DO NOT CITE. SEE RAP 10.4(h).
Court of Appeals Division II
State of Washington
Opinion Information Sheet
Docket Number: 24586-8-II
Title of Case: Bruce T. Clark, Appellant
v.
Employment Security Department, Respondent
File Date: 06/09/2000
SOURCE OF APPEAL
----------------
Appeal from Superior Court of Pierce County
Docket No: 97-2-11713-1
Judgment or order under review
Date filed: 03/19/1999
Judge signing: Hon. Bryan Chushcoff
JUDGES
------
Authored by Karen G. Seinfeld
Concurring: J. Dean Morgan
Elaine M. Houghton
COUNSEL OF RECORD
-----------------
Counsel for Appellant(s)
Bruce T. Clark
Attorney At Law
3645 N Pearl St
Tacoma, WA 98407-2601
Counsel for Respondent(s)
David I. Matlick
Atty Gen Ofc
1019 Pacific Ave Fl 3
Tacoma, WA 98402
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
BRUCE T. CLARK, No. 24586-8-II
Appellant,
v.
EMPLOYMENT SECURITY UNPUBLISHED OPINION
DEPARTMENT OF THE STATE OF
WASHINGTON,
Respondent. Filed:
Seinfeld, J. -- Bruce Clark appeals from a decision by the Washington State
Employment Security Department in which the Department found Clark to be
self-employed during the time he received unemployment benefits and ordered
Clark to refund the benefits he received. The superior court affirmed the
Department's decision; Clark now appeals. As the evidence of Clark's work
activities was sufficient to support the decision, we affirm.
Facts
Clark, an attorney and certified public accountant, was employed by Pierce
County until December 31, 1995. He also started a solo law/accounting
practice during the second quarter of 1995.
Clark listed his practice in the yellow pages and operated out of a rented
office and his home. The new practice generated $12,425 in receipts during
1995.
At the end of 1995, after Pierce County terminated Clark's position, Clark
applied for and received unemployment compensation of $343 per week for 30
weeks from January 13, 1996 to August 3, 1996, for a total of $10,290.
Meanwhile, Clark expanded the scale of his private practice and purchased
equipment, such as a new computer, software, filing cabinets, and office
furniture.
Clark generated $11,636 in revenues during the first quarter of 1996;
$17,157 in the second quarter; $16,898 in the third quarter; and $17,863 in
the fourth quarter. From this gross income, Clark drew $9,892 to support
his family and reported a net income of $4,429 for the first seven months
of 1996.
Clark billed his clients at $50 per hour. Thus, the $45,691 the practice
generated during the first three quarters of 1996 translates into
approximately 913.82 billable hours, an average of 25.38 billable hours per
week for a 36-week period.
Clark applied for legal employment during the time he received benefits.
He obtained one interview and, in July 1996, refused an offer for an
associate position that paid only $18,000 per year.
Pierce County challenged Clark's entitlement to benefits. An
administrative law judge (ALJ) heard and decided in Clark's favor. The ALJ
reasoned that Clark was 'unemployed' as RCW 50.20.010 uses that word
because his self-employment activities were minimal.
On review, the Employment Security Department Commissioner reversed,
holding that Clark was not unemployed because his self-employment activity
was substantial. Consequently, the benefits Clark had received constituted
an overpayment.
Clark appealed to the Pierce County Superior Court, which affirmed the
Commissioner's decision. Clark now appeals to this court.
Discussion
The purpose of the Employment Security Act is to relieve the hardships
of involuntary unemployment. RCW 50.01.010. An unemployed individual is
entitled to benefits if he or she satisfies six conditions precedent.1 RCW
50.20.010; see also Bartel v. Employment Sec. Dep't, 60 Wn.2d 709, 712, 375
P.2d 154 (1962). 'The most significant conditions are that the applicant
must be unemployed and available for work.' Bartel, 60 Wn.2d at 712.
Clark bears the burden of demonstrating the invalidity of the
Commissioner's decision finding him ineligible for benefits. RCW
34.05.570(1)(a). In considering this appeal, we directly review the
administrative record. Wilson v. Employment Sec. Dep't, 87 Wn. App. 197,
200, 940 P.2d 269 (1997) (citing Penick v. Employment Sec. Dep't, 82 Wn.
