "newspaper dealer" for the employer-appellee Hawaii Newspaper Agency (the HNA) at the time, pursuant to an "independent contractor agreement." The moped was owned by an HNA employee, Shawn Toyozaki, who was Potter's district manager. Potter subsequently filed a civil lawsuit against the driver of the automobile, Toyozaki, and the HNA. Six months after the lawsuit was filed, the HNA filed a "WC-1 Employer's Report of Industrial Injury" with the Department of Labor and Industrial Relations, alleging that Potter was an HNA employee and "claimant" for workers' compensation benefits. When Potter's parents notified the Director of the Department of Labor and Industrial Relations (the Director) that they did not wish to pursue the claim, the Director denied it, as well as the HNA's subsequent request for reconsideration. The HNA then appealed the Director's decision to the Labor and Industrial Relations Appeals Board (LIRAB), which ruled that Potter was an HNA employee for purposes of Hawai`i Revised Statutes (HRS) ch. 386 (the Workers' Compensation Law). Potter filed an application to reopen the case and/or motion for clarification, alleging that the LIRAB lacked jurisdiction to hear the *54 appeal. When the LIRAB denied Potter's application, the present appeal ensued. On appeal, Potter argues that the LIRAB: (1) lacked jurisdiction to hear the appeal because (a) no lawful claim for benefits was ever made, inasmuch as HNA was not authorized to file a claim on Potter's behalf, and (b) only an aggrieved party can appeal a decision of the Director, and the HNA was not aggrieved, inasmuch as it was not ordered to pay benefits to Potter; (2) erred as a matter of law when it concluded that (a) Potter was a "claimant" seeking workers' compensation benefits, (b) Potter was an "employee" of the HNA on the date of his injury, (c) the work arrangement between Potter and the HNA constituted a "contract for hire," (d) the "control test" must be applied to determine whether an employer-employee relationship existed, even if the injured worker has not sought workers' compensation benefits, (e) any contract for hire that might have existed between Potter and the HNA was void or voidable, inasmuch as (i) Potter was a minor, and/or (ii) contracts to perform illegal acts are void as a matter of public policy; (3) erred as a matter of law when it issued its order vacating the decision of the Director; and (4) erred as a matter of law when it denied Potter's application to reopen and motion for clarification. Because no lawful claim for benefits was made, we hold that the Director lacked the statutory authority to act in this matter and that the LIRAB had no jurisdiction to hear the HNA's appeal. Accordingly, we reverse the LIRAB's order. On November 21, 1992, at approximately 10:20 p.m., Potter was operating a moped on Winam Avenue, in the City and County of Honolulu, when he was struck by an automobile that ran a stop sign at the Herbert Street intersection. He was fourteen years old at the time of the accident. As a result of the accident, Potter suffered severe head injuries, a ruptured spleen, and a fractured femur. Upon his discharge from the Rehabilitation Hospital of the Pacific in May 1993, Potter was confined to a wheelchair and required assistance with activities of daily living. Potter has claimed that he incurred medical expenses exceeding $307,000.00. The moped Potter was riding when the accident occurred belonged to Toyozaki, who was one of the HNA's district managers. Potter was a "newspaper dealer" in Toyozaki's assigned district. In order to become a dealer for the HNA, Potter and his parents had executed a "Statement of Intention," which recited that Potter would "operate [his] own retail distribution and delivery business as an independent contractor." The HNA's relationships with its newspaper dealers were governed by the terms of the "Newspaper Dealers Agreement," which provided, inter alia, that: As "independent contractors," HNA's newspaper dealers did not receive any employee benefits. The dealers did not receive an hourly wage, but, rather, purchased newspapers at wholesale from the HNA, which they resold to their customers at a profit. The HNA did not take responsibility for withholding income tax or Social Security payments on the dealers' behalf. Notwithstanding the HNA's averments that its dealers had "sole control" over the equipment that they used to deliver their newspapers, Toyozaki owned several mopeds that he made available to the dealers working within his district. When the dealers were loaned the mopeds to