No. 89-72 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

STATE COMPENSATION INSURANCE FUND, 

Appellant, 

-vsSKY COUNTRY, INC., 

Respondent. 

0 5 r0 

APPEAL FROM: The Workers' Compensation Court, The ~onorabg Tiwthy 

Reardon, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Charles Adams, State Comp. Ins. Fund, Helena, 

Montana 

For Respondent: 

John P. Atkins; Bryan & Atkins, Bozeman, Montana 

For Amicus Curiae: 

Hon. Marc Racicot, Attorney General, Helena, Montana 

Clay R. Smith, Solicitor, Helena, Montana 

Filed: 

Submitted on Briefs: Aug. 31, 1989 

Decided: October 17, 1989 
Justice John Conway Harrison delivered the Opinion of the 

Court. 

This appeal results from a lengthy administrative 

process which culminated in the Workers' Compensation Court. 

Respondent Sky Country, Inc., a Bozeman trucking firm, 

contested a finding by the Audit 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' Compensation Court. The Workers' 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 Insurance Fund 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 workers were reclassified as employees, it was determined 

that Sky Country owed an additional $2,907.59 for premium 

underpayment for its workers' compensation insurance from 

July 1, 1984 through June 30, 1985. 

In September 1986, Sky Country requested an 

administrative review of the audit determination. Upon 

review, which included an informal conference, the 
administrator of the Division of Workers' Compensation agreed 

with the audit finding that the individuals were employees 

rather than independent contractors. 

Sky Country next initiated contested case proceedings 

under the Montana Administrative Procedure Act, found at 

Title 2, Chapter 4, Part 6, MCA. In May 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's proposed 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' Compensation Court. The Workers' Compensation Court 

reversed, holding that Sky Country had been denied due 

process of law in violation of Article 11, Section 17, Mont. 

Const. (1972) "because the Division of Workers' Compensation 

is the real party in interest . . . as well as the prosecutor 

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-making process." 

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 dispute 
concerning 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 

administrative proceeding be transferred from the Division of 

Workers' Compensation to the Appeals Bureau of the Department 

of Labor and Industry as of July 1, 1987, thereby denying 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 and may appeal 

from a decision 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 workers 
were employees for insurance purposes fits squarely within 

the intent of 5 39-71-415, MCA. 

Section 1-2-109, MCA, provides that "[nlo law contained 

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, 712 P.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' compensation premiums. It also 

involves the rights of the State to collect unemployment 

compensation contributions and has other State and Federal 

implications. Accordingly, a procedure 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 appropriate procedure to follow. 

We now remand and direct the controversy be 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 for disposition, in accordance with 55 39-71-415 and 

39-51-1109, MCA, consistent with this opinion. 
We concur: A 

ief Justice' 

Justices