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Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act

Supreme Court of Connecticut

March 21, 2017

SOUTHWEST APPRAISAL GROUP, LLC
v.
ADMINISTRATOR, UNEMPLOYMENT COMPENSATION ACT

          Argued December 15, 2016

          Michael J. Spagnola, for the appellant (plaintiff).

          Richard T. Sponzo, assistant attorney general, with whom, on the brief, were George Jepsen, attorney general, and Philip M. Schulz, assistant attorney general, for the appellee (defendant).

          Rogers, C. J., and Palmer, Eveleigh, McDonald, Espinosa and Robinson, Js.

          OPINION

          ROBINSON, J.

         The sole issue in this appeal is whether part C of the ABC test; see General Statutes § 31-222 (a) (1) (B) (ii);[1] which governs whether an employment relationship exists for purposes of the Unemployment Compensation Act (act), General Statutes § 31-222 et seq., requires proof that the putative employee perform services for third parties other than the putative employer, in order to be deemed an independent contractor. The plaintiff, Southwest Appraisal Group, LLC, appeals[2] from the judgment of the trial court dismissing its appeal from the decision of the Board of Review of the Employment Security Appeals Division (board), which found it liable for unemployment compensation taxes, plus interest, for three of its automobile appraisers following an audit by the defendant, the Administrator of the Unemployment Compensation Act. On appeal, the plaintiff claims that the trial court improperly applied part C of the ABC test, which asks whether ‘‘such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed''; General Statutes § 31-222 (a) (1) (B) (ii) (III); in deeming the three appraisers to be employees on the ground that the plaintiff had failed to prove that they had performed appraisal services for anyone other than the plaintiff, despite other evidence indicating that they operated independent businesses. We conclude that evidence of the performance of services for third parties is not required to prove part C of the ABC test but, rather, is a single factor that may be considered under the totality of the circumstances analysis governing that inquiry. Accordingly, we reverse the judgment of the trial court.

         The record reveals the following facts and procedural history.[3] The plaintiff is a proprietor-owned automotive damage appraisal business that assesses damaged vehicles, including estimating repair costs and evaluating total losses and salvages. Various insurance companies contract with the plaintiff to inspect insured vehicles for which damage claims have been filed. The plaintiff then subcontracts with various independent appraisers, who perform the damage appraisals on a flat fee basis. Although the appraisers were required to pass a state licensing test, the plaintiff did not pay for any of the appraisers' licensing or testing fees. The plaintiff reported compensation to the appraisers on Internal Revenue Service Form 1099, did not withhold any taxes, and did not provide the appraisers with fringe benefits such as health insurance, vacation time, travel reimbursement, or a retirement plan.

         The plaintiff generally left the appraisers to their own devices in accomplishing their tasks. The plaintiff did not supply any of them with vehicles or professional liability insurance. It also did not provide the appraisers with any training or uniforms. The appraisers had their own home offices and provided their own equipment, such as cameras, telephones, and computers; the plaintiff provided them only a standardized cost estimating software program that its insurance clients required. The appraisers also had printed their own business cards, which noted their contact information, licenses, and independent status. Several of the appraisers had registered business names. All of the appraisers individually bore the risk of making a profit or a loss.

         In 2011, the defendant conducted an audit of the plaintiff for tax years 2009 and 2010. Following the audit, the defendant determined that six of the appraisers-Sam Draco, Michael Gerber, Scott Kehoe, Russell Mansfield, Andrew Patrick, and Philip Zembruski- were misclassified as independent contractors rather than as the plaintiff's employees. The defendant further determined that, because of the misclassification, the plaintiff owed $2486.73 in unemployment contribution taxes, plus interest, for calendar years 2009 and 2010. After an evidentiary hearing pursuant to General Statutes § 31-242, [4] an appeals referee (referee) upheld the defendant's decision to assess unemployment taxes, and dismissed the plaintiff's appeal.

