Court of Appeals Division I
State of Washington
Opinion Information Sheet
Docket Number: 48294-7-I
Title of Case: Western Ports Transportation, Respondent
v.
Employment Security Department, Appellant
File Date: 03/04/2002
SOURCE OF APPEAL
----------------
Appeal from Superior Court of King County
Docket No: 002018991
Judgment or order under review
Date filed: 03/08/2001
Judge signing: Hon. Anthony P. Wartnik
JUDGES
------
Authored by Faye C. Kennedy
Concurring: Anne L. Ellington
Marlin J Appelwick
COUNSEL OF RECORD
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Counsel for Appellant(s)
Laura J. Watson
Attorney Generals Office
PO Box 40110
1125 Washington St SE
Olympia, WA 98504-0110
Counsel for Respondent(s)
J. M. Marshall
701 5th Ave Ste 5000
Seattle, WA 98104-7016
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
WESTERN PORTS TRANSPORTATION, )
INC., ) NO. 48294-7-I
)
Respondent, ) DIVISION ONE
) v.
)
) EMPLOYMENT SECURITY DEPARTMEN
) PUBLISHED OPINION
OF THE STATE OF WASHINGTON, )
)
Appellant. ) FILED
KENNEDY, J. After Western Ports Transportation, Inc., terminated
Rick Marshall's 'Independent Contractor Agreement,' the Commissioner of the
Employment Security Department granted unemployment compensation to Mr.
Marshall. Western Ports appealed the Commissioner's ruling, and the King
County Superior Court reversed. We reverse the Superior Court and
reinstate the Commissioner's ruling. The personal services that Mr.
Marshall performed for Western Ports constituted 'employment' as defined by
RCW 50.04.140, and did not fall within the exemption provided by RCW
50.04.140. Federal statutes and underlying federal regulations that permit
authorized carriers to engage in interstate commerce utilizing leased
trucks-with-drivers are designed to place complete responsibility for
possession, use, operation and control of leased equipment on the
authorized carrier, regardless of whether, under common-law principles, the
lessor or driver provided by the lessor of the equipment might be an
independent contractor or an employee of the authorized carrier. This
federal statutory and regulatory scheme does not preempt state employment
security law by which a person who might be an independent contractor under
federal transportation or common-law principles may nevertheless be
entitled to compensation.
FACTS
Western Ports Transportation, Inc., is a trucking firm with operating
authority issued by the U.S. Department of Transportation and the
Washington Utilities and Transportation Commission. It operates terminals
in Washington and California. In order to serve its customers, Western
Ports contracts for the exclusive use of approximately 170 trucks-with-
drivers. The truck owners either provide and drive their own trucks or
hire others to drive them exclusively for Western Ports. While working for
Western Ports, Mr. Marshall moved its customers' containers between rail
yards and piers in the Seattle area.
Mr. Marshall had previously worked as a driver for a lessor who leased
trucks-with-drivers to Western Ports. Through this contact, Mr. Marshall
purchased a truck of his own, and contracted directly with Western Ports.
Western Ports' insignia, which was on the truck when Mr. Marshall purchased
it, remained on the truck throughout Mr. Marshall's tenure with Western
Ports, enabling him to drive under Western Ports' federal and state
certifications.
Mr. Marshall signed an Independent Contractor Agreement (ICA) on
January 21, 1998. The ICA, which identified Mr. Marshall as the
'Contractor' and Western Ports as the 'Carrier,' is a standard agreement
used by Western Ports. The ICA contains various requirements that are
dictated by federal regulations governing motor carriers that utilize
leased vehicles-with-drivers in interstate commerce; it also contains
Western Ports' own rules.
