Title: Wallis v. Secretary of Kans. Dept. of Human Resources
Citation: 236 Kan. 97, 689 P.2d 787
Docket Number: 55,788
State: Kansas
Issuer: Kansas Supreme Court
Date: October 26, 1984

236 Kan. 97 (1984)
689 P.2d 787
VERNON O. WALLIS, KIRBY VACUUM CLEANER CO., DODGE CITY, KANSAS, Appellee,
v.
SECRETARY OF KANSAS DEPARTMENT OF HUMAN RESOURCES, STATE OF KANSAS, Appellant.
No. 55,788

Supreme Court of Kansas.
Opinion filed October 26, 1984.
H. Dean Cotton, of Topeka, argued the cause and was on the brief for appellant.
Eldon L. Ford, of Cosgrove, Webb &amp; Oman, of Topeka, argued the cause and was on the brief for appellee.
The opinion of the court was delivered by
LOCKETT, J.:
This is an appeal from the District Court of Ford *98 County. The trial judge reversed the findings and rulings of the Secretary of Human Resources and found certain persons selling vacuum cleaners were independent contractors rather than employees.
The plaintiff, Vernon O. Wallis (Wallis), is the proprietor of Kirby Vacuum Cleaner Co. (Kirby), Dodge City, Kansas. The Kansas Department of Human Resources (KDHR) conducted a hearing on December 21, 1981, to determine whether individuals who are dealers of Kirby Vacuum Cleaners were employees of Wallis or were independent contractors under K.S.A. 44-703(i)(1)(B) and K.S.A. 44-703(i)(3)(D). The hearing officer made findings of fact and determined that the dealers were employees and not independent contractors and that assessments of unemployment taxes made by the KDHR against plaintiff for such individuals were owed. Wallis requested a review by the Secretary of Human Resources (Secretary). The Secretary adopted the hearing officer's findings of fact and determined the individuals were employees of Wallis, not independent contractors.
Wallis petitioned for judicial review pursuant to K.S.A. 44-710b(b). The district court heard the matter on January 14, 1983, and issued a decision containing findings of fact and conclusions of law. The district court adopted the findings of fact of the hearing officer, and found the jurisdiction of the district court was confined to questions of law. The district court determined that the dealers were independent contractors, not employees under common law rules and statutory definitions, and accordingly abated the taxes collected.
The findings of fact adopted by the district court are:
After receiving the decision of the court dated January 27, 1983, but prior to the filing of the Journal Entry, KDHR filed a first Notice of Appeal on February 28, 1983. The Journal Entry was filed on May 9, 1983. On May 31, 1983, KDHR filed a second Notice of Appeal.
KDHR raises two issues:
1. Whether the district court applied the proper standard for a review of an administrative officer's findings of fact under K.S.A. 44-710b(b).
2. Whether the district court correctly determined the question of law based on the findings of fact.
The statutory provision granting judicial review of decisions rendered by the Secretary concerning tax assessments is K.S.A. 44-710b(b). The relevant part of the statute states that "In any proceeding under this subsection the findings of the secretary of human resources 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."
The only case in which this section of the statute has been mentioned is Wesley Medical Center v. McCain, 226 Kan. 263, 597 P.2d 1088 (1979). The case actually dealt with the constitutionality of the Kansas Employment Security Act. The court held the Act did not violate either the due process or equal protection clauses of the 14th Amendment to the Constitution of the United States or Section 18 of the Bill of Rights of the Constitution of the State of Kansas. In one paragraph, Justice Herd mentioned the pertinent section of the statute:
The KDHR argues that since the McCain case said only "some" evidence was needed to support the Secretary's findings, *101 the district court should not have reversed the Secretary. Wallis, however, argues that "substantial" evidence is required before a district court must follow an administrative decision. The statute itself says only "evidence."
