No. 92-394 IN THE SUPREME COURT OF THE STATE OF MONTANA

DAVE POTTER, Petitioner and Appellant, --.

Respondents and Respondents.

APPEAL FROM: DistrictCourt of the Fourth Judicial District, In and for the County of ~avalli, The Honorable Douglas G. Harkin, Judge presiding.

COUNSEL OF RECORD: For Appellant: Judith A, Loring, Attorney at Law, Stevensville, Montana For Respondents: Daniel B,McGregor, Legal Services Div., Department of Labor & Industry, Helena, Montana JulioK. Morales, Morales ~aw Office,Missoula, Montana James Park Taylor, Attorney atLaw, Missoula, Montana

Submitted on Briefs: November 3.9, 1992 Decided: May 27, 1993 Filed:Justice John Conway Harrison delivered the Opinion of the Court.

This is an appeal from the Fourth Judicial District,Ravalli County,theHonorable DouglasG. Harkinpresiding. Appellant Dave Potter (Potter)appealsan order affirminga Board of Labor Appeals decision that in 1987 he was an independent contractor, not an employee,and therefore was not eligible forunemployment insurance benefits. We affirm. On May 23, 1988, the Department of Labor and Industry (the Department) determinedthat Potter,a carpenterandmason,hadbeen an independent contractor in 1987. Potter appealed this determination. The Board of Labor Appeals (the Board) adopted the Department'sdeterminationafter a telephone hearing on August 30, 1988. Potter petitioned for review in district court,but after discovery the Department agreed to vacate its earlier decisionand conduct a second, in-person hearing. Participants in the secondhearing,held on January 28, 1991, included the Department and four of the other respondents in this appeal: John Bruton, 

### Ed Kopfman, Beneke Construction, and Mort Arkava. All of the respondents had hired Potter in 1987 for specific carpentry ormasonry projects. The sixthrespondent,John Lohden Construction, was not present but did provide documents describing the association between Potter and John Lohden Construction as an independent contractor relationship. The hearing officer sustained the Department's May 23, 1988 determination that in 1987 Potter was an independent contractor in his association with the respondents. Potter appealed to the 2Board, which adopted the hearing officer's findings on June 6, 1991.Potter againpetitioned for judicial review in district court. Thecourtreviewedtheparties' briefs and on June 30, 1992 entered judgment upholding thedeterminationthatPotterwasan independent contractor whenhe performed services forthe respondentemployers. STANDARD OF REVIEW Under Section 39-51-2410(5),MCA, the findings of the Board as to the facts are conclusive, if supported by evidence and in the absence of fraud, and the jurisdiction of a reviewing court is confined to questions of law. "Supportedby the evidence" means supportedby substantial evidence, which is "something more than a scintilla of evidence but may be less than a preponderance of the evidence." Gypsy Highview Gathering System, Inc.v. Stokes (1986), 221 Mont. 11, 14,716 P.2d 620,623. Thus,the DistrictCourtmust limit its review of the Board's findings to a consideration of whether they are supported by substantial evidence, and the same standard applies to this Court. Gv~sv Hishview Gatherinq System, 716 P.2d at 623. See also Thornton v. Commissioner of Dep't of Labor & Industry (1980), 190 Mont. 442, 446, 621 P.2d 1062, 1065

("ThisCourtmay not substitute its judgment for that of the trial court or agency as to the weight of the evidence on questions of fact."). With regard to questions of law, however, our task is to determine whether the agency's interpretation of the law is correct. Steer, Inc. v. Dep't of Revenue (1990), 245 Mont. 470, 803 P.2d 601.Here, the threshold issue is whether Potter's status as independent contractor 

### or employee is a question of law or a question of fact. 

### When the facts surrounding a person's arrangementwith employers are relativelyundisputed,thequestion is one of law, and this Court is not bound by the conclusions of the District Court or the Board, as it would be regarding a question of fact. Solheim v. Tom Davis Ranch (1984), 208 Mont. 265, 272, 677 P,2d 1034, 1038. See also Carlson v. Cain (19831, 204 Mont. 311, 317, 664 P.2d 913, 916 ("[WJherethere isno dispute

as to what the arrangement is, the question 

### of employee or independent contractor status 

### is one of law for the court."). When 

### the facts are disputed, as here, the "substantial evidence1' test is appropriate. In Hammerquist 

### v. Employment Security Division (1988), 230 Mont. 347, 350, 749 P.2d 535, 537, for example,we held that a hearing officer had applied theproper "legal standardr1 in determining that a constructionworker was 

### an employee and 

### not a partner of a building contractor, but 

### we also held that 'lsubstantialevidence supports the hearing officeris finding and conclusion that no partnership or joint 