Pursuant to the ICA, Mr. Marshall was required to operate his truck
exclusively for Western Ports, have Western Ports' insignia on his truck,
purchase his insurance through Western Ports' fleet insurance coverage,
participate in all the company's drug and alcohol testing programs, obtain
Western Ports' permission before carrying passengers, notify Western Ports
of accidents, roadside inspections and citations, keep his truck clean and
in good repair and operating condition in accordance with all governmental
regulations, and submit monthly vehicle maintenance reports to Western
Ports. Western Ports determined Mr. Marshall's pickup and delivery points
and required him to call or come in to its dispatch center to obtain
assignments not previously scheduled, and to file daily logs of his
activities.
Mr. Marshall received 'flat-rate' payments for each container he moved.
Western Ports' customers made their payments for Mr. Marshall's services
directly to Western Ports, and those funds belonged to Western Ports until
disbursed. By the terms of the ICA, Mr. Marshall was paid twice per month.
Mr. Marshall did not attempt to negotiate the terms of his ICA, although he
may have been able to negotiate some of them. The record indicates that
other contractors have, in the past, obtained alteration of the exclusivity
and insurance provisions in the standard ICA.
Western Ports had broad rights of discharge under the ICA, and could
terminate the contract or discipline Mr. Marshall for tardiness, failure to
regularly contact the dispatch unit, failure to perform contractual
undertakings, theft, dishonesty, unsafe operation of his truck, failure of
equipment to comply with federal or state licensing requirements, and
failure to abide by 'any written company policy.'
Mr. Marshall did have some autonomy. For example, he decided which truck
to buy; it was not necessary for a Western Ports representative to be
present when he picked up freight from a customer; and he decided the route
to take in making deliveries. He also could have hired another driver to
operate his truck in providing services under terms of the ICA, although he
chose not to. He paid all of his truck operating expenses and deducted the
expenses on his federal income tax returns.
Mr. Marshall has a Washington State Uniform Business Identification (UBI)
number to do business as 'RAM Enterprises.' The UBI number was obtained in
1992 for a business enterprise not involving trucking or leasing a truck-
with-driver. Nevertheless, Mr. Marshall contracted with Western Ports
under the designation 'Rick A. Marshall dba RAM Enterprises,' and he used
Ram Enterprises letterhead in corresponding with Western Ports. Under the
terms of the ICA, Mr. Marshall was required to be 'an employing unit
subject as an employer to all applicable local, state, and federal
statutes, including but not limited to, unemployment compensation taxes{.}'
Clerk's Papers at 107.
The ICA describes the relationship of the parties as follows:
17. Relationship of Parties. Contractor is an independent contractor for
Carrier. Nothing in this Agreement shall be construed as creating an
employer-employee relationship or a guarantee of future employment. The
Carrier is interested only in the result obtained under this Agreement; the
manner and means of conducting the work are under the sole control of the
Contractor. None of the benefits provided by the Carrier to its employees,
including, but not limited to retirement benefits, compensation insurance
and employment insurance, are available from the Carrier. The Contractor
will be solely and entirely responsible for its acts and for the acts of
its agents, employees, servants and subcontractors during the performance
of this Agreement. Contractor further agrees to be responsible for payment
of all of Contractor's federal, state and local taxes.
Certified Appeal Board Record at 106.
In the summer of 1999, Mr. Marshall chose not to accept assignments
transporting goods from Seattle to Tacoma, feeling that his truck was not
reliable or comfortable enough. On August 2, 1999, Western Ports
terminated Mr. Marshall's ICA. Mr. Marshall feels that he was terminated
because of his refusal to do pickups in Tacoma, although his supervisor
told him it was because his truck did not meet federal safety standards.
After his discharge, Mr. Marshall applied for unemployment benefits. On
September 15, 1999, in an administrative determination, the Employment
Security Department (Department) denied Mr. Marshall's application, based
upon Western Ports' contention that Mr. Marshall was not an employee but,
rather, was an independent contractor exempt from coverage under RCW
50.04.140.
Mr. Marshall requested a hearing to contest the Department's initial
determination. An administrative law judge (ALJ) reversed the Department's
decision, ruling that Mr. Marshall was entitled to unemployment benefits;
thus Western Ports was required to pay the necessary payroll taxes.
