Argued and Submitted August 15, 2013.
Office of Administrative Hearings. T71380.
Reversed and remanded for reconsideration.
Chris Hatfield argued the cause and filed the opening brief for petitioner. With him on the reply brief was Hurley Re, P. C.
Judy C. Lucas, Senior Assistant Attorney General, argued the cause for respondent. With her on the brief were Ellen F. Rosenblum, Attorney General, and Anna M. Joyce, Solicitor General.
Before Duncan[*], Presiding Judge, and DeVore, Judge, and Schuman*,
[262 Or.App. 420] DEVORE, J.
Petitioner Ponderosa Properties, LLC, seeks judicial review after an administrative law judge (ALJ) upheld a notice of tax assessment that the Employment Department (department) issued to petitioner. The ALJ determined that 21 individuals who performed work for petitioner as cleaners and maintenance workers were employees of petitioner and that petitioner had failed to pay unemployment taxes on their wages. Petitioner contends that the individuals were independent contractors, as defined by ORS 670.600(2), whose compensation was not subject to unemployment taxation. For the reasons explained below, we reverse and remand to the department for reconsideration.
We state the facts consistently with the ALJ's unchallenged factual findings and the uncontroverted evidence in the record. McDowell v. Employment Dept., 348 Ore. 605, 608, 236 P.3d 722 (2010); Portland Columbia Symphony v. Employment Dept., 258 Or.App. 411, 413, 310 P.3d 1139 (2013). Petitioner (Ponderosa) has a contract to provide rental management services to Black Butte Ranch, a real estate development in central Oregon with 1,250 individual homes and condominiums. All of the units within Black
Butte Ranch are privately owned. Ponderosa coordinated rental activity for owners who wished to rent their properties to the public. Ponderosa arranged with owners to provide general maintenance and cleaning services. To provide the services, Ponderosa engaged house cleaners and maintenance workers. Twenty-one individuals--two maintenance workers and 19 cleaners--are the subject of this dispute. The department found them to be employees. Ponderosa insists that they are independent contractors.
Hayden Mayea and Bradford Livsey are maintenance workers. Ponderosa paid Mayea a flat rate of $65 per unit to shovel snow from a unit's walkway and driveway. Ponderosa would inform Mayea on Monday at which units he could shovel, and he would have to complete the work by Friday. Otherwise, Mayea could set his own schedule for shoveling the units. Mayea decided which tools to use and provided them himself, including a truck with a snowplow [262 Or.App. 421] to travel to the units. Ponderosa did not provide any training or require Mayea to follow any special procedures, nor did it provide him with a handbook on how to perform the work. Ponderosa did not provide a uniform or require a dress code. Mayea did not have a written contract with Ponderosa, nor did he make any formal guarantees about work quality. Ponderosa did inspect the work to ensure it was timely and satisfactorily done, and, on one occasion, did require him to return and complete the work without additional payment. Mayea could hire assistants or replacement workers without Ponderosa's approval.
Livsey also provided general maintenance services, such as setting snow stakes, cleaning decks, and replacing light bulbs. He provided his own shovels, rakes, blowers, and hammers. Livsey could choose assignments from a list prepared by Ponderosa, and he could complete them at any time, unless the unit was occupied. Ponderosa set no specific procedures for Livsey to follow, and did not give him any handbooks. Livsey was not required to follow a dress code or wear a uniform, and he generally set his own schedule. Ponderosa did inspect his work, and it could require him to correct deficient work. Livsey had authority to hire assistants or replacements without Ponderosa's consent.
The cleaners' responsibilities and relationship with Ponderosa are undifferentiated, and, following the ALJ's approach, we consider their duties collectively. Ponderosa engaged the cleaners to prepare the units for rent or for the benefit of the owners. Ponderosa sent the cleaners a schedule for the coming month, which was based on the occupancy of the units. Ponderosa identified which cleaning jobs were available to each cleaner, and each was free to accept or reject the jobs. Each normal cleaning job had a fixed, nonnegotiable price and took approximately two hours. Seasonal deep cleanings were paid at an hourly rate negotiated between Ponderosa and the cleaner. The unit owners provided some equipment and cleaning supplies, which cleaners could or, in some cases, must use. Otherwise, the cleaners used their own equipment and supplies, not Ponderosa's. The cleaners provided their own transportation to a unit. If a unit was being vacated and re-rented the same day, cleaners had a six to eight hour window of time in which to clean the unit. [262 Or.App. 422] Ordinarily, they were given four to six days to complete a job, and they could set their own schedule.
