August 18, 2017

Colorado Court of Appeals: Internet has Made Some Aspects of Independent Contractor Test Obsolete

The Colorado Court of Appeals issued its opinion in Varsity Tutors LLC v. Industrial Claim Appeals Office on Thursday, July 27, 2017.

Employee—Independent Contractor–Unemployment Taxes.

Varsity Tutors LLC (Varsity) provided an online platform that connected tutors with students. Varsity had individual contracts with tutors, who advertised their services on Varsity’s website. Students who were interested in working with particular tutors contacted Varsity. Varsity then put the tutors and students together by providing contact information. Students and tutors then contacted one another to arrange tutoring sessions. Varsity and tutors agreed to an hourly rate that Varsity would pay them for tutoring, and Varsity generally charged students about twice that rate.

In 2014 the Division of Unemployment Insurance Employer Services—Integrity/Employer Audits for the Colorado Department of Labor and Employment (Division) audited Varsity’s 2013 books and decided that at least 22 tutors were Varsity’s employees for purposes of the Colorado Employment Security Act (CESA). The Division determined that Varsity owed $133.73 in unemployment taxes on the amounts it had paid the tutors. Varsity claimed that the tutors were independent contractors and it was thus not obligated to pay unemployment insurance taxes on wages it paid to them. A hearing officer and a panel of the Industrial Claim Appeals Office (Panel) decided the tutors were in “covered employment” and ordered Varsity to pay delinquent unemployment insurance taxes.

On appeal, Varsity asserted that the tutors were independent contractors and the Panel erred in concluding that Varsity was required to pay unemployment taxes. Varsity argued that the Panel erred by not applying the totality of the circumstances test.  CESA provides that a business can show that a worker is an independent contractor by proving by a preponderance of the evidence that the worker was (1) “free from control and direction in the performance of the service” under any “contract for the performance of the service” and “in fact”; and (2) “customarily engaged in an independent trade, occupation, profession, or business related to the service performed.” Both the panel and the hearing officer found the first part of this test was met. The second part of the test is guided by a totality of the circumstances analysis under Industrial Claim Appeals Office v. Softrock Geological Services, Inc. Alternatively, a business can establish that its workers are independent contractors by a written document signed by the business and the worker, documenting that the business did not do nine things listed in CRS § 8-70-115(1)(c). Such a document creates a rebuttable presumption of an independent contractor relationship as long as it also contains a disclosure in specific font that the worker as an independent contractor “is not entitled to unemployment insurance benefits” unless the worker or “some other entity” provides them and the worker must “pay federal and state income tax on any moneys paid pursuant to the contract relationship.”

Varsity’s contracts did not create a rebuttable presumption that the tutors were independent contractors. As to the second part of the CESA test, the contracts with the tutors stated in bold, “Independent Contractor Agreement for Services.” The disclosures in the contract are indicative that the tutors were independent contractors. The term “independent contractor” appears at least 16 times in the contract. The contract does not provide the tutors with training and provides minimal oversight of the tutors’ work, and does not establish a curriculum or require tutors to use specific materials. Applying the Softrock totality-of-the-circumstances test, the Court of Appeals found that the undisputed evidence in the record established that Varsity satisfied its burden of proving that the tutors were independent contractors because they were customarily engaged in independent businesses in 2013 that were related to the tutoring services they were performing.

The order was reversed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Talent Agency Not Employer for Unemployment Insurance Tax Purposes

The Colorado Court of Appeals issued its opinion in Division of Unemployment Insurance Employer Services/Integrity v. Industrial Claim Appeals Office on Thursday, October 8, 2015.

Employees of a Talent Agency for Unemployment Insurance Tax Purposes.

Marbles Kids, Inc. (Marbles) is a talent agency that represents individuals seeking acting and modeling work, most of whom are children. Marbles provides possible candidates for auditions, and the artists are free to turn down the auditions. The artists have contracts with Marbles stating that Marbles will receive a percentage commission on any assignments booked through them. The clients pay Marbles, and Marbles deducts its commission and pays the artist the remaining amount.

The Division of Unemployment Insurance Employer Services—Integrity/Employer Audits (Division) issued a liability determination that the artists were in covered employment with Marbles and thus Marbles was required to pay unemployment insurance tax premiums on amounts paid to artists. Marbles appealed, and the hearing officer affirmed. The Industrial Claim Appeals Office (Panel) reversed.