Western Ports appealed the ALJ's decision to the Commissioner of the
Department. The Commissioner affirmed the ALJ, with some modifications to
the ALJ's Findings of Fact & Conclusions of Law.
Western Ports appealed the Commissioner's decision to King County Superior
Court. The Superior Court reversed the Commissioner's final order. The
Employment Security Department appealed to this court.
STANDARD OF REVIEW
Judicial review of the Commissioner's final order is governed by the
Administrative Procedure Act (APA), Ch. 34.05 RCW. This court sits in the
same position as the superior court, applying the standards of the APA
directly to the record before the agency. Tapper v. Employment Sec.
Dep't., 122 Wn.2d 397, 402, 858 P.2d 494 (1993). The burden of
demonstrating the invalidity of agency action is on the party asserting
invalidity, here, Western Ports. RCW 34.05.570(1)(a). Similarly, under
the Employment Security Act, 'the decision of the commissioner shall be
prima facie correct, and the burden of proof shall be upon the party
attacking the same.' RCW 50.32.150.
The standards of review of an agency order are set out in RCW
34.05.570(3).
(a) Findings of Facts: Substantial Evidence Standard
Administrative findings of fact will be upheld on review when supported by
substantial evidence. RCW 34.05.570(3)(e). 'Substantial evidence is
evidence in sufficient quantum to persuade a fair-minded person of the
truth of the declared premises.' Heinmiller v. Department of Health, 127
Wn.2d 595, 607, 903 P.2d 433 (1995), 909 P.2d 1294 (1996). The court will
not substitute its judgment on witnesses' credibility or the weight to be
given conflicting evidence. Freeburg v. City of Seattle, 71 Wn. App. 367,
371-72, 859 P.2d 610 (1993).
(b) Questions of Law: Error of Law Standard
The construction of a statute is a question of law reviewed de novo under
the error of law standard. Inland Empire Distrib. Sys. Inc. v. Utilities &
Transp. Comm'n, 112 Wn.2d 278, 282, 770 P.2d 624 (1989). A heightened
degree of deference is given to an administrative agency's interpretation
when the statute is within the agency's field of expertise. Id. However,
it is ultimately for the court to determine the purpose and meaning of
statutes, even when the court's interpretation is contrary to that of the
agency charged with carrying out the law. Overton v. Washington State
Econ. Assistance Auth., 96 Wn. 2d 552, 637 P.2d 652 (1981).
(c) Mixed Questions of Law and Fact
When reviewing mixed questions of law and fact, we accept the
Commissioner's unchallenged factual findings, apply the substantial
evidence standard to challenged findings of fact, independently determine
the applicable law, and apply the law to the facts. Tapper, 122 Wn.2d at
403. The application of the law to the facts is de novo. Id.
(d) Arbitrary or Capricious Standard
Finally, for an agency's decision to have been 'arbitrary or capricious,'
the decision must have been willfully unreasonable, without consideration
and in disregard of facts or circumstances. Buell v. City of Bremerton, 80
Wn.2d 518, 526, 495 P.2d 1358 (1972). An action will not be held arbitrary
and capricious when exercised honestly and upon due consideration, even
where there is room for two opinions. Id.
Under the APA, the appellate court may affirm, reverse, or remand the
agency's decision. RCW 34.05.574(1).
DISCUSSION
The purpose of unemployment compensation is to reduce involuntary
unemployment and ease the suffering caused thereby. RCW 50.01.010. To
this end, the Employment Security Act must be liberally construed in favor
of the unemployed worker. Id. Liberal construction of a statute implies
that any exceptions to the statute be narrowly confined. Miller v. City of
Tacoma, 138 Wn.2d 318, 324, 979 P.2d 429 (1999). Thus, the statutory
mandate of liberal construction within the Employment Security Act requires
the courts to view with caution any construction that would narrow the
Act's coverage. Shoreline Community College Dist. No. 7 v. Employment Sec.
