No. 89-281 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

JOE JOHNSON, 

Petitioner and Appellant, 

-vsMONTANA DEPARTMENT OF LABOR & INDUSTRY, 

Respondent and Respondent. 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable Thomas McKittrick, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Larsen & Neill; Kenneth R. Neill, Great Falls, Montana 

For Respondent: 

Claren Neal, Dept. of Labor & Industry, Helena, Montana 

kr - Submitted on Briefs: Oct. 25, 1989 

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:F ) Decided: December 19, 1989 T-f (- -> 

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Justice John Conway Harrison delivered the Opinion of the 

Court. 

Joe Johnson, a Great Falls homeowner, appeals the 

decision of the District Court confirming a holding by the 

Board of Labor Appeals. The decision upheld a finding that a 

carpenter who had worked on the remodeling of Johnson's home 

was his employee and Johnson therefore owed unemployment 

insurance tax on the employee's wages. We reverse. 

Only one issue is presented: 

Did the District Court err when it found 

that there was substantial evidence to 

support the decision of the Board of 

Labor Appeals that Mike Voeller, the 

worker in question, was an employee and 

not an independent contractor u~der the 

AB test of § 39-51-201 (14), MCA? 

Joseph V. Johnson, the petitioner and appellant, is a 

food broker in Great Falls, Montana. When Johnson and his 

wife, Mary, bought a new home they contacted their former 

neighbor, a building contractor, to see if he would be 

interested in remodeling the new house. The neiqhbor 

declined the job, but indicated his son, Mike Voeller, might 

be able to do the carpentry work. Johnson then contacted 

Mike Voeller who, along with a Mr. Pontdt, agreed to do the 

remodeling job. 

At the time they engaged Voeller and Pontdt to remodel, 

the Johnsons were not sure exactly what they wanted done to 

their new home or how much they could afford. They did know 

they wanted the kitchen enlarged and remodeled and a bedroom, 

bathroom, porch and deck added. After reviewing the project 

and discussing finances, the parties agreed that the work 

would be done on an hourly basis rather than by bid, with 

Voeller and Pontdt each receiving $7 per hour and the 

Johnsons paying for materials. 
Voeller and Pontdt each had their own contracting 

businesses. Although he had not formally incorporated, 

Voeller called himself Mike Voeller, Inc. Voeller had his 

own tools and a small shop in his home. Both before and 

after the Johnson job Voeller performed independent 

contracting jobs as a carpenter, doing remodeling, roofing, 

siding and cabinet making. For several months immediately 

preceding the Johnson job, Voeller worked for wages as a 

carpenter for a firm known variously as B-A-C, M-S-C, and 

Hallmark. During the three years Voeller did carpentry work, 

the only time he ever worked for wages was his stint with 

B-A-C. After Voeller completed the B-A-C and Johnson jobs, 

he applied for unemployment benefits thinking he was entitled 

to unemployment benefits from his work at B-A-C. However, 

Voeller did not believe his work for Johnson entitled him to 

unemployment benefits. 

The direction Voeller and Pontdt received from Johnson 

was minimal. Johnson would discuss options with the 

carpenters, and Voeller and Pondtd would tell Johnson whether 

they could or could not carry out his idea. Voeller and 

Pontdt would arrange for and hire other building 

professionals such as the electrician, perfa-taper and 

plumber, all of whom were also paid on an hourly basis. As 

the work progressed Johnson would, as customary, approve the 

final construction plans and select the finish materials to 

be used. 

When Voeller applied for unemployment the Department of 

Labor and Industry determined Voeller to be Johnson's 

employee, based on questionnaires completed by the two men. 

The Department found, therefore, that Johnson owed the 

Department for past unpaid unemployment contributions during 

the period Voeller worked for Johnson. 
A redetermination hearing before an Appeal's Referee 

confirmed Voeller's status as an employee. Johnson then 

appealed the determination to the Board of Labor Appeals. 