         The plaintiff appealed from the decision of the referee to the board pursuant to General Statutes § 31-249.[5] In its de novo review of the referee's decision, the board deemed parts A and B of the ABC test satisfied with respect to all six appraisers, concluding that: (1) ‘‘the weight of the evidence supports a finding that the appraisers were not subject to the [plaintiff's] direction and control in the performance of their work''; and (2) the plaintiff had proven that the appraisers' work, performed at the homes and offices of the customers of its insurance company clients, was done outside the plaintiff's place of business. The board then turned to part C, which requires proof that ‘‘such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed . . . .'' General Statutes § 31-222 (a) (1) (B) (ii) (III).

         On the basis of these facts, the board concluded that the plaintiff had proven part C with respect to Gerber, Mansfield, and Zembruski because they each held themselves out as having an ‘‘independently established auto damage appraisal business, '' whose stability and lasting nature was demonstrated by the receipt of significant compensation from entities other than the plaintiff. The board, however, determined that the plaintiff had not proven part C with respect to Draco, Kehoe, and Patrick. The board acknowledged that Draco, Kehoe, and Patrick had indicia of independent business such as home offices, independent state licensure, and business cards, and that Draco, in particular, had held himself out to the public as an independent appraiser and looked for additional work from numerous insurance companies and auto body shops by making his availability known by word of mouth. Citing its decision in Martelle Builders, Inc. v. Administrator, Unemployment Compensation Act, Dept. of Labor, Employment Security Appeals Division, Board of Review Case No. 9010-BR-11 (May 15, 2012), however, the board noted that ‘‘[a]lthough Draco made his services available to entities other than the [plaintiff], he testified that he did not in fact perform work for others. Part C of the ABC test requires the [plaintiff] to demonstrate that the individuals are actually engaged in an independently established business. The fact that Draco maintained contractual freedom to engage in appraisal services for other entities does not satisfy [p]art C of the ABC test.'' The board reached the same conclusion with respect to Kehoe and Patrick, observing that they had not participated in the hearing before the referee, and that James Murphy, the plaintiff's proprietor, ‘‘could not demonstrate that either Kehoe or Patrick performed similar services for others.'' Indeed, the board emphasized that, unlike with Draco, there was no evidence that Kehoe or Patrick had offered their services to others or otherwise held themselves out as independent appraisers, despite the fact that both had registered independent business names. Accordingly, the board rendered a decision sustaining the plaintiff's appeal and reversing the referee's decision in part with respect to Gerber, Mansfield, and Zembruski, but upholding the referee's finding of liability for unemployment contributions with respect to Draco, Kehoe, and Patrick.

         The plaintiff subsequently appealed from the decision of the board to the trial court in accordance with General Statutes § 31-249b[6] and Practice Book § 22-1 et seq. Following oral argument, the trial court issued a memorandum of decision agreeing with the board's conclusion that the plaintiff had failed to satisfy part C with respect to Draco, Kehoe, or Patrick. The trial court rejected the plaintiff's claim that the board had improperly determined that proof of part C of the ABC test requires ‘‘individuals [to] engage in work for multiple entities simultaneously in order to qualify as independent contractors, '' and that the board's precedent ‘‘merely allows [such work] to be one of many factors for consideration.'' The trial court concluded that requiring proof that the putative employees actually performed services for other entities is consistent with the economic dependency concerns contemplated by part C, such as whether the end of the relationship with the putative employer will result in the unemployment of the putative employees. Acknowledging that Draco, Kehoe, and Patrick, like the other three appraisers, ‘‘maintained their own offices and equipment, were responsible for maintaining their licenses, and had their own business cards, '' and that Draco had ‘‘advertised by word of mouth, '' the trial court nevertheless held that the board reasonably gave ‘‘considerable weight'' to the lack of evidence that they ‘‘had provided their services to third parties either during the [audit] period or beyond.'' The court stated, ‘‘[s]imply put, there is no indication on this record that any of these three businesses would survive without their relationship with the plaintiff.'' Accordingly, the trial court rendered judgment dismissing the plaintiff's appeal. This appeal followed. See footnote 2 of this opinion.

