Court Opinion

ID: 9371520
Source: CourtListenerOpinion
Date Created: 2023-02-16 16:04:52.105227+00
Date Added: 2024-06-11T17:16:28.071963
License: Public Domain

RENDERED: FEBRUARY 16, 2023
                                                        TO BE PUBLISHED

              Supreme Court of Kentucky
                              2022-SC-0003-WC

DAOUD OUFAFA                                                       APPELLANT

                ON APPEAL FROM COURT OF APPEALS
V.               NOS. 2020-CA-0942 & 2020-CA-0946
           WORKERS’ COMPENSATION BOARD NO. 19-WC-00222

TAXI, LLC D/B/A TAXI 7 (AKA TAXICAB);                              APPELLEES
AIG; COMMONWEALTH OF KENTUCKY EX
REL. DANIEL J. CAMERON, ATTORNEY
GENERAL; W. GREG HARVEY;
UNINSURED EMPLOYERS’ FUND; AND
WORKERS’ COMPENSATION BOARD

              OPINION OF THE COURT BY JUSTICE KELLER

                       REVERSING AND REMANDING

      Appellant, Daoud Oufafa was working as a Taxi 7 driver when he was

shot in the shoulder, causing permanent damage. Oufafa was denied workers’

compensation benefits by Taxi 7 on the grounds that he was an independent

contractor, not an employee. An ALJ determined that Taxi 7 was correct to

deny Oufafa benefits. The Workers’ Compensation Board reversed and

remanded, however, concluding that the ALJ was clearly erroneous in his

findings. The Court of Appeals reversed the Board and determined under its

own analysis that Oufafa was an independent contractor, as the ALJ had

determined. Oufafa appeals the decision of the Court of Appeals to this Court.
For the reasons stated herein, the order of the ALJ is vacated and the case is

remanded back to the ALJ pursuant to this Opinion.

                                 I. BACKGROUND

      Daoud Oufafa moved from Morocco to the United States in 2011. He has

a high school education, two young children, and a wife. After moving to the

United States, he worked several jobs doing unskilled labor. In 2016, Oufafa

sought to work for Taxi 7, a business seeking drivers for its taxicabs. Taxi 7 is

insured though AIG. Oufafa went to the Louisville Taxi 7 office and met with

the office’s head, Michael Cregan. Oufafa showed Cregan his license and

provided him with his résumé and a background check. Cregan requested

Oufafa take a drug test. After these requirements were satisfied, Cregan gave

Oufafa two documents to fill out to start working for Taxi 7. Oufafa filled out

the required documents and began driving for Taxi 7.

      Taxi 7 generates revenue by leasing taxis to its drivers.1 Taxi 7 identifies

its drivers as independent contractors. The documents provided to Oufafa

included a section in which he, in agreeing to work for Taxi 7, also agreed that

for the purposes of workers’ compensation, he was not an employee. This

section must be hand-written by the signer, and Oufafa did hand-write the

section. He testified that he nonetheless did not understand to what he was

agreeing.

      1  Although the ALJ found that the only money Taxi 7 made was through leasing
taxis, there is some conflicting deposition testimony regarding whether Taxi 7 or its
parent company make money from the processing fee on credit card payment for rides.

                                         2
      Despite this, Taxi 7 operates as a hub for business for its drivers, who

may use their leased cabs only for Taxi 7 rides. Taxi 7 operates the dispatch

system for the taxicab drivers using their taxis. When a dispatch comes to a

driver for a requested ride, the driver only has access to a zone number

associated with a general area in Jefferson County. Once a driver accepts a

ride, he or she is provided with a specific address and passenger identity for

that ride. If the driver then decides to reject the ride, their account is locked for

15 to 30 minutes, and they may accept no new rides through the dispatch

service in that time.2 If a driver repeatedly declines drives, they are

reprimanded by Taxi 7, and some are fired.

      Oufafa testified at a hearing before the ALJ that 90–95% of his rides

came through Taxi 7’s dispatch service. The remainder came from customers

he picked up on the sidewalks who waved him down for a ride. Any time a

customer complained, that complaint was made to Cregan who would address

it with the driver. Customers could pay either with a credit card (for which the

payment would go through Taxi 7’s processing system) or directly to the driver

(through cash or digital vendors, such as Venmo, Cashapp, etc.).

      On the morning of January 5, 2018, at 5:00 A.M., Oufafa received a

dispatch requesting a ride. Oufafa accepted, and when he arrived, the

customer asked Oufafa to take him to the Newburg area of Louisville. When

they arrived, the customer then asked Oufafa to take him to Iroquois Park.