Following a telephone hearing, the Board of Labor Appeals 

hearing officer affirmed the Department's conclusion, finding 

Voeller an employee under 55 39-51-203 (4) and 39-51-201 (14), 

MCA . On judicial review the District Court upheld the 

earlier findings that Voeller and others similarly situated 

were Johnson's employees, and Johnson now appeals the court's 

decision. 

The standard of review for cases involving claims 

before the Board of Labor Appeals is found in Title 39, Part 

24 of Chapter 51: 

In any judicial proceeding under 

39-51-2406 through 39-51-2410, the 

findings of the board as to facts, if 

supported by evidence and in the absence 

of fraud, shall be conclusive and the 

jurisdiction of said court shall be 

confined to questions of law. 

Section 39-51-2410 (51, MCA. 

Accordingly, those facts, as the Board of Labor Appeals 

found them to exist, will stand if supported by the evidence, 

absent fraud. Recent case law has held that "supported by 

the evidence" means supported by substantial evidence, which 

is "something more than a scintilla of evidence, but may be 

less than a preponderance of evidence." Gypsy Highway 

Gathering System, Inc. v. Stokes (1986), 221 Mont. 11, 15, 

716 P.2d 620, 623. See also Larry's Post Co., Inc. v. 

Unemployment Insurance Division (Mont. 1989) , 777 P. 2d 325, 

46 St.Rep. 1193. While the substantial evidence test gives 

deference to the agency fact finder, the court's judicial 

review must nonetheless be "searching and careful, subjecting 

the agency's decision to close judicial scrutiny." Cranston 
v. Clark (9th Cir. 1985), 767 F.2d 1319, 1321 (citinq 

Memorial, Inc. v. Harris (9th Cir. 1980), 655 F.2d 905, 912). 

More importantly, we cannot permit the letter of the 

law to transcend the spirit of the law. As we noted when 

previously faced with this question: 

We feel that whether a person performing 

services is an employee or an independent 

contractor is the question before us, and 

statutes used as guides in making such 

determinations must not be distorted to 

allow persons who are truly independent 

in their operation to be held employees 

merely for tax purposes and resultinq 

benefits derived from an 

employer-employee relationship. 

St. Regis Paper Co. v. Unemployment Compensation Comm'n 

(1971), 157 Mont. 548, 552, 487 P.2d 524, 526. 

The two-part test to determine whether an individual is 

an independent contractor is found at § 39-51-201 (14) , MCA: 

"Independent contractor" means an 

individual who 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. 

This test, formerly known as the ARC test, was amended 

by the 1987 Legislature dropping a third prong of the test.. 

The amended version of S 39-51-201 (14), MCA, is now called 

the AB test, and its emphasis, as under the ABC test, and at 

common law, is control. This Court has previously recognized 

four factors to consider in determining if the right to 

control exists: (1) direct evidence of right or exercise of 

control; (2) method of payment; (3) furnishing of equipment; 
and (4) right to fire. Sharp v. Hoerner Flaldorf Corp. 

(1978), 178 Mont. 419, 425, 584 P.2d 1298, 1301-02 (citing 

Larson's Workmen's Compensation Law, Vol. lA, S 44.31, p. 

8-35). 

The Hearings Examiner addressed the first factor, 

exercise of or right to control, in his Finding of Fact No. 

4: "The Appellant asked for advice from the carpenters as 

well as directed their work or chose among options or 

suggestions made by the carpenters as their work progressed. 

The Appellant also chose, as needed, the finish materials 

purchased and used." In affirming the decision, the District 

Court relied on the same sort of evidence, finding in its 

memorandum and order that: 

[Tlhe record contains evidence that shows 

the petitioner made numerous changes in 

the scope and extent of the work to be 

performed. The petitioner chose the 

materials and paid the supplier directly 

for supplies utilized. The petitioner 

also had the right to approve the work 

performed and indicated he had the right 

to make workers work faster. 

All of the facts pointed to by the Hearings Examiner 

and the District Court to support their finding of control 

are usual and ordinary practices in the carpentry business. 

The finding does not so much show control as it does indicate 

a business practice. Mr. Voeller testified that Mr. Johnson 

did not correct the carpenters as to details in the 

performance of their work and expected them to use their 

expertise as carpenters to carry out the remodeling project. 

