Opinion
No. 4-398 / 03-1012.
September 29, 2004.
Appeal from the Iowa District Court for Polk County, David R. Danilson, Judge.
An employer appeals following a district court judicial review ruling which reversed an agency determination that a workers' compensation claimant was an independent contractor, and not an employee. REVERSED AND REMANDED WITH INSTRUCTIONS.
John E. Swanson and Aaron T. Oliver of Hansen, McClintock Riley, Des Moines, for appellants.
Randy V. Hefner of Hefner Bergkamp, P.C., Adel, for appellee.
Heard by Huitink, P.J., and Mahan, Miller and Vaitheswaran, JJ., and Brown, S.J.
Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2003).
Schneider Specialized Carriers, Inc. and its workers' compensation insurer Travelers Property Casualty (hereinafter collectively Schneider) appeal following a district court judicial review ruling. Schneider asserts the court erred when it concluded the agency's determination that Gary Finch was an independent contactor, rather than an employee of Schneider, was not supported by substantial evidence. We agree, and accordingly reverse the district court ruling. However, as the agency decision in this matter may be inconsistent with at least one prior agency decision, we remand this matter to the agency to address the possible inconsistency.
I. Background Facts and Proceedings.
In 1992 Gary Finch and Schneider entered into a written "Independent Contractor Operating Agreement" (ICOA). With the exception of rates of compensation, the ICOA remained essentially unchanged from 1992 until 2000. Under the ICOA Finch was to provide Schneider with "Freight Transportation Services," and to "do all other things as reasonably required for the full and proper performance of such" services. Although Finch was to use his own tractor to haul Schneider trailers, pursuant to federal regulations the ICOA provided that Schneider would have "exclusive possession, control and use" of the tractor.
Although the ICOA did not expressly prohibit Finch from working for another carrier, Finch was a solo owner-operator with only one tractor, and Schneider limited the situations in which, and the type of loads that, Finch could solicit from another carrier.
The ICOA expressly provided that Finch retained the right and obligation to "determine the manner, means and methods of performance of all Freight Transportation Services," as well as the responsibility for numerous other matters, including the operation and maintenance of the tractor, route selection, and all operating expenses. It is undisputed that the parties intended to create an independent contractor agreement, and not an employer/employee relationship. This understanding is in fact explicitly stated in the ICOA.
Finch was injured at Schneider's Des Moines operation center in January 2000, while preparing his tractor for an inspection by Schneider. Finch filed a claim for workers' compensation benefits. In his arbitration decision the deputy workers' compensation commissioner concluded Finch had "established a prima facie case that he was an employee and met each of the initial employment relationship tests," and Schneider had failed to establish its "affirmative defense" that Finch was an independent contractor. In reaching the latter conclusion, the deputy relied on Iowa Code section 85.61(13) (1999), and its definitions of persons who are not to be deemed employees. Specifically, the deputy applied the six-part test of section 85.61(13)(c), which provides that "[a]n owner-operator . . . of . . . a truck tractor . . . is an independent contractor while performing services in the operation of the owner-operator's vehicle if all of [six] conditions are substantially present." Concluding two of the six conditions had not been met, the deputy awarded Finch healing period benefits and medical expenses.
It is undisputed that if Finch is in fact an employee he is entitled to the benefits awarded by the deputy.
Schneider filed an appeal, asserting Finch was an independent contractor, and not an employee. The interim workers' compensation commissioner agreed. Although the commissioner concurred that Finch had "established a prima fascia [sic] case that he was an employee of Schneider," he concluded Schneider had proved "by a preponderance of the evidence that [Finch] was an independent contractor within the definition provided in Iowa Code section 85.61(13)(c)." Accordingly, the commissioner reversed the arbitration decision.
After his motion for rehearing and reconsideration was denied, Finch filed a petition for judicial review. Finch asserted the deputy had correctly determined that Schneider had failed to demonstrate the existence of two of the six conditions under section 85.61(13)(c), and moreover that the agency's decision had impermissibly departed from precedent. Although the district court concluded Schneider had adequately demonstrated one of the two disputed conditions, it agreed with Finch that there was not substantial evidence to support a finding Schneider had carried its burden of proof as to the other condition, specifically section 85.61(13)(c)(5). The court therefore reversed the agency decision, and remanded the matter for the award of appropriate benefits. Although not a basis for the reversal, the court also agreed the agency had rendered a decision inconsistent with agency precedent, and had not set forth a justification for the departure as required by Iowa Code section 17A.19(10)(h) (2001).
