Workers Compensation Board Abuse Investigation Unit v. Nate Holyoke Builders, Inc. , 121 A.3d 801 ( 2015 )

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2015 ME 99Docket: WCB-14-203
Argued: February 10, 2015
Decided: August 4, 2015
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, and HJELM, JJ.
Concurrence: SAUFLEY, C.J.
WORKERS’ COMPENSATION BOARD ABUSE INVESTIGATION UNIT
v.
NATE HOLYOKE BUILDERS, INC., et al.
JABAR, J.
[¶1] The Workers’ Compensation Board Abuse Investigation Unit (AIU)
appeals from a decision of the Workers’ Compensation Board Appellate Division
vacating the Workers’ Compensation Board’s (Dunn, HO) imposition of a $30,000
penalty on Nate Holyoke and his construction company, Nate Holyoke Builders,
Inc. (collectively Holyoke), for violating the insurance coverage requirements of
the Workers’ Compensation Act (WCA). The AIU contends that the Appellate
Division erred in construing 39-A M.R.S § 105-A(3) (2014) as a limitation on the
Board’s authority to sanction construction contractors that misclassify employees
as independent contractors. Holyoke cross-appeals, arguing that the Board erred in
finding that Holyoke misclassified nine employees as independent construction
subcontractors, and that the Board and Appellate Division both erred in
2
determining that Holyoke failed to “secure . . . compensation” for all of its
employees, in violation of 39-A M.R.S. §§ 401 and 403 (2011). 1 Holyoke
additionally contends that its reliance on the Board’s predeterminations should
estop the Board from imposing sanctions.
[¶2] We conclude that Holyoke complied with sections 401 and 403 by
maintaining workers’ compensation insurance policies that would have provided
compensation to any worker who was determined to be an employee entitled to
benefits. Because Holyoke complied with the WCA’s coverage requirements, we
do not address Holyoke’s estoppel contention, the proper classification of
Holyoke’s workers, or the correct construction of section 105-A(3). We therefore
affirm the Appellate Division’s decision vacating the Board’s imposition of
penalties on Holyoke, albeit for a different reason than that expressed by the
Appellate Division.
I. FACTS
[¶3] Nate Holyoke Builders, Inc. has historically had some workers whom it
classified as employees and other workers whom it classified as independent
contractors. In 2009, after being assessed a workers’ compensation insurance
premium adjustment of $50,000 and learning that its insurer required
1
Title 39-A M.R.S. §§ 401 and 403 have both been amended since the AIU complained against
Holyoke in 2011, though the amendments are not relevant in this case. See, e.g., P.L. 2013, ch. 87, § 1
(effective Oct. 9, 2013) (codified at 39-A M.R.S. § 401(1)(C) (2014)); P.L. 2013, ch. 172, § 1 (effective
Oct. 9, 2013) (codified at 39-A M.R.S. § 403(4-A) (2014)).
3
predeterminations of independent contractor status in order to calculate premiums,
Holyoke began requiring the workers whom it classified as independent
contractors to obtain predeterminations from the Board.2 In 2010 and 2011, the
Board granted predeterminations of independent contractor or construction
subcontractor status to the workers whom Holyoke classified as independent
contractors. Those workers then presented Holyoke with certificates of that status.
[¶4] During this two-year period, the company maintained workers’
compensation insurance policies and paid premiums that were based in part on
payroll to workers classified as employees. The premiums that Holyoke paid did
not reflect remuneration remitted to workers classified as independent contractors.
However, Holyoke’s workers’ compensation policies provided for the payment of
benefits to any worker who was entitled to them pursuant to the WCA, even if that
worker was initially classified as an independent contractor for payroll and
premium purposes. The policies specified that their premium basis included
payroll and remuneration paid to any person engaged in work that could give rise
to an entitlement to the payment of benefits. The policies further specified that
2
Pursuant to 39-A M.R.S. § 105 (2014), a worker may apply to the Board for a predetermination of
independent contractor or construction subcontractor status. If granted, the predetermination “creates a
rebuttable presumption that the determination is correct in any later claim for benefits.” Id. § 105(1)(A),
(1-A)(A). If the predetermination does not withstand scrutiny when raised in a claim for benefits, the
insurer will either return excess premium collected or charge the employer a premium adjustment. Id.
§ 105(2). The predetermination statute thus guarantees that if an insurer pays benefits to an employee
who was misclassified as an independent contractor, the insurer can be compensated for those payments
by assessing premium adjustments against the employer.
