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National Maintenance Contractors, LLC v. Employment Department

Court of Appeals of Oregon

October 18, 2017

NATIONAL MAINTENANCE CONTRACTORS, LLC, Petitioner,
v.
EMPLOYMENT DEPARTMENT, Respondent.

          Submitted May 18, 2016

         Office of Administrative Hearings 2013UIT00019.

          Dan Webb Howard and Gleaves Swearingen, LLP, fled the briefs for petitioner.

          Ellen F. Rosenblum, Attorney General, Paul L. Smith, Solicitor General, and Judy C. Lucas, Assistant Attorney General, fled the brief for respondent.

          Before Tookey, Presiding Judge, and DeHoog, Judge, and James, Judge.

         Case Summary: Petitioner appeals a final order issued by the Office of Administrative Hearings wherein the administrative law judge (ALJ) upheld two assessments for unemployment insurance levied against petitioner by the Employment Department. On appeal, petitioner argues its Oregon franchisees are independent contractors and therefore exempt from unemployment insurance taxation. Held: The ALJ did not err in concluding that petitioner's franchisees were not independent contractors due to petitioner's exercise of control over the franchisees' means and manner of production. Consequently, the ALJ did not err in upholding the Employment Department's two assessments for unemployment insurance taxes.

         Affirmed.

         [288 Or.App. 348] JAMES, J.

         National Maintenance Contractors, LLC (NMC) is a Washington-based franchisor with approximately 60 Oregon-based franchisees providing janitorial, landscaping, carpet and duct cleaning, and maintenance services to NMC's customers. NMC seeks judicial review of a final order issued by the Office of Administrative Hearings wherein the administrative law judge (ALJ) upheld the Employment Department's levying of two assessments totaling $138, 029.69 for unemployment insurance taxes. We affirm.

         On review, NMC raises four assignments of error, arguing that its Oregon franchisees are independent contractors and, thus, exempt from unemployment insurance taxation. In its first assignment of error, NMC argues that the ALJ erred in concluding that its franchisees were not free from direction and control over the means and manner of providing the services. In its second assignment of error, NMC argues that franchisees were independent businesses, and that the ALJ erred in concluding otherwise by incorrectly finding that the franchisees did not retain the ability to hire and fire its own employees. We conclude that the franchisees at issue in this case were not free from direction and control. Because of our decision on that issue, we do not reach NMC's second assignment of error.[1]

         In reviewing an ALJ's final order, we review legal conclusions for errors of law and factual determinations for substantial evidence. ORS 183.482(8)(a) and (c); Broadway Cab LLC v. Employment Dept. 358 Or. 431, 437-38, 364 P.3d 338 (2015). The ALJ made extensive findings of fact, which are largely undisputed by the parties. For purposes of our decision, we state the facts most relevant to our analysis. [288 Or.App. 349] NMC contracts with businesses to provide janitorial services, landscaping, carpeting, ceiling and duct cleaning, minor construction and restorations, interior plant maintenance, minor renovations, plumbing, electrical work, and related services. It delegates the performance of such services to its franchisees and subcontractors.

         NMC solely negotiated the contracts with its customers. The franchisees were not permitted to meet with customers' representatives and were not otherwise involved in the negotiations. During NMC's negotiations with its customers, the customers specified the services they wanted, the frequency of the services, and the windows of time to perform the services.

         The franchise agreement, which was materially uniform among the roughly 60 franchisees and was nonne-gotiable as to the majority of terms, stated that the franchisee was an independent contractor. The agreement also stated that NMC would not control the franchisee in its method of serving accounts, but the franchisee was required to satisfactorily achieve the desired service, as listed on the particular account service specifications. If the franchisee was a corporation, its officers were required to "devote adequate time to personally perform or supervise the work."

         When NMC offered accounts to its franchisees, it informed them of the customer's specifications and walked through the customer's premises with the franchisee, pointing out what needed to be done. NMC provided the franchisee with a list of required equipment, materials, and supplies to serve accounts. All such equipment, materials, and supplies had to be "of brands or types that meet [NMC's] quality standards." NMC's approved brand list included items such as vacuum cleaners, buckets, ringers, brooms, dustpans, dusting cloths, maid caddies, barrels with wheels, trash liners, disinfectants, multipurpose cleaners, glass cleaners, and sponges. NMC specified the minimum required equipment in its manuals and directives. NMC had the option to lease such equipment to the franchisee. The franchisee was not allowed to use other equipment, materials, or supplies without the prior approval of NMC. NMC also provided a list of appropriate dress for servicing accounts.

         [288 Or.App. 350] NMC gave each franchisee and the franchisee's initial employees "a mandatory, but tuition-free initial training program." The franchisee and all its employees were required to complete the initial training program "in a satisfactory manner, " as determined by NMC. If the franchisee did not complete the training program in a satisfactory manner within six months after signing the agreement, NMC could terminate the agreement.

         The franchisee had to pay $150 to NMC for each training program after the initial training program. Alternatively, the franchisee could train and test its employees in a manner satisfactory to NMC and give NMC satisfactory evidence of such training. NMC could charge the franchisee more for the training if the franchisee was assigned a new account having specific onsite requirements, or NMC had reasonable indications from its inspections or from customer reviews that the franchisee's performance for an account did not meet its quality standards.

         NMC required all franchisees and their managers to be trained, regardless of their previous experience. The training consisted of written materials and video programs. NMC required trainees to take and pass a test on the information. NMC also issued manuals ...


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