App. 30, 37, 917 P.2d 136 (1996)); Snohomish County v. State, 69 Wn. App.
655, 664, 850 P.2d 546 (1993). On issues of law, we may substitute our
judgment, but we 'accord substantial weight to the agency's view of the law
it administers.' Hamel v. Employment Sec. Dep't, 93 Wn. App. 140, 145, 966
P.2d 1282 (1998), review denied, 137 Wn.2d 1036 (1999).
We review factual findings under the substantial evidence standard.
Penick, 82 Wn. App. at 37; Lawter v. Employment Sec. Dep't, 73 Wn. App.
327, 331, 869 P.2d 102 (1994); RCW 34.05.570(3)(e). 'To constitute
substantial evidence, there must be a sufficient quantum of evidence in the
record to persuade a reasonable person that the declared premise is true.'
Penick, 82 Wn. App. at 37 (citing Lawter, 73 Wn. App. at 332).
Further, we rely on the Commissioner's findings of fact to the extent that
they modify or replace the ALJ's findings and we accord these findings
great deference. Tapper v. Employment Sec. Dep't, 122 Wn.2d 397, 406, 858
P.2d 494 (1993); Penick, 82 Wn. App. at 37; Valentine v. Department of
Licensing, 77 Wn. App. 838, 894 P.2d 1352 (1995); Lawter, 73 Wn. App. at
332. Unchallenged administrative findings are verities on appeal. Haley
v. Medical Disciplinary Bd., 117 Wn.2d 720, 728, 818 P.2d 1062 (1991);
Patterson v. Superintendent of Public Instruction, 76 Wn. App. 666, 674,
887 P.2d 411 (1994).
Clark alleges that the Commissioner (1) erroneously interpreted or applied
the law, RCW 34.05.570(3)(d); (2) entered a decision that is not supported
by substantial evidence, RCW 34.05.570(3)(e); and (3) entered an order that
is arbitrary and capricious, RCW 34.05.570(3)(i). See Wilson, 87 Wn. App.
at 200. Underlying these claims, there is one determinative question --
whether Clark's self-employment activity was so minimal that he was
eligible for unemployment benefits.
Under the Employment Security Act, a worker is unemployed during any
week in which the worker performs no services, or during any week in which
a worker who is employed at less than full-time work earns less than one
and one-third times the individual's weekly benefit plus five dollars. RCW
50.04.310(1). There is no dispute that Clark performed services. Thus,
the remaining issue is whether Clark was employed less than full-time and
earned less than the income allowed under RCW 50.04.310(1).
As a general rule, ''unemployment' and 'self-employment' are mutually
inconsistent terms under the Employment Security Act.'' Bartel, 60 Wn.2d
at 714 (quoting 1953 Op. Atty. Gen. No. 189). The Act is ''not intended to
discriminate against other businesses by subsidizing self-employment
enterprises.'' Bartel, 60 Wn.2d at 715 (quoting Johnson v. Board of Review
of Indus. Comm'n, 7 Utah 2d 113, 320 P.2d 315, 317 (1958)).
''Whether or not a particular claimant is self-employed within the meaning
of the act is a question of fact to be determined by the administrators of
the act.'' Bartel, 60 Wn.2d at 714 (quoting 1953 Op. Atty. Gen. No. 189).
'Each case must be decided upon its own circumstances. Of course, the
requirements of the statute would have to be met, and all relevant factor
would have to be considered.' Bartel, 60 Wn.2d at 719.
Clark argues that his circumstances are similar to those in Kenna v.
Employment Sec. Dep't, 14 Wn. App. 898, 545 P.2d 1248 (1976). Kenna sought
a new job after being laid off and, simultaneously, looked into starting
his own business. Kenna, 14 Wn. App. at 899. He researched the market,
and contacted a lawyer, an accountant, potential investors, an equipment
supplier, a bank, and the Small Business Administration. Kenna, 14 Wn.
App. at 900.
