| IN RE: K E W CONSTRUCTION | ) | DOCKET NO. 87 0152 |
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| FIRM NO. 385539 | ) | DECISION AND ORDER |
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- APPEARANCES
- Employer, K E W Construction, by
- Campbell, Dille, Barnett, McCarthy & Adams, per
- Craig S. Adams and Bryce H. Dille
- Department of Labor and Industries, by
- The Attorney General, per
- Jack S. Eng, Elliott Furst and
- Deborah J. Lazaldi, Assistants
This is an appeal filed by the employer, K E W Construction, on January 16, 1987 from an Order and Notice Reconsidering Notice and Order of Assessment of the Department of Labor and Industries dated December 22, 1986, which affirmed a September 12, 1986 Notice and Order of Assessment of Industrial Insurance Taxes in the amount of $ 32,345.63 for the periods of April 1, 1984 through September 30, 1985 and April 1, 1986 through June 30, 1986. 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 employer to a Proposed Decision and Order issued on April 8, 1988 in which the order of the Department dated December 22, 1986 which adhered to the provisions of the Notice and Order of Assessment dated September 12, 1986 was affirmed. [2]
The Board has reviewed the evidentiary rulings in the record of proceedings and finds that no prejudicial error was committed and said rulings are hereby affirmed.
The Department assessed premiums against K E W Construction for periods relevant in this appeal for hours worked by 26 individuals whom K E W Construction contends were limited partners and thereby excluded from mandatory coverage by the provisions of RCW 51.12.020(5). The Proposed Decision and Order, for the most part, accurately describes the evidence and reaches the correct decision in affirming the Department's order. We have, however, granted review in order to resolve inconsistencies in the Findings of Fact and Conclusions of Law; correct certain characterizations of the evidence; describe additional evidence; and state our own reasons for affirming the Department's order.
By way of an executed document entitled "Agreement of Limited Partnership of K.E.W. Construction Limited Partnership" (Exhibit No. 1) Ken Ellison is described as a general partner forming the agreement initially with four other individuals described as limited partners. This 36-page document and its appendices describe Mr. Ellison as the only capital contributor and as maintaining 75 percent interest in the purported partnership. The other four individuals included in the initial agreement contributed no capital and each was to maintain a one percent interest. The agreement states that the "primary purpose and general character of the business of the Partnership is to be a general contractor and have all the powers of a general contractor." The agreement generally grants Mr. Ellison broad and extensive powers of control over the business operation. The agreement further allocates [3] all "income, gain, expense and loss" "among the Partners in accordance with their respective Percentage Interests in the Partnership."
Mr. Ellison and the initial four purported limited partners, as well as 22 other individuals on various subsequent dates, signed identical two-page documents, each entitled "Limited Partner Agreement". These agreements stated that each purported limited partner would own one percent for his respective share of the limited partnership; set forth an hourly wage; and elected whether or not the "partnership" would pay for workers' compensation coverage, social security taxes and income tax withholding.
The Department taxes the position that the exclusion from coverage contained in RCW 51.12.020(5) applies only to general partners, not to limited partners.(1) Thus the Department determined that the 26 purported limited partners were mandatorily covered because they were limited, not general, partners.
We need not reach the issue of whether the exclusion of "partners" contained at RCW 51.12.020(5) refers only to general partners, because we conclude that the individuals in question were neither limited nor general partners, but rather workers entitled to the mandatory coverage of the Act. In reaching this conclusion we rely, in part, upon the express legislative intent to "embrace all employments" coupled with the requirement that the Act be "liberally construed." RCW 51.12.010. Thus, mandatory coverage applies unless an individual comes within one of the specific exceptions to coverage listed in RCW 51.12.020. [4]
We are mindful that the situation between Mr. Ellison and the purported individual limited partners described thus far facially gives rise to the appearance of a partnership, entitled to exclusion from mandatory coverage under the terms of RCW 51.12.020(5). However, we will not elevate form over substance.
