D & R Construction v. WCAB (Suarez, Travelers Insurance Co., Uninsured Employers Guaranty Fund, and T & L Development) , 167 A.3d 837 ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
D & R Construction, :
Petitioner :
:
v. : Nos. 1558 C.D. 2016 and
: 1578 C.D. 2016
Workers' Compensation Appeal :
Board (Suarez, Travelers Insurance :
Company, Uninsured Employers :
Guaranty Fund, and T & L :
Development), :
Respondents :
Department of Labor and Industry, :
Bureau of Workers' Compensation, :
Uninsured Employers Guaranty Fund, :
Petitioner :
:
v. : Nos. 1574 C.D. 2016 and
: 1575 C.D. 2016
Workers' Compensation Appeal :
Board (Suarez, and D & R :
Construction, T & L Development, :
and Travelers Insurance Company), :
Respondents : ARGUED: April 5, 2017
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE ROBERT SIMPSON, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE JULIA K. HEARTHWAY, Judge
HONORABLE JOSEPH M. COSGROVE, Judge
OPINION BY JUDGE HEARTHWAY FILED: August 1, 2017
D & R Construction (D&R) and the Uninsured Employers Guaranty
Fund (Fund) petition for review of the July 6, 2016, order of the Workers’
Compensation Appeal Board (Board) which, inter alia, reversed the decision and
order of the workers’ compensation judge (WCJ) denying and dismissing Hector
Suarez’s (Claimant) claim petitions and remanded the matter to the WCJ for
further proceedings on the merits. We reverse and remand.
On October 26, 2010, Claimant filed a claim petition against D&R,
alleging that Claimant sustained an injury in the course of his employment on
August 28, 2010. (WCJ’s Findings of Fact (F.F.) No. 1.) D&R filed an answer
denying the material allegations and specifically averred that Claimant was an
independent contractor and not an employee of D&R. (WCJ’s F.F. No. 1.)
Subsequently, Claimant filed a claim petition against the Fund containing the same
allegations.1 (See WCJ’s F.F. No. 1.) The petitions were assigned to a WCJ for
adjudication. Before the WCJ, the parties agreed to bifurcate the issue of whether
Claimant was an employee of D&R or an independent contractor on the date of
injury.2 (WCJ’s F.F. No. 1.) The parties litigated the issue and submitted
evidence.
1
Travelers Insurance Company (Travelers) is D&R’s workers’ compensation insurance
carrier. Apparently, there is a dispute as to whether Travelers provided D&R with coverage in
the Commonwealth of Pennsylvania, and hence the reason for the involvement of the Fund as
well as the reason for separate representation of D&R and Travelers. (See D&R’s brief at 5,
Travelers’ brief at 6.)
On April 11, 2011, a joinder petition was filed against T & L Development (T&L)
alleging that T&L was the general contractor on the project where Claimant was injured, and
therefore, T&L was liable for any compensation owed. (WCJ’s F.F. No. 1.)
2
The parties agreed that if Claimant was found to be an employee, then the WCJ would
determine if Claimant was injured in the course and scope of his employment, and if his injury
(Footnote continued on next page…)
On January 31, 2013, the WCJ denied and dismissed Claimant’s claim
petitions, concluding that Claimant was an independent contractor and not an
employee of D&R on the date of injury.3 (WCJ’s F.F. No. 6(a), WCJ’s
Conclusions of Law (C.L.) Nos. 1-2.) Claimant appealed to the Board, arguing,
inter alia, that the WCJ erred in concluding that he was an independent contractor.
On July 6, 2016, the Board issued an opinion and order, which
reversed the WCJ’s decision and order and remanded the matter to the WCJ for
further proceedings on the merits.4 The Board concluded that Claimant was not an
independent contractor and thus was an employee of D&R at the time of his injury.
In reaching this conclusion, the Board relied on the Construction Workplace
Misclassification Act5 (CWMA), stating that the factors therein are “instructive” in
evaluating the matter.6 (Board’s opinion (op.) at 9, n.4.)
(continued…)
resulted from the violation of a positive work order. The issue of insurance coverage was
deferred. (WCJ’s F.F. No. 1.)
3
The WCJ found that even if Claimant was an employee, he failed to establish that he
sustained an injury in the course of his employment because his shift was over and he was not
furthering the affairs of D&R when he sustained his injury. (WCJ’s F.F. No. 6(f), Conclusions
of Law (C.L.) No. 3.) The WCJ also found that Claimant violated a positive work order.