Kenna also applied for unemployment benefits. The Department denied the
application, reasoning that Kenna was self-employed but the appellate court
reversed, noting:
By the time of the hearing before the appeals tribunal, a corporate
name had been reserved but no corporation organized. The accountant had
done some preliminary work and some equipment had been promised in exchange
for an interest in the business if the prospects materialized. Potential
investors, a bank and the SBA had expressed interest in the enterprise but
no investments or loans had been finalized. The projected business was not
yet functioning and respondent had earned nothing from it.
Kenna, 14 Wn. App. at 900.
The Kenna court further explained why this evidence did not establish that
Kenna was self-employed, stating:
An unemployed person who actively seeks self-employment by trying to set up
his or her own business is not by such action rendered self-employed and
ineligible for unemployment compensation, as long as the establishment of
the new business remains contingent and the other conditions precedent to
receiving benefits under the Employment Security Act are met. The other
conditions precedent which must be met include the unemployed person also
actively seeking other work and being ready, able and willing to accept any
other suitable work which may be offered.
Kenna, 14 Wn. App. at 900-901.
In supporting the above conclusion, the Kenna court noted:
Granting full credence to the high hopes respondent expressed for his
proposed new enterprise, the reality was that at all times herein it was in
a purely embryonic stage. At the time the Department adjudicated
respondent to be self-employed, the establishment of the proposed business
was still contingent. Respondent was not soliciting or accepting orders
and was not in any position to fill them had he done so.
14 Wn. App. at 903.
Clark's situation is distinguishable from the facts in Kenna. Clark's
practice was operational when he lost his job with Pierce County. His
practice was listed in the yellow pages, he had generated income in 1995,
and he generated more than $45,000 during the time in which he received
benefits. By contrast, Kenna had no earnings from his embryonic
enterprise.
Clark also contends that his circumstances are 'strikingly similar' to
those present in Bartel. Bartel was a cement worker whose family
supplemented its income through the operation of a small dairy farm.
Bartel, 60 Wn.2d at 710. Bartel's wife did most of the farm work assisted
by their son. Bartel fed the cows in the early morning and evenings.
Bartel, 60 Wn.2d at 710. After Bartel lost his job at the cement plant,
the Department denied his claim for unemployment benefits, reasoning that
his farm activities constituted self-employment. Bartel, 60 Wn.2d at 711.
In determining whether Bartel was self-employed, the court considered the
following nonexclusive factors:
(1) Availability of applicant for resumption of regular employment
(2) Hours per week devoted to activity in question.
(3) Net income earned from such activity.
(4) Nature of regular employment.
(5) Does the applicant engage in the same activities during the course
of his regular employment and, if so, to what extent?
Bartel, 60 Wn.2d at 714 (quoting 1953 Op. Atty. Gen. No. 189).2 After
applying the above factors, the Supreme Court held that Bartel was not self-
employed. The Bartel court reasoned:
He {Bartel} was available for work. He devoted only three hours per day to
his activities on the farm, and those were before and after normal working
hours. His net weekly income, even on a pro-rata basis over a full year,
was less than the weekly benefit amount under the Employment Security Act.
Furthermore, it is arguable that only a portion of that income is
attributable to respondent, since his wife and son did most of the work.
Finally, with regard to the last two related considerations, his farm
activities were of an entirely different nature from his regular
employment, so that there was no question of competition with his regular
employer.
60 Wn.2d at 715.
The Bartel court also noted that its reasoning was consistent with good
policy. It observed that a rule allowing an applicant to receive benefits
to make up the shortfall attributable to the trials and tribulations of
limited self-employment
will tend to encourage unemployed persons to attempt to supplement their
incomes (1) by letting them know that the very attempt to supplement their
incomes will not automatically cut off their unemployment benefits, and (2)
by providing them some income to fall back on in case they are not
successful enough to earn as much as they would have received in
unemployment compensation had they made no such effort.
Bartel, 60 Wn.2d at 718.
