| IN RE: DALE SANDERS TRUCKING CO | ) | DOCKET NO. 07 11358 |
| ) | ||
| FIRM NO. 457,792-02 | ) | DECISION AND ORDER |
| ) |
- APPEARANCES
- Firm, Dale Sanders Trucking Co., by
- Reinisch Mackenzie, P.C., per
- Steven R. Reinisch
- Department of Labor and Industries, by
- The Office of the Attorney General, per
- Courtlan P. Erickson, Assistant
The firm, Dale Sanders Trucking Co., filed an appeal with the Board of Industrial Insurance Appeals on February 7, 2007, from an Order and Notice Reconsidering Notice and Order of Assessment of the Department of Labor and Industries dated February 5, 2007. In this order, the Department affirmed Notice and Order of Assessment No. 0420677, dated August 14, 2006, in which it assessed the firm industrial insurance premiums, interest, and penalties due and owing the State Fund for the 1st though 4th quarters of 2005, including penalty for failure to keep records, for a total assessment of $113,508.69. The Department order is AFFIRMED.
DECISION
Pursuant to RCW 51.52.104 and RCW 51.52.106, this matter is before the Board for review and decision on a timely Petition for Review filed by the Department to a Proposed Decision and Order issued on May 22, 2008, in which the industrial appeals judge reversed and remanded the order of the Department dated February 5, 2007.
The Board has reviewed the evidentiary rulings in the record of proceedings and finds that no prejudicial error was committed. The rulings are affirmed.
We have granted review because we disagree with the proposed decision to reverse the Department order of February 5, 2007. Although we agree with our industrial appeals judge that the firm failed to establish that its drivers were independent contractors as provided by RCW 51.08.180, RCW 51.08.195, and under the requirements of White v. Department of Labor & Indus., 48 Wn.2d 470 (1956), we do not agree that the drivers were owner-operators engaged in interstate trucking and, therefore, exempt from coverage. For reasons to be discussed below, we believe the Department was correct to assess the firm premiums for hours attributed to work preformed by the firm's truck drivers. [2]
Dale Sanders is the owner of Dale Sanders Trucking Co., which has been in business since 2000 as an interstate trucking operation. In the relevant year, 2005, Dale Sanders Trucking Co. operated 12 tractors and 17 trailers. During 2005, the firm used various drivers to operate its equipment, and considered the drivers independent contractors. The following drivers operated equipment during all or a portion of 2005: Bryan Schultz, Jerrold Webb, Hubert Hancock, John Kruse, Maris Liepins, Bernard Russell, Frank Colter, Michael Randall, Michael Valentine, Curtis Glace, Jack Denison, Ronald Campbell, Edward MaVey, Rory Miller, Phillip Hoselton, Arthur Gardner, and Stan Jeffery.
Mr. Sanders testified on behalf of the firm. He stated that all the drivers signed an agreement (Exhibit 1) and Contractor Lease and Operating Agreement (Exhibit 2). The agreements provided that each driver was an independent contractor. The firm retained a portion of the driver's income as a lease payment on the trucks, which they drove and leased back to the firm. Mr. Sanders asserts that the agreements are the same as used by another trucking company, Mitchell Brothers Trucking. The court of appeals upheld that firm's agreements as establishing the drivers as owner-operators of their trucks and, therefore, exempt from coverage. Department of Labor & Indus. v. Mitchell Brothers Truck Line, Inc., 113 Wash. App. 700 (2002). The term of the Dale Sanders Trucking contracts was 36 or 48 months. At the end of the term, the driver could purchase the truck. No driver has reached the end of the lease period, nor has any driver purchased a truck under the agreement. All drivers operating equipment for the firm operated under the agreement, unlike the circumstances in Mitchell, where many drivers were also employed by the firm as employees.