      2 While this seems to be disputed later, the depositions of both Cregan and

Oufafa support this fact.

                                          3
Oufafa told the customer that he needed to finish and pay for the current ride

before proceeding on a second ride. When the customer replied he only had a

$100 bill, Oufafa suggested that the customer hand him the bill, and Oufafa

would give him change upon arriving at the second location. The customer

became angry, pulled a gun, and demanded all of Oufafa’s cash. Oufafa

complied. The customer hit Oufafa in the shoulder, and the gun discharged.

Oufafa was shot in the shoulder. As a result, Oufafa is permanently paralyzed

from the waist down.

      Following the injury, Oufafa required extensive medical care. He testified

that he would require lifelong physical therapy and care due to his disability.

To pay for this, Oufafa sought workers’ compensation. Taxi 7 denied his claim

due to his status as an independent contractor rather than an employee.

Oufafa challenged that ruling, asserting to the Department of Workers’ Claims

that he was an employee of Taxi 7, not an independent contractor, despite the

language in his contract. If Oufafa was an employee, then his medical expenses

could be covered.

      After a hearing on the matter, an ALJ determined that Oufafa was an

independent contractor. In coming to that conclusion, the ALJ pieced together

a test from Ratliff v. Redmon, 396 S.W.2d 320 (Ky. 1965) (outlining a nine-

factor test for employee/independent contractor determinations), and

Chambers v. Wooten’s IGA Foodliner, 436 S.W.2d 265, 266 (Ky. 1969) (holding

that four of the Ratliff factors are most important to an independent

contractor/employee determination). The test implemented by the ALJ was

                                        4
comprised of four primary factors and six supplemental factors to determine

whether Oufafa was an employee. Pursuant to Chambers, the four primary

factors the ALJ considered were:

         1. The nature of the work as it relates to the business of the alleged

            employer,

         2. Extent of control exercised by the alleged employer,

         3. Degree of professional skill the work requires, and

         4. Intent of the parties.

      The ALJ found that the four primary factors were split, two to two in

favor of each outcome. He thus proceeded to analyze six other factors. The six

factors that the ALJ considered pursuant to Ratliff were:

         1. Whether the worker is engaged in a distinct occupation or

            business,

         2. Whether the type of work is usually done in the locality under the

            supervision of an employer or by a specialist, without supervision,

         3. Whether the worker or the alleged employer supplies the

            instrumentalities, tools, and place of work,

         4. Length of employment,

         5. Method of payment, whether by the time or job, and

         6. Whether the work is a part of the regular business of the alleged

            employer.

The ALJ acknowledged that the sixth factor was, in essence, the same inquiry

as the first of the Chambers factors. In the course of analyzing the ten total

                                        5
factors, the ALJ found that Taxi 7 was a taxi leasing company as opposed to a

taxicab company; this factual finding affected his analysis of several of the

Chambers/Ratliff factors. After his analysis, the ALJ wrote: “The predominant

factors are split. The remaining Ratliff factors weigh slightly in favor of a finding

of independent contractor.” Accordingly, and with great sympathy, the ALJ

denied benefits to Oufafa. After the order was entered, the ALJ amended it to

reflect that AIG was dismissed as a party to the case.

      On appeal, the Workers’ Compensation Board reversed the ALJ,

concluding that the ALJ’s finding that Taxi 7 was a taxi leasing company was

“clearly erroneous.” The Board found that Taxi 7 was a taxicab company (as

opposed to a taxicab leasing company), and that this finding was inextricably

linked to the entire analysis regarding Oufafa’s employment status. The Board

ultimately remanded to the ALJ to analyze Oufafa’s role again in light of their

reversal of that factual finding. The Board also ordered that the ALJ “look to

the nature of the work Oufafa performed in relation to the regular business of

Taxi 7 as a taxicab company” when he analyzed the control factor specifically.

Further, the Board concluded that the ALJ erred by finding that the parties

manifested their intent in the contracts signed, stating, “depending on the

factors of the given case, a claimant labeled by an employer as an independent

contractor in a contract of hire may, in reality, be no more ‘independent’ than

any other at-will employee in Kentucky.” Taxi 7 appealed the Board’s decision.