On appeal, the Division argued that the Panel erred in concluding that no employment relationship existed. Under the Colorado Employment Security Act, employment requires a showing that a “service [has been] performed by an individual for another.” Service has been defined as “an act done for the benefit or at the command of another.” The Division argued that the artists performed their acting and modeling services “at the command” of Marbles. The Court of Appeals disagreed. The artists were free to reject auditions or assignments from Marbles’ clients and were not “at the command” of Marbles. The Court also rejected the Division’s argument that the artists performed services “for the benefit of” Marbles. The artists did not provide a benefit for Marbles; rather, Marbles worked for the artists in finding them work with third parties. The artists worked for clients, not for Marbles.

Because the artists did not perform acting or modeling services for Marbles, Marbles was not an employer of the artists and they were not Marbles’ employees. Accordingly, Marbles was not required to pay unemployment insurance tax premiums on the amounts it paid the artists after deducting its agent commissions. The Panel’s order was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Supreme Court Reverses Years of Precedent in Softrock and Western Logistics

It is advantageous to employers to retain the services of independent contractors when possible. Contractors are not required to be covered by workers’ compensation insurance and employers need not pay unemployment tax out of the contractors’ wages. However, classifying workers as contractors has its risks; after an audit, the employer may be found liable for back taxes on workers who are found to be employees rather than contractors.

That is precisely what happened to Carpet Exchange in 1993, when the Colorado Court of Appeals issued its opinion in Carpet Exchange of Denver v. Industrial Claim Appeals Office, 859 P.2d 278 (Colo. App. 1993). The court of appeals analyzed C.R.S. § 8-70-115(1)(b) and, after applying the factors, decided that the workers in question were employees rather than contractors because they were not “customarily engaged in an independent trade, occupation, profession, or business related to the service performed.” Since then, courts have relied on this one-factor test to determine whether long-term workers are employees or contractors.

Industrial Claim Appeals Office v. Softrock Geological Services, 2014 CO 30 (Colo. May 12, 2014), reversed that precedent. In Softrock, the Colorado Supreme Court rejected the outside employment test as dispositive of whether a worker is an employee or an independent contractor, ruling instead that the totality of the circumstances must be considered and no single factor can be dispositive in deciding whether an individual is customarily engaged in an independent business or trade.

Michael Santo, lead counsel in Softrock, will present a lunchtime program on Friday, August 22, 2014 at the CLE offices to discuss Softrock‘s impact on employment law. Santo will also discuss Western Logistics, Inc. v. Industrial Claim Appeals Office, 2014 CO 31 (Colo. May 12, 2014), a related opinion that the supreme court delivered the same day as Softrock. Employment attorneys, business attorneys, and in-house counsel should attend this informative lunchtime program.

CLE Program: Independent Contractor or Employee? Softrock‘s and Western Logistics‘ Effect

This CLE presentation will take place on August 22, 2014. Click here to register for the live program and click here to register for the webcast. You can also register by phone at (303) 860-0608.

Can’t make the live program? Order the homestudy here — MP3 audio downloadVideo OnDemand

Recent Colorado Cases Broaden Independent Contractor versus Employee Considerations

Mike-Schreiner_WEBBy Michael Schreiner

Two recent Colorado Supreme Court cases, Industrial Claims Appeals Office v. Softrock Geological Services, Inc., 2014 CO 30, No. 12SC501 (May 12, 2014) and its companion Western Logistics, Inc. v. Industrial Claims Office2014 CO 31, No. 12SC911 (May 12, 2014), clarify that the determination of whether an individual is an independent contractor or employee for purposes of unemployment tax liability is based on the “totality of the circumstances” and not the rigid application of the nine-factor test set forth in C.R.S. § 8-70-115(1)(c).

Under the Colorado Employment Security Act (CESA), employers are required to pay unemployment taxes on wages paid to employees but not on payments made to independent contractors. A division of the Industrial Claims Appeal Office (ICAO) routinely audits businesses to determine whether a business is classifying its employees appropriately and collecting and submitting the correct amount of tax. Under CESA, an employer can prove that an individual is an independent contractor by demonstrating that (1) the individual is free from the employer’s control and direction, and (2) the individual is “customarily engaged in an independent trade, occupation, profession or business related to the service performed.” C.R.S. § 8-70-115(1)(b).

Alternatively, under C.R.S. § 8-70-115(1)(c), an employer could submit a written document signed by both the employer and the individual that meets nine conditions. These conditions are that the employer will not do any of the following:

  1. Require the individual to work exclusively for the person for whom services are performed, except that the individual may choose to work exclusively for the said person for a finite period of time specified in the document;
  2. Establish a quality standard for the individual, except that the employer can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the individual as to how the work will be performed;
  3. Pay a salary or hourly rate but rather a fixed or contract rate;
  4. Terminate the work during the contract period unless the individual violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
  5. Provide more than minimal training for the individual;
  6. Provide tools or benefits to the individual, except that the materials and equipment may be supplied;
  7. Dictate the time of performance, except that a completion schedule and a range of mutually agreeable work hours may be established;
  8. Pay the individual personally, except for making checks payable to the trade or business name of the individual; and
  9. Combine the employer’s business operations in any way with the individual’s business, but instead maintains such operations as separate and distinct.