Ponderosa gave the cleaners information sheets, which included information such as security codes, instructions from the owners, and the location of the water heater. Ponderosa provided checklists for each room and unit, as well as more detailed spring cleaning checklists. Owners could pick tasks or specify cleaning products. Cleaners were not expected to follow these checklists, and several cleaners testified that they ignored them. Ponderosa merely expected the cleanings to be done in a professional manner. Cleaners were given periodic memoranda, called Staff Notes, with general and seasonal information and reminders, such as protocols for submitting invoices and reminders to turn off all lights in the units.
The cleaners submitted invoices for each job, reflecting the date of completion, unit number, and set rate of pay. Ponderosa then billed the unit owner. Ponderosa paid the cleaners twice per month. Because
Ponderosa was responsible to owners for security, it required the cleaners to provide information on any assistants or replacements they hired, but Ponderosa's approval was not necessary. Ponderosa had no written contract with the cleaners. Following a cleaning job, Ponderosa inspected the unit, looking for omissions or damage, and could require a cleaner to correct the work without additional pay. Ponderosa would leave a " calling card" in the unit to welcome tenants, provide information, and solicit feedback.
In June and July of 2010, the department received claims for unemployment insurance benefits from two cleaners. Both reported wages from Ponderosa, but the department had no record from Ponderosa of wages paid to them. The department issued an assessment, finding that 45 individuals were employees and that Ponderosa had a taxable payroll of $171,434.06 during the period in question. The department assessed taxes and interest of $2,752.15. Ponderosa disputed the assessment and requested a hearing before an ALJ.
Prior to the hearing, the parties stipulated that 16 of the individuals were employees and eight were independent [262 Or.App. 423] contractors. The hearing focused on the remaining 21 individuals and the meaning of the term " independent contractor." For the purposes of ORS chapter 657 (unemployment insurance), an " independent contractor" is a person who provides services for remuneration and who, in the provision of the services:
" (a) Is free from direction and control over the means and manner of providing the services, subject only to the right of the person for whom the services are provided to specify the desired results; [and]
" (b) * * * is customarily engaged in an independently established business[.]"
ORS 670.600(2). Those elements are conjunctive; a person is not considered an " independent contractor" unless each is met. After testimony from the department's investigator, Ponderosa's principals, and several cleaners, the ALJ sustained the tax assessment for all 21 individuals. The ALJ determined that Ponderosa failed to prove that any of the individuals was free from petitioner's direction and control in the performance of his or her services. ORS 670.600(2)(a). Although that determination was dispositive, the ALJ went on to determine that seven individuals were customarily engaged in an independently established business. ORS 670.600(2)(b). Because, however, none of the individuals satisfied both elements, the ALJ affirmed the assessment as to all 21 individuals.
On review, Ponderosa argues that the ALJ erred in concluding that Ponderosa maintained " direction and control" over the disputed individuals. Ponderosa asserts that the factors relied on by the ALJ do not support his determination and that the ALJ failed to account for the " nature of the business" in making his decision. Ponderosa also argues that the ALJ's determination concerning whether the disputed individuals were " customarily engaged in an independent business" was not supported by substantial evidence and that the uncontroverted evidence demonstrates that additional individuals satisfied that element.
[262 Or.App. 424] We review for substantial evidence, substantial reason, and errors of law. ORS 657.684; ORS 183.482(8); Freeman v. Employment Dept., 195 Or.App. 417, 421, 98 P.3d 402 (2004). We note that the " ultimate determination-- whether a particular person is an employee or independent contractor--is a question of law." AGAT Transport, Inc. v. Employment Dept., 256 Or.App. 294, 300-01, 305 P.3d 122 (2013) (citing Schaff v. Ray's Land & Sea Food Co., Inc, 334 Ore. 94, 101 n 3, 45 P.3d 936 (2002)); see also Avanti Press, v. Employment Dept. Tax Section, 248 Or.App. 450, 459, 274 P.3d 190 (2012). Under ORS 657.683(4), the employer has the burden of proving that the individuals met both elements. For the reasons that follow, we conclude that the ALJ erred in concluding that Ponderosa maintained " direction and control" over the individuals.
We also conclude that the ALJ's determination that certain individuals were not customarily engaged in an independent business is not supported by substantial evidence or substantial reason.
II. DIRECTION AND CONTROL