      The Court of Appeals reversed the Board in a split decision. The Court of

Appeals reinstated the ALJ’s opinion, holding that because Taxi 7’s primary

                                         6
source of revenue was through leasing taxis to drivers, it was reasonable for

the ALJ to conclude that Taxi 7 was a taxi leasing company. The Court of

Appeals went further, however, holding on its own that Oufafa was an

independent contractor rather than an employee. It did so by relying on the

definition of “work” as tied directly to renumeration, holding that Oufafa “never

performed ‘work’ for Taxi 7 as that term is defined in KRS Chapter 342.” The

Court of Appeals went on to write that “[Taxi 7’s] income is unaffected by how

much or how little its lessees work,” which “does not support a finding that

Taxi 7 was Oufafa’s employer.”

      In its analysis, the Court of Appeals did not use the Chambers/Ratliff

factors. Holding that Oufafa was an independent contractor, the Court of

Appeals wrote, “The bottom line for this Court is that Oufafa controlled his own

compensation . . . . That he should bear these associated risks is in keeping

with the ‘theory of risk spreading embodied in compensation.’” One judge

dissented without opinion. Oufafa appealed the Court of Appeals decision to

this Court. Following the appeal, this Court ordered that the parties submit

supplemental briefs regarding whether this Court’s adoption of the economic

realities test in Mouanda v. Jani-King International, 653 S.W.3d 65 (Ky. 2022)

should affect this Court’s assessment of the case at bar.

                                 II. ANALYSIS

      Oufafa argues to this Court that the Court of Appeals erred in reversing

the Board. Oufafa claims that the Board was correct in its conclusion that the

ALJ’s finding that Taxi 7 is a taxi leasing company was clearly erroneous.

                                        7
Oufafa further argues that the Court of Appeals should not have undertaken

its own analysis of Oufafa’s employment status, and that even if it could have,

the analysis was incorrect. Additionally, Oufafa argues that this Court should

adopt the economic realities test in workers’ compensation cases and

determine under that test that Oufafa is an employee. Oufafa argues in the

alternative that this Court should adopt the economic realities test and remand

with instructions that the ALJ both implement the economic realities test, as

well as follow the instructions from the Board in its order for remand.

      Taxi 7 argues, by contrast, that the ALJ’s taxi-leasing-company finding

was supported by substantial evidence, and that the ALJ’s opinion should be

reinstated. Taxi 7 also argues that the Court of Appeals correctly determined

that Oufafa was an independent contractor. Taxi 7 additionally claims that the

Board’s direction to the ALJ about the weight to be given to the contract

between Oufafa and Taxi 7 in analyzing the intent of the parties was not

properly before either the Board or the Court of Appeals. Regarding the

economic realities test, Taxi 7 argues against using it in the workers’

compensation context. However, Taxi 7 maintains that even under that test, we

should affirm the Court of Appeals’ holding that Oufafa is an independent

contractor.

      AIG, still a party to this case on appeal, argues consistently with Taxi 7

on the merits of the case at bar. It argues additionally, however, that if this

Court remands back to the ALJ, then AIG should not be a party to the suit

given its earlier dismissal.

                                         8
      This Court’s review of the Court of Appeals is constrained by our

standard of review.

      In workers’ compensation cases, this Court’s standard of review
      depends upon whether the issue on appeal is a question of law or
      fact. In reviewing an ALJ’s decision on a question of law or
      interpretation and application of a law to the facts at hand, our
      standard of review is de novo. With regard to questions of fact,
      “[t]he ALJ as fact finder has the sole authority to judge the weight,
      credibility, substance, and inferences to be drawn from the
      evidence.”

Apple Valley Sanitation, Inc. v. Stambaugh, 645 S.W.3d 434, 438 (Ky. 2022).

Below, the Board and Court of Appeals reviewed for issues of fact. However,

these reviewing bodies operated under the auspices of the Ratliff/Chambers

framework, as well as the definition of “work,” in their reviews. The approaches

used by the ALJ, Board, and Court of Appeals are wrought with difficulty in

application. In cases such as Oufafa’s, a worker’s status as an employee comes

to a splitting of hairs or conjecture. In order to bring more clarity to this area of

the law, we hereby adopt the economic realities test to determine whether a

worker is an employee or independent contractor for the purposes of workers’

compensation.

      The ALJ’s searching and thorough analysis is an excellent example of the

haggard state of the law. First, the ALJ analyzed the Chambers factors. Then,

with an evenly split set, the ALJ looked to six of the Ratliff factors. The analysis

was a multi-level attempt to decipher the reality of the relationship between

Oufafa and Taxi 7. The Court of Appeals, by contrast, attempted to classify

Oufafa by relying solely on the statutory definition of “work.”