### venture exists," See also Connolly 

### v. Board of Labor Appeals (1987), 226 Mont. 201, 734 P.2d 1211 (substantial evidence test applied to a Board determination of employeemisconduct). Here, the District Court reviewed the hearing officer's findings of fact,

### which were adopted by the Board, and found that they were supported 

### in the hearing transcript and were therefore conclusive. This Court 

### also is bound by those findings, to the

### extent that they are supported by substantial evidence. Larry% Post co. V. Unemployment InsuranceDiv. (1989),238 Mont. 190, 193, 777 P.2d 325, 327. If the factual findings are supported substantial evidence, we must then determine whether the Board's legal conclusion as to Potter's status was correct. Steer, Inc.,

THE INDEPENDENT CONTRACTOR ISSUE Potter was hired by the respondent employers in 1987 for the followingprojects: John Bruton: Build shelves and a check-out counter for Bruton's pharmacy Ed Kopfman: Lay a cabin foundation slab and remodel the cabin Beneke Construction: 

### Form and pour concrete walls John Lohden Construction: Roof 

### a building Mort Arkava: Layblocks for ahouse,grout awall, and pour concrete for a garage floor Potter states thathewas paid by thehour forhis work on all of 

### these projects; that 

### the employers provided most 

### of the tools and all of the materials needed for each job; and that Beneke Construction and Lohden Construction hired him as one of several employees for 

### their respective projects. The test for determining whether an individual is an independent contractor is stated in 5 39-51-201(14), MCA: "Independentcontractorwmeans 

### an individualwho renders service 

### in the course of an occupation and: (a) has been and will continue to be free from control or direction 

### over the performance of the 

### services, both under his contract and in fact; and(b) is engaged in an independently established trade, occupation, profession, or business. Potter clearly meets the second of these criteria. He admits that until 1987 he operated his own business, and most of the respondent employers testified that theyhad hired him before 1987

as an independent contractor. The hearing officer found that Potter was "independently established in a business11in 1987 because he performed similarwork for several persons and "offered his carpentry/masonry servicesto anyperson orgroupsneeding help with work he was able to perform." Potter claims that in 1987 he "chose to give up his own independent busine~s~~ and work only as an vlhourly employee." He explains that in 1986 he hired a helper, Steve Anderson, whom he believed tobe an independentcontractor. TheDepartment, however, determined that Anderson was an employee and that Potter was required to make unemployment insurance contributions. Potter decided then to become an employee himself. In practice, this meant that he asked employers to pay him by the hour instead of by the job. He did not specifically tell them that he was no longer operatinghis ownbusiness,nor didhe ask any employer towithhold payroll taxes or to make employer contributions. We hold that substantial evidence supports the hearing officer's finding that Potter had an independently established business in 1987. As to the first criterion, freedom from control,we recognize four factors to be considered: (1) direct evidence of the right or exercise of control; 6(2) method of payment; (3) furnishing of equipment; and (4) right to fire. Johnsonv. Dept. of Labor and Industry (1989), 240Mont. 288, 292, 783 P.2d 1355, 1358, citing Sharpv. HoernerWaldorf Corp. (1978), 178 Mont. 419, 425, 584 P.2d 1298, 1301-1302. Independent contractor status is usually established only by "a convincing accumulation of these and other tests,"while a finding of employee status can often be "solidlyproved on the strength of one of the four items. Sharp, 584 P.2d at 1302; Walling v. Hardy Construction (1991), 247 Mont. 441, 807 P.2d 1335. We have consistently held, however, that statutes used as guides in determining a worker's status Itmustnot be distorted to allow persons who are truly independent in their operation to be held employees merely for tax purposes and resulting benefits derived from an employer-employee relationship." St. Regis Paper Company

v. UnemploymentCompensationCommln(l97l), 157Mont. 548,552, 487 P.2d 524, 526, quoted in Johnson, 783 P.2d at 1358. The hearing officer concluded that three of the four factors indicated that Potter was an independent contractor in 1987. First,he founddirect evidence of Potter's right of control in the following facts: each of the employers was interested only in the completed project; most of them were not capable of directing Potter's day-to-day work activities;and Potter usually performed the work on his own time schedule. Potter argues that each of the respondent employerspossessed and exercised the right to control his work because each one hiredhim for a specific job, and most of them were at the job site daily, supervising his work and giving directions. The traditional test of employee status is whether the employer controls only the end result of thework,which indicates that the worker is an independent contractor, or whether the employer controls the means by which the work is accomplished, which indicates that theworker is an employee. Johnson, 783 P.2d at 1358. An employer of an independent contractor, however, "is entitled to as much control of the details of the work as is necessary to ensure that he gets the end result that he bargained for." Walling, 807 P.2d at 1339. Here, the record shows that none of the respondent employers controlledthe days or hours of Potter's work, and that all of them except John Lohden Construction relied on Potter's expertise to complete the job. For example, Lisa Beneke testified that Beneke Constructionhad no experience with full-wall foundation formsand thereforehired Potter forhis expertise in using his own forms to pour a full-wall foundation. Thehearing officer found that Potter usuallywas freetodeterminethe individualmeans of accomplishing the work he had agreed to do for these employers. Second,thehearing officer found that Potterprovided almost all of thenecessarytools, forms,and equipment for therespondent employerssprojects, and that his use of rental equipment owned by Kopfman was not inconsistent with independent contractor status. Potter claims that the only toolsheprovided were vlsmallhand tools" and that each of the respondents furnished all the equipmentnecessary for his particular project. In particular, he claims that the two construction companies, Lohden and Beneke, provided llalllt 