Dep't, 120 Wn.2d 394, 406, 842 P.2d 938 (1992). Furthermore, exemptions
from taxation statutes are strictly construed in favor of applying the tax,
with the burden of proof on the party who seeks the exemption. Fors Farms
v. Washington State Employment Sec. Dep't, 75 Wn.2d 383, 387, 450 P.2d 973
(1969). Courts closely scrutinize an employer's claim of exemption from
paying unemployment taxes because those taxes exist to aid a class of
people that society has chosen to protect. Id. at 391.
RCW 50.04.100 defines 'Employment' under the Act:
'Employment", subject only to the other provisions of this title,
means personal service, of whatever nature, unlimited by the relationship
of master and servant as known to the common law or any other legal
relationship, including service in interstate commerce, performed for wages
or under any contract calling for the performance of personal services,
written or oral, express or implied.
Except as provided by RCW 50.04.145, personal services performed for
an employing unit by one or more contractors or subcontractors acting
individually or as a partnership, which do not meet the provisions of RCW
50.04.140, shall be considered employment of the employing unit, Provided
however, That such contractor or subcontractor shall be an employer under
the provisions of this title in respect to personal services performed by
individuals for such contractor or subcontractor.
(Emphasis added). Therefore, unless an exemption applies, 'employment'
exists if (1) the worker performs personal services for the alleged
employer, and (2) if the employer pays wages for those services (or pays
under any contract calling for personal services). Penick v. Employment
Sec. Dep't, 82 Wn. App. 30, 39, 917 P.2d 136 (1996); Skrivanich v. Davis,
29 Wn.2d 150, 157, 186 P.2d 364 (1947). Contractual language, such as a
provision describing drivers as independent contractors, is not
dispositive; instead, the court considers all the facts related to the work
situation. Penick, 82 Wn. App. at 39.
The Commissioner found that Mr. Marshall performed personal services
for Western Ports and that he received wages for his services. Western
Ports has not challenged this finding. Thus, Mr. Marshall is eligible for
benefits unless exempt from coverage under RCW 50.04.140 or RCW 50.04.145.
Throughout the proceedings the parties have agreed that the only relevant
statutory exemption is that of RCW 50.04.140(1).
RCW 50.04.140(1) contains a three-part test:
'Services performed by an individual for remuneration shall be deemed
to be employment subject to this title unless and until it is shown to the
satisfaction of the commissioner that:
(1)(a) Such individual has been and will continue to be free from
control or direction over the performance of such service, both under his
or her contract of service and in fact; and
(b) Such service is either outside the usual course of business for which
such service is performed, or that such service is performed outside of all
the places of business of the enterprises for which such service is
performed; and
(c) Such individual is customarily engaged in an independently
established trade, occupation, profession, or business, of the same nature
as that involved in the contract of service.'
(Emphasis added). Since the three requirements of the exemption are stated
in the conjunctive, an employer must prove all three parts of the test in
order for its workers to be exempt from unemployment compensation coverage.
Here, the Department argues that the first two prongs of the exemption were
not met; Western Ports argues that they were.
The first prong of the exemption test requires determination of
whether a worker is free from direction or control during his or her
performance of services. The crucial issue is not whether the employing
unit actually controls, but whether it has the right to control the methods
and details of the worker's performance. Risher v. Department of Labor &
Indus., 55 Wn.2d 830, 834, 350 P.2d 645 (1960).
In Penick, drivers who chose their own routes and work hours were
found to be controlled because the company had the right to terminate for
unsatisfactory performance, determine job assignments, sanction for
tardiness, and require daily check-ins and truck cleaning. 82 Wn. App. at
43. While Mr. Marshall owned his own truck, paid for his own truck
repairs, fuel and insurance, chose his own routes and could have hired
another driver to operate his equipment, the factors identified as controls
in Penick are present here.
