Title: DC PRODUCTION SERVICE v. WYOMING DEPARTMENT OF EMPLOYMENT

State: wyoming

Issuer: Wyoming Supreme Court

Document:

DC PRODUCTION SERVICE v. WYOMING DEPARTMENT OF EMPLOYMENT2002 WY 14254 P.3d 768Case Number: 01-23Decided: 09/24/2002
APRIL TERM, A.D. 2002

                                                                                                            

DC 
PRODUCTION SERVICE,

Appellant(Petitioner),

 

v.

                                                                                                            

WYOMING 
DEPARTMENT OF EMPLOYMENT,

EMPLOYMENT 
TAX DIVISION; and the

WYOMING 
UNEMPLOYMENT INSURANCE

COMMISSION,

Appellee(Respondent).

 

W.R.A.P. 
12.09(b) Certification from the District Court of Natrona 
County

The 
Honorable W. Thomas Sullins, Judge 

 

Representing 
Appellant:

Timothy C. Kingston of Graves, Miller & Kingston, P.C., 
Cheyenne, Wyoming

 
 
         

Representing 
Appellee:

Gay 
Woodhouse, Wyoming Attorney General; John W. Renneisen, Deputy Attorney General; 
Gerald L. Laska, Senior Assistant Attorney General; William L. Weaver, Special 
Assistant Attorney General.  
Argument by Mr. 
Weaver.

 
   

Before 
HILL, C.J., and GOLDEN, LEHMAN*, KITE, and VOIGT, JJ.

*Chief Justice at time of oral argument

 
 
     

GOLDEN, Justice.

 
 

[¶1]           
Following 
a hearing, the hearing examiner decided that, for purposes of paying 
unemployment insurance premiums under Wyoming's employment security law, DC 
Production Services, Inc., (DC) was the employer of sixteen flow testers who 
provided services to DC's oil company clients.  The sole issue in this case is whether 
the Wyoming Unemployment Insurance Commission correctly determined that flow 
testers were employees rather than independent contractors.   We affirm.  

 

ISSUES

 

[¶2]           
DC 
presents the following issue for our review:

Were 
persons who provided services to the Appellant's customers independent 
contractors or employees?

The 
Commission presents the following issue:

The 
Unemployment Insurance Commission (Commission) held that services provided by 16 
flow testers to DC Production Service in 1999 are covered employment under the 
Wyoming Employment Security Law (Act), making payments to flow testers 
reportable and taxable under the Act.  
Was the decision of 
the Commission in accordance with law pursuant to Wyo. Stat. Ann. § 27-3-104(b) 
(Lexis 1999) and supported by substantial evidence as required by Wyo. Stat. 
Ann. § 16-3-114(c)(ii)(A) and (E) (Lexis 1999)?

 
            
            
           

FACTS

 

[¶3]           
DC 
is an oil field service company that rents flow testing equipment to oil 
companies and contracts with oil companies to provide oil well flow testing 
services.  The persons providing the 
flow testing services to the oil companies are known as "flow testers."  DC considers flow testers as independent 
contractors and has each sign a "Master Work Agreement" that contains a number 
of provisions referring to the flow testers as independent contractors and not 
DC employees and establishing a contractor relationship.  DC also requires that the flow testers sign a "Notice to Independent 
Contractors," which provides:

 
       
       

DC 
Productions is in the business of renting flow testing equipment to oil 
companies, and upon request by oil companies may send personnel to monitor 
it.  These personnel are independent 
contractors known as flow testers/pumpers.  
DC Productions does not have supervisory control over the independent 
contractors; they report directly to the oil company or companies in which they 
are testing for.  As a flow 
tester/pumper, among other things, you will be expected to provide your own 
transportation, telephone, tools, liability insurance naming DC Production as an 
additional insured, licenses, and any other expenses occurred [sic] in the 
production of this income.  You will also be expected to pay all of your 
own taxes including self-employment taxes and file all returns 
required.

 
  
             
    

[¶4]           
In 
1999, DC provided sixteen flow testers to its oil field clients.  Upon request by an oil company, DC 
contacted flow testers and contracted with them based upon availability and 
negotiated prices for each assignment.  
If DC and a contacted flow tester could not agree on a price, then both 
were free to decline offers.  A flow 
tester who appeared on site received directions from the oil company regarding 
the specific site's requirements and provided his own replacements, 
transportation and insurance.  DC 
had no further control over the flow testers activities.  After completing a job, the flow tester 
submitted an invoice to DC for a previously agreed amount.  DC billed that amount to the particular 
oil company along with a surcharge.  
At the end of the year, DC provided each of 
the flow testers with a Form 1099 for the amount of payments 
received.