4
their final premiums would be calculated after an audit to determine the premium
basis and “the proper classifications” applicable to the covered work. In the event
that Holyoke’s estimated premiums were less than its final premium, the company
would be liable for the difference.3
[¶5] In October 2010, the Board selected Holyoke for an audit to verify its
compliance with the insurance coverage requirements of the WCA. After finding
that some of the workers whom Holyoke classified as independent contractors had
not secured individual workers’ compensation policies, the Board’s auditor
recommended that the Board verify the predetermined status of those workers.
After the audit, the Board’s Predeterminations Unit for a second time issued
predeterminations to the workers in question.
II. PROCEDURAL BACKGROUND
[¶6] In September 2011, the AIU filed a complaint alleging that Holyoke
had violated 39-A M.R.S. §§ 401 and 403 “by failing to obtain or maintain
approved workers’ compensation insurance coverage for its employees.” At a
3
Pursuant to the Workers’ Compensation Rating Act (WCRA), 24-A M.R.S. §§ 2381 to 2387-B
(2014), a workers’ compensation insurer may adopt a rate, defined as “the cost of insurance per exposure
base unit,” 24-A M.R.S. § 2381-C(8), that provides for retrospective premium adjustments based on the
insured’s experience during the policy period, 24-A M.R.S. § 2382-D(5). Because workers’
compensation benefits are payable only to an “employee,” 39-A M.R.S. § 201(1) (2014), and
“independent contractors” are excepted from the WCA’s broad definition of “employee,” 39-A M.R.S.
§§ 102(11), (13-A) (2014), a policy’s exposure base depends on the correct classification of the insured’s
workers. Holyoke’s policies allowed its insurers to assess their risk exposure by reaching conclusions
about the correct classification of Holyoke’s workers within the meaning of the WCA. If, after an audit,
an insurer concluded that Holyoke had misclassified an employee as an independent contractor, it could
assess a retrospective premium adjustment based on the remuneration paid to the misclassified worker.
5
prehearing conference and throughout a series of evidentiary hearings, Holyoke
argued that no violation of the WCA’s insurance coverage requirements could
occur as a matter of law when an employer maintained a workers’ compensation
insurance policy that would pay benefits to any worker determined to be an
employee entitled to benefits, regardless of whether the worker was initially
classified as an employee or an independent contractor for payroll and premium
purposes. In an order dated November 14, 2011, the hearing officer rejected
Holyoke’s argument, concluding, “It is not sufficient to have a policy on
some . . . workers and to assume that others would be covered should they later
make a claim and prevail.”
[¶7] The hearing officer issued a similar order in November 2012, reasoning
that section 401(1)’s mandate that an employer “secure the payment of
compensation . . . with respect to all employees” required that an employer
“provide . . . coverage to [its] employees concurrent with their employment.” He
suggested that Holyoke’s contention “would permit a large employer to insure only
one worker and pay later if others were deemed employees,” and hypothesized that
such an interpretation of the WCA’s coverage requirements would undermine the
funding mechanism of the workers’ compensation system.
[¶8] The hearing officer determined that Holyoke had misclassified nine
workers and violated the WCA’s coverage requirements by failing to secure
6
insurance coverage for those misclassified workers. As a sanction, he imposed a
civil penalty of $30,000. See 39-A M.R.S. § 324(3)(B) (2014).
[¶9] Holyoke appealed to the Appellate Division. See 39-A M.R.S.
§ 321-B(1)(A) (2014). In a decision issued on April 24, 2014, the Appellate
Division interpreted section 401 to require that an employer purchase workers’
compensation coverage for all employees—including those erroneously
predetermined to be independent contractors—concurrent with their employment,
reasoning that any other interpretation would render the word “all” in section
401(1) meaningless and defeat the risk-spreading objective of the WCA’s coverage
requirements. Though the Appellate Division affirmed the determination that
Holyoke had misclassified workers as independent contractors, it vacated the
penalty, concluding that the Board’s authority to impose sanctions for
misclassification of construction subcontractors is specifically governed by
39-A M.R.S. § 105-A(3) rather than the general section 324(3) penalty provision,
and that section 105-A(3) is ambiguous with respect to the extent of the Board’s
authority.
[¶10] Holyoke and the AIU both petitioned for our review of the Appellate
Division’s decision pursuant to 39-A M.R.S. § 322(1) (2014) and M.R. App. P.