### or "90 percent" of the tools he used on their projects. On the other hand, Potter admits that when he worked for Bruton, the pharmacist, he used "a table saw that [Bruton] was considering purchasing from [Potter],ltand he testified at the Department hearing thathe had supplieda cement mixer and a generator for the Kopfman job

# . The respondent employers testified that they had purchased materials ordered by Potter and that Potter 

### was free 

### to hire assistants or obtain needed equipment independently. When an employer furnishes valuable equipment, an employment relationship almost invariably exists. Solheim, 677 P.2d at 1038. Here, however, the record indicates that among the respondent employers, only Kopfman can be said to have furnished valuable equipment. Third,thehearing officer found that the respondent employers did not have an absolute right to fire Potter, since either party could terminate the relationship without Liability only if the end result were not accomplished 

### as agreed. In Solheim, 677 

### P.2d at 1039 (quoting Larson, Workmen's Compensation Law, Vol. lC, 

### 5 44.35)

### , we described the right to fire as the power to control, noting that: 

### The absolute right to terminate the relationship without liability is not consistent with the concept of independent contract, under which the contractor should have the legal 

### right to complete the project contracted 

### for and 

### to 

### treat 

### any attempt to prevent 

### completion as a breach of contract.Here,Potter asserts thathe couldhave quit without incurring liability: he also points out that Kopfman laid him off without incurring liability. The respondent employers testified that they believed they could terminate the relationship butwere not sureof the consequences. None of them had executed a written contract, and damages for failure to perform had not been discussed. The fact thatneither Potternor the employerswere certainof their rights indicates that the employers did not have an absolute right to fire Potter. As we held in Solheim, 677 P.2d at 1039, the absence of an absolute right to terminate the relationship without liability supports the finding of an independent contractor relationship. Also see Johnson, 783 P.2d at 1359 (testimony indicating that neither party was certain of his rights as to the ability to terminate supported a finding of an independent contractor relationship). With regard to the fourth factor, method of payment, the hearing officer found that Potter Itwasfree to bid or it appears did bid the work performed based on his normal hourly rate." He concluded that the fact that the respondent employers paid Potter

on an hourly basis was not conclusive evidence of an employeremployee relationship. Potter insists that he was paid by the hour and not for the job,and thatwhen he was an independent contractorhe bid and was paid by the job. All of the respondent employers except Beneke Construction paid Potter weekly, for the number of hours worked. Beneke Constructionpaid him hourly wages at the end of each job.Whilepayment on a timebasis is strong evidence of employment status, Solheim, 677 P.2d at 1038,we have observed before that in the construction industrycarpenters oftenwork onan hourlybasis. Johnson, 738 P.2d 

### at 1359. Hourly pay therefore is not conclusive evidence of either an independent contractor or an employment status. In short, substantial evidence supports thehearing officer's findings of fact with regard to the four factors we recognized in Sham, Solheim, and Johnson. Because three of the factors indicated that Potter was not an employee, and the fourthwas not conclusive, the District Court concluded correctly that Potterwas

an independent contractor and therefore not entitled to unemployment insurance benefits for 1987. AFFIRMED.

We concur: I/

JusticesJustice Terry N. Trieweilerdissenting. I dissent from the opinion of the majority. I especially disagree with themajority's treatment of appellant's relationship with all of the respondents as if they were the same. I conclude,based on the uncontroverted evidence, that Potter established an employer/employee relationshipwithJohn Bruton,Ed Kopfman, Beneke Construction, and John Lohden Construction as a matter of law. The majority correctly notes that 39-51-201(14), MCA, establishes a two-part test for determining whether someone rendering service for another is an independent contractor. It is not sufficient that petitioner has been or is engaged in an independent occupation or trade. Hemust also have been free from control over the performance of his services. 

### As pointed out by the majority, in determining whether there

was freedom from control we consider four factors: "(1) direct evidence of right or exercise of control; (2) method of payment;

(3) furnishing of equipment; and (4) right to fire." 