use when making their deliveries, they were also permitted to take them home and use them at other times as well. Toyozaki was aware that Potter and some of his other dealers were not old enough to operate the mopeds legally and that they possessed no licenses to drive them. As explained by another carrier: (Some ellipsis points added and some in original.) On the day of his accident, Potter used one of Toyozaki's mopeds to do his home deliveries. Afterward, he met with Toyozaki and some other newspaper carriers for dinner. Potter left Toyozaki's home with another carrier in order to get the muffler on one of the mopeds fixed. Unable to find the friend who was to do the repair, the boys proceeded to the home of another friend and socialized until shortly after 10:00 p.m. They were en route to Toyozaki's home when the accident occurred. Toyozaki arrived at the scene shortly after the accident. The next morning, Toyozaki reported the accident to Bert Murao, his immediate supervisor at the HNA. However, the HNA did not file a report of the accident with the Director at that time. On March 24, 1993, Potter filed a tort action against the HNA, Toyozaki, the driver of the automobile that struck him, and the driver's parents. Seven months later, on October 29, 1993, the HNA filed a "WC-1 Employer's Report of Industrial Injury" with the Director. In its report, the HNA claimed that Potter was an "employee" of the HNA and a "claimant" for workers' compensation benefits. Potter's parents informed the Director that they did not authorize or consent to the filing of a workers' compensation claim on their son's behalf, that they did not wish to pursue a claim for workers' compensation benefits on his behalf, and that they withdrew the claim for benefits filed by the HNA and requested that the case be closed. Accordingly, on November 24, 1993, the Director denied the "claim." Thereafter, the HNA filed a request for reconsideration of the Director's decision and/or, in the alternative, a notice of appeal. When the request for reconsideration was denied, the appeal was forwarded to the LIRAB. In his pretrial statement, Potter requested that the Director's decision be affirmed and pointed out that he (1) was not an employee of the HNA, (2) had not been delivering newspapers at the time of the accident (and, presumably, was therefore not within the course and scope of his employment, even if he was somehow deemed to be an employee of the HNA), and (3) had not filed a claim for workers' compensation benefits. He attached a copy of the complaint in his lawsuit to his pretrial statement, showing that the HNA was a defendant in that action and had initiated the claim for workers' compensation benefits only after it had been filed. Potter also supported his position with records from a 1982 claim in which a twelve-year-old newspaper carrier, who was struck by a car while making his deliveries, sought workers' compensation benefits only to have the HNA deny that he was an employee. *57 The HNA, for its part, minced no words in making clear that it was seeking a defense in the tort lawsuit. In a letter to the Chairman of the LIRAB, its counsel stated: The parties stipulated (1) that the issue to be decided by the LIRAB was whether Potter was an employee of the HNA and (2) that, in the event the LIRAB were to determine that Potter was an HNA employee, his accident occurred within the course and scope of Potter's employment, for purposes of the application of HRS ch. 386. On August 1, 1997, the LIRAB entered its decision and order, which vacated the Director's decision and included the following relevant findings of fact (FOFs) and conclusions of law (COLs): On August 27, 1997, Potter filed a motion to reopen and/or for clarification of the LIRAB's decision. In support of the motion, Potter argued that the jurisdiction of the LIRAB was limited to those circumstances wherein a claim for workers' compensation benefits had been made and that, inasmuch as he had not made such a claim, the LIRAB's decision had been purely declaratory in nature and amounted to a ruling that, should Potter file a claim for workers' compensation benefits, even though he signed an independent contractor agreement, he would be considered an employee. Upon payment of such benefits by the HNA, Potter conceded, the HNA would be entitled to the tort defense afforded by HRS § 386-5 (1993).