Thus, the Bartel court held that
{people} who are laid off, and who are relatively unsuccessful in their
self-employment endeavors (i.e. they make less than the weekly benefit
amount to which they would have been entitled), are considered to be
unemployed, or partially unemployed, and entitled to receive the difference
between the amount they make and the benefits to which they otherwise would
have been entitled.
60 Wn.2d at 719. The Bartel court decision stands for the proposition
'that a person is not automatically ineligible for unemployment
compensation simply because he engages in some remunerative activity of a
personal or self-directed nature.' 60 Wn.2d at 719.
The Bartel court's holding encourages unemployed persons to supplement
their income temporarily without the fear of losing all benefits. 60 Wn.2d
at 718. By providing a limited amount of benefits to make up for the
shortfall in the applicant's own efforts, the system encourages self-
employment, reduces the hardships of unemployment, and reduces the expense
to the unemployment system. Bartel, 60 Wn.2d at 718.
Applying the Bartel factors here, as to factor 1, Clark, like Bartel, was
available to resume regular employment. Bartel, 60 Wn. App. at 715. But
unlike Bartel, whose dairy farm was run principally by his wife and son,
Clark's law and accounting practice was entirely his own enterprise.
Regarding factor 2, Clark averaged at least 20 hours work per week during
the first quarter of 1996 and 26 hours per week during the second quarter
of that year in income generating work, while Bartel worked about three
hours a day in the morning and evening feeding cattle.
With regard to factor 3, net income, where Bartel derived negligible net
income from the dairy farm, Clark's situation is more complex. Clark does
not challenge the Commissioner's findings that his practice generated
'gross earnings' of $28,793 in the first two quarters of 1996, that he
'paid himself draws' totaling $9,892 during the time in which he received
benefits, and that his 'net income' was $4,429 during that period.
But as to his net income figure, the ALJ who ruled in Clark's favor took
issue with his methods of accounting for expenses. Clark conceded that
under normal accounting practices he would amortize the cost of equipment
purchases over the useful life of the equipment. But Clark insisted it was
proper to count equipment purchases as lump sum expenses for purposes of
applying for unemployment compensation.
Moreover, Clark reasoned that the $9,892 in draws he paid himself should
count as an expense rather than income. But, here too, Clark had to agree
with the ALJ that such payments normally constitute income for the
recipient.
These facts trigger concerns discussed in Johnson and recognized in Bartel,
the possibility that an applicant could ''defer the actual receipt of
income, or deliberately manipulate it, so as not to receive it during the
benefit period.'' Bartel, 60 Wn.2d at 717 (quoting Johnson, 320 P.2d at
318). While we do not suggest that there is any indication that Clark
engaged in misleading practices, his lack of documentation to corroborate
the net income figure is troubling, particularly in light of other evidence
in the record showing that he did not employ administrative help, purchased
relatively little office equipment, and operated out of a one-room office.
Sufficient documentation of expenditures is particularly necessary in the
self-employment context, where, as here, the applicant potentially has a
great deal of control over such outlays. Bartel, 60 Wn.2d at 717.
Notwithstanding the Bartel court's reference to 'net income,' the
Employment Security Act directs us to examine Clark's weekly
'renumeration.' RCW 5.04.310(1). The statute further defines
'renumeration' as 'all compensation paid for personal services{.}' RCW
5.04.320(4)(a) (in pertinent part). As the Commissioner did not address
which of Clark's income figures constitutes 'renumeration' for purposes of
unemployment eligibility, the policy concerns set forth in Johnson and
Bartel and Clark's failure to document his net income claim compel us to
consider Clark's gross earnings as his 'renumeration.'
Prorating the $28,793 Clark's practice generated during the first two
quarters of 1996 over 30 weeks yields an average weekly income of $959.77
per week. This is more than twice the $462.33 maximum allowed under RCW
50.04.310(1) (one and one-third times $343 weekly benefit plus $5).
The last two Bartel factors focus on the nature of the applicant's regular
employment and how that compares to the part-time work. The concern here
is the potential use of unemployment benefits to subsidize the applicant's
enterprise, thereby discriminating against other businesses. Bartel, 60
Wn.2d at 715.