Western Ports points out that, at the administrative level, Penick
involved two different groups of drivers: those who owned their trucks
(owner/operators) and those who did not (contract drivers). The
Commissioner in that case had found the owner/operators to be exempt, and
they did not appeal. Thus, the Penick court never reached the issue of
whether owner/operators (like Mr. Marshall) might also be eligible for
benefits. For whatever reason the Commissioner may have found the
owner/operators exempt in that case, nothing in the language of RCW
50.04.100 or Penick suggests that truck ownership per se disqualifies a
driver from receiving benefits. Instead, the various controls exerted
should be examined.
Western Ports also argues that the Department erred in looking at federal
and state law requirements as evidence of direction and control. According
to Western Ports, the control it exerts over owner/drivers should not count
as direction and control for purposes of the Employment Security Act
because it is dictated by state and federal regulations governing
intrastate and interstate commerce thus, it reasons, owner/drivers are
directed and controlled by law, not by Western Ports.
It is true that a number of the controls exerted by Western Ports over the
services performed by Mr. Marshall are dictated by federal regulations that
govern the use of leased trucks-with-drivers in interstate commerce. Even
so, RCW 50.40.100 suggests that the Department properly can consider such
federally mandated controls in applying the statutory test for exemption,
in that 'service in interstate commerce' is specifically included in the
statutory definition of 'employment.' RCW 50.40.100 (''Employment' . . .
means personal service of whatsoever nature, . . . including service in
interstate commerce{.}') It would make little sense for the Legislature to
have specifically included service in interstate commerce as 'employment'
only to automatically exempt such service under RCW 50.40.140 based on
federal regulations that require a high degree of control over commercial
drivers operating motor vehicles in interstate commerce and, as discussed
below, that same degree of control is required regardless of whether such
drivers are designated as employees or independent contractors.
But even if we did not consider federally imposed direction and control
over leased trucks-with-drivers in interstate commerce as direction and
control for purposes of the Employment Security Act, many of the controls
exerted over Mr. Marshall's personal services by Western Ports were in
addition to those required by federal or state law. For example, Mr.
Marshall was required to keep his truck clean, to obtain Western Ports'
permission before carrying passengers, and to call or come in to Western
Ports' dispatch center to obtain assignments not previously scheduled. In
addition, he could be disciplined or discharged for tardiness or failure to
contact the dispatch unit, failure to perform contractual undertakings,
'theft or dishonesty of any kind as determined by {Western Ports},' unsafe
operation of his truck, or failure to report equipment damage, accidents,
roadside inspections or citations to Western Ports. Finally, as a catch-
all, Mr. Marshall could be terminated for '{a}ny violation of any written
company policy.'
We also reject Western Ports' contention that federal transportation law
permitting arrangements such as that between Mr. Marshall and Western Ports
pre-empts state employment security law.1 It is true that federal
regulations permit motor carriers operating in interstate commerce to
utilize owner/drivers to serve the carriers' customers under lease
arrangements, as was done here. Such lease arrangements are heavily
regulated to insure that lessee/common carriers remain completely
responsible for the possession, control, use, and operation of the leased
equipment during the term of the lease. 49 CFR sec. 376.12(c)(1) ('The
lease shall provide that the authorized carrier lessee shall have exclusive
possession, control and use of the equipment for the duration of the lease.
The lease shall further provide that the authorized carrier lessee shall
assume complete responsibility for the operation of the equipment for the
duration of the lease.') But 49 CFR sec. 376.12(c)(4) specifically
provides that nothing in subsection(c)(1) is intended to affect whether the
lessor or driver provided by the lessor is an independent contractor or an
employee of the lessee/common carrier. Rather, '{a}n independent
contractor relationship may exist when a carrier lessee complies with 49
U.S.C. 14102 and attendant administrative requirements.'2 49 CFR sec.
376.12 (c)(4)
(Emphasis added).
Thus, motor carriers operating in interstate commerce are permitted to
provide transportation services to their customers utilizing leased
vehicles-with drivers, and such drivers (including owner drivers) may be
independent contractors or they may be employees, but even if they are
independent contractors, the carriers cannot escape ultimate responsibility
for safety of operations and equipment. The same regulations apply to
leased trucks-with-drivers whether or not the drivers are considered
employees of the motor carrier or independent contractors.