In Softrock, ICAO held that an individual was an employee because he provided services only to the employer during the period in question and therefore he did not have an independent trade or business. The Colorado Court of Appeals reversed, holding that ICAO incorrectly relied on a single factor. Instead, the court of appeals found that ICAO should have determined whether the individual was an employee by considering the nine factors set forth in C.R.S. § 8-70-115(1)(c).

The Colorado Supreme Court agreed with the court of appeals that the there is no single factor test and that the nine factors should be considered. However, the supreme court found that the nine factors required to be set forth in a document are not exclusive, but rather a fact-finder should also consider “the dynamics of the relationship between the employer and the putative employee and should not be limited to only considering nine factors.” According to the court, it would also be appropriate to consider such factors as “whether the putative employee maintained an independent business card, listing, address or telephone; had a financial investment such that there was a risk of suffering a loss on the project; used his or her own equipment on the project; set the price for performing the project; employed others to complete the project; and carried liability insurance.”

The court also held that the fact that the putative employee did not provide services to another does not conclusively establish that the individual is an employee. Rather, the determinative issue is “whether the putative employee chose to work for another in the field, regardless of, among other things, the intent of the parties, the number of weekly hours the putative employee actually worked for the employer, or whether the putative employee even sought other work in the field.”

The decision in Softrock means that the determination of whether an individual is an independent contractor or an employee for purposes of collecting unemployment compensation tax is no longer limited to the application of the nine factors set out in C.R.S. § 8-70-115(1)(c), or that the alternative single factor test factor test is dispositive. Instead, an employer can present additional information beyond the nine factors to establish the relationship. Further, the fact that an individual provides services only to one business does not conclusively establish that the individual is an employee. Rather, it is appropriate to determine the motivation of the individual and the circumstances surrounding the individual’s actions. In sum, a fact-finder will be required to look at the totality of the circumstances surrounding the relationship to determine whether a service provider is an employee or an independent contractor.

Michael Schreiner is a senior litigator at Caplan and Earnest LLC. His practice focuses on employment matters, employment-related litigation, commercial litigation and public education. He previously worked in the Colorado’s attorney general’s office, Colorado State University and the University of Colorado. He may be reached at mschreiner@celaw.com.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Colorado Supreme Court: Determination Regarding Employee or Independent Contractor Status Must Be Made on Case-by-Case Basis

The Colorado Supreme Court issued its opinion in Industrial Claim Appeals Office v. Softrock Geological Services, Inc. on Monday, May 12, 2014.

Colorado Employment Security Act—Employment Law.

The Supreme Court held that there is no dispositive single factor or set of factors to determine whether an individual is an independent contractor under the Colorado Employment Security Act. The question of whether an individual is “customarily engaged in an independent trade, occupation, profession, or business related to the service performed” can be resolved only by applying a totality of the circumstances test that evaluates the dynamics of the relationship between the putative employee and the employer. Therefore, the Court agreed with the court of appeals that several factors must be analyzed to make the determination, but disagreed that there was a set of defining factors. The judgment was affirmed and the case was remanded with directions.

Summary and full case available here.

Colorado Supreme Court: Totality of the Circumstances Must Be Considered to Determine Employment Status

The Colorado Supreme Court issued its opinion in Western Logistics, Inc. v. Industrial Claim Appeals Office on Monday, May 12, 2014.

Colorado Employment Security Act—Employment Law.

The Supreme Court held that there is no dispositive single factor or set of factors to determine whether an individual is an independent contractor under the Colorado Employment Security Act. The question of whether an individual is “customarily engaged in an independent trade, occupation, profession, or business related to the service performed” can be resolved only by applying a totality of the circumstances test, as laid out in Industrial Claim Appeals Office v. Softrock Geological Services, Inc., 2014 CO 30. The judgment was reversed and the case was remanded with directions.

Summary and full case available here.

Colorado Court of Appeals: Multi-Factor Approach Applied to Determine Whether Workers were Employees or Independent Contractors

The Colorado Court of Appeals issued its opinion in Visible Voices, Inc. v. Industrial Claim Appeals Office on Thursday, May 8, 2014.

Unemployment Compensation Tax Liability—Definition of “Employment.”