[1] However, Potter reasoned, inasmuch as the HNA had elected to contract with Potter as an independent contractor, it chose not to come under HRS ch. 386, and, therefore, it was without standing to invoke the jurisdiction of either the Director or the LIRAB, in the absence of a claim for benefits by Potter and in order merely to obtain a ruling that it was entitled to an HRS § 386-5 defense. On December 17, 1997, a divided LIRAB denied Potter's motion to reopen and/or for clarification. A dissenting member of the Board opined: Potter's timely appeal to this court followed. Ho v. Leftwich, 88 Hawai`i 251, 256-57, 965 P.2d 793, 798-99 (1998) (quoting Korean Buddhist Dae Won Sa Temple v. Sullivan, 87 Hawai`i 217, 229-30, 953 P.2d 1315, 1327-28 (1998)). Korean Buddhist Dae Won Sa Temple, 87 Hawai`i at 229, 953 P.2d at 1327 (quoting Konno v. County of Hawai`i, 85 Hawai`i 61, 77, 937 P.2d 397, 413 (1997)). HRS § 386-82 (1993) provides in pertinent part that a "claim may be made by the injured employee or the employee's dependents or by some other person on the employee's behalf." In In re Cowan, 32 Haw. 928 (1933), this court construed the statute to mean that claims made on behalf of a minor must be made by "a `guardian' or `next friend' duly empowered to act for the minor." Id. at 935 (emphasis added). Therefore, even assuming that the HNA's "WC-1 Employer's Report of Industrial Injury," which ostensiblyalbeit belatedly by many monthswas filed pursuant to the requirements of HRS § 386-95 (1993),[2] could be construed as a "claim" for benefits, the record contains no evidence that HNA had been "duly empowered to act" on Potter's behalf as required by this court's holding in Cowan. Moreover, the HNA's argument that the filing of its "WC-1" could constitute a claim for workers' compensation benefits on Potter's behalf is disingenuous because it is inconsistent with the administrative scheme established by HRS ch. 386. HRS § 386-82 provides for a two-year period within which an employee must file a claim or be barred from doing so. Had the legislature intended the filing of the employer's reportwhich must be completed within seven working days of the time the employer first learns of the injury pursuant to HRS § 386-95, see supra note 2to constitute the filing of an injured employee's claim for benefits, the two-year filing period established by HRS § 386-82 would be surplusage and a nullity. Our rules of statutory construction *63 require us to reject an interpretation of statute that renders any part of the statutory language a nullity. See State v. Jumila, 87 Hawai`i 1, 10, 950 P.2d 1201, 1210 (1998); Shultz v. Lujan, 86 Hawai`i 137, 141, 948 P.2d 558, 562 (1997); Konno v. County of Hawai`i, 85 Hawai`i 61, 71, 937 P.2d 397, 401 (1997). Accordingly, we hold that no lawful claim for workers' compensation benefits was filed with the Director in the instant matter. HRS § 386-86 (1993) provides in relevant part that "[i]f a claim for compensation is made, the director shall make such further investigation as deemed necessary and render a decision within sixty days after the conclusion of the hearing awarding or denying compensation...." (Emphasis added.) The plain language of the statute establishes that "a claim for compensation" is a precondition of an order awarding or denying workers' compensation benefits. In the absence of a lawful claim, the Director lacked the statutory authority either to award or to deny benefits to Potter. Unquestionably, the Director may issue declaratory rulings concerning whether, in a specific set of circumstances, a claimant would be entitled to workers' compensation benefits upon the bringing of a lawful claim. See Locations, Inc. v. Hawai`i Dept. of Labor, 79 Hawai`i 208, 900 P.2d 784 (1995). However, on the record before us, the determination that Potter would have been entitled to workers' compensation benefits had he chosen to file a claim is a far cry from a determination by the Director that the HNA may benefit from the HRS § 386-5 tort defense in an unrelated civil action. It is apparent to us that the LIRAB's ruling on the HNA's appeal in the instant matter was based on a misapprehension of HRS ch. 386 and our precedents. The HNA urges that this court's decision in Locations compels affirmance of the LIRAB's favorable ruling. However, the present case is factually distinguishable from Locations. In that matter, a real estate sales company petitioned the Department of Labor and Industrial Relations (DLIR) for a ruling that licensed real estate agents who performed sales activities pursuant to an "independent contractor agreement" were not employees, and, therefore, need not be afforded workers' compensation coverage. 