Schneider appeals. It asserts the agency's decision was supported by substantial evidence, and should have been upheld. It also asserts that, to the extent the current agency decision departed from prior agency decisions, those prior decisions were factually distinguishable. Finch asserts the prior decisions are sufficiently similar to constitute precedent, and that the agency must appropriately account for the inconsistency.
Although Finch did not file a cross-appeal, he was successful on his claim. Accordingly, this issue is preserved. See Johnson Equip. Corp. v. Industrial Indem., 489 N.W.2d 13, 17 (Iowa 1992).
II. Scope and Standards of Review.
Review of agency action is limited to correcting errors of law. Iowa R. App. P. 6.4; IBP, Inc. v. Harpole, 621 N.W.2d 410, 414 (Iowa 2001). In reviewing the district court's decision, we apply the standards of Iowa Code chapter 17A to determine whether our conclusions are the same as those of the district court. Grundmeyer v. Weyerhaeuser Co., 649 N.W.2d 744, 748 (Iowa 2002). If they are the same, we affirm; if not, we reverse. Id.
As the interpretation of workers' compensation statues and related case law has not clearly been vested by a provision of law in the discretion of the agency, this court is free to substitute its judgment de novo for the agency's interpretation. See P.D.S.I v. Peterson, 685 N.W.2d 685, 627 (Iowa 2004) (citing Iowa Code § 17A.19(10)(c), (11)(b); Mycogen Seeds v. Sands, ___ N.W.2d ___, ___ (Iowa 2004)). However where, as here, an agency's factual determinations "are clearly vested by a provision of law in the discretion of the agency," see Iowa Code § 85.21 (1999), we are bound by those factual determinations if they are supported by "substantial evidence in the record before the court when that record is viewed as a whole." Iowa Code § 17A.19(10)(f) (2001); P.D.S.I, 685 N.W.2d at 633. This requires that the entirety of the record — detracting as well as supporting relevant evidence — be sufficient to allow a neutral, detached, and reasonable person to make the same finding as the agency. See id.
We broadly and liberally apply the agency's findings to uphold rather than to defeat its decision. IBP, Inc. v. Al-Gharib, 604 N.W.2d 621, 632 (Iowa 2000). This would include the agency's determination of employment status, as that question, for workers' compensation purposes, is ordinarily one of fact. Parson v. Procter Gamble Mfg. Co., 514 N.W.2d 891, 893-94 (Iowa 1994). The agency's application of the law to the facts is reversed only if that application was "irrational, illogical, or wholly unjustifiable." Iowa Code § 17A.19(10)(m); see also Mycogen, ___ N.W.2d at ___.
III. Determining Details and Means of Performance.
Under Iowa Code section 85.61(13)(c)(1999), Finch is considered an independent contractor provided that six enumerated conditions are all "substantially present." The agency and the district court found, and the parties do not dispute, that the first, second, third, fourth and sixth conditions were adequately established. However, the district court concluded Schneider had not carried its burden of proof as to the fifth factor: "The owner-operator determines the details and means of performing the services, in conformance with regulatory requirements, operating procedures of the carrier, and specifications of the shipper." Iowa Code § 85.61(13)(c)(5). We must therefore determine whether substantial evidence exists to support the agency's conclusion that this condition had, in fact, been adequately demonstrated. If it does then, barring any additional error, the agency decision should have been upheld.
The parties do not dispute the procedural methodology employed in this case: that a claimant owner-operator must first establish a prima facie case of the existence of an employer-employee relationship, which then shifts the burden to the employer to prove, as an affirmative defense, that all the conditions of Iowa Code section 85.61(13)(c) are met. The propriety of that procedural approach is thus not at issue in this appeal.
We first note section 85.61(13)(c) does not demand proof that the owner-operator control every aspect of the services to be performed, in every particular. The owner-operator's determination of the details and means of performance need only be "substantially present." Iowa Code § 85.61(13)(c). Further, it need only be substantially present to the extent those matters are not controlled by regulatory requirements, operating procedures of the carrier, and specifications of the shipper. Id. Thus, the mere imposition of certain requirements by a carrier is not necessarily fatal to independent contractor status, particularly if those requirements involve regulatory compliance, operating procedures, shipping specifications, or issues collateral to the owner-operator's actual performance of service. "There is a difference . . . between performing a contract embodying certain conditions, and . . . rendering services under the supervision, control, and regulation of someone else." Arthur v. Marble Rock Consol. Sch. Dist., 209 Iowa 280, 289, 228 N.W. 70, 73 (1929).