Visible Voices, Inc. (Visible) provides “computer-assisted realtime translation” (CART) services under contracts with clients. It supplies clients with “CART providers, or captionists, who perform live word-for-word speech-to-text translation for the deaf and hearing impaired.” Visible entered into agreements with thirteen individuals (workers) to provide CART services to Visible’s clients as independent contractors.

The Division of Employment and Training (Division) issued a liability determination, concluding that the workers’ services for Visible amounted to covered employment and that Visible was required to pay unemployment compensation taxes on those services. On appeal, a hearing officer determined the workers were independent contractors. The Industrial Claim Appeals Office (Panel) upheld the hearing officer’s determination that the workers were free from Visible’s control and direction, but remanded for further findings as to whether the workers were customarily engaged in an independent trade or business providing CART-related services.

On remand, a different hearing officer affirmed the original determination. The (Panel) overturned this hearing officer’s decision as to eleven of the thirteen workers, finding that these workers were not customarily engaged in independent businesses related to the CART services and therefore were engaged in covered employment. Visible appealed.

CRS § 8-70-115(1)(b) defines covered employment for unemployment tax liability purposes. To establish that a worker is customarily engaged in an independent trade or business related to the services performed, a putative employer must show that the worker is engaged in a separate business venture, other than the provision of services for the putative employer.

The Court of Appeals concluded that a multi-factor approach to determining whether a worker is customarily engaged in an independent trade, occupation, profession or business, as enunciated in Softrock Geological Services, Inc. v. Industrial Claim Appeals Office, 2012 COA 97, ¶ 10 (cert. granted March 25, 2013), is the standard to be applied. In Softrock, the Panel focused almost exclusively on whether the workers performed CART services for others besides Visible.

The Court affirmed the portion of the Panel’s order determining that two of the thirteen workers were independent contractors and not in covered employment with Visible. However, the Court found that evidence in the record supported the hearing officer’s determination that the eleven workers in question were customarily engaged in independent businesses related to the services provided by Visible. Accordingly, the remainder of the order was set aside and remanded with instructions to reinstate the hearing officer’s determination that the remaining eleven workers were also not in covered employment with Visible.

Summary and full case available here.

Colorado Court of Appeals: In Garnishment Action, Earnings Exemption Does Not Apply to Independent Contractor Since Indebtedness Owed to Contractor Not Earnings

The Colorado Court of Appeals issued its opinion in Idaho Pacific Lumber Co., Inc. v. Celestial Land Co. Ltd. on Thursday, September 26, 2013.

Judgment—Creditor—Debtor—Garnishment—Independent Contractor—Exemption—Writ of Assistance.

Plaintiff Idaho Pacific Lumber Company, Inc. (judgment creditor) appealed the trial court’s order in favor of Celestial Land Company Limited (garnishee) regarding a debt it owed defendant Jack B. Kaufman (judgment debtor). The order was affirmed in part and reversed in part, and the case was remanded.

Judgment creditor served garnishee with a writ of garnishment on personal property and a writ of continuing garnishment for any debt owed to judgment debtor. Garnishee, who was an independent contractor rather than an employee, answered the writs on the basis that the debt owed to judgment debtor constituted earnings, and therefore only 25% was subject to garnishment.

On appeal, judgment creditor contended that the trial court erred in concluding that the debt owed to judgment debtor by garnishee constituted earnings under CRS § 13-54.5-101(2)(a)(I). Because indebtedness owed to an independent contractor is not earnings, the exemption was inapplicable.

Judgment creditor also contended that the trial court erred by denying its motion for a writ of assistance to collect all of judgment debtor’s property. There is no Colorado authority that supports judgment creditor’s request for such a broad writ of assistance under CRCP 69. Accordingly, the trial court did not err in denying judgment creditor’s motion for a writ of assistance. Finally, judgment creditor’s request for attorney fees pursuant to CRCP 103(8)(b)(5) was denied.

Summary and full case available here.

Colorado Court of Appeals: Delivery Drivers Were Under Control and Direction of Employer and Were Therefore Employees

The Colorado Court of Appeals issued its opinion in Western Logistics, Inc. v. Industrial Claim Appeals Office on Thursday, October 25, 2012.

Unemployment Tax Liability—Covered Employment Under CRS § 8-70-115.

In this unemployment tax liability case, petitioner Western Logistics, Inc., doing business as Diligent Delivery Systems, (Diligent) sought review of an order of the Industrial Claim Appeals Office (Panel). The Panel affirmed a hearing officer’s decision that services performed for Diligent by certain individuals constituted covered employment under CRS § 8-70-115. The Court of Appeals affirm the Panel’s order.