(WCJ’s F.F. No. 6(g).) The WCJ dismissed the joinder petition.
4
The Board also reversed the dismissal of the joinder petition and ordered the WCJ to
make a determination as to the responsible party for the claim. (Board op. at 14, Order.)
5
Act of October 13, 2010, P.L. 506, 43 P.S. §§ 933.1 - 933.17.
6
The Board further determined that “even under the traditional common law analysis,”
Claimant would be considered an employee, concluding that D&R exercised control over
Claimant. (Board’s op. at 10-11.) The Board also determined that the WCJ erred in finding that
Claimant was not in the course of his employment insofar as the WCJ found that Claimant was
not furthering D&R’s affairs and that he violated a positive work order. (Board’s op. at 11.)
2
Subsequently, D&R and the Fund filed Applications for Amendment
(Applications) with the Board requesting that the Board amend its July 6, 2016
opinion and order to include a statement pursuant to Section 702(b) of the Judicial
Code, 42 Pa. C.S. § 702(b), to permit an immediate appeal to this Court from the
Board’s interlocutory order. The Board denied the Applications, and D&R and the
Fund then filed Petitions for Review with this Court, alleging that the Board
abused its discretion in denying the Applications. Senior Judge Rochelle S.
Friedman of this Court issued an order granting appeal by permission and limiting
the issues on appeal to the following:
1. Whether the Board erred in retroactively applying the
Construction Workplace Misclassification Act
(CWMA) to determine whether claimant was an
independent contractor?
2. Whether the Board erred by considering the CWMA
as guidance for the application of the common law
analysis to determine who qualifies as an independent
contractor?
(Order entered 10/25/16.)
D&R and the Fund (together, Petitioners)7 now petition this Court for
review of the Board’s order,8 arguing that the Board erred in retroactively applying
7
Although Travelers and T&L are respondents before this Court, they each have filed a
brief adopting the arguments of D&R and the Fund in addition to their own arguments. Because
the arguments of these four parties are essentially the same, for ease and simplicity, we will refer
to the arguments of D&R, the Fund, Travelers and T&L collectively as those of Petitioners.
8
Our scope of review is limited to determining whether constitutional rights have been
violated, whether an error of law was committed and whether necessary findings of fact are
supported by substantial evidence. Johnson v. Workmen’s Compensation Appeal Board (Dubois
Courier Express), 631 A.2d 693 (Pa. Cmwlth. 1993).
3
the CWMA to this matter and in using the CWMA as guidance to inform the
Board’s decision. Petitioners argue that the CWMA cannot be applied to this case
because the CWMA was enacted after Claimant’s date of injury, the CWMA had a
future effective date, and the CWMA is a substantive law. Petitioners also argue
that the CWMA was never intended to clarify or provide guidance for evaluating
the traditional common law factors. Petitioners maintain that the Board’s use of
the CWMA to inform its analysis under the traditional “direction and control” test
was equivalent to applying the CWMA retroactively. Further, Petitioners argue
that under the Board’s rationale, the CWMA could be applied well beyond the
construction industry, and it was the Legislature’s intent that the CWMA apply
only to the construction industry.
On the other hand, Claimant argues that the CWMA can be applied
retroactively because it is a remedial statute intended to correct defects in
classifying employees for workers’ compensation benefits, and the Board
recognized the CWMA’s penalty provisions would have no application prior to its
effective date. He further argues that the CWMA may be used as guidance under
the traditional factors because the Board applied two distinct analyses, one under
the CWMA and one under the traditional common law analysis, and reached the
same result.
Whether CWMA may be applied retroactively
Section 1926 of the Statutory Construction Act of 1972 states, “No
statute shall be construed to be retroactive unless clearly and manifestly so
4
intended by the General Assembly.” 1 Pa. C.S. § 1926. The limitation on
retroactive application applies to laws that affect the substantive rights of parties.
See Page’s Department Store v. Velardi, 346 A.2d 556, 559 n.5 (Pa. 1975)
(refusing to apply statutory amendments involving substantive rights to pending
proceedings but applying amendments involving procedure where those
amendments were enacted after date of injury but prior to the date the appeal to the
Board was heard and decided). Moreover, this Court has ruled that the law in
effect on a claimant’s date of injury is the controlling law under which to
determine the claimant’s entitlement to benefits, and subsequent changes to the law
which affect a claimant’s substantive rights may not be applied retroactively unless
the Legislature so states. See Montgomeryville Airport, Inc. v. Workmen’s
Compensation Appeal Board (Weingrad), 541 A.2d 1187 (Pa. Cmwlth. 1988).