79 Hawai`i at 209, 900 P.2d at 785. This court held that the "control test" was the proper measure for determining whether an employer-employee relationship existed for purposes of the workers' compensation laws; after applying the control test, we further held that the real estate agents were independent contractors, unentitled to workers' compensation coverage. To that end, we observed in Locations: Id. at 211, 900 P.2d at 787 (emphases added). Nevertheless, the Hawai`i appellate courts have traditionally been reluctant to allow an employer to achieve inequitable results by resorting in form to an independent contractor agreement in order to mask the reality of an employer-employee relationship and, thereby, deprive workers of statutory protections to which they are lawfully entitled. See Homes Consultant Co., Inc. v. Agsalud, 2 Haw.App. 421, 633 P.2d 564 (1981) (holding that home improvement company's sales persons, who were paid on commission, were employees, so as to make employer liable for payment of employment security taxation); In re Appeal of Century Metalcraft Corp., 41 Haw. 508 (1957) (holding that salesmen, designated as "distributors" by manufacturer/retailer of aluminum cookware, were employees for purposes of employment security taxation); Bailey's Bakery v. Borthwick, 38 Haw. 16 (1948) (holding that bakery's denomination of its drivers as "independent contractors," where drivers owned their own trucks, which could be financed by bakery, and "purchased" bread from bakery at "wholesale" prices and resold it to retailers, retaining a "profit," did not exempt bakery from requirement to pay unemployment insurance taxes). Similarly, we are aware that "contracts for hire" are often contracts of adhesion, entered into by parties who do not possess equal bargaining power. See Brown v. KFC National Management Co., 82 Hawai`i 226, 246-47, 921 P.2d 146, 166-67 (1996) (noting, under Hawai`i law, that: (1) a contract of adhesioni.e., a contract offered by the stronger of the contracting parties on a "take it or leave it" basisis unenforceable if (a) the contract is the result of coercive bargaining strength, and (b) the contract unfairly limits the obligations and liabilities of, or provides otherwise unfair advantages to, the stronger party; and (2) an arbitration agreement in an employment application is usually not regarded as unenforceable because the second condition is generally lacking). The "Newspaper Dealers' Agreement" is such a contract of adhesion. It is apparent from the record that the "Newspaper Dealers' Agreement" was offered to prospective newspaper carriers on a take-it-or-leave-it basis. The disparity of bargaining power was made more acute by the paucity of employment opportunities available to young people. Moreover, pursuant to the terms of the agreement, the HNA sought to avoid liability for employee benefits, state and federal payroll taxes, and vicarious liability for any damages that might result from the news carriers' delivery of its newspapers. The agreement offered no reciprocal benefits to the carriers. By the express terms of its own agreement, the HNA hired "independent contractors." Accordingly, because the HNA itself chose to construe the relationship in the foregoing manner, pursuant to this court's decisions *65 in Locations and Makaneole, we hold that it is estopped from claiming the protections of the HRS § 386-5 tort defense in actions involving the carriers unless and until the injured carrier challenges the form-over-substance nature of the agreement and is awarded workers' compensation benefits by the Director or the LIRAB. Only upon payment of such benefits would the HNA then be entitled to seek the protection of HRS § 386-5 as a defense to a tort lawsuit. Any other result would allow the HNA to reap the rewards of its own duplicity in dealing with underage workers who were ripe for exploitation. Moreover, this result both protects the principle, enunciated in Locations and Harter, that an employer-employee relationship must be entered into in a deliberate manner with the informed consent of both parties and maintains the integrity of the social bargain that lies at the heart of the workers' compensation system, wherein a worker surrenders his "right to recover common law damages from the employer in exchange for the certainty of a statutory award for all work-connected injuries." Evanson, 52 Haw. 595, 598, 483 P.2d 187, 190 (1971).