                                         9
      Neither the Court of Appeals’ approach nor the Ratliff/Chambers factors

adequately capture the reality of Oufafa’s working relationship. The ALJ

himself recognized the apparent difficulty with applying these factors to this

case: “Although it gives the undersigned no pleasure to do so[,] the analysis

dictates the result[.]” The ALJ’s analysis under the factors was encumbered by

a weighty reliance given to the documents outlining the contractual

relationship between the parties. Although the ALJ in this case did not go so

far, relying too heavily on documentation alone cuts against the true inquiry at

hand: regardless of the attempts of an employer to tie a worker’s hands with

paper, what is the nature of their employment relationship? If this were not the

basic inquiry, then independent contractor/employee questions would always

come down to the words on a page, regardless of how employers operate their

businesses. The likelihood of abuse is high under such a test.

      Apparently sympathetic to the difficulty of untangling the

Ratliffe/Chambers factors, the Court of Appeals attempted to determine the

true nature of Oufafa’s employment with no reference to the factors. Instead,

that court looked to a basic definition of “work” under KRS 342.0011(34).3

Although the use of KRS 342.0011(34) may have provided some insight into the

nature of the employment relationship at issue, it also ignored other glaring,

relevant facts (including, for example, the level of control held by an employer

over a worker). Using KRS 342.0011(34) alone is clearly an untenable solution.

       3 This shift in analytical framework alone evinces the need for clarification in

the law. Our fact-finding and reviewing bodies must rely on the same premises.

                                           10
      At the time of this case’s consideration, there are currently two different

tests in Kentucky for determining whether a worker is an independent

contractor or an employee. Using different tests—although consistent, as

discussed below—could lead to outcomes in which under workers’

compensation, workers are legally considered independent contractors, while

for the purposes of wage and hour laws, they are employees. This offends

common sense. If we adopt the Court of Appeals’ approach, even more diverse

outcomes are risked. In this instance, the law demands consistency within

itself and reliable outcomes. Extending our use of the economic realities test

achieves these goal (both for workers’ rights broadly, and among the lower

courts).

      Considering the economic realities test in the context of workers’

compensation is not novel. This Court first entertained the possibility of

adopting the economic realities test for workers’ compensation claims in

Purchase Transportation Services v. Estate of Wilson, 39 S.W.3d 816, 819 (Ky.

2001). In Purchase Transportation Services, the estate of Wilson, a deceased

taxi driver, sought workers’ compensation benefits after she was murdered

while driving her taxi. Id. at 816–17. In that case, under the Ratliff factors, this

Court affirmed the ALJ’s finding that Wilson was an employee, not an

independent contractor. Id. at 819. This Court’s mention of the economic

realities test was only cursory: “Radio Cab argues that when determining a

worker’s status as an employee or independent contractor under the Fair Labor

Standards Act of 1966, other jurisdictions apply an ‘economic reality’ test

                                         11
which differs from that set forth in Ratliff v. Redmon, supra.” Id. 4 Despite

mentioning the test, this Court did not then adopt it—though it did not

foreclose the test’s future adoption, either. The Court simply held that the ALJ

“conducted a proper” analysis without further discussing the proposed

economic realities test. Id. Since that case’s rendering, however, this Court has

adopted the economic realities test to determine independent contractor or

employee status (albeit outside of the workers’ compensation context).

      Oufafa’s case presents the first opportunity since our Opinion in

Mouanda for this Court to reconcile the apparent conflict in our interpretation

of the same terms across different (though related) labor laws. Mouanda, 653

S.W.3d 65. In Mouanda, this Court adopted the economic realities test to

determine the difference between employees and independent contractors in

the context of the Kentucky Wage and Hour Act (KWHA). That test has six

factors:

      1. The permanency of the relationship between the parties,

      2. The degree of skill required for the rendering of the services,

      3. The worker’s investment in equipment or materials for the task,

      4. The worker’s opportunity for profit or loss, depending upon his skill,

       4 Interestingly, although the facts underlying both Purchase Transportation

Services and the case at bar are remarkably similar, the taxi companies in each case
harbor different opinions regarding whether the economic realities test should be
implemented in workers’ compensation cases and to what effect. The notable
distinction between the cases seems to be whether the ALJ initially found in the
respective companies’ favor or not under the Ratliff test.

                                         12
      5. The degree of the alleged employer’s right to control the manner in

         which the work is performed, and

      6. Whether the service rendered is an integral part of the alleged

         employer’s business.