“A statute affects substantive rights if it alters a cause of action.”
Page’s 346 A.2d at 559 n. 5. “[A] ‘cause of action’ may be defined as the factual
basis for a claim, or, to put it another way, a set of facts which, if proved, would
entitle a party to relief.” Id. “‘Retroactive laws have been defined as those which
take away or impair vested rights acquired under existing laws, create new
obligations, impose a new duty, or attach a new disability in respect to the
transaction or consideration already past.’” Alexander v. Department of
Transportation, Bureau of Driver Licensing, 880 A.2d 552, 559 (Pa. 2005) (citing
Nicholson v. Combs, 703 A.2d 407, 411 (Pa. 1997) (citing BLACK'S LAW
DICTIONARY, 1184 (6th ed.1990)).
5
There is no dispute that Claimant’s injury occurred on August 28,
2010, which was prior to the enactment of the CWMA on October 13, 2010.
Additionally, the CWMA states it is effective in 120 days, or February 10, 2011.
See Section 30 of the CWMA, Act of October 13, 2010, P.L. 506. Thus, the
CWMA cannot be applied retroactively if it affects a claimant’s substantive rights,
or if the CWMA does so, then it must be clear that the Legislature intended
retroactive application of the CWMA.
In order to receive workers’ compensation benefits, the claimant bears
the burden to establish, inter alia, an employer-employee relationship. Universal
Am-Can, Ltd. v. Workers’ Compensation Appeal Board (Minteer), 762 A.2d 328
(Pa. 2000). Whether one’s status is that of an employee or independent contractor
“is a crucial threshold determination that must be made before granting workers’
compensation benefits.” Id. at 330.
The CWMA sets forth criteria which must be established in order for
an individual in the construction industry to be deemed an independent contractor
and not an employee for purposes of workers’ compensation. The absence of a
single criterion will negate the independent contractor status, and the individual
will be deemed an employee. See Section 3(a) of the CWMA 43 P.S. § 933.3(a)
(using “only if” before listing criteria); Staron v. Workers’ Compensation Appeal
Board (Farrier), 121 A.3d 564 (Pa. Cmwlth. 2015) (upholding award of workers’
compensation benefits based on determination that claimant was not an
independent contractor where not all of the criteria set forth in Section 3 of the
CWMA were met). This strict application of each criterion differs significantly
6
from the test under the common law where, as will be discussed later, application
of the factors is more of a weighing test and whether some or all factors exist is not
controlling. Additionally, as will be discussed in more detail later, the criteria in
the CWMA are not identical to the traditional factors under the common law which
are considered when evaluating whether an employer-employee relationship exists.
Thus, because of the differing criteria as well as the fact that each
criterion is strictly applied, the CWMA alters the elements of proof required to
establish independent contractor status in the construction industry, thereby
directly affecting whether a purported employer will be responsible for an injury.
These are substantive changes.
Because the CWMA affects substantive rights, the CWMA cannot be
applied retroactively unless the Legislature has expressly so provided. See Page’s;
Montgomeryville Airport. Our review of the CWMA reveals that there is no
language expressly stating that it may be applied retroactively. Additionally,
Claimant’s argument that the CWMA’s delayed effective date was for the purpose
of ensuring adequate funding for enforcement has no bearing on whether the
statute affects substantive rights, and therefore, no bearing on retroactivity.
Likewise, Claimant’s arguments that the CWMA should be applied
retroactively because it is remedial and no penal provisions of the CWMA are
involved in this case are without merit. There is no question that the CWMA was
enacted to remedy concerns that some employers were misclassifying workers in
the construction industry. Department of Labor and Industry v. Workers’
7
Compensation Appeal Board (Lin and Eastern Taste), 155 A.3d 103 (Pa. Cmwlth.
2017). However, the remedial intentions motivating the enactment of the CWMA
do not trigger retroactive application of the statute.9 Likewise, the fact that the
penal provisions of the CWMA are not involved in this case does not give rise to
retroactivity where the statute affects substantive rights.
Accordingly, we hold that the CWMA cannot be applied retroactively
in workers’ compensation matters to determine whether an individual is an
employee or an independent contractor.
Whether the CWMA may be used as guidance for the common law analysis
Although the Board acknowledged that the CWMA did not become
effective until February 11, 2011, some six months after Claimant’s accident, the
Board found the CWMA to be instructive and viewed the CWMA as a
“clarification of the traditional test” for establishing an employment relationship.