Here, the facts are largely undisputed, and the majority of the facts in the record support a finding that Finch did determine the details and means of performing Freight Transportation Services for Schneider. As previously noted, the ICOA specifically required Finch to determine the manner, means, and methods of performing services. Schneider made no guarantees to Finch as to any specific number of miles or loads, and Finch was free to accept or reject work.
Finch also chose his own routes and hours of operation, and Schneider placed no express restrictions on related issues such as the speed at which Finch operated his tractor. Evidence was presented that so long as Finch was able to make the delivery date requested by a customer, he was free to drive the load "through the house," or stop at his home between pick-up and delivery. A satellite communications device installed in Finch's tractor, an MCT/GPS, did allow Schneider to monitor Finch's speed and location, and check to see if he was complying with governmental regulations regarding breaks and driving hours. However, there is no compelling evidence that this device was used to control the speed at which Finch traveled or other details of his operation.
Although Schneider often advanced Finch certain costs and expenses, Finch remained ultimately responsible for those items, and they were deducted from his compensation checks. Similarly, while Finch had repairs performed at Schneider facilities, he was not required to do so, and remained responsible for the costs of those repairs. In fact, although the ICOA provided that Schneider would have "exclusive possession, control and use" of Finch's tractor, Finch still controlled the day-to-day use of, and was responsible for every aspect of, his vehicle. The provision was included in the contract purely as matter of complying with governmental regulations.
Those checks did not withhold federal or state income taxes or social security taxes, which remained the sole responsibility of Finch.
A number of other factors that Finch points to as demonstrating the exercise of control by Schneider were also mandated by governmental regulations. For example, while Schneider placed a sign on Finch's tractor with the company's name and ICC number, Finch admitted federal regulations required the signage. Finch also admitted it was his responsibility to insure compliance with governmental regulations, but complained Schneider "had their hand in it quite often." However, in many instances Schneider's actions amounted to no more than monitoring Finch's compliance with those regulations.
Governmental regulations require the maintenance of driving logs and the performance of periodic inspections. Schneider's "control" in these situations was requiring Finch to provide copies of the logs, and to have inspections performed at an approved location. Although Finch always had his inspections performed by Schneider, there is evidence in the record that Finch could have had the repairs performed at "any facility." The record also indicates that Schneider required the inspections to prevent the possible imposition of citations upon not only Finch but itself, and to avoid delays in service that could occur if a vehicle failed to pass a Department of Transportation inspection while hauling a load.
This "control" retained by Schneider is no more and no less than the control it retained in directing where and when a particular load should be picked up and delivered. Both were "vital to the very purposes of the contract" between the parties. See generally Page v. Koss Const. Co., 215 Iowa 1388, 1398, 245 N.W. 208, 213 (1932). In other words, to the extent Schneider retained any control over some of the details and means of performance in these situations, it simply enabled the carrier "to see that [the work] is done according to the contract," Hassebroch v. Weaver Const. Co., 246 Iowa 622, 632, 67 N.W.2d 549, 555 (1954) ( abrogated on other grounds by Parson v. Procter Gamble Mfg. Co., 514 N.W.2d 891, 895 (Iowa 1994)), as well as in conformance with applicable regulations, procedures, and specifications. Other terms of the contract, such as requirements related to insurance and taxes, are simply conditions of contract and do not inform the question of who controlled the details and means of performance. See Arthur, 209 Iowa at 289, 228 N.W. at 73.
The record does contain evidence from which the agency could find Schneider determined some details and means of Finch's performance under the ICOA. However, that evidence does not mandate the ruling made by the district court. For instance, Finch asserted that the MCT/GPS was used to control details of his trips. However, written records of those communications can reasonably be interpreted as merely warning Finch that, based on the information possessed by Schneider, it appeared Finch was violating governmental regulations, and cautioning Finch against future violations. Finch also points out that while he was required to bear the costs of items such a fuel, repairs, and tolls, he was paid a higher mileage rate than "company drivers." However, there is no evidence the higher mileage rate directly corresponds to or is compensation for these items. In addition, although Finch complains the ICOA gave Schneider the right to impose "operating policies" that could affect the manner and means of his performance, he provides no evidence any such policies were in fact imposed.