 
                
      

[¶5]           
On 
March 20, 2000, the Wyoming Department of Employment issued a notice of audit to 
DC.  On May 17, 2000, the Department 
issued a joint audit and procedure report that found that some sixteen "flow 
testers" who provided services to customers of DC were employees for the 
purposes of assessing unemployment insurance premiums against DC, and DC 
objected.  A contested case hearing 
was held, and the hearing examiner issued a decision that upheld the joint audit 
and procedure report.  That decision stated:

 
  

1.                  
DC 
argues its flow testers are not employees because its clients, and not DC, 
exercise control and direction of the details of the flow tester's performance 
of services.  The Examiner rejects 
DC's argument.  Under the Wyoming 
Employment Security Law, if the worker is directed or controlled in the details 
of performance of services by anyone other than himself, he is not free from 
direction and control.  In this 
matter, not only do the clients actually direct and control the flow testers, 
but the Master Work Agreement explicitly requires flow testers to submit to the 
control and direction of DC's clients.

2.                  
DC 
argues that its flow testers are not employees because they represent themselves 
to the public as independent contractors.  
To support this argument, DC points to the fact that it reports earning 
of the flow testers to the Internal Revenue Service by way of 1099 forms and to 
the fact that it receives invoices from the flow testers for payment for the 
services they provide.  The Examiner 
rejects the argument of DC.  As in 
the Hat Six, Inc., decision, the public has no access to the IRS filings 
of DC or of the flow testers.  In 
addition, the invoices submitted by the flow testers to DC are internal payment 
documents.  The documents relied 
upon DC to support its argument, therefore, do not "protect the potential 
customer (DC's clients) by providing notice of the status of the (flow tester) . 
. ."  DC produced no evidence of any 
representation by any flow tester to a third party that he, the flow tester, was 
self-employed or an independent contractor.

3.                  
DC 
argues that the Hearing Examiner must follow the Internal Revenue Service's 
definition of independent contractor instead of the definition enacted as part 
of the Wyoming Employment Security Law.  
The Examiner rejects DC's argument.  
In Laramie Cabs, the Wyoming Supreme Court adopted the holding of 
the Arizona Court of Appeals that to rely on the definition of the Internal 
Revenue Service was an error by the trial court.  The Wyoming Supreme Court expressly 
stated that the only definition the Examiner can apply is that which 
appears in the Wyoming Employment Security Law.

 
         
      

The 
hearing examiner concluded that the flow testers were employees to whom wages 
had been paid and were not independent contractors.  DC appealed that decision to the 
Unemployment Insurance Commission, which revised one factual finding and 
affirmed the decision.  DC's petition for review to the district 
court was certified to this Court pursuant to W.R.A.P. 12.09.

 
 
             
  

DISCUSSION

Standard of Review

 

[¶6]           
The 
Wyoming Administrative Procedure Act governs this Court's review of decisions by 
the Commission.  Hat Six Homes, 
Inc. v. State, Dept. of Employment, Unemployment Ins. Comm'n, 6 P.3d 1287 , 
1290 (Wyo. 2000).  

 

We 
recently held that the substantial evidence test is the appropriate standard of 
review in appeals from Wyoming Administrative Procedures Act contested case 
proceedings when factual findings are involved and both parties submit evidence. 
Newman v. Wyoming Workers' Safety and Compensation Division, 2002 WY 91, 
¶22 [49 P.3d 163] (Wyo. 2002).   
We further held, that when only the party with the burden of proof 
submits evidence in the contested case proceeding and that party does not 
ultimately prevail, the arbitrary or capricious standard governs the judicial 
review of that agency decision. Id.  
Even if the factual findings are found to be supported by substantial 
evidence, the ultimate agency decision may be found to be arbitrary or 
capricious for other reasons.  
Id. at ¶23. We do not examine the record only to determine if 
there is substantial evidence to support the board's decision, but we must also 
examine the conflicting evidence to determine if the hearing examiner could have 
reasonably made its finding and order upon all of the evidence before it.  Id. at ¶24, ¶25.  Because both 
parties presented cases-in-chief, we apply the substantial evidence 
standard.

 
    
      

Kuntz-Dexter 
v. State ex rel. Wyo. Workers' Safety and Comp. Div., 2002 
WY 101, ¶10, 49 P.3d 190, ¶10 (Wyo. 
2002).

 
   

Applicable Statutes

 

[¶7]           
DC 
does not dispute the hearing examiner's findings of fact, but contends that the 
legal conclusions based on the factual findings are not in accordance with 
law.  An agency's conclusion of law 
is entitled to no deference from this Court.  We will affirm an agency's legal 
conclusion only if it is in accordance with the law.  Haynes v. State ex rel. Wyoming 
Workers' Compensation Div., 962 P.2d 876, 878 (Wyo. 
1998).

 
   

[¶8]           
DC 
first objects to the hearing examiner's conclusion that because the oil 
companies could control the flow testers on-site work, the statutory requirement 
of independence was not met.  DC 
contends that the oil companies' control is that of a third party paying for the 
services and the statute does not apply to third party control.  DC next objects to the conclusion that 
the flow testers did not hold themselves out to the public as independent 
contractors, contending that its client oil companies were aware that the flow 
testers were independent contractors.  
The applicable 
statute is Wyo. Stat. Ann. § 27-3-104 (LexisNexis 2001), entitled " Employment' 
defined; generally; exceptions" and reads as follows:

           
         

(a) 
As used in this act, "employment" means service:

(i) 
Performed by an employee defined under 26 U.S.C. § 3306(i) including service in 
interstate commerce, except 26 U.S.C. § 3121(d)(2) does not 
apply;

            
(ii) Subject to any federal tax against which credit may be taken for 
contribution payments into any state unemployment fund;

            
(iii) Required to be employment under this act as a condition for full 
tax credit against the tax imposed by 26 U.S.C. § 3301 through 3311; 
and

            
(iv) Otherwise specified under W.S. 27-3-104 through 
27-3-108.

