No. 89-72
INTHE SUPREME COURT OF THE STATE OF MONTANA
1989

STATE COMPENSATION INSURANCE FUND, Appellant,-vsSKY COUNTRY, INC., Respondent.

0

### 5 r0 APPEAL FROM: TheWorkers' CompensationCourt, The~onorabg Tiwthy Reardon, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
CharlesAdams, StateComp. Ins. Fund, Helena, Montana
For Respondent:
John P. Atkins; Bryan & Atkins, Bozeman, Montana
For AmicusCuriae:
Hon. Marc Racicot, AttorneyGeneral, Helena, Montana ClayR. Smith, Solicitor, Helena, Montana

Filed: Submittedon Briefs: Aug. 31, 1989
Decided: October 17, 1989Justice John Conway Harrison delivered the Opinion of the Court.

This appeal results from a lengthy administrative process which culminated in the Workers' CompensationCourt. Respondent Sky Country, Inc., a Bozeman trucking firm, contested a finding by theAudit Bureau of the Department of Labor and Industry concluding that several of its drivers classified as "independent contractors" were actually "employees" for Workers' Compensation insurance purposes. Further administrative proceedings affirmed the Audit findings, and Sky Country sought judicial relief in the Workers' CompensationCourt. TheWorkers' Compensation Court held that Sky Country had been denied due process of law because the Division of Workers' Compensation was the real party in interest as well as the prosecutor and adjudicator in the administrative process and reversed the administrator's decision. From that decision, the State Compensation InsuranceFund appeals. Sky Country is insured 

### by the State Compensation Fund under Plan No. 3 of the Workers' Compensation Act, as prescribed in S 39-71-2301, et seq., MCA. Following a February 1986 audit, the Department of Labor and Industry concluded that, for purposes of reporting for workers' compensation and unemployment insurance, certain individuals
were employees rather than independent contractors. Because the workerswere reclassifiedas employees, itwas determined that Sky Country owed an additional $2,907.59 for premium underpayment for its workers' compensation insurance from July 1, 1984 throughJune 30, 1985. In September 1986, Sky Country requested an administrative review of the audit determination. Upon review, which included an informal conference, theadministrator of the Division ofWorkers' Compensationagreed with the audit finding that the individuals were employees rather than independentcontractors. Sky Country next initiated contested case proceedings under the Montana Administrative Procedure Act, found at Title 2,Chapter 4,Part 6,MCA. InMay 1987,an evidentiary hearing was held before Steven Shapiro, a hearing examiner and chief legal counsel for the Workers' Compensation Division. Shapiro's findings were also adverse to Sky Country. The administrator of the Division of Workers' Compensation issued the Division's Final Order which adopted the hearing examiner'sproposed decision. Sky Country then sought relief in the Workers' Compensation Court, filing a Petition for Appeal in September, 1988. Of the various grounds for reversal, Sky Country's assertion that it was denied due process because the Workers' Compensation Administrator's decision was "tainted by the pecuniary interest the [Workers1 Compensation] Division has in the outcome" persuaded the Workers' CompensationCourt. The Workers' Compensation Court reversed, holding that Sky Country had been denied due process of law in violation ofArticle 11, Section 17,Mont. Const. (1972) "because the Division ofWorkers' Compensation is the realparty in interest

# .. .aswell as theprosecutor and adjudicator[

### .I

### " The Workers' Compensation Court explicitly noted that there was no evidence that either the hearing examiner or the Workers' Compensation Administrator exhibited "any improper,arbitrary conduct in the hearing and decision-makingprocess." The issues presented by the parties to this action focus on whether Article 11, Section 17 of the Montana Constitution barred the Division of Workers' Compensation from assuming jurisdiction of the underlying disputeconcerning the employment status of the individuals working for Sky Country. Through an amicus curiae brief, the Montana Attorney General proffers a second, and we think more compelling, issue: Does 

### 5 39-71-415, MCA, require that the administrativeproceeding be transferred from the Division of Workers' Compensation to the Appeals Bureau of the Department of Labor and Industry as of July 1, 1987,therebydenying the Workers' Compensation Court jurisdiction to determine the appeal from such proceeding? Although the controversy over the status of Sky Country's workers arose before the effective date of $ 39-71-415, MCA, the statute nonetheless applies to this dispute. Section 39-71-415, MCA, which became effective on July 1, 1987, provides a procedure for resolving disputes regarding independent contractor status. Section 39-71-415(I),MCA, states:
(1) If an individual, employer, or insurer has a dispute as to whether an individual is an independent contractor or an employee as defined in this

- chapter, any party may petition a department of labor and industry appeals referee for resolution of the dispute in accordance with 39-51-1109 andmay appeal from adecision of the appeals referee in the same manner as prescribed in 39-51-2403 and 39-51-2404. The legislative intent is to create a single administrative procedure for settling disputes over the status of workers as employees or independent contractors for both unemployment compensation and workers' compensation purposes. February 17, 1987, Minutes of Senate Labor and Employment Relations Committee at 1-4; March 13, 1987, Minutes of House Business and Labor Committee at 2-3. Sky Country's quarrel with the audit finding that its workerswere employees for insurance purposes fits squarely within the intent of 

### 5 39-71-415,MCA. Section 1-2-109,MCA,provides that "[nlo lawcontained in any of the statutes of Montana is retroactive unless expressly so declared." New legislation, such as in this case, which affects only procedural matters and does not relate to substantive rights of the parties does not fall within the ambit of § 1-2-109,MCA. Weiss v. State (1986), 219 Mont. 447, 449, 712P.2d 1315,1316. The status of a worker as to whether he is an independent contractor or an employee implicates more than just collection of workers' compensationpremiums. It also involves the rights of the State to collect unemployment compensation contributions and has other State and Federal implications. Accordingly, aprocedure before the Department of Labor was established by the legislature for a more comprehensive examination of the status of such workers. We conclude this is the appropriateprocedure to follow. We now remand and directthe controversybe resolved in accordance with the provisions of S 39-71-415, MCA. This matter is remanded to the Workers' Compensation Court which shall vacate its order and dismiss the appeal. The Division of Workers' Compensation shall then vacate its final order and transfer the matter to the Department of Labor and Industry fordisposition, in accordance with 55 39-71-415 and 39-51-1109,MCA, consistentwith this opinion.Weconcur: 

### A

ief Justice'

Justices