Court of Appeals Decides Claimant Is an Employee Rather Than Independent Contractor, Reversing District Court

Claimant was a carpenter who started doing carpentry work for Stark Construction when he had an injury.  When he reached the hospital, claimant indicated he was employed by Don Risdahl Builders and was self-employed.  Claimant later filed a claim against Stark, who affirmatively alleged that he was an independent contractors.  The deputy found claimant was an independent contractor and the commissioner reversed.  At the district court level, the court reversed the agency, finding that claimant was an independent contractor.

The Court of Appeals reversed the action of the district court and affirmed the action of the commissioner in Stark Contruction v. Lauterwasser, No. 13-0609 (Iowa App. April 16, 2014).  Initially, the court found that since the law did not vested the agency with power to interpret the term "employee," no deference was due the commissioner in determining how the term was to be defined.   On appeal, claimant contended that the district court erred in concluding that the intent of the parties was a controlling factor in determining whether a claimant was an employee.

The court first noted that under section 85.61(11) of the Iowa Code, an employee was a "person who has entered into the employment of, or works under contract of service, express or implied, or apprenticeship, for an employer . . ."  The court also noted that under Daggett v. Nebraska-Eastern Exp., Inc., 107 N.W.2d 102, 105 (Iowa 1961), doubt as to whether a person was an employee was to be resolved in favor of the person being an employee.  

To prove that an individual is an employee, he must first establish he was rendering services to the putative employer.  The burden then shifts to the employer to prove that the claimant was an independent contractor and not an employee.  The court noted that the name chosen by the parties was not conclusive, and cited articles noting misclassification of workers in large numbers of cases.  A close look at the underlying relationship was needed to determine the claimant's status.

Citing to Nelson v. Cities Serv. Oil Co., 146 N.W.2d 261, 265 (Iowa 1966), the court noted the following five factors as being important to answering the question of whether claimant was an employee: 1) the right of selection or to employ at will; 2) responsibility for payment of wages by the employer; 3) the right to discharge or terminate the relationship; 4) the right to control the work; and 5) the identity of the employer as the authority in charge of the work or for whose benefit it is performed.  The Nelson court noted that looking at the parties intent by itself could be deceiving.  The court also noted that in Henderson v. Jennie Edmundson Hospital, 178 N.W.2d 429 (Iowa 1970), the court noted that the intention of the parties may be considered.

In this case, the commissioner had concluded that where there is an agreement to call the claimant an independent contractor, that intent may be ignored if this is for the purpose of evading the workers' compensation laws.  The district court agreed, but the Court of Appeals indicated that this principle did not appear in any Iowa cases, although it did appear in Larson's.  The court concluded that community custom "did not act as a counterweight when there exists a clear finding the employer controlled the work."

In applying the standards above to Lauterwasser's case, the Court of Appeals concluded that the district court erred in viewing the parties intent as the controlling factor.  The district court held that claimant must meet the five factors from Nelson and the parties intent must be that an employment relationship be created.  The court noted that the most important factor was the right to control the work.  Only if that control is debatable does the trier of fact need to consider the parties' intention or community custom.  Citing Schlotter v. Leudt, 123 N.W.2d 434, 436 (Iowa 1963).  The court concluded that the district court erred in elevating the intention of the parties above all else.

In addressing the facts, the court found most facts undisputed and gave Stark the right to control Lauterwasser's work.  Lauterwasser's tax returns, however, showed Starks' income on a 1099 form, and he had deducted $5,734 for advertising, money that was not actually paid for advertising.  The commissioner also found that claimant made numerous statements on the day of injury that contradicted his later claim that he was an employee.  The court found that there was substantial evidence to support the factual findings of the agency, and because the right to control was obviously vested in Stark, it need not resort to assessing the parties' subjective intent.  Even if intent were considered, however, it was so plainly at odds with the facts that it could be disregarded.  The court reversed the decision of the district court and remanded for further consideration of other issues not addressed below.

The decision in Lauterwasser is clear that right to control is the paramount test for determining whether a claimant is an employee or independent contractor.  In establishing this straightforward test, the court clarifies what has often been a muddled mess centered on the intention of the parties.  Given the decision of the court, and the importance of the issue, it would not be surprising to see that this case proceeds on further review to the Supreme Court.

Comments

Popular posts from this blog

Court of Appeals Affirms Denial of Workers' Compensation Benefits; Rules on Credit Issue

2021 Workers' Compensation Appeal Decisions

2024 Workers' Compensation Appeal Decisions