Id. at 74. These factors are consistent with this Court’s delineated factors in

Ratliff. Id. at 75. In fact, the tests share five factors. Id. The fundamental

inquiry in both Ratliff and Jani-King is the same: “In assessing the true nature

of the parties’ relationship, courts must look at the practical, not just

contractual, realities of the relationship.” Id. at 80. Importantly, however, the

“central question” to the economic realities test is “the worker’s economic

dependence upon the business for which he is laboring,” an inquiry not

specifically captured under the ALJ’s in-depth analysis nor under our prior

caselaw. Id. at 74 (citation omitted). The narrowing of enumerated factors,

paired with this slight shift in focus, sets the economic realities test apart from

previous attempts to distinguish between independent contractors and

employees. While not inconsistent with the Ratliff/Chambers factors, the

economic realities test improves upon their attempts to discern the actuality of

the working relationship at issue while streamlining Kentucky’s approach to

employee/independent contractor designations.

      Adopting the economic realities test in the workers’ compensation

context not only simplifies the definition of independent contractor across the

Commonwealth; doing so also serves the purpose of the Workers’

                                         13
Compensation Act itself. In an Opinion clarifying the use of the

Ratliff/Chambers factors soon after their adoption, the Court of Appeals wrote,

      The theory of compensation legislation is that the cost of all
      industrial accidents should be borne by the consumer as a part of
      the cost of the product. It follows that any worker whose services
      form a regular and continuing part of the cost of that product, and
      whose method of operation is not such an independent business
      that it forms in itself a separate route through which his own costs
      of industrial accident can be channelled [sic], is within the
      presumptive area of intended protection.

Husman Snack Foods Co. v. Dillon, 591 S.W.2d 701, 703 (Ky. App. 1979) (citing

Larson, Workmen’s Compensation Laws 43.51 (1978)). Husman elaborated that

to serve the purpose of our workers’ compensation statutes, the Ratliff factors

should be construed with an eye toward whether the alleged employee’s work

formed the basis of the employer’s regular business. Id. It makes sense, thus,

to develop the law towards a test that more explicitly accounts for the centrality

of a worker’s dependence on an employer to incur the costs of risks associated

with work. Although the Ratliff/Chambers factors struggled to achieve this aim,

it may be captured within the economic realities test. To reiterate, the “central

question” to the economic realities test is “the worker’s economic dependence

upon the business for which he is laboring.” For claimants such as Oufafa who

work within ever-complex business schemes, that dependence is an integral

part of deciphering whether he was an employee of Taxi 7.

                               III. CONCLUSION

      This Court did not limit itself when it recently adopted the economic

realities test. Mouanda acknowledges that the distinction between an employee

                                        14
and independent contractor has broad-ranging consequences: “Designation as

an employee or independent contractor determines an individual’s entitlement,

or lack thereof, to many statutory employment protections.” Id. at 73 (emphasis

added). This Court hereby adopts the economic realities test to safeguard the

protections afforded by workers’ compensation. Accordingly, our holding in

Mouanda is extended to the workers’ compensation context.

      Of course, it is outside of this Court’s authority to determine whether,

under the economic realities test, Oufafa is an employee. Because we adopt a

new test for analysis, this Court must remand the case back to the ALJ to

develop an analysis on the aforementioned factors. This Court also vacates the

ALJ’s underlying order. Because we vacate the order in total, AIG’s dismissal is

ineffectual, and it will remain a party to the case on remand. Further, because

of the differences in the tests applied, the ALJ may make any additional or

substituted factual findings as required given the new framework for analysis.

Given this direction on remand, we need not determine whether the ALJ erred

in finding that Taxi 7 is a taxi leasing company, nor need we opine as to the

Board’s further directions to the ALJ.

      All sitting. All concur.

                                         15
COUNSEL FOR APPELLANT:

Andrew Clarke Weeks
Legal Justice at Work PLLC

COUNSEL FOR APPELLEE, TAXI LLC D/B/A TAXI 7 (AKA TAXICAB):

Kyle L. Johnson
Fogle Keller Walker, PLLC

COUNSEL FOR APPELLEE, AIG:

Ronald Jude Pohl
Clarrisa Shirlann Wells
Pohl & Aubrey PSC

COUNSEL FOR APPELLEE, COMMONWEALTH OF KENTUCKY EX REL.
DANIEL J. CAMEREON, ATTORNEY GENERAL:

Daniel J. Cameron
Attorney General of Kentucky

APPELLEE, W. GREG HARVEY, ADMINISTRATIVE LAW JUDGE

COUNSEL FOR APPELLEE, UNINSURED EMPLOYERS’ FUND:

William Henry Jones, III

COUNSEL FOR APPELLEE, WORKERS COMPENSATION BOARD:

Michael W. Alvey
Chairman, Department of Workers’ Claims

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