The Department cites two cases from other jurisdictions that found certain
attorneys not eligible for unemployment benefits. Bryant v. Labor & Indus.
Relations Comm'n, 608 S.W.2d 524 (Mo. App. W.D. 1980); Ford v. Board of
Review, 287 N.J. Super. 281, 670 A.2d 1116 (1996). Bryant is readily
distinguishable, but the facts and reasoning in Ford are applicable.
Bryant involved an attorney who voluntarily terminated his previous
employment without good cause and then worked full time in his practice
and, thus, was unavailable to seek other employment. 608 S.W.2d at 528-
29. Although the attorney's firm had no clients or income, those facts
were not determinative where the attorney was devoting his full time to his
practice. Bryant, 608 S.W.2d at 529-30.
In Ford, the attorney started and incorporated a solo law practice
two days before he lost his job at a firm. 670 A.2d 1118. The new
practice opened nearly 150 case files and generated gross receipts of
$32,855 during the relevant period. Ford, 670 A.2d at 1118. The attorney
purchased equipment, maintained a business checking account, and employed
three people. Ford, 670 A.2d at 1118. At the same time, the attorney
actively sought other employment. Ford, 670 A.2d at 1118.
The Ford court determined that the foregoing facts provided substantial
evidence that the attorney was not unemployed for purposes of benefits.
670 A.2d at 1118. Nonetheless, the Ford court did not endorse a bright-
line rule that would automatically disqualify unemployed professionals who
use their skills to augment their incomes while seeking employment. 670
A.2d at 1118-19. As the Ford court noted:
We trust that the Division of Unemployment and the Board of Review accepts
the principle that an unemployed individual who is actively seeking
employment may seek some independent professional income or consulting fees
to 'keep the wolf from the door' while contemporaneously receiving
unemployment benefits. . . . An attorney who spends the day looking for
work but who represents defendants in municipal courts in the evening, or
who writes a few wills or handles some real estate closings, nevertheless
may not cross the line from an eligible beneficiary to a self-employed
attorney who is removed from the job market. . . . In law particularly, the
ease of transferring any open files the attorney has generated as an
individual to an eventual employer makes the transition between the
temporary expedient of a private office and a permanent self-employed
practice difficult to discern.
670 A.2d at 1119.
The Ford court suggested consideration of the following factors:
(1) the income received from the new business measured against both the
prior salary received and salary sought in the search for work, (2) the
accoutrements of a permanent business established by the claimant, (3) the
hours dedicated to the new business versus the efforts expended to seek
outside employment, and (4) the continued amenability of the claimant to a
broad spectrum of appropriate employment.
670 A.2d at 1119. Although the Ford court recognized that many new
businesses derive little or no income during their start-up period, it
nonetheless noted that '{u}nemployment compensation benefits are not the
State's contribution to the start-up costs of a new business in which the
claimant is employed full time.' 670 A.2d at 1119.
Because the Ford factors provide a relevant and helpful tool in
analyzing a professional self-employment claim, we apply them here. With
regard to the first factor, although the record does not contain Clark's
prior salary, actual net income, or income expectations, it is clear that
he enjoyed an increase in gross receipts during 1996.
Viewing the second factor, Clark rented office space, purchased equipment,
and obtained insurance. These outlays indicate a determination to expand
the practice beyond a mere supplementary endeavor.
Viewing the third and fourth factors, Clark applied for only one position
per month during the first seven months of 1996. Thus, his self-employment
activities far outstripped his job seeking efforts although there is no
dispute that he was amenable to full-time employment in a firm or
government. Overall, application of the Ford factors supports the
proposition that Clark's self-employment activities rendered him not
unemployed.
The Department also asserts that a person who is free to set his or her own
schedule is working full time for purposes of RCW 50.04.310(1) and, thus,
is not unemployed. The Department supports this proposition with
Commissioner Decisions. See, e.g., In re Brown, Empl. Sec. Comm'r Dec.
1232 (1975); In re Swearingen, Empl. Sec. Comm'r Dec. 912 (1972). Such
administrative precedents are persuasive authority in this court. Martini
v. Employment Sec. Dep't, 98 Wn. App. 791, 795, 990 P.2d 981 (2000).