At the judicial review, the district judge stated that he would examine the evidence to determine "whether or not there is substantial evidence"; that determination was never made since the judge made no findings of fact but adopted the findings of fact of the hearing officer. Where the district court adopts the hearing officer's findings of fact in total, it is then limited by K.S.A. 44-710b(b) to considering questions of law.
The trial judge correctly stated the question of law to be: "Do the findings of fact create an employee-employer relationship as a matter of law?" To make that determination the district court, when reviewing the Secretary's ruling, considers the statutes and Kansas cases discussing the employer-employee relationship. K.S.A. 44-703(i)(1)(B) provides:
"(i) `Employment' means:
....
K.S.A. 44-703(i)(3)(D) provides:
Where the findings of the hearing officer and the Secretary are contrary to the evidence, it presents a question of law which is always open to review by the courts. In reviewing questions of law, the trial court may substitute its judgment for that of the agency, although ordinarily the court will give great deference to the agency's interpretation of the law. Richardson v. St. Mary Hospital, 6 Kan. App.2d 238, 242, 627 P.2d 1143, rev. denied 229 Kan. 671 (1981).
*102 The hearing officer based his ruling on K.S.A. 44-703(i)(1)(B), K.S.A. 44-703(i)(3)(D), and McCarty v. Great Bend Board of Education, 195 Kan. 310, 403 P.2d 956 (1965). McCarty is a workers' compensation case. The defendants claimed McCarty was an independent contractor at the time of his injury. In discussing the applicable rules, this court stated:
The McCarty court found more of these factors present than not and ruled the plaintiff was an employee.
An independent contractor is generally described as one who, in exercising an independent employment, contracts to do certain work according to his own methods, without being subject to the control of his employer, except as to the results or product of his work.
There can be no absolute rule for determining whether an individual is an independent contractor or an employee. It is the facts and circumstances in each case that determine whether one is an employee or an independent contractor.
Under K.S.A. 44-703(i)(1)(B) the court must look to case law to determine when there is an employer-employee relationship.
This court has often been asked to determine whether an individual is an employee or an independent contractor under the common law. It is often difficult to determine whether a person is one or the other, since there are elements pertaining to relations which occur without being determinative of the relationship. There is no exact method which may be employed to determine whether one is an employee or an independent contractor.
The primary test used by the courts in determining whether the employer-employee relationship exists is whether the employer has the right of control and supervision over the work of the alleged employee, and the right to direct the manner in *103 which the work is to be performed, as well as the result which is to be accomplished. It is not the actual interference or exercise of the control by the employer, but the existence of the right or authority to interfere or control, which renders one a servant rather than an independent contractor. Jones v. City of Dodge City, 194 Kan. 777, 402 P.2d 108 (1965).
In Phillips Pipe Line Co. v. Kansas Cold Storage, Inc., 192 Kan. 480, 389 P.2d 766 (1964), one issue was whether a certain individual was an employee or an independent contractor. A landowner hired the person to clean silt out of a drainage ditch at a specified rate of pay per hour. No directions were given as to how the work was to be done and it was done by the workman with his own equipment according to his own methods. In determining as a matter of law that the relationship was that of independent contractor, this court stated:
There are no Kansas cases with facts similar to those of this case. There are, however, several cases from other jurisdictions with similar facts. In Kirby Co. of Bozeman v. Employment Sec., ___ Mont. ___, 614 P.2d 1040 (1980), a vacuum cleaner distributor filed a petition for judicial review of the decisions of the Board of Labor Appeals finding that the distributor's dealers were employees within the meaning of the state unemployment insurance law. The plaintiff was a direct factory distributor of *104 vacuum cleaners, purchasing the products directly from the manufacturer and selling them to area distributors and dealers. The dealers were recruited by Kirby. Salespersons signed a one-year written agreement when they became dealers. A Kirby officer gave product demonstrations to new dealers, provided a sales guide booklet, conducted sales clinics for the dealers and furnished leads to the dealers. No hours or territories were set for the dealers, who were not reimbursed for expenses, guaranteed minimum earnings or provided with any fringe benefits. Dealers bought the products from Kirby for cash or on a 30-day open account. Dealers could resell the products at any price and negotiate their own terms on the contracts.