(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;

            
(ii) Repealed by Laws 1991, ch. 153, § 1.

            
(iii), (iv) Repealed by Laws 1995, ch. 121, § 3.

            
(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.

 
         

[¶9]      It is uncontested 
that in 1999 DC paid a total of $217,431.29 to flow testers for their services 
which the Commission contends were wages paid to employees.  We have said that the statutory 
definition of employment determines whether a worker may be eligible for 
unemployment benefits under the Act.  
Hat Six Homes, 6 P.3d  at 1292; Scott v. Fagan, 684 P.2d 805, 810 (Wyo. 1984).  A worker is 
covered by the Act unless the hiring party establishes that the worker's 
services satisfy all three specified conditions of non-employment.  Hat Six Homes, 6 P.3d  at 1292; 
Unemployment Comp, Comm'n of Wyoming v. Mathews, 56 Wyo. 479, 497-98, 111 P.2d 111, 118 (1941); Employment Sec. Comm'n of Wyoming v. Laramie Cabs, 
Inc., 700 P.2d 399, 404 (Wyo. 1985).  
DC has the burden of proving that the circumstances of employment were 
such that the elements of § 27-3-104(b) were satisfied.  Hat Six Homes, supra, at 1292.

 
  

[¶10]      
DC 
contends that it met the requirements of § 104(b)(i), not controlling or 
directing the details of the flow tester's performance of services by contract 
and by fact, by providing the Master Work Agreement and not subjecting the flow 
testers to supervision.  It argues 
that the statutorily required independence of the flow testers was not impaired 
by any specific on-site requirements relayed to the flow testers by the oil 
companies because the statute addresses this requirement to the parties of the 
contract and not to third persons.  
The Master Work Agreement stated in relevant part:

 
       

7.                  
Sub 
Contractor [sic] looks to Oil Co. for control and direction while on 
location.  Oil Company has the right to request or 
refuse contractor. . . . If at any time the Oil Company shall become 
dissatisfied with the performance of contractor as to any particular project 
work, the Oil Company shall have the right to terminate contractor's work by 
notice to DC who will relay that to the contractor and DC may either complete 
the project work itself or contract its completion to a third party.

 
     
                
           
            
                
            

[¶11]      
Under 
this provision, the Master Work Agreement acts to deprive the flow testers of 
control or direction over the details of the performance of services by contract 
and by fact by specifically stating that the flow testers agree to DC's 
requirement that they shall be subject to the control of an oil company.  Based on this language the Commission 
concluded that the contract deprived the flow testers of control over the 
details of their work.  We agree 
with DC that this single sentence of one provision is not determinative that the 
flow testers were deprived of control over the details of their work.  All of the circumstances of employment 
must be examined.  See Hat Six 
Homes, 6 P.3d  at 1292.  The 
evidence of many factors must be considered to decide whether DC controlled or 
directed the flow testers.  See 
Carpetland U.S.A., Inc. v. Illinois Dept. of Employment Sec., 2002 WL 1342230 (Ill., June 20, 2002)(discussing twenty-five factors 
to determine whether an independent contractor is "free from control or 
direction over the performance"). The hearing examiner's failure to consider all 
of the circumstances of this particular employment situation leaves us unable to 
agree with its legal conclusion on this statutory requirement.

 
  
         
            
          
           
       

[¶12]      
We, 
however, do affirm the legal conclusion that DC failed to satisfy the second 
statutory requirement, proof that the flow testers represented their services to 
the public as self-employed individuals or as independent contractors.  DC contends that its client oil 
companies that received services from its approved list of flow testers are the 
"public" intended under the statute.  
It further contends that these client oil companies knew that the flow 
testers were independent contractors available to perform services directly for 
them.  However, assuming without 
deciding that "public" can be so narrowly construed, we find that there is a 
lack of sufficient evidence in the record which would demonstrate any instance 
in which a flow tester represented himself as an independent contractor to DC's 
client oil companies.  DC contends 
that its office manager testified that the flow testers' invoices were submitted 
to the oil companies and those oil companies were thus aware that the flow 
testers were independent contractors, but the record does not reflect either 
that the invoices themselves were submitted to the oil companies, or that the 
oil companies were aware that they could independently contract with any of the 
flow testers.   The testimony reflected only that the 
office manager would bill the oil companies based upon the invoice information.

 
  
             
   

[¶13]      
The 
decision that DC did not overcome the presumption of employment set forth in the 
statute, by failing to prove that requirements of § 27-3-104(b) were met is not 
arbitrary or capricious, and not an abuse of discretion.  We hold that DC did not sustain its 
required burden of proving that the flow testers were independent contractors 
and not its employees.