In determining, in a given case, whether a partnership exists, there may be disclosed by the evidence many elements pointing one way or the other, no one of which may be said to be conclusive. The fact that the parties to a business arrangement may call it a partnership does not make it such. Many times form must give way to substance. There is no fixed rule by which it may be determined whether, in a particular case, there is a partnership relation. It all depends upon the intention of the parties, and such intent must be ascertained from the agreement of the parties, their acts and conduct, and all the facts and circumstances of the case.
State v. Bartley, 18 Wn.2d 477, 481-482 (1943). In the instant appeal, as in Bartley, a limited partnership agreement listing the initial four purported limited partners was filed with the Secretary of State, pursuant to Title 25 RCW. Yet the court in Bartley looked beyond the appearance of formal compliance with the partnership statute to ascertain the realities of the parties' relationship. We do the same here.
In reviewing all relevant factors, we note that each of the separately signed two-page documents entitled "Limited Partner Agreement" sets a distinct hourly rate of compensation to be paid each individual for the hours worked each month for K E W Construction. Second, despite the fact that the "Agreement of Limited Partnership of K E W Construction Limited Partnership" calls for allocation of income, gain, expense and loss among the purported partners in accordance with [5] their respective percentage interests, the Schedule K-1 (Form 1065) documents filed with the Internal Revenue Service report only guaranteed payments and net earnings from self-employment for each individual and do not report any profit or loss sharing whatsoever. (Exhibit No. 32). We further note that each of the Limited Partner Agreements allowed each individual to choose between Pierce County Medical insurance, "State Industrial", or no insurance, with the proviso that K E W Construction would pay for the Pierce County coverage in toto, but would only pay an equivalent amount for "state industrial", with the "limited partner" making up the difference.
Additionally, Mr. Ellison testified that the company was responsible for the work performed on various contracts. The purported partners all received their assignments from a single other purported partner, Mr. William Willoughby. This same Mr. Willoughby was the sole person responsible for ascertaining whether work was accomplished properly and would direct the others to correct improperly performed work when necessary. Such circumstances clearly suggest that the other individuals were laborers under the direct control and supervision of William Willoughby on behalf of K E W Construction.
"There is no arbitrary rule by which it may be determined whether a partnership relation existed in a given instance or not. The existence of a partnership depends upon the intention of the parties. That intention must be ascertained from all of the facts and circumstances and the actions and conduct of the parties." Purdy & Whitfield v. Dept. Labor & Indus., 12 Wn.2d 131, 140 (1942). To determine whether an individual is a "worker" entitled to coverage by industrial insurance, we should look to the essence of the working [6] relationship and not allow the form of a written agreement to prevail over reality. Labor & Indus. v. Tacoma Yellow Cab, 31 Wn. App. 117, 124 (1982) review denied 97 Wn.2d 1015. We must conclude from the evidence in the present case that the purported 26 individual limited partners were, in reality, workers for K E W Construction rather than limited partners.
RCW 51.04.060 provides as follows: "No employer or worker shall exempt himself or herself from the burden or waive the benefits of this title by any contract, agreement, rule or regulation, and any such contract, agreement, rule or regulation shall be pro tanto void." While we express no opinion as to the validity of the written agreements entered into by Mr. Ellison and the other 26 purported limited partners for other purposes, such as social security and income tax liability, we hold that under the circumstances of this case, the written agreements entered into are void insofar as they purport to exclude the 26 individual workers from mandatory coverage under our industrial insurance laws. For, based on all the circumstances of this case, it appears that the sole purpose of setting up this purported Limited Partnership was to evade the burdens and benefits of the industrial insurance act, in contravention of RCW 51.04.060.
We note that the employer seemed to suggest two other reasons for challenging the assessment of premiums -- 1. that some of the individuals were independent contractors and that the essence of their contracts with K E W Construction was not their personal labor; and 2. that some of the individuals were registered contractors, excluded from coverage by RCW 51.08.180. [7]
Neither of these areas was fully explored in the record. In his testimony, Kenneth Ellison (the purported general partner) did indicate that Karl English, Larry Peterson, Mike McIntire, M. R. McGill and Mike Fife were all registered contractors, all worked for others in addition to K E W Construction, and all provided more than their personal labor, i.e., machinery such as bulldozers or backhoes.