Brown and Swearingen both indicate that an applicant's ability to set his
or her own work schedule is an important consideration. These cases do
not, however, support an automatic rule that such a person is employed full-
time. Further, Swearingen lacks applicable facts and Brown lacks a useful
analysis of the facts.
A more relevant case is In re Buckley, Empl. Sec. Comm'r Dec.2d 769 (1985).
There, the applicant was an attorney who billed, on the average, 10 hours
per week at about $60 per hour. Buckley, Empl. Sec. at 1.
The attorney sought unemployment compensation for two weeks during which
she had very few billable hours and during which she sought other
employment. Buckley, Empl. Sec. at 2. The Commissioner, relying on
Bartel, determined that the attorney was not unemployed under RCW
50.04.310(1) because her income was not supplemental. Buckley, Empl. Sec.
at 2-3. Similarly, the evidence here indicates that Clark was not merely
supplementing his income during the relevant times.
In summary, the evidence viewed in light of the Bartel factors supports the
Commissioner's finding that Clark was self-employed to an extent that
rendered him 'not unemployed' under RCW 50.04.310(1). Given that Clark has
the burden of demonstrating invalidity and that we must accord great
deference to the Commissioner's findings, we conclude there is substantial
evidence to support the ruling that Clark was self-employed to an extent
that rendered him ineligible for unemployment benefits. RCW 50.04.310(1);
RCW 50.20.010. In effect, the benefits paid to Clark subsidized the
expansion of his practice. Bartel, 60 Wn.2d at 715.
Finally, Clark fails to cite to the record or to legal authorities to
support his argument that the Department unfairly singled him out for
ineligibility because he is an attorney. Thus, we need not consider this
contention. RAP 10.3(a)(5); Cowiche Canyon Conservancy v. Bosley, 118
Wn.2d 801, 809, 828 P.2d 549 (1992).
In any event, the Commissioner's decision was deliberative and based
upon substantial evidence. Thus, even if we view Clark's complaint that
the Department treated him unfairly as an allegation of arbitrary and
capricious action, this argument lacks merit. See RCW 34.05.570(3)(i).
''Where there is room for two opinions, an action taken after due
consideration is not arbitrary and capricious even though a reviewing court
may believe it to be erroneous.'' Kendall v. Public Hosp. Dist. No. 6, 118
Wn.2d 1, 14, 820 P.2d 497 (1991) (quoting Abbenhaus v. Yakima, 89 Wn.2d
855, 858-59, 576 P.2d 888 (1978)).
Accordingly, we affirm.
A majority of the panel having determined that this opinion will not
be printed in the Washington Appellate Reports, but will be filed for
public record pursuant to RCW 2.06.040, it is so ordered.
Seinfeld, J.
We concur:
Morgan, P.J.
Houghton, J.
1 The six conditions are:
(1) He or she has registered for work at, and thereafter has continued to
report at, an employment office . . . .
(2) He or she has filed an application for an initial determination and
made a claim for waiting period credit or for benefits . . . .
(3) He or she is able to work, and is available for work in any trade,
occupation, profession, or business for which he or she is reasonably
fitted. To be available for work an individual must be ready, able, and
willing, immediately to accept any suitable work which may be offered to
him or her and must be actively seeking work pursuant to customary trade
practices and through other methods when so directed by the commissioner or
the commissioner's agents;
(4) He or she has been unemployed for a waiting period of one week;
(5) He or she participates in reemployment services if the individual has
been referred to reemployment services . . . .
. . . .
(6) As to weeks beginning after March 31, 1981, which fall within an
extended benefit period as defined in RCW 50.22.010, the individual meets
the terms and conditions of RCW 50.22.020 with respect to benefits claimed
in excess of twenty-six times the individual's weekly benefit amount.
RCW 50.20.010 (in pertinent part).
2 The Kenna court declined to consider the Bartel factors in part because
those factors more properly apply to situations where the applicant was
already receiving income. Kenna, 14 Wn. App. at 904. Here, as Clark
earned income during the relevant period, the Bartel factors are
applicable.