The Montana court discussed two tests for determining whether there was an employer-employee relationship. The statutory test looked at the control an employer has over an individual, whether the service is outside the usual course of the business, and whether the individual is customarily engaged in an independently established trade or business. Under the common law test the court looked at the control the employer had over the individual.
Applying these tests, the court determined that the dealers were employees of the distributor based on the amount of control the distributors had over the dealers. The factors that the court considered relevant were:
The same result was reached in Kirkpatrick v. Peet, 247 Or. 204, 428 P.2d 405 (1967). The case involved basically the same facts as the Montana case. The court used a statutory test similar to that in Kirby Co. of Bozeman, ___ Mont. ___, 614 P.2d 1040, i.e., control by the employer, whether there was an independently established occupation, and whether the dealers were customarily engaged in the business. The court found that the dealers were employees of the distributor:
Bevan v. California Emp. Stab. Com., 139 Cal. App. 2d 668, 294 P.2d 524 (1956), involved basically the same facts as the Montana and Oregon cases. The court, however, considered only the common law definition of employer-employee and independent contractor. The court found there was sufficient control present to make the vacuum cleaner dealers employees. Similar results under similar facts were also reached in Hart v. Johnson, 68 Ill. App.3d 968, 386 N.E.2d 623 (1979), and Beaman v. Superior Products, Inc., 89 Ariz. 119, 358 P.2d 997 (1961).
The only case which has reached a different result is Speaks, Inc. v. Jensen, 309 Minn. 48, 243 N.W.2d 142 (1976). The Kirby vacuum cleaner distributors had been found liable for unemployment compensation under virtually the same circumstances as in the other cases. On appeal, the court, using the common law definition of master-servant, reversed the administrative tribunal. The court said that the degree of control necessary to bring the relationship between the distributor and its dealers within the definition of employment was not present in the record.
In Read v. Warkentin, Commissioner, 185 Kan. 286, 341 P.2d 980 (1959), the court considered whether taxicab drivers were employees or independent contractors for purposes of unemployment compensation assessments. We said:
The Read court determined that the drivers were employees because the employer not only had the right and authority to direct and control the manner in which his drivers carried on their operations, but to a certain extent actually exercised these rights.
In the present case, the district judge found that Wallis "had no right to direct and control the method and manner of the dealers in selling vacuum sweepers." Wallis does not provide offices, desk space, or business phones, nor pay dealers' expenses and does not withhold social security or income tax from them.
Wallis does maintain direction and control with respect to the training of dealers as well as price of products. Dealers must be authorized through Wallis who retains the right to terminate the contract without cause on 30 days notice. While the dealers may sell the products in whatever method they feel best accomplishes their goals, Wallis can terminate the contract with the dealer "in those instances wherein he finds the dealer to be not representative of the product or the product line." Other interconnected factors are also present. Wallis, his son, and other experienced dealers accompany newly associated dealers during the early course of their sales experience. Wallis has a profit-sharing plan provided by the distributor for dealers who help train other dealers. Dealers are not responsible for repossession of the vacuum cleaner when installment contracts fall through. Dealers do not service the equipment, but a service technician in Wallis' office does. The distributor's business is limited to selling and servicing.
In Read, the court said the right to control, not the actual *107 exercise of the right, determines whether there is control. Here the distributor has the right to control the dealers, but has not exercised that right. Wallis and the salesmen are both engaged in a service within the usual course of the business for which the service is performed, the sale of Kirby vacuum cleaners. In addition, all the services of selling are not performed outside Wallis' place of business. Therefore, their relationship under the common law and the statutes is that of employer-employee and not that of independent contractor.
Here the district court incorrectly determined the question of law based on the adopted findings of fact. Both the hearing officer and the Secretary had correctly determined from the facts the salesmen were employees of Wallis. The trial court is reversed and its order abating the taxes collected is set aside.