23(a), (b)(1). We granted their petitions, and this appeal ensued. See 39-A M.R.S.
§ 322(3) (2014); M.R. App. P. 23(c).
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III. DISCUSSION
A. Operative Decision
[¶11] Before addressing the merits of this appeal, we take this opportunity
to clarify which decision in the workers’ compensation appeals process is
“operative” for the purposes of our appellate review. In light of the similarity of
the current and former statutes authorizing review of Board decisions by the
Appellate Division and by us, and the paucity of our workers’ compensation
precedents since the revival of the Appellate Division, we look to the relevant
history of the WCA and to cases that were appealed to us from the former
Workers’ Compensation Commission Appellate Division.
[¶12] The Workers’ Compensation Board Appellate Division was created
by an amendment to the WCA that became effective in 2012. P.L. 2011, ch. 647,
§ 20 (codified at 39-A M.R.S. §§ 321-A, 321-B (2014)) (effective Aug. 30, 2012).
Pursuant to that amendment, “appeals from decisions of individual hearing
officers . . . proceed to the Appellate Division as a matter of right,” Estate of
Sullwold v. Salvation Army, 2013 ME 28, ¶ 5, 63 A.3d 1061, and appeals from
decisions of the Appellate Division proceed to us on a discretionary basis,
P.L. 2011, ch. 647, § 21 (codified at 39-A M.R.S. § 322(1)); M.R. App. P. 23(b)(2)
& Advisory Note–August 2012. These procedures for review of Board decisions
mirror the procedures in effect from 1981 to 1993, which allowed an appeal from a
8
decision of the former Workers’ Compensation Commission to proceed as of right
to the former Appellate Division, and then to us on a discretionary basis. See
P.L 1981, ch. 514, § 6 (codified at 39 M.R.S. §§ 103-A, 103-B, 103-C, 103-D,
103-E (Supp. 1982-1983)) (effective Sept. 18, 1981); see also Hanover Ins. Co. v.
Workers’ Comp. Bd., 1997 ME 104, ¶ 10, 695 A.2d 556 (describing those
procedures); Mathieu v. Bath Iron Works, 667 A.2d 862, 865 (Me. 1995) (same).
[¶13] Based on this similarity in structure and process, we will utilize the
procedures that we followed from 1981 to 1993 in reviewing appeals from
decisions of the Appellate Division. When we consider a decision of the Appellate
Division reviewing a decision of a hearing officer pursuant to 39-A M.R.S.
§ 322(1), we will not review the Appellate Division’s decision, but will instead
review the record before the hearing officer and independently assess the hearing
officer’s decision. See Keene v. Fairchild Co., 593 A.2d 655, 658 (Me. 1991);
Lagasse v. Hannaford Bros. Co., 497 A.2d 1112, 1119 (Me. 1985)
B. Standard of Review
[¶14] The hearing officer’s interpretation of the WCA is a matter of law,
which we review de novo. Estate of Sullwold v. Salvation Army, 2015 ME 4, ¶ 7,
108 A.3d 1265. When construing the WCA, our purpose is to give effect to the
Legislature’s intent. Estate of Joyce v. Commercial Welding Co., 2012 ME 62,
¶ 12, 55 A.3d 411. “In so doing, we first look to the plain meaning of the statutory
9
language, and construe that language to avoid absurd, illogical or inconsistent
results.” Id. (quotation marks omitted). We look beyond a statute’s plain meaning
only if the statutory language is ambiguous. Id. “A statute is ambiguous if it is
reasonably susceptible to different interpretations.” Id.[¶15] With these principles in mind, we turn to the substantive issue
presented by this appeal, namely, whether the hearing officer erred in determining
that Holyoke violated the WCA’s insurance coverage requirements.
C. The Insurance Coverage Requirements of the WCA
[¶16] Because the statutes at issue in this case are unambiguous, we need go
no further in our examination of them than their plain meaning.
[¶17] Title 39-A M.R.S. § 401 provides, in relevant part:
1. Private employers. Every private employer . . . is subject
to this Act and shall secure the payment of compensation in
conformity with this section and sections 402 to 407 with respect to
all employees, subject to the provisions of this section. . . .
3. Failure to conform. The failure of any private employer
. . . to procure insurance coverage for the payment of compensation
pursuant to sections 402 to 407 constitutes failure to secure payment
of compensation provided for by this Act within the meaning of
section 324, subsection 3, and subjects the employer . . . to the
penalties prescribed by that section. . . .