Mr. Sanders testified that the drivers were able to accept loads or driving assignments from other firms; he was not aware, however, that any driver had done so. Other indicia of ownership claimed by the firm included the ability to take the trucks to their homes or any place they wanted to park them, ability to decline assignments or loads brokered to them by Sanders Trucking, ability to choose their own routes when transporting loads, although they were only paid for the shortest distance, freedom to take time off without asking permission, freedom from periodic performance evaluation by Sanders Trucking, freedom from supervision by Sanders Trucking in the performance of their work, and the ability to hire someone to assist them, including to assist in driving. Mr. Sanders testified that the persons who entered into these agreements were not provided paid vacations, or benefits such as health insurance, sick leave, or disability insurance, and were not guaranteed hours of work. Mr. Sanders states that drivers, at their own expense, purchased [3] equipment or technology to assist them in running their own businesses as independent contractors.
The firm credited the drivers 91 cents per mile and settled with the drivers every two weeks. 31 cents of the 91 cents per mile was paid to the driver, the remaining amount was recorded in a non-escrow account. The firm deducted any amounts it paid for repairs, maintenance, fuel, and license fees. The remaining amounts would be a credit against the purchase of the truck. The drivers received their pay without deductions or withholdings for taxes. The firm also carried insurance against loss of the trucks, and contrary to the terms of the agreement, did not require the drivers to take out insurance. Drivers were reimbursed for expenses incurred for emergency repairs on the road. In the event the driver purchased the truck at the end of a term, the insurance costs would be deducted from the reserve account.
Mr. Sanders acknowledged that the drivers who signed the agreements (Ex. Nos. 1 & 2) were not required to provide any tools or equipment; however, he states it was necessary that they be licensed to drive a truck (CDL). Mr. Sanders is aware that none of the drivers who worked for him in 2005 hired other drivers to assist them, and he acknowledges that performing the work did not require, by its nature, that the drivers hire someone else to help them.
Mr. Sanders testified that at the expiration of the lease terms the drivers had the option to purchase their trucks for the residual value.
Mr. Sanders acknowledges that the agreements with the drivers saved the firm certain costs, but also states he intended that the leasing arrangement would offer the lease operators the opportunity to become owners of the trucks.
Stanley Jeffery, who has been driving commercial trucks since 1994 and has known Mr. Sanders since the latter part of 1999, was called as a witness by the firm. Mr. Jeffery considers himself to have been an independent trucker in 2005 driving for Sanders Trucking and acknowledges that he signed agreements with Sanders Trucking. He understands that at the end of a contract period and completing purchase of a truck he was driving, he would own the rig.
Mr. Jeffery considers the truck he is driving to be his own truck. In his truck, Mr. Jeffery has installed his own stereo, TV, VCR, DVD player, satellite radio, and refrigerator. Mr. Jeffery testified that he has the option to choose not to work some days, and has done so. He believes he could use his truck for purposes other than income production, such as volunteer hauling. Mr. Jeffery also believes that he has the option to contact a broker directly for loads rather than going through Sanders Trucking; however, he has not done this. Mr. Jeffery states that Sanders Trucking keeps him busy. [4]
Mr. Jeffery has driven various trucks on lease contract with Mr. Sanders, never reaching the end of a lease agreement before he upgraded to what he believed was a better truck. He has never purchased one of the trucks because he did not want to do so. Mr. Jeffery understands that Mr. Sanders owns the truck, until Mr. Jeffery decides to purchase it. Mr. Jeffery believes he is in business for himself, and sees benefit in the tax deductions, including a home-office space deduction, although he does not take depreciation deductions on the truck. He does not have a UBI number for his trucking business, nor is he registered with the Department of Revenue. Mr. Jeffery uses a bookkeeping service. He keeps his driver logs by computer. Mr. Jeffery states the only time he talks to Mr. Sanders is when he needs something repaired. He considers himself free from control by Sanders Trucking. Until sometime near in time to his testimony, Mr. Jeffery did not understand that he was leasing the truck back to the firm. Nor did he understand that he could allow someone else to drive his truck.
Contrasting the testimony of the firm's witnesses was the testimony of two drivers called by the Department. One of the drivers was Mr. Cookson. He states that when hired by Dale Sanders Trucking, he completed a lot of paperwork. Mr. Cookson did not recall signing agreements similar to Exhibits 1 and 2. He testified that there was not a discussion of leasing a truck or buying a truck from Mr. Sanders.