(Board’s op. at 9, n.4) We conclude that the CWMA is not a clarification of the
traditional test.
Under the Workers’ Compensation Act10 and resulting case law, there
is no bright line rule for determining whether a particular relationship is that of an
employer-employee or owner-independent contractor. Universal Am-Can.
9
Claimant’s reliance on In re Malick, 8 A.2d 494 (Pa. Super. 1939) is misplaced. In re
Malick involved a petition to strike off tax liens and the retroactive application of a validating act
which, by its very nature, applies retroactively.
10
Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1 - 1041.4, 2501 – 2708.
8
Nevertheless, our Supreme Court has established the following factors (traditional
factors) that must be considered when determining whether an employer-employee
relationship exists:
Control of manner work is to be done; responsibility for
result only; terms of agreement between the parties; the
nature of the work or occupation; skill required for
performance; whether one is engaged in a distinct
occupation or business; which party supplied the tools;
whether payment is by the time or by the job; whether
work is part of the regular business of the employer, and
also the right to terminate the employment at any time.
Id. at 333 (quotation marks and citations omitted) (quoting Hammermill Paper
Company v. Rust Engineering Company, 243 A.2d 389, 392 (Pa. 1968)).
“Whether some or all of these factors exist in any given situation is not
controlling.” Id. Although each factor is relevant, “control over the work to be
completed and the manner in which it is to be performed are the primary factors in
determining employee status.” Id. Thus, in sum, under the common law, there are
no mandatory factors, but rather, there is a weighing of factors, with control being
a primary factor.
In contrast, under the CWMA, unless certain criteria are met, an
individual in the construction industry will be deemed to be an employee and not
an independent contractor. These criteria are mandatory, and the absence of any
one criterion will negate the independent contractor status, and the individual will
be deemed an employee. See Staron. Thus, each criterion has equal weight.
9
Additionally, some of the criterion in the CWMA differ significantly
from the traditional factors under the common law. See Section 3 of the CWMA,
43 P.S. § 933.3. For example, for an individual to be considered an independent
contractor, the CWMA requires that: (i) there is a written contract for the services;
(ii) the individual maintains a business location separate from the location of the
person for whom the services are being performed; and (iii) the individual
maintains liability insurance during the term of the contract of at least $50,000. 43
P.S. § 933.3(a)(1), (b)(4)&(6). These are not specific threshold requirements
among the traditional factors. Additionally, case law regarding the traditional
factors states that although payment is not determinative, wages and payroll
deductions are significant, as is the provision of workers’ compensation coverage.
American Road Lines v. Workers’ Compensation Appeal Board (Royal), 39 A.3d
603 (Pa. Cmwlth. 2012). In contrast, the CWMA provides that the failure to
withhold federal or state income taxes or to pay workers’ compensation premiums
shall not be considered. Section 3(c) of the CWMA, 43 P.S. § 933.3(c). Thus,
while some of the requirements set forth in the CWMA may be similar to some of
the traditional factors, the CWMA does not clarify the common law, particularly
given the aforementioned differences.
In rendering its opinion, the Board listed all the requirements set forth
in Sections 3(a) and 3(b) of the CWMA in order for an individual to be considered
an independent contractor and not an employee and then almost verbatim
proceeded to apply each requirement. Specifically, the Board stated there was no
evidence that Claimant: (i) entered into a written contract to perform the services
10
he rendered;11 and (ii) was customarily engaged in an independently established
trade, occupation, profession or business with respect to the services he
performed.12 With respect to the latter, the Board stated that there was no evidence
that: (i) Claimant possessed the essential tools, equipment or assets necessary to
perform the services;13 (ii) Claimant’s arrangement with D&R was such that
Claimant would realize a profit or suffer a loss;14 (iii) Claimant performed services
through a business in which he had a proprietary interest or that he maintained a
business location separate from the jobsite;15 and (iv) Claimant performed the same
or similar services for another person or held himself out as able and available to
perform the same or similar services while free from the direction or control of
D&R.16 The absence of this evidence led the Board to conclude that Claimant was
an employee, and not an independent contractor. The Board concluded that under
these facts and “given such a statement of policy from the legislature,” the WCJ
erred in determining Claimant was an independent contractor. (Board’s op. at 10.)
There is no indication that the Board weighed these factors and if it considered
control over the work to be completed and the manner in which it is to be
performed primary.