Mr. Johnson testified that he would tell Voeller and Pontdt 

his ideas for remodeling and the two carpenters would tel!. 

him if it was possible. In other words, Johnson told Voeller 

and Pontdt what he wanted done but not - how to do it. 

This Court has often reiterated the control test in 

these terms: 
An independent contractor is one 

who renders service in the course of an 

occupation, and represents the will of 

his employer only as to the result of his 

work, and not as to the means whereby it 

is accomplished, and is usually paid for 

the job . 

St. Regis Paper Co., 157 Mont. at 552, 487 P.2d at 526 

(quoting Kimball v. Ind. Acc. Bd. (1960), 138 Mont. 445, 448, 

375 P.2d 688, 690). It is evident that Johnson merely 

controlled the result of the carpenters' work, not the 

methods Voeller and Pontdt used to accomplish the end result. 

As to the second factor, method of payment, evidence 

showed that both carpenters were paid on an hourly basis and 

usually submitted their hours to the Johnsons weekly. As a 

general rule, payment on a time basis is strong evidence of 

employment status while payment on a completed project basis 

is consistent with, but not conclusive of, independent 

contractor status. Solheim v. Tom Davis Ranch f1984), 208 

Mont. 265, 273, 677 P.2d 1034, 1038. 

There is testimony that the method of payment in the 

carpentry industry is accomplished in one of three ways--on a 

bid, hourly or cost-plus basis. Mr. Voeller testified that 

he had done projects on both a bid and hourly basis, and that 

he usually did smaller jobs on a bid basis. Voeller stated 

that he commonly did larger jobs on an hourly basis and, 

after discussion with Johnson, all parties decided that 

hourly pay would be best on the Johnson job because the 

Johnsons did not know exactly what they wanted done or how 

much they could afford. 

The third test regarding furnishing of equipment 

preponderates in favor of an independent contractor status 

between Voeller and Johnson. This Court has adopted the view 

of Larson's Workmen's Compensation Law, Vol. lC, § 44.34, pp. 

8-95 - 8-104, in - Solheim, that an employment relationship 
usually exists where the employer furnishes equipment, but an 

employee furnishing his own equipment does not preclude an 

employment relationship. In Solheim, we concluded that 

furnishing equipment indicates an independent contractor 

relationship. Solheim, 677 P.2d at 1039. 

The right to fire is the final factor determining 

control. In discussing this final element the Larson 

treatise notes: 

The 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. 

Larson's Workmen's Compensation Law, Vol. lC, S 44.35, pp. 

8-149 - 8-158. 

Because the contract between the parties was oral, the 

only evidence before the District Court and the hearings 

examiners regarding termination comes from the testimony of 

Voeller and Johnson. Reviewing the testimony, it is apparent 

that neither man was certain of his rights as to the ability 

to terminate. When asked by the examiner if Johnson could 

have decided he no longer wanted Voeller's services, Voeller 

replied that Johnson "probably" could have. Johnson's answer 

when asked about his ability to fire the carpenters was 

equally as tentative: 

I think, like I testified earlier, if it 

would have taken them, you know, a real 

long time. To me it seemed like a long 

time, and not being a carpenter, you 

know, it's really questionable what a 

long time is. I'm sure somewhere along 

the line I could have, yes. 

Johnson's reply indicates his belief that, had the carpenters 

not lived up to their part of the bargain, he would have been 
justified in terminating the business relationship. However, 

neither man was directly asked if he believed Johnson could 

fire Voeller without liability. 

As discussed above, three of the four control factors 

substantiate a finding of an independent contractor 

relationship between Johnson and Voeller. First, Johnson did 

not possess the right to control how Voeller accomplished the 

remodeling job, only the right of a homeowner to tell the 

carpenter what he wanted done as the house was remodeled. 