Title 49 of the Code of Federal Regulations, at Part 376, contains detailed
regulations governing such lease arrangements. For example, any such lease
must be in writing, the leased motor vehicle must be specifically
identified in accord with federal regulations, receipts must be executed
and delivered when possession of a leased vehicle commences and ends,
detailed records must be kept setting forth point of origin and time and
date of departure and arrival, and records documenting the carrier's
ultimate responsibility for the leased vehicle must be preserved with the
freight documents prepared for specific journeys. 49 CFR sec. 376.11. The
lease must specify the amount to be paid for the lease of the vehicle and
the driver's services separately or in combination; the lease must set
forth which party will provide signage on the vehicle that reflects (as it
must) the carrier's exclusive possession, control and use of the equipment
during the term of the lease; the lease must specify which party is
responsible for the cost of fuel, permits, tolls, vehicle licenses, and
fines for load restrictions; the lessor must be paid within 15 days of
submitting the necessary delivery documentation and other paperwork
regarding the trip; the lease must specify which party will provide which
types of insurance and insurance for the protection of the public must be
provided by the carrier (which may, however, charge the amount back to the
lessor if the lease so provides). 49 CFR sec. 376.12.
On their face, these regulations are designed to fix responsibility for the
safe operation of leased vehicles-with-drivers in interstate commerce on
the carrier, and to provide a paper trail by which such responsibility can
be audited; they are not designed to protect motor carriers from
responsibility under state laws governing unemployment benefits. Congress
has stated in clear terms that states may not enact or enforce laws or
regulations 'related to a price, route or service of any motor carrier'
with respect to interstate commerce. 49 U.S.C. sec. 14501(c)(1). Congress
has also expressly limited the ability of states to place undue property
tax burdens on motor carriers in interstate commerce. See 49 U.S.C. sec.
14502(b) (limiting assessments on motor carrier transportation property to
tax rates that are no higher than those applicable to other taxable
property within the taxing district). Thus, when Congress has intended to
prohibit state taxing authorities from 'burdening' interstate commerce, it
has done so, expressly, clearly and understandably. Nowhere in the federal
motor carrier statutes and regulations brought to our attention by the
parties has Congress even mentioned state unemployment law.
'The purpose of Congress is the ultimate touchstone' in every preemption
case. Retail Clerks Int'l Ass'n v. Schermerhorn, 375 U.S. 96, 103, 84 S.
Ct. 219, 222, 11 L. Ed. 2d 179 (1963). We address preemption claims with
the presumption that Congress did not intend to supplant state law. New
York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins.
Co., 514 U.S. 645, 654-55, 115 S. Ct. 1671, 131 L. Ed. 2d 695 (1995). We
decline to infer that Congress, in enacting federal motor carrier law,
intended to preempt state unemployment law. These two types of statutes
and regulations have very different policy objectives. Federal
transportation law promotes public safety and provides for the easy flow of
goods in interstate commerce. State unemployment law provides temporary
assistance to workers during periods of involuntary unemployment.3
We assume without holding that Mr. Marshall did qualify as an independent
contractor under federal motor carrier regulations governing interstate
commerce, and did qualify as an independent contractor under common law
principles. But Washington's statutory definition of employment 'means
personal service of whatever nature, unlimited by the relationship of
master and servant as known to the common law or any other legal
relationship, including service in interstate commerce, performed for wages
or under any contract calling for the performance of personal services{.}'
RCW 50.04.100. And with certain exceptions not here relevant, 'personal
services performed . . . by one or more contractors or subcontractors'
constitutes employment, unless all three provisions of RCW 50.04.140 are
met. Id. Thus, an individual may be both an independent contractor for
some purposes, and engaged in 'employment' for purposes of Washington's
exceedingly broad definition of covered employment.
In fact, although courts use the term independent contractor in
unemployment law, as if one is either an employee and, therefore, entitled
to benefits or an independent contractor and, therefore, not entitled to
benefits, these terms should not be confused with the common law
definitions of master and servant or independent contractor. Our Supreme
Court noted this fact in State Unemployment Compensation & Placement v.