Based on an audit covering the 2008 and 2009 calendar years, respondent, the Division of Employment and Training (Division), issued a liability determination concluding that approximately 220 delivery drivers (drivers) were in covered employment with Diligent. Diligent was directed to report payments made to the drivers and to pay corresponding unemployment premiums.

Diligent appealed. The hearing officer made extensive factual findings, concluding that notwithstanding written contracts designating the drivers as independent contractors, the evidence demonstrated that was “not true in fact.” The officer found none of the drivers was “customarily engaged in a delivery business” and they “received direction and control” from Diligent. On review, the Panel affirmed, primarily based on the finding that the drivers were not customarily engaged in independent delivery businesses. On appeal, Diligent argued the Panel’s decision was not supported by substantial evidence. The Court disagreed.

The Court noted that to satisfy the “independent business” requirement, a worker generally must be shown actually, customarily, and contemporaneously to have provided similar services to others. Substantial evidence in the record supports the hearing officer’s

ultimate finding that Diligent failed to meet its burden of demonstrating that the drivers were truly engaged in independent delivery businesses and therefore it will not be disturbed on appeal.

Diligent also argued that the parties submitted specific evidence concerning roughly 10% of the drivers, and for the remaining drivers, the only evidence presented was the written contract stating they were engaged in a delivery business. Therefore, Diligent claimed that the “only permissible conclusion” as to these drivers is that they were customarily engaged in independent businesses. The Court disagreed.

The hearing officer’s express finding was that the written contracts did not accurately describe the relationship between Diligent and the drivers. Diligent was making an argument of evidentiary weight that is within the hearing officer’s discretion.

The Court also found that the decision was sustainable independently and separately based on the officers’ conclusion that Diligent failed to show the drivers were free from its control and direction. Substantial evidence supported this finding and the Court therefore will not disturb it. The Panel’s order was affirmed.

Summary and full case available here.

Colorado Court of Appeals: More than One Factor Should Be Used to Determine Whether an Independent Contractor is an Employee for Unemployment Tax Liability Purposes

The Colorado Court of Appeals issued its decision in Softrock Geological Services, Inc. v. Industrial Claim Appeals Panel on June 7, 2012.

Unemployment Tax Liability—Covered Employment—Colorado Employment Security Act.

In this unemployment tax liability case, petitioner Softrock Geological Services, Inc. (Softrock) sought review of a final order of the Industrial Claim Appeals Office (Panel) reversing a hearing officer’s decision and concluding that services performed for Softrock by Waterman Guy Ormsby constituted covered employment under the Colorado Employment Security Act (Act), CRS §§ 8-70-101 to 8-82-105. The order was set aside and the case was remanded to the Panel with directions.

Softrock provides geological services in the oil and gas industry. Ormsby is a geologist who provided well site services to Softrock on a project basis from 2007 through 2010 under a written agreement with Softrock. Softrock did not train him. Ormsby used his own vehicle, clothing, tools, and equipment, except for some specialized and expensive laboratory equipment that he rented from Softrock. He had his own business cards, paid his own liability insurance, and did not represent himself to be a Softrock employee.

In March 2011, the Division of Employment (Division) conducted an audit of Softrock and issued a notice of liability, finding that Ormsby was a covered employee for purposes of the Colorado Employment Security Act (Act). The hearing officer reversed the Division’s decision. The Panel agreed that Ormsby had not been under the direction and control of Softrock, but reversed on the ground that Ormsby’s business as a geologist did not survive independently of his relationship with Softrock, because he only worked for Softrock during 2007 to 2010.

On appeal, Softrock argued that the Panel erred by substituting its findings of fact for those of the hearing officer and in using only one factor to hold that Ormsby was not customarily engaged in an independent trade or business. The Court agreed that the Panel improperly based its decision on only one factor and remanded the case with instructions that it look at other factors.

Under the Act, the putative employer must overcome a rebuttable presumption of an employment relationship. Even if the presumption is rebutted, the trier of fact still must determine whether the worker is free from control and direction, and is customarily engaged in an independent trade, occupation, profession, or business related to the service performed.

The determination of whether a worker is engaged in a separate business venture is a multifactor test. Here, it was undisputed that Ormsby provided no services for others between 2007 and 2010. Softrock, however, argued that other factors support its contention that Ormsby was an independent contractor. The Court found that the Panel needed to at least consider and make findings regarding the other factors and could not make its determination just based on the exclusive service relationship during the noted period. It remanded to the Panel for consideration of all factors relevant to Ormsby’s relationship with Softrock.