Secondly, Voeller and Pontdt furnished all of the equipment 

necessary to complete the job. Finally, Johnson's right to 

fire the carpenters was not absolute. As to the other 

factor, method of payment, while hourly pay usually evidences 

employment, custom in the industry often finds carpenters 

working on a per hour basis, and is not conclusive of either 

an independent contractor or employment status. It must. be 

remembered that the purpose of this test is not 

[tlo widen the scope of the term 

"employment" as used in the statute so as 

to include therein persons not otherwise 

included, but . . . to exclude from the 

definition of the term "employment" 

persons who might, except for the 

application of these tests, be included 

therein. 

St. Regis Paper Co., 487 P.2d at 526 (quoting National 

Trailer Convoy, Inc., v. Undercof ler (Ga.App. 1964) , 137 

S.E.2d 328, 331). 

We hold that under the A portion of the AB test of 

39-51-201 (14) , MCA, Voeller meets the definition of an 

independent contractor. 

Thus, we turn to the I3 portion of the test which 

requires the independent contractor to be engaged in an 

independently established occupation. The District Court, 

finding that the relationship between IToeller and Johnson 
failed part A of the test, did not address part B. The 

record clearly demonstrates that Voeller is engaged in a 

trade independent of Johnson's. Johnson is a food broker who 

sells groceries for a living. Contracting and carpentry have 

no relation whatsoever to what Johnson does for a living. 

Voeller is a carpenter and has been since 1985. Accordingly, 

Voeller also satisfies the B portion of the independent 

contractor test. 

Having met the statutory requirements of 

5 39-51-201(14), MCA, we hold that Voeller is an independent 

contractor rather than employee of Johnson and we, therefore, 

reverse . 

Justices 
Justice R. C. McDonough dissents. 

The majority have in essence reviewed this case de novo. 

They have not applied the proper standard of judicial review. 

The standard of review of this Board of Labor Appeals 

determination is set out in 5 39-51-2410(5), MCA, as follows: 

(5) In any judicial proceeding under 

39-51-2406 through 39-51-2410, the findings of the 

board as to the facts, if supported by evidence and 

in the absence of fraud, shall be conclusive and 

the jurisdiction of said court shall be confined to 

questions of law. 

This was the standard employed by the District Court as set 

out in paragraph two of its Memorandum and Order. 

"Supported by evidence" has been held by this Court to 

mean supported by substantial evidence. Jordan v. Craighead 

(1943), 114 Mont. 337, 136 P.2d 526. A finding of fact under 

the circumstances here is binding on the Court if it is 

"supported by substantial evidence, regardless of whether 

there is substantial evidence or even a preponderance of 

evidence to the contrary." Gypsy Highview Gathering System, 

Inc. v. Stokes (1986), 221 Mont. 11, 716 P.2d 620, quoting 

Jordan, 114 Mont. 337, 136 P.2d 526. Substantial evidence 

"is something more than a scintilla of evidence, but it may 

be less than a preponderance of the evidence." 

Gypsy Highview Gathering System, Inc., 716 P.2d at 623. 

Is there more than a scintilla of evidence here 

supporting the factual findings of the Board of Labor Appeals 

and the hearing examiner? 

The burden here is on the appellant to show that the 

worker is an independent contractor and there is a statutory 

test to determine the worker's status. Section 39-51-201(4), 

MCA, provides: 
(14) "Independent contractor" means an 

individual who 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. 

We need only to discuss "(a)". As to that part, we have 

cited four factors in determining degree of control in 

workers' compensation cases which are also applicable here: 

1) direct evidence of right or exercise of control; 2) method 

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

See Sharp v. Hoerner Waldorf Corp. (1978), 178 Mont 419, 584 

P.213 1298 (1978), and Solheim v. Tom Davis Ranch (1984), 208 

Mont. 265, 677 P.2d 1034. We said in Sharp: 

Larson's treatise enumerates four factors to 

consider when attempting to determine right of 

control in a given situation. Those factors are: 

(1) direct evidence of right or exercise of 

control; (2) method of payment; (3) furnishing of 

equipment; and (4) right to fire. Larson, S 

44.31., p. 8-35. The treatise further points out 

that the consideration to be given these factors is 

not a balancing process, rather ". . . independent 

contractorship . . . is established usually only by 

a convincing accumulation of these and other tests, 

while employment . . . can if necessary often be 

solidly proved on the strength of one of the four 

items [above]." Larson, supra. 