Hunt, 22 Wn.2d 897, 158 P.2d 98 (1945) in response to a contention that the
predecessor statute to the current act was unconstitutional because it
undertook to redefine master and servant, and independent contractor
differently from common law definitions of those terms without the fact of
those redefinitions being clearly expressed in the title of the act. The
predecessor statute was virtually identical to the current statute, insofar
as is relevant here. The court rejected the argument, saying:
The statute was enacted pursuant to a public policy unknown to the common
law. It is not concerned with the rules worked out for determining
contract and tort liability as between the parties under the common law.
It does not purport to define any service relationship for that purpose.
They remain unaffected by the act. We have repeatedly held that we need
not inquire as to what the common-law relationship was, since the act
included a more extensive field than that covered by common-law
definitions.
The only employment defined by the act is the employment intended to be
covered by the act for the purpose of the act and none other. That purpose
is included in the title of the act. Appellant's point is not well taken.
Hunt, 22 Wn.2d at 899 (citations omitted). Thus, the question is not
whether Mr. Marshall may be an independent contractor under federal motor
carrier law or under common law. Instead, the question is whether he meets
all three prongs of the exemption test contained in the act, regardless of
common law definitions.
Western Ports has failed to show that Mr. Marshall was free from its
direction and control under RCW 50.04.140(1)(a). Accordingly, we do not
need to address the remaining requirements of the three-part test. We
conclude that Mr. Marshall's services for Western Ports constituted non-
exempt employment.
Western Ports nevertheless argues that the Commissioner's ruling is
arbitrary and capricious because it conflicts with an earlier decision by
the same ALJ, who, in an unpublished case involving Western Ports, held
that the claimant who drove equipment owned by another contractor was not
an employee of Western Ports. We first observe that unpublished decisions
have no precedential value. See RCW 50.32.095 (Commissioner may designate
certain decisions precedential by publishing them). Additionally, RCW
50.04.100 provides that personal services performed by a contractor or
subcontractor which do not meet the three-prong test for exemption under
RCW 50.04.140 'shall be considered employment of the employment unit,
Provided however, That such contractor or subcontractor shall be an
employer under the provisions of this title in respect to personal services
performed by individuals for such contractor or subcontractor.' Thus, the
contractor referred to in the ALJ's unpublished decision was, by statute,
an employer with respect to the personal services there at issue. Mr.
Marshall had no employees, thus he did not fall under the proviso. The
dispositive issue here is whether Mr. Marshall falls under the three-prong
exemption in RCW 50.04.140. We see no conflict between the unpublished
decision of the ALJ aforementioned and the Commissioner's ruling in this
case.
Neither does the fact that Mr. Marshall deducts his trucking expenses on
his income tax return or that Western Ports does not withhold payroll taxes
from his compensation make the Commissioner's decision arbitrary and
capricious. Although this may seem anomalous Western Ports considers it so
Washington's definition of covered employment is exceedingly broad and its
exemptions must be read narrowly. As we have noted, a person may be an
independent contractor under federal motor carrier regulations but still be
engaged in covered employment under Washington's unemployment security law.
Western Ports has cited no authority for the proposition that a person
cannot be both an independent contractor for purposes of federal tax law
and engaged in covered employment for purposes of state unemployment law.
Accordingly, we will not address that argument.