Arguably, some of the factors set forth in the CWMA and some of
those considered by the Board are similar to the traditional factors under the
common law for determining an employment relationship. Clearly, however, some
11
See Section 3(a)(1) of the CWMA, 43 P.S. § 933.3(a)(1).
12
See Section 3(a)(3) of the CWMA, 43 P.S. § 933.3(a)(3).
13
See Section 3(b)(1) of the CWMA, 43 P.S. § 933.3(b)(1).
14
See Section 3(b)(2) of the CWMA, 43 P.S. § 933.3(b)(2).
15
See Section 3(b)(3) & (4) of the CWMA, 43 P.S. § 933.3(b)(3)&(4).
16
See Section 3(b)(5)(i)&(ii) of the CWMA, 43 P.S. § 933.3(b)(5)(i)&(ii).
11
are not similar and, as discussed above, represent entirely new and additional
requirements for one to be deemed an independent contractor. By basing its
conclusion, at least in part, on the lack of a written contract and the lack of a
separate business location, criteria which are not part of the traditional factors to be
considered, the Board committed an error of law. Moreover, the Board’s
characterization of these criteria as merely “instructive” is not harmless error. The
Board’s analysis was tantamount to applying the CWMA’s requirements to this
case, thereby impermissibly disregarding the prohibition against retroactive
application of the CWMA.
Lastly, we simply cannot adopt the Board’s reasoning that the CWMA
clarifies the common law’s traditional factors. The distinctions between the
CWMA and the traditional factors are significant and reflect legislative activity
beyond mere clarification of pre-existing common law. Additionally, adopting the
Board’s reasoning would have the effect of the CWMA replacing the common law
traditional factors, which would result in the CWMA being applied to industries
and professions other than the construction industry. Such application would be
well beyond the Legislature’s intention that the CWMA apply only to the
construction industry. See Department of Labor and Industry v. Workers’
Compensation Appeal Board (Lin and Eastern Taste), 155 A.3d 103 (Pa. Cmwlth.
2017); see also Preamble & Section 3 of the CWMA, 43 P.S. § 933.3(a) (providing
criteria to be an independent contractor for individuals in the construction
industry).
12
Therefore, we hold that the CWMA may not be used as guidance for
the application of the traditional factors under the common law to determine
whether an employment relationship existed. The Board erred as matter of law in
doing so here.
We note the Board stated that even under the traditional common law
analysis, Claimant would be considered an employee under the facts of this case.
Because we are not confident that the Board was not predisposed to such a finding
given its aforementioned analysis, we remand the matter to the Board to address
whether Claimant sustained his burden of proving an employer-employee
relationship solely under the traditional factors set forth in the common law.17
Accordingly, we reverse the Board’s order and remand the matter for
further proceedings in accordance with this opinion.
__________________________________
JULIA K. HEARTHWAY, Judge
17
On remand, the Board should be mindful of its role on appeal. “[A]lthough the
question of whether one is an employee is a question of law, it must be answered based on the
unique facts of each case.” Eastern Taste, 155 A.3d at 109; see also Universal Am-Can.
Moreover, as long as the WCJ’s findings of fact are supported by substantial evidence, they must
be upheld and applied even if the record contains evidence to support findings other than those
made by the WCJ. See Eastern Taste.
If the Board determines that Claimant was an employee, it shall address the remaining
issues that were raised by the parties on appeal from the WCJ’s order.
13
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
D & R Construction, :
Petitioner :
:
v. : Nos. 1558 C.D. 2016 and
: 1578 C.D. 2016
Workers' Compensation Appeal :
Board (Suarez, Travelers Insurance :
Company, Uninsured Employers' :
Guaranty Fund, and T & L :
Development), :
Respondents :
Department of Labor and Industry, :
Bureau of Workers' Compensation, :
Uninsured Employers' Guaranty Fund, :
Petitioner :
:
v. : Nos. 1574 C.D. 2016 and
: 1575 C.D. 2016
Workers' Compensation Appeal :
Board (Suarez, and D & R :
Construction, T & L Development, :
and Travelers Insurance Company), :
Respondents :
ORDER
AND NOW, this 1st day of August, 2017, the order of the Workers’
Compensation Appeal Board (Board) is hereby reversed and the matter is
remanded to the Board for further proceedings in accordance with the foregoing
opinion.
Jurisdiction relinquished.
__________________________________
JULIA K. HEARTHWAY, Judge