Simply stated, while a reasonable, neutral and detached person could view the record and find that Schneider determined some details and means of performance, such a person could also conclude Finch determined the details and means of his performance to the extent required by section 85.61(13)(c)(5). Under the facts of this case substantial evidence supports a determination that the condition described in section 85.61(13)(c)(5) was substantially present. Accordingly, absent an additional error of law, the agency's decision should have been upheld.
IV. Departure from Agency Precedent.
Finch asserts the agency's decision is affected by additional error, pointing to the district court's conclusion that the current agency decision departed from two prior agency decisions, Caturia v. Heartland Express, File No. 939795 (March 31, 1993) and Mellema v. Geerdes Trucking, File No. 1058875 (Oct. 30, 1998), without adequate justification. He urges this court to remand this matter to the agency so that the inconsistency might be addressed. To a limited extent, we must agree.
Pursuant to Iowa Code section 17A.19(10) and its paragraph (h), a court shall
reverse, modify, or grant other appropriate relief from agency action . . . if it determines that substantial rights of the person seeking judicial relief have been prejudiced because the agency action is . . . inconsistent with the agency's prior . . . precedents, unless the agency has justified that inconsistency by stating credible reasons sufficient to indicate a fair and rational basis for the inconsistency.
However, an agency decision is not affected by error simply because its ultimate conclusion is at odds with the ultimate conclusion in a factually similar case.
It is axiomatic that a statutory scheme which calls for a case-by-case analysis would be rendered meaningless by an application of rigid rules based solely on prior decisions. Rather, we deem such a scheme to require consistency in reasoning and weighing of factors leading to a decision tailored to fit the particular facts of the case.
Anthon-Oto Cmty. Sch. Dist. v. Public Employment Relations Bd., 404 N.W.2d 140, 144 (Iowa 1987) (interpreting former Iowa Code § 17A.19(8)). Thus, the key is whether an agency decision "was reached in a manner consistent with the reasoned balancing of factors displayed in its prior, similar cases." Id.
In both Caturia and Mellema the agency applied section 85.61(13)(c) and concluded that, under the facts in the record, the claimant owner-operator was not an independent contractor. There is no indication the agency's rationale in this case differed from its rationale in the prior cases. Moreover, the question of whether the conditions outlined in section 85.61(13)(c) are "substantially present" is necessarily fact laden. Accordingly, the parties' arguments focus on, and we consider, the factual distinctions and similarities between this matter on the one hand, and Caturia and Mellema on the other, as they relate to section 85.61(13)(c)(5).
In reviewing Caturia we conclude that case is sufficiently distinct from, and thus not inconsistent with, the agency decision in this matter. In Caturia, the owner-operator was specifically required to comply with the carrier's "Drivers Manual," and it was non-compliance with the manual that led to the owner-operator's termination. As outlined by the agency in Caturia, the manual "contains over 40 pages of detailed step-by-step instructions on almost every aspect of hauling." Although we do not find it necessary to repeat every distinction between the two cases, significant is the fact that the owner-operator in Caturia "had no choice but to accept every load assigned to him."
Mellema presents a closer question. In stating what facts were relevant to section 85.61(13)(c)(5), the agency noted, in pertinent part, that the carrier
controlled what loads [Mellema] would haul, where they were to go, and when they were to be picked up and dropped off. [Mellema] had control only over the route to be taken, which was of course limited by the departure and destination points set by [the carrier].
In concluding Mellema was an employee and not an independent contractor, the agency did not specifically conclude the carrier, rather than Mellema, determined the details and means of performance. The agency did, however, separately find that the carrier "clearly controlled the work performed by [Mellema] and the other owner-operators."
In reviewing the totality of the agency's decision in Mellema, as well as the ruling on the petition for judicial review in that case, it becomes clear there are other relevant distinctions between Mellema and the case at hand However, given the limited basis for the agency's decision in Mellema, we cannot determine that those distinctions actually informed the agency's decision. We therefore conclude this matter should be remanded to the agency to address whether its decision in the case at hand is inconsistent with its decision in Mellema and, if so, whether its decision can be justified.
By making this ruling we do not mean to suggest that an adequate justification can be based only on distinctions between the facts in this case and the facts in Mellema. Section 17A.19(10)(h) requires only that, if a decision is in fact inconsistent with prior agency precedent, the agency provide "credible reasons sufficient to indicate a fair and rational basis for the inconsistency."