[¶18] Title 39-A M.R.S. § 403 similarly provides:
An employer subject to this Act shall secure compensation and
other benefits to the employer’s employees in one or more of the ways
described in this section. The failure of any employer subject to this
10
Act to procure insurance coverage for the payment of compensation
and other benefits to the employer’s employees in one of the ways
described in this section constitutes failure to secure payment of
compensation provided for by this Act within the meaning of section
324, subsection 3 and subjects the employer to the penalties
prescribed by that section.
[¶19] Title 39-A M.R.S. § 324, which is referenced in sections 401(3) and
403, provides in relevant part:
3. Failure to secure payment. If any employer who is
required to secure the payment to that employer’s employees of the
compensation provided for by this Act fails to do so, the employer is
subject to . . . penalties . . . . The failure of any employer to procure
insurance coverage for the payment of compensation and other
benefits to the employer’s employees in compliance with sections 401
and 403 constitutes a failure to secure payment of compensation
within the meaning of this subsection.
[¶20] Holyoke and the AIU each argue that the legislative intent animating
the WCA’s coverage requirements is apparent from the plain language of sections
401 and 403, but they disagree about what that language means.
[¶21] Holyoke contends that an employer complies with the requirements of
sections 401 and 403 by purchasing a workers’ compensation policy that will pay
benefits to any worker who is entitled to receive them. It maintains that an
employer’s classification of workers for payroll purposes and the premium that the
employer pays to its workers’ compensation insurer are not relevant to the
employer’s compliance with the WCA’s coverage requirements.
11
[¶22] The AIU argues that Holyoke’s interpretation of sections 401 and 403
“would foster abuse of the workers’ compensation system” by allowing employers
to classify a single worker as an employee and pay workers’ compensation
premiums that do not reflect the number of workers who are in fact employees or
the risks posed by those workers to the workers’ compensation system. 4 It
contends that an employer fulfills the obligation to “secure . . . compensation” for
all employees only by correctly classifying its workers at the time that it purchases
a workers’ compensation policy and paying premiums during the policy period that
reflect the remuneration paid to all employees.
[¶23] Contrary to the AIU’s contention, the plain language of sections
401(1) and 403 does not require an employer to correctly classify workers for
payroll purposes and to pay workers’ compensation premiums based on those
classifications. Those sections make no reference to the timing or manner of
worker classification or the timing of premium payments, but simply require an
employer to “secure the payment of compensation” for its employees pursuant to
39-A M.R.S. §§402 and 407 (2014). The text of sections 401(1) and 403
unambiguously obligates an employer to make arrangements for the payment of
4
The potential for abuse of the workers’ compensation system through worker misclassification is
mitigated when, as in this case, an insurer requires predeterminations of independent contractor status as a
prerequisite to insuring an employer who classifies some workers as independent contractors.
12
workers’ compensation benefits to its employees. It does not require that the
employer do so at any particular time.
[¶24] Section 403(1) provides that an employer complies with its obligation
to “secure compensation” to its employees “by insuring and keeping insured the
payment of such compensation . . . under a workers’ compensation insurance
policy . . . .” Title 39-A M.R.S. § 407 likewise provides that “[a]n employer with a
currently approved workers’ compensation policy . . . is deemed to be in
compliance with this Act . . . .” Pursuant to these sections, an employer complies
with the WCA’s coverage requirements by purchasing workers’ compensation
insurance that will provide coverage for all workers. The Act does not require an
employer to obtain a policy with premiums based on all workers, including those
initially deemed to be independent contractors.5
IV. CONCLUSION
[¶25] We conclude that Holyoke complied with the plain meaning of
sections 401(1) and 403 by maintaining workers’ compensation insurance policies
that would pay benefits to any worker who was entitled to them. “Workers’
5
Our opinion today concludes that sections 401(1) and 403 unambiguously require an employer to
arrange for the payment of workers’ compensation benefits to any worker who is entitled to them. In
light of this conclusion, we need not consider the relationship between the WCA’s coverage requirements
and the predetermination and premium adjustment procedures discussed supra at nn.2-3. We note,
however, that the Legislature addressed worker classification and timing-of-premium-payment issues
through those procedures, and did not incorporate related conditions into the WCA’s coverage
requirements. Thus, contrary to the AIU’s contentions, it is those procedures, rather than the WCA’s
coverage requirements, that remedy the misclassification of workers for underwriting and premium
purposes, and thereby protect the funding mechanism that enables the payment of benefits to employees.