We are not the first court in the country to address the question of
whether drivers who use their own trucks are employees for purposes of
state unemployment compensation law. See Annotation, Unemployment
Compensation: Trucker as Employee or Independent Contractor, 2 A.L.R. 4th
1219 (1980). Courts in various states having unemployment statutes similar
to Washington's have found owner/drivers to be covered employees for
purposes of unemployment compensation, under facts similar to those in this
case. See, e.g., Claim of Short, 233 A.D.2d 676, 649 N.Y.S.2d 955 (1996)
(owner/driver, a sole proprietor doing business as 'Big John's Trucking,'
was eligible for unemployment benefits as trucking service's name was
placed on his truck, trucking service arranged all of his jobs and set the
freight charges, and he was subject to disciplinary sanctions and could not
haul loads for others without trucking service's permission); Byrne
Trucking, Inc., v. Employment Div., 32 Or. App. 229, 574 P.2d 664, aff'd,
284 Or. 443, 587 P.2d 473, 2 A.L.R.4th 1215 (1978) (truck owner/operators
were employed for purposes of unemployment benefits where trucking service
engaged in interstate commerce, procured freight to be hauled, collected
freight charges from shippers, and owner/operators paid all expenses
incident to operation of trucks, chose their own routes, had complete
control of methods of loading trucks and could maximize profits by reducing
expenses and hauling more freight. Trucking service's sign was displayed
on trucks, and trucks driven exclusively for benefit of trucking service.
Four truckers testified they considered themselves independent contractors,
but with one exception none had businesses they could sell apart from value
of trucks and none had regular employees for whom they paid unemployment
benefits).
Some courts have found truck owner/operators to be not entitled to
unemployment benefits. Usually, though not in every case, the
owner/drivers in those cases were in the general hauling business, held
themselves out to the public as such, and hauled for others in addition to
the putative employer. E.g., Arrow Petroleum Co. v. Murphy, 58 N.E.2d 532,
389 Ill. 43 (1944); State Employment Sec. Bd. v. Motor Express, Inc., 69
N.E.2d 603, 117 Ind. App. 113 (1946); A Nu Transfer, Inc., v. Department of
Labor & Employment Sec. Div. of Employment Sec., 427 So.2d 305 (Fla. App.
3d Dist. 1983). Among the distinguishing factors in another case in which
the owner/drivers were not entitled to compensation were the facts that the
owner/operators contacted customers and determined delivery dates, and that
the trucking service did not prescribe any rules of operation. See In re
Matter of Lafayette Storage & Moving Corp., 567 N.E.2d 240, 566 N.Y.S.2d
198 (N.Y. 1991).
The Commissioner's ruling can hardly be called arbitrary and capricious
when courts in other states with similar statutes have reached the same
result under similar fact patterns, even though some courts have reached
the opposite result under similar circumstances. Even if a court believes
that the administrative body's ruling is erroneous, the decision is not
arbitrary and capricious if it is reached after due consideration of the
facts, or, more simply, if there is room for two opinions. Buell v. City
of Bremerton, 80 Wn.2d 518, 526, 495 P.2d 1358 (1972).
For all the reasons stated in this opinion, we reverse the Superior Court's
ruling, and reinstate the Commissioner's final ruling.
WE CONCUR:
1 Western Ports cites a California superior court case, Albillo v.
Intermodal Container Service, Inc., LASC BC 17450 (Cal. Sup. Ct. & Workers'
Comp. Bd. 2000) for this proposition. In the California case it was held
that the motor carriers involved were not responsible for unemployment
taxes. However, the court also stated that whether an employment
relationship exists depends on state law, not federal regulations. Id. at
19.
2 Section 14102 gives the Secretary of the federal Department of
Transportation regulatory authority over the leasing of motor vehicles used
in interstate commerce, and requires (1) that such leases be in writing
specifying the duration and compensation to be paid, (2) that a copy of the
written lease be carried in the leased motor vehicle, (3) that leased
vehicles be inspected and covered by liability and cargo insurance, and
that the lessee/motor carrier '(4) have control of and be responsible for
operating those motor vehicles in compliance with the requirements
prescribed by the Secretary on safety of operations and equipment, and with
other applicable law as if the motor vehicles were owned by the motor
carrier.' 49 U.S.C. sec. 14102(a)(4).
3 State unemployment law must conform in certain respects to the Federal
Unemployment Tax Act (FUTA). See RCW 50.98.110; see generally 26 U.S.C.
sec. 3304 (Internal Revenue Code sec. 3304).