From the above it is clear that all four factors are needed 

to show a worker is an independent contractor. 

Looking at the factor of the furnishing of equipment, 

the facts are clear the worker furnished his own tools or 

equipment and this was a Finding (No. 5) by the examiner. 

The appellant has met his burden as to this factor required 

for finding the worker an independent contractor. 
Second, as the method of payment here the worker was 

paid by the hour. "It is a strong indication" the status was 

that of employee. Sharp, 584 P.2d at 1302. Larson, § 44.33, 

p. 8-41. The workers here were paid weekly for the hours 

worked that week. This payment by the hour is more than a 

scintilla of evidence. The appellant claims the reason the 

hourly method was selected was because the appellants were 

unclear as to the extent of what they wanted done and were 

limited as to the amount of money they could spend. The 

appellant did decide what work was to be done. The weight to 

be given to the fact of hourly payment and its "strong 

indication" and the weight to be given to appellant's reason 

for doing it, is within the province of the fact finder, 

neither one is conclusive either way. 

Relative to direct evidence of right or exercise of 

control, this also is a question of fact. Is there a 

scintilla of evidence supporting direct control? Changes 

were made by appellant during the course of the work. 

Workers did as directed by the changes. The appellant paid 

an hourly rate and expected the workers to do what he wished. 

Appellant made day to day decisions as to materials used and 

paid for them directly to supplier (amounting to over 

$15,000.00). Appellant had the right to approve the work. 

See transcript p. 32, lines 11-15 as follows: 

RAY : You were done upon, er, upon--like the 

inspection, did he inspect it and have any changes 

made or what? 

VOELLER: Oh ya, he had changes all the way through 

it, you know, but when we were finally done, you 

know, it was done. He looked at it and it was 

done. 

The appellant also felt he had the power to push them along 

and insist they work faster. This is certainly more than a 
scintilla of evidence of direct control and it would make a 

prima facie case, Findings 3 and 4 of the examiner are 

supported by this evidence. 

Even if there was not substantial evidence to support 

the findings of the examiner as to factors of control and 

method of payment, there is no question there is more than a 

scintilla of evidence to support Finding 6 of the examiner 

which is as follows: "Either the appellant or the carpenters 

could terminate the work relationship without liability." 

There was no written agreement, only oral. 

In the examination of Mike Voeller, a worker, by the 

hearing examiner the following questions were asked and the 

following answers given: 

EXAMINER: During the course of the project could 

you have decided you didn't want to do anymore and 

stop? 

VOELLER: Ya, I could have. 

EXAMINER: All right. Could Mr. Johnson have just 

decided he was . . . didn't want to employ you 

anymore or be associated with you anymore and tell 

you he wanted somebody else to do it? 

VOELLER: He probably could've if he'd wanted, ya. 

The following discourse also took place between appellant 

Johnson and attorney for respondent. 

BAY: Mr. Johnson, if you weren't happy with the 

work or felt these workers weren't working fast 

enough, could you have fired them? 

JOHNSON: I think, like I testified earlier, if it 

would have taken them, you know, a real long time. 

To me it seemed like a long time, and not being a 

carpenter, you know, it's really questionable what 

a long time is. I'm sure somewhere along the line 

I could have, yes. 
This testimony of the two principal participants is more 

than a scintilla of evidence that either one could have 

terminated the relationship without liability. Mr. Voeller's 

testing is quite clear taken as a whole. It is not precise 

because of the word "probably" as to his understanding of 

appellant's riqht. The witness is not a user of words but is 

a trademan. Voeller certainly felt he could quit. 

Of the four factors to be met by appellant only one, the 

furnishing of equipment, has been met. The determinations by 

the examiner against appellant of the other three questions 

of fact are supported by substantial evidence. 

Section 39-51--2410 (5) , MCA, requires that courts accept 

the findings of fact of the agency if those findings are 

supported by substantial evidence. The District Court 

applied the standard and so should we. 

&F&&> Justice 

Justice William E. Hunt, Sr.: 

I join in the dissent of Justice McDonough.