August 19, 2019

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.

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