[3] In arguing to the contrary, the HNA contends that The HNA further expresses its concern that Our holding, limited as it is to the circumstances of the present record, does not open the door to the possibilities that the HNA suggests. We are not providing a mechanism whereby any worker, who has consistently been labeled and treated by his employer as an "employee" and afforded the full panoply of protections and benefits that customarily accompany that status, may "opt out" of the workers' compensation statutes. Rather, we are merely restricting the prerogative of employers to "have their cake and eat it too." When an employer expressly contracts with a worker as an "independent contractor," the employer will be bound by his election. If such a worker is injured on the job, the individual may then choose to (1) seek relief in tort or (2) attempt to show that *66 the independent contractor agreement was a sham and that the worker is, therefore, entitled to workers' compensation benefits.[4] For the reasons set forth above, we reverse the decision of the LIRAB. [1] HRS § 386-5 provides: Exclusiveness of right to compensation; exceptions. The rights and remedies herein granted to an employee or the employee's dependents on account of a work injury suffered by the employee shall exclude all other liability of the employer to the employee, the employee's legal representative, spouse, dependents, next of kin, or anyone else entitled to recover damages from the employer, at common law or otherwise, on account of the injury, except for sexual harassment or sexual assault and infliction of emotional distress or invasion of privacy related thereto, in which case a civil action may also be brought. [2] HRS § 386-95 provides in pertinent part: Within seven working days after the employer has knowledge of such injury causing absence from work for one day or more or requiring medical treatment beyond ordinary first aid, the employer shall make a report thereon to the director. The report shall set forth the name, address, and nature of the employer's business and the name, age, sex, wages, and occupation of the injured employee and shall state the date and hour of the accident, if the injury is produced thereby, the nature and cause of the injury, and such other information as the director may require. .... Any employer who wilfully refuses or neglects to make any of the reports or give notice required by this section shall be fined by the director not more than $5,000. [3] On the other hand, nothing in this opinion is intended, in itself, to foreclose an employer's access to declaratory relief, pursuant to HRS ch. 632 (1993). [4] While the HNA's stirring defense of the social welfare protected by the workers' compensation statutes is inspiring, we feel constrained to observe in passing that, were Potter an employee of HNA, it appears that, in the course of his employment, the following statutes were violated: (1) HRS § 291C-194 (1993), which provides in relevant part that "[n]o person shall drive a moped unless the person ... [p]ossesses a valid driver's license"; (2) HRS § 291C-195 (1993), which provides in relevant part that "[n]o person less than fifteen years of age shall drive a moped"; (3) HRS § 286-133 (1993), which provides that "[n]o person shall authorize or knowingly permit a motor vehicle or moped owned by that person or under that person's control to be driven upon any highway by any person who is not authorized under law to drive the motor vehicle or moped"; (4) HRS § 286-134 (1993), which provides that "[n]o person shall employ as a driver of a certain category of a motor vehicle any person not licensed under this part to operate that category of motor vehicle"; (5) HRS § 386-95, which provides in relevant part that "[w]ithin seven working days after the employer has knowledge of [an on-the-job] injury causing absence from work for one day or more or requiring medical treatment beyond ordinary first aid, the employer shall make a report thereon to the director"; and (6) HRS § 707-714 (1993), which provides in relevant part that "[a] person commits the offense of reckless endangering in the second degree if the person engages in conduct which recklessly places another person in danger of death or serious bodily injury." Title 12, Department of Labor and Industrial Relations Rules, ch. 25, subchapter 4, declares that the operation of a motor vehicle by a minor is a hazardous occupation. However, HRS § 390-5 (1993) expressly exempts "minor[s] employed... [i]n performance of work in connection with the sale or distribution of newspapers" from the general prohibition, set forth in HRS § 390-2 (1993), of the employment of minors in "any gainful occupation ... which has been declared... hazardous for the minor."