         On appeal, the plaintiff claims that the trial court improperly upheld the board's construction of § 31-222 (a) (1) (B) (ii), namely, that part C of the ABC test ‘‘requires putative independent contractors not only to be customarily engaged in an independently established trade, occupation, profession or business of the same nature as that of service performed, but to be customarily engaged in an independently established and successful trade, occupation, profession or business.'' (Emphasis in original.) Describing this treatment of part C as ‘‘radical and wholly unsupported, '' the plaintiff contends that no deference to the board's decision is required because it is inconsistent with the board's use of a totality of the circumstances approach to part C in prior cases. See, e.g., Martelle Builders, Inc. v. Administrator, Unemployment Compensation Act, supra, Dept. of Labor, Board of Review Case No. 9010-BR-11; Mintz v. Administrator, Unemployment Compensation Act, Dept. of Labor, Employment Security Appeals Division, Board of Review Case No. 836-BR-91 (May 8, 1991). The plaintiff emphasizes that this interpretation of part C will have ‘‘practical implications . . . damning to Connecticut industry, '' especially in difficult economic times, by tying the legitimacy of an independent contractor relationship to the putative contractor's business success. Arguing that the trial court improperly relied on our decision in JSF Promotions, Inc. v. Administrator, Unemployment Compensation Act, 265 Conn. 413, 420, 828 A.2d 609 (2003), the plaintiff also cites sister state cases such as Industrial Claim Appeals Office v. Softrock Geological Services, Inc., 325 P.3d 560 (Colo. 2014), and In the Matter of the Appeal of Hendrickson's Health Care Service, 462 N.W.2d 655 (S.D. 1990), and contends that the ‘‘focus [instead] should be on the steps taken and efforts made by the putative independent contractor to perform work for others and secure compensation for those services.'' The plaintiff then argues that, when a proper totality of the circumstances analysis is applied to the facts in the record, it demonstrates that Draco, Patrick, and Kehoe were independent contractors during the audit period.

         In response, the defendant contends that we should defer to the board's interpretation of part C because it has previously been subjected to judicial scrutiny by the Superior Court and has been time-tested since the board's 1988 decision in Feshler v. Hartford Dialysis, Dept. of Labor, Employment Security Appeals Division, Board of Review Case No. 995-BR-88 (December 27, 1988) (copy contained in the file of this case in the Supreme Court clerk's office). Emphasizing the remedial nature of the act, the defendant argues that we should construe exceptions strictly in favor of workers, whom it is intended to benefit. The defendant then contends that the board's construction of part C as requiring the actual performance of services for other entities at the time of rendering the same services for the putative employer is consistent with the ‘‘critical statutory term ‘customarily engaged.' '' The defendant posits that the board's construction of part C does not ‘‘require a successful business but only [the performance of] services for others in an independent business that still remains subject to the risk of profit or loss.'' The defendant argues that requiring the actual provision of services to third parties other than the putative employer is consistent with the interpretations of part C in JSF Promotions, Inc. v. Administrator, Unemployment Compensation Act, supra, 265 Conn. 420-21, Daw's Critical Care Registry, Inc. v. Dept. of Labor, 42 Conn. Supp. 376, 622 A.2d 622 (1992), aff'd, 225 Conn. 99, 622 A.2d 518 (1993) (per curiam), and F.A.S. International, Inc. v. Reilly, 179 Conn. 507, 427 A.2d 392 (1980), along with numerous sister state cases. See, e.g., Carpet Remnant Warehouse, Inc. v. Dept. of Labor, 125 N.J. 567, 592-93, 593 A.2d 1177 (1991); Margoles v. Labor & Industry Review Commission, 221 Wis.2d 260, 269-73, 585 N.W.2d 596 (App.), cert. denied, 221 Wis.2d 654, 588 N.W.2d 631 (1998). Finally, the ...


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