Mr. Cookson considered himself an employee of Dale Sanders Trucking because they could tell him what to do. He did not believe he was free to turn down loads. Mr. Cookson did not have an account with the Department of Revenue or the State of Washington, and did not have a UBI number with the state. He took no maintenance or other expense, or depreciation deduction, on his taxes for the truck. The truck he drove belonged to Dale Sanders, and it was never Mr. Cookson's truck except in the sense that it was the truck he drove. Mr. Cookson states he did not insure the truck, never hired or paid another driver to drive it, and was not able to use it for personal business such as hauling loads for someone else. Mr. Sanders paid for the fuel. Mr. Cookson testified he did not lease the truck, and made no lease payments.
Mr. Cookson installed a microwave in the truck, but made no other modifications. Mr. Cookson states Dale Sanders was responsible for other maintenance, and this was done at the trucking company shop.
Another driver who testified was Mr. Webb. Mr. Webb was injured while driving for the firm and filed a claim for industrial insurance benefits. It was his claim that prompted the Department to audit the firm. He met Mr. Sanders in September 2004, after answering an ad that said "drivers wanted." Mr. Webb signed some papers, and initialed others, in the process of signing up to go to [5] work. Mr. Webb testified that he does not remember signing a contract that looks like Ex. Nos. 1 and 2. On cross-examination, Mr. Webb acknowledged copies of his signature on the agreement documents, dated September 12, 2004, at Exhibit No. 7, except for the signature on the last page of that document, and also acknowledged his signature on his time loss notification document at Exhibit No. 8. Mr. Webb testified that he drove for Sanders Trucking for a year and a month before he was hurt. He states that since then he has been drawing compensation and trying to recover.
Mr. Webb considered himself to be an employee of Sanders Trucking, and not self-employed or in business for himself. His intention, in driving for Dale Sanders Trucking, was not to be self-employed. He also states that Mr. Sanders owned the truck he drove. Further, Mr. Webb states, he does not remember anybody ever mentioning lease payments, nor was he ever told that he had the option to purchase the truck at any time. Mr. Webb states he would not purchase the truck; he took the job because he was broke and needed to go to work. He just wanted a job driving by the mile. Mr. Webb testified he was not required to make payments on the truck, and does not remember that he was ever aware he was considered to be paid 91 cents per mile, with the amount over 31 cents a mile going into an account for expenses. He does not recall getting any money back as a credit from an account when he stopped driving for Sanders Trucking. Mr. Webb states he did get a bonus of $50 each month if he delivered all loads on time and there were no problems.
Mr. Webb testified that he never reported anything on the truck for his own taxes. Mr. Webb does not have a place of business that is eligible for a business tax deduction. The only records he kept while working for Sanders Trucking are his log books. Mr. Webb has no account with the Department of Revenue and no Uniform Business Identifier (UBI) number related to his work with Sanders Trucking.
Mr. Webb states he could not sell the truck he drove, nor could he hire other drivers to drive the truck. Mr. Webb states he does not know what is meant by personal use of the truck. He did take it home at times, but could not use it to haul a load for a different firm. Mr. Webb was free to choose the route he wanted to drive, but believes every driver does that. Mr. Webb never declined a load from Sanders Trucking, and does not know if he could have done so, but acknowledges that on one occasion he asked for a different load. Mr. Webb tried to check in with Sanders Trucking every day, and occasionally contacted brokers at their instruction. When driving, Mr. Webb brought wrenches, pliers, and a pry-bar for light maintenance on the truck, such as adjusting brakes.
Mr. Webb testified he drove Truck No. 13 until about the last month he was with Dale Sanders Trucking, then asked for another truck that would have more room inside the cab. [6] Thereafter, he drove Truck No. 15, a cab-over truck. Mr. Webb testified that in changing trucks he did not sign a new contract.