13
compensation insurance policy” is defined as a policy that guarantees the payment
of workers’ compensation benefits to those persons who are entitled to receive
them pursuant to the WCA. See 39-A M.R.S. § 102(19) (2014). At all relevant
times, Holyoke maintained workers’ compensation insurance policies that
guaranteed the payment of benefits required by the WCA.
[¶26] In light of our conclusion that Holyoke complied with the coverage
requirements of the WCA, we do not address Holyoke’s estoppel contention, its
challenge to the Board’s finding that it misclassified workers, or the AIU’s
contention regarding the Board’s statutory authority to sanction construction
contractors that misclassify independent contractors.
The entry is:
The decision of the Workers’ Compensation Board
Appellate Division is (1) affirmed to the extent that
it vacated the Board’s imposition of penalties on
Holyoke, and (2) vacated insofar as it determined
that Holyoke violated the WCA’s coverage
requirements.
SAUFLEY, C.J., concurring.
[¶27] I concur in the Court’s opinion but write separately to encourage
legislative clarification of the appellate process in workers’ compensation cases.
See Johnson v. Home Depot USA, Inc., 2014 ME 140, ¶ 9, 106 A.3d 40114
(recognizing the legislative intent to delegate broad authority to the Workers’
Compensation Board to interpret the Workers’ Compensation Act).
[¶28] The factual findings of a hearing officer are not ordinarily subject to
appeal, either before the Appellate Division of the Workers’ Compensation Board
or before the Law Court. See 39-A M.R.S. § 321-B(2) (2014). Thus, in any
appeal, the Appellate Division will focus on reviewing the hearing officer’s legal
interpretations.
[¶29] In each individual appeal, the Appellate Division comprises three
full-time hearing officers, none of whom were adjudicators in the case at issue,
who apply their collective expertise in understanding and interpreting workers’
compensation law to review a single hearing officer’s decision. See 39-A M.R.S.
§§ 321-A(2), 321-B(3) (2014). Given this design and composition, it seems logical
that the legal interpretation of the three-person Appellate Division, not the
individual hearing officer, would be reviewed on appeal to the Law Court, with
appropriate deference given to the Appellate Division in the event that a statute—
unlike those at issue here—is ambiguous. Cf. S.D. Warren Co. v. Bd. of Envtl.
Prot., 2005 ME 27, ¶¶ 3, 5-7, 868 A.2d 210 (deferring to statutory interpretation by
the Board of Environmental Protection in an appeal to the Board from a
Department of Environmental Protection ruling), aff’d, 547 U.S. 370 (2006).
15
[¶30] However, the workers’ compensation statutes do not direct the Court
to review the Appellate Division’s legal interpretations. See 39-A M.R.S.
§§ 321-A to 322 (2014). Thus, the Court has appropriately applied existing Maine
law, which requires it to review, and potentially defer to, the legal analysis set forth
in the “operative decision.” Stewart v. Town of Sedgwick, 2000 ME 157, ¶ 4,
757 A.2d 773. Here, the operative decision is that of the single hearing officer
rather than the three hearing officers who used their collective wisdom to rule on
the law as the Appellate Division. See Estate of Sullwold v. Salvation Army,
2015 ME 4, ¶ 7, 108 A.3d 1265.
[¶31] In the matter before us, the distinction does not affect the outcome in
any way. Nonetheless, I encourage the Legislature to consider whether it is the
original hearing officer’s legal interpretation or the Appellate Division’s
interpretation that should be reviewed in an appeal to the Law Court, and to enact
any statutory measures that it may deem necessary to clarify the Court’s role in
workers’ compensation appeals.
16
On the briefs:
Paul H. Sighinolfi, Esq., John C. Rohde, Esq., and Seanna L. Crasnick, Esq.,
Workers Compensation Board, Augusta, for appellant Workers’
Compensation Board Abuse Investigation Unit
James D. Poliquin, Esq., Norman, Hanson & DeTroy, LLC, Portland, for
appellees Nate Holyoke Builders, Inc., et al.
At oral argument:
Paul H. Sighinolfi, Esq., for appellant Workers’ Compensation Board Abuse
Investigation Unit
James D. Poliquin, Esq., for appellee Nate Holyoke Builders, Inc., et al.
Workers Compensation Board Appellate Division case number 13-04
FOR CLERK REFERENCE ONLY