Robert E. Lail, Sr. (the auditor) stated that the only registered contractor he was aware of was Mike Fife and that some adjustment of the 953 hours assessed for his labor might be appropriate. However, he noted that Mr. Ellison did not wish to discuss this issue until the limited partnership issue was resolved.
Based on this scant evidence, we cannot conclude that any of these individuals were excluded from coverage either as an independent contractor or as a registered contractor pursuant to RCW 51.08.180. Furthermore, since we conclude that K E W Construction "supervise[d] or control[led] the means by which the result [was] accomplished or the manner in which the work [was] performed," it follows that all individuals were "workers", regardless of whether they were registered contractors under Ch. 18.27 or 19.28 RCW. See RCW 51.08.180(3).
We thus affirm the Department order of December 22, 1986 and, in so doing, adopt proposed Finding of Fact No. 1. In addition, we make the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
2. On May 31, 1984 a Certificate of Limited Partnership of K E W Construction Limited Partnership was filed with the Secretary of State, State of Washington. The certificate listed Ken Ellison as the general partner and sole contributor of capital, in the amount of $ 10,000.00. Listed as limited partners were Elmo Willoughby, Jim Willoughby, Mark Willoughby and William Willoughby. [8] Mr. Ellison maintained 75% interest, while each of the other four maintained a 1% interest. K E W Construction was established as a general contracting business. The agreement between Mr. Ellison and the Willoughbys granted Mr. Ellison broad control over the business operations and stated that all income, gain, expense and loss would be allocated among these five individuals according to their respective percentage interests.
3. At various times subsequent to this initial agreement, 22 more individuals signed limited partnership agreements with Mr. Ellison. Each such agreement set forth an hourly wage; elected whether K E W Construction would pay for workers' compensation coverage, social security taxes and income tax withholding; and established a one percent interest in K E W Construction.
4. Profits and losses were not in fact shared between Mr. Ellison and the 4 Willoughbys or the other 22 individuals. All of these individuals were paid hourly wages, pursuant to their individual agreements with K E W Construction.
5. Mr. William Willoughby assigned the other 25 individuals to various construction jobs and was responsible for assuring that the work was done properly, instructing the others to correct faulty work when necessary.
6. Industrial insurance premiums were not fully paid by K E W Construction on behalf of these 26 individuals for the periods April 1, 1984 through September 30, 1985 and April 1, 1986 through June 30, 1986.
7. The total unpaid industrial insurance premiums for the periods of April 1, 1984 through September 30, 1985 and April 1, 1986 through June 30, 1986 amounted to $ 32,345.63.
CONCLUSIONS OF LAW
- The Board of Industrial Insurance Appeals has jurisdiction of the subject matter and the parties to this appeal.
- For the purposes of assessment of industrial insurance premiums, a limited partnership was not effectively created between Kenneth E. Ellison and any of the 26 individuals working for K E W Construction from April 1, 1984 through [9] September 30, 1985 and April 1, 1986 through June 30, 1986. Those 26 individuals were workers within the meaning of RCW 51.08.180 and were not excluded from mandatory coverage by RCW 51.12.020(5).
- The documents entitled "Limited Partner Agreement" are pro tanto void within the meaning of RCW 51.04.060.
- The Department properly assessed K E W Construction for hours worked by the 26 individuals during the period April 1, 1984 through September 30, 1985 and April 1, 1986 through June 30, 1986.
- The order of the Department of Labor and Industries dated December 22, 1986 which adhered to the provisions of the Notice and Order of Assessment dated September 12, 1986 and assessed industrial insurance premiums in the amount of $ 32,345.63 for the periods of April 1, 1984 through September 30, 1985 and April 1, 1986 and June 30, 1986 is correct and is affirmed.
It is so ORDERED.
Dated this 18th day of November, 1988.
BOARD OF INDUSTRIAL INSURANCE APPEALS
/s/
SARA T. HARMONChairperson
/s/
FRANK E. FENNERTY, JR.Member
/s/
PHILLIP T. BORKMember
(1) 1 That position has been recently embodied in WAC 296-17-349(2) (WSR 88-06-048), which became effective on April 1, 1988 and is therefore inapplicable to the time periods in question here.