As stated at the onset, Dale Sanders Trucking asserts that the drivers were exempt under RCW 51.08.180(1) and the holding in Department of Labor & Indus. v. Mitchell Brothers Truck Line, Inc., 113 Wash. App. 700 (2002). We conclude that there are significant differences in the circumstances established in Mitchell Brothers and the circumstances involved with Dale Sanders Trucking. These differences require a different result. In Mitchell Brothers, the court concluded that the drivers enjoyed rights comparable to ownership. Although the signed agreement may have been similar, the significant difference in the way in which Dale Sanders Trucking administered its business leads to a different result.
We begin our analysis keeping in mind two important tenets of industrial insurance. First, the firm, as the appealing party, has the burden of proving that the Department was incorrect in finding the drivers covered under industrial insurance. Second, there are statutory provisions that favor coverage. RCW 51.12.010 states, "This title shall be liberally construed for the purpose of reducing to a minimum the suffering and economic loss arising from injuries and/or death occurring in the course of employment." The Industrial Insurance Act provides for mandatory coverage unless specifically excluded by a provision of the Act. Any exclusion shall be strictly construed in favor of finding coverage. Accordingly, the provisions of the title are to be liberally construed in the worker’s favor. RCW 51.12.010; McIndoe v. Dep’t. of Labor & Indus., 144 Wn.2d 252, 256-57, 26 P.3d 903 (2001). It follows that the Act should be liberally construed in favor of finding coverage for workers unless they are otherwise exempt from mandatory coverage.
In concluding that the drivers were not exempt from coverage, we believe it is significant that the drivers for Dale Sanders Trucking did not have a choice in signing the agreements. If they wanted to work for Dale Sanders Trucking, they had to sign the agreements. Mitchell Brothers drivers had a choice; the firm hired many of its drivers as employees. For Dale Sanders, none of the drivers were employees. Mitchell Brothers started the lease-back program as a mechanism to attract more drivers. Dale Sanders did not establish the same basis for the lease-back; rather it appears that the firm's program was established for the financial benefits of not paying workers compensation premiums. None of the drivers who testified suggested that they signed the contract because they wanted to purchase the trucks; two of the three who testified did not even know about the purchase option. They did not realize that they were considered to be paid more than their take home, with the rest being credited to an account. Nor were they aware of any insurance-related or [7] loss-related financial responsibility they had. A number of drivers for Mitchell Brothers purchased their trucks at the end of the lease period, none of Dale Sanders' drivers did.
In Mitchell Brothers, the court concluded that the drivers had a substantial economic interest in the trucks. They operated the trucks for their own financial gain. They paid the operating expenses and were responsible for damage or loss. They deducted depreciation on their taxes; the Dale Sanders drivers did not. Because Mitchell Brothers' drivers bore the risks of ownership as well as its benefits, the court concluded that they were owner-operators, exempt from coverage.
Dale Sanders drivers did not pay for insurance. In contradiction to the provisions of the agreement, the firm secured and paid the insurance on the trucks. In addition, the non-escrow reserve account does not establish that the drivers were responsible for maintenance, fuel, or license fees. The only point at which they would face any economic impact of those expenses would be when they exercised the option to buy a rig at the end of the lease term. They did not have to make a monthly lease payment, unlike the drivers for Mitchell Brothers. The drivers did not have a significant economic interest in the trucks such as contemplated by the court in Mitchell Brothers.
The realities of the administration of the contract with this firm reveal a substantially different relationship between Dale Sanders Trucking and its drivers from the relationship considered in Mitchell Brothers. The firm did not abide by the contract provisions; the drivers did not enjoy a significant economic interest in the trucks; and the drivers did not enter into the contract with the intent of purchasing the trucks. The drivers were not treated as owners by the firm and did not regard themselves as such. We conclude that the firm's drivers were not owners of the trucks they drove for Dale Sanders Trucking and RCW 51.08.180(1) does not exempt them from coverage. The Department's assessment must be affirmed.
FINDINGS OF FACT
1. On August 14, 2006, the Department of Labor and Industries issued Notice and Order of Assessment No. 0420677, in which it determined industrial insurance taxes, premiums, and interest, including a penalty for records not kept, were due and owing the State Fund by the firm for the first through fourth quarters of 2005, for a total assessment of $113,508.69. On September 12, 2006, the firm filed a Protest and Request for Reconsideration of the Department order.