### Johnson

### v.Dept. oflabor&

### Indushy (l989), 240 Mont. 288, 292, 783 P.2d 1355, 1358. While it istrue that the first factorwas disputedby each of the alleged employers,it isnot correct that theremaining factors

were disputed. Plaintiff testified, and all four of the above employers agreed, that he was paid by the hour for his services, rather than based on a contract bid. In 

### SoIheim 

### v. TomDavk

### Ranch

(1984), 208 Mont. 265, 273, 677 P.2d 1034, 1038,we held that:Method of Payment. Payment on a time basis is strong evidence of employment status. Sharp 

### [v. Hoerner WaldoifCop. (1978)l 178 Mont. at 425, 584 P.2d at 1302; Larson, Section 44.33 (a),p. 8-74. Payment ona completed project basis is consistentwith,but not conclusiveof, independent contract status. Larson, Section 44.33(c), p. 8-93. Potter also testified that each of the above respondents provided him with some of the tools or equipment that were necessary for the work that he did for them. John Bruton acknowledged that he provided the radial arm saw, and may have provided a few other tools. Ed Kopfman did not discuss the issue of tools. Lisa Beneke did not discuss tools, and John Lohden did not bother to show up and testify about anything. Therefore, the third part of the four-part test for control is also undisputed with regard to these four respondents. We previously held in Soheim that: According to Larson, when an employer furnishes valuable equipment, an employment relationship almost invariably exists, but the test does not cut in both directions with equal force. Proof showing a worker furnishedhis own equipment is not necessarily fatal to a finding of employee status. Larson, Section 44.34, pp. 8-95

# - 8-104.

Finally, Potter testified that he could have terminated his employment with any of the above respondents at any time without incurring liabilitytothemand that they couldhave terminatedhis services without incurring further liability to him. He pointed out, in fact, that both Lohden and Beneke did terminate his services while work remained to be done. Ido not agree with themajority's conclusion that there was substantial evidence to support the hearing officer's finding that these four respondents did not have an absolute right to fire Potter. Lohden did not appear, and therefore,never answered thequestions. Beneke, when asked, did not respond directly to the question. However, both Kopfman and Bruton testified unequivocally that they could have discharged Potter at any timewithout incurring liability and that he could have quit at any time without incurring liability. In Solheim, we pointed out that: Larson states at Section 44.35 pp. 8-116

# - 8-122. "The power to fire 

# . . . is the power to control. The absolute right to terminate therelationshipwithout liability is not consistent with the concept of independent contract, under which the contractor should have the legal right to complete the project contracted for and to treat any attempt to prevent completion as a breach of contract." 

# .

# . . "Examples could be multiplied in which most of the other indicia 

## - method of payment, furnishing of equipment, skilled nature of the work, sometimes provisionby the employee even of his own assistantsand insurance,andnot infrequently contractualdisavowalsof right of control and of employment relation 

## - have pointed toward independent contractorship; yet the one element of right to fire, with its attendant implied right to control, has carried the day for employment relationship. Solheim, 677 P.2d at 1039. According tomy reading of the record in this case, therewas
no evidence to supportthehearing officer's findings that three of the four factors considered in determiningwhether the respondents exercised control were not present. Based on 

### my review of the record, the undisputed evidence establishes that three of the fourfactors were present. Therefore, as a matter of law, it must necessarily be concluded that at the times in question Potterwas

an employeeof these four respondents. Aswehavepreviouslyheld: In Sharpv.HoernerWaIdorfCorp. (1978), 178 Mont. 419, 584 P.2d 1298,this Court developed a four-part test for determining whether or not an employer has the right of control: (1) direct evidence of right or exercise of control; (2) method of payment; (3) furnishing of equipment; and (4) right to fire. Sharp, 178 Mont. at 425, 584 P.2d at 1301-02. 

### A finding that an individual is an independent contractor demands "'a convincing accumulation of these and other tests,

### "' while a finding of employee status "'can if necessary often be solidly proved onthe strength of one of the four items. I' Sharp, 178Mont. at 425, 584 P.2d at 1302 (quoting1CA. Larson, WorhenlsCompensationLaw 5 44.10 at 8-35 (1952)). WaIlingv.HardyConstruction (1991), 247 Mont. 441, 447, 807 P.2d 1335,

Since,by theundisputed evidence therewas not a significant accumulation of these factors to support a finding of independent contract status, I conclude that the petitioner, Dave Potter,was an employee of the four respondents previouslymentioned, and that the judgment of the District Court in their favor should be reversed. Iwould affirm the DistrictCourtIsconclusionthat as toMort Arkava, Potterwas an independent contractor.