On February 5, 2007, the Department issued Order and Notice Reconsidering Notice and Order of Assessment No. 0420677, in which it affirmed the order dated August 14, 2006. [8]
On February 7, 2007, the firm filed with the Board of Industrial Insurance Appeals a Notice of Appeal of the February 5, 2007 Order and Notice Reconsidering Notice and Order of Assessment No. 0420677. On March 2, 2007, the Board granted Docket No. 07 11358.
2. During calendar year 2005, Dale Sanders Trucking had up to 12 trucks. It required 17 drivers to sign agreements by which the drivers leased the trucks back to Sanders Trucking, a common carrier, and operated the trucks. The drivers each signed agreements by which they each leased a truck for a fixed term and monthly payments, and had an option to buy the truck for the residual value of the vehicle at the conclusion of the lease term. The drivers received a twice monthly settlement of 31 cents per mile; an amount equal to the additional revenue from operation of the truck (about 60 cents per mile) was credited to an account maintained by Dale Sanders Trucking. Dale Sanders Trucking paid for fuel, license fees, maintenance, insurance, and repairs on the trucks. In the event of damage to a truck, the driver was responsible for cost of the deductible on the insurance policy. In the event of loss of cargo, the driver paid the loss, although this amount might be advanced by Dale Sanders Trucking. At the completion of a lease term, if the driver exercised the option to purchase the truck, the costs of fuel, licenses, maintenance, insurance, and repairs of the truck would be deducted from the account, and the balance applied toward the residual value of the vehicle.
3. Drivers were paid mileage for the shortest route distance, but were free to take other routes. The 17 drivers bore the costs of food and lodging, could choose not to accept a load, and were permitted to install personal items such as radios, televisions, refrigerators, and microwaves in the cab of their trucks. Unless a vehicle was unavailable due to maintenance or repair, the drivers drove only their own leased vehicle. They could park their trucks at locations of their choosing, and could use their trucks for purposes other than business, and could carry loads obtained from sources other than Dale Sanders Trucking. The drivers primarily carried interstate loads along the Interstate 5 corridor between Washington and locations in California.
4. Dale Sanders Trucking did not withhold federal income taxes or social security payments from the 31 cents per mile paid in the twice monthly settlements, nor did Dale Sanders Trucking make any workers' compensation premium payments for the drivers. The drivers were given a 1099-form reflecting payments made to them in 2005. They were responsible for their own federal income taxes. The 17 drivers did not all take advantage of federal tax deductions available to them. There is no evidence that any of these registered with any department of the State of Washington as an independent contractor, or that any had a Uniform Business Identifier number with the State. The drivers did not make monthly lease payments to the firm. [9]
5. None of the drivers exercised an option to purchase a truck at the end of the lease term. Of the three drivers to testify, none of the drivers drove for the firm because they wanted to purchase their truck. The firm did not give drivers the option of driving as an employee of the firm. The firm did not abide by all provisions of the signed agreements (Exhibits 1 & 2).
6. The firm did not keep accurate records of the hours the drivers worked. Records of the compensation the drivers received were provided by the firm. The Department estimated hours by dividing the compensation divided by the state's minimum wage. Using this formula the firm was properly assessed $113,508.69 for premiums, penalties (including penalty for failure to keep records), and interest as of August 14, 2006.
CONCLUSIONS OF LAW
1. The Board of Industrial Insurance Appeals has jurisdiction over the parties to and the subject matter of this appeal.
2. The 17 drivers, determined by the Department of Labor and Industries to be employees of Dale Sanders Trucking Co. during 2005, were not owners of trucks leased to a common carrier, and were workers or employees of Dale Sanders Trucking Co., within the meaning of RCW 51.08.180.
3. The Order and Notice Reconsidering Notice and Order of Assessment No. 0420677, issued by the Department of Labor and Industries on February 5, 2007, is correct, and is affirmed.
It is ORDERED.
Dated: October 22, 2008.
BOARD OF INDUSTRIAL INSURANCE APPEALS
/s/
THOMAS E. EGAN Chairperson
/s/
FRANK E. FENNERTY, JR. Member