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C. Loney Concrete Construction, Inc. v. Uninsured Employers' Fund

Court of Workers Compensation of Montana

December 28, 1993




         The matter before the Court is an appeal from an April 13, 1993 decision of the Montana Department of Labor and Industry (hereinafter DLI). The DLI decision found that appellant was operating an uninsured business within the meaning of section 39-71-507, MCA, and upheld a Cease and Desist Order issued pursuant to the cited section. In this proceeding for judicial review, the appellant raises numerous challenges, both procedural and substantive, to the proceedings and Order below. Because of fundamental errors in the DLI's interpretation of the applicable statutes and in its hearing procedures, the Court reverses the DLI decision and remands the matter for a new hearing.


         The appellant is C. Loney Concrete Construction, Inc. Clay Loney is the company's sole shareholder and business manager. (This decision will refer to the company and Mr. Loney interchangeably, and sometimes just as "Loney.")

         Loney is a concrete contractor, whose business has been operating for approximately ten years. As one would expect, the concrete business is seasonal, and is affected by weather variations, as well as by fluctuations in the construction industry. Mr. Loney testified at hearing that the number of workers and jobs each year is highly variable and there is no "typical" job. (Tr. at 15-16.) A concrete project can require two workers or thirteen workers depending on the nature of the job. (Tr. at 19.) Sometimes Loney has several jobs going at one time and at other times it has one or even none. (Id.) In 1991 a total of 33 individuals worked for Loney, and in 1992 the total was 26. (Tr. at 17.) Apparently, these totals are all of the individuals who worked for the company, including those who may have worked only for a few hours. (See Tr. at 17, 25, 29, 30.) Mr. Loney testified that during his ten years in business he had employed "traditional full-time employees"; however, there is no indication in the record as to how many full-timers he actually employed at any given time. Mr. Loney also testified that at times there was insufficient work for the full-time employees and "sometimes I would take them to my place and let them fix things and do stuff around there just to get them enough hours so they could -- so you could keep them around." (Tr. at 16.)

         In June of 1992, Mr. Loney determined that he could no longer afford a permanent work force, primarily because of the expense of workers' compensation insurance. (Tr. at 24-5.) He therefore entered into an arrangement with Olsten's Temporary Services, which provides temporary workers to businesses. (Tr. at 34.) Olsten's pays the temporary employees and provides workers' compensation coverage for them. (Tr. at 34-5.) If a temporary employee works 1, 400 to 1, 500 hours in a year, Olsten's even provides a paid vacation to the employee. (Tr. at 51.)

         Commencing July 1992, Loney began obtaining workers exclusively through Olsten's. He notified the employees who were then working for him of the arrangement so they could sign up with Olsten's. (Tr. at 44.) The workers submitted employment applications to Olsten's, were interviewed by Darlene Schulke, the Great Falls manager of Olsten's, and put on Olsten's list of available workers. (Tr. at 43-45.) Thereafter, when workers, including supervisors, were needed he called Darlene Schulke. (Tr. at 23, 42.) He specified the type of workers he needed and in at least some cases asked her to send specific individuals. (Tr. at 22-24.) It appears that in most cases the workers sent out by Olsten's were the same individuals Loney had previously employed. (Tr. at 26, 28.) Mr. Loney could recall only one worker sent to him by Olsten's who had not worked for him prior to his arrangement with Olsten's. (Tr. at 18.) According to Darlene Schulke, some of the workers sent to Loney were also referred to jobs for other employers. (Tr. at 39.)

         Loney specified the wages of workers sent to him by Olsten's (Tr. at 30, 39.) Olsten's, however, paid the workers directly and handled all payroll functions. (Tr. at 38.) Loney paid Olsten's a fee based on the wages of the workers plus a fixed percentage. (Tr. at 39.) Presumably, the fee covered Olsten's overhead, the payroll and associated costs for the workers sent to Loney, and some margin of profit.

         Olsten's did not actively supervise the workers sent to Loney. After referral, its only follow-up was telephone contact with Clay Loney to determine if a referred worker was "working out." (Tr. at 41.)

         At the hearing conducted by the DLI, Darlene Schulke gave some examples of the varied hours worked by its temporary workers. In the examples given, one worker worked as few as eight hours in one week of a four-week period and as many as twenty-two in another. Another worker worked as few as three hours and as many as nineteen. (Tr. at 37.) The examples given, however, were not specifically for individuals working for Loney. (Tr. at 50-51.) Based on the testimony admitted at trial it is impossible to obtain an accurate picture of the hours worked by the workers referred to Loney by Olsten's or of the fluctuations in Loney's business, either before or after the Olsten's arrangement. It is also impossible to determine if workers were sent to Loney for a specific job, and returned to Olsten's availability list at the end of the job, or whether once sent to Loney they worked on different projects until there was not enough work for them to continue working.

         In addition to concrete workers, Loney employed a bookkeeper over the years. Since 1990 Veronica Hall has been doing the company bookkeeping on an as needed, part-time basis. (Tr. at 52-53.) She registered with Olsten's in 1988. Thus, she was already on Olsten's list of available temporary employees. (Tr. at 42, 52.) In addition to her work for Loney, she has worked part-time for other employers over the past few years. (Tr. at 52-54.) After Loney entered into the arrangement with Olsten's, she continued to do Loney's bookkeeping. The amount of her work, however, diminished because she no longer did payroll. (Tr. at 55-57.) With regard to Ms. Hall, there appears to be a continuity in her services. There was no testimony indicating that Loney called Olsten's every time he had bookkeeping needs. Other than the work load, the working relationship and arrangement with Ms. Hall appears to have been unaffected by the Olsten's arrangement.

         The foregoing factual recitation is taken exclusively from the testimony of appellant's witnesses. It disregards other evidence and presumptions used by the hearing examiner in reaching his decision.

         "Roughly" in July 1992, a field representative for the Uninsured Employer's Fund (hereinafter UEF) received a list of cancellations of workers' compensation insurance indicating that Loney's coverage had been cancelled June 22, 1992. (Tr. at 7, 10.) He thereafter investigated Loney, speaking both with Mr. Loney and Ms. Schulke, and observing workers at apparent Loney job sites. On September 15, 1992, as a result of his investigation, the field representative issued a Cease and Desist Order that directed Loney to "CEASE OPERATIONS in Montana . . . until you have obtained proper coverage for all employees for whom Montana law requires you to provide workers' compensation insurance coverage." (DLI Ex. No. 2b.) The Order warned Loney, "Failure to comply with this Order constitutes a criminal misdemeanor . . . ." The Order was thereafter served on Loney, who then requested a contested case hearing.

         A hearing was held before a DLI hearing examiner on February 4, 1993. The hearing examiner issued his FINDINGS OF FACT; CONCLUSIONS OF LAW; ORDER on April 13, 1993. In his findings the examiner found that nine identified workers were not "temporary workers" within the meaning of section 39-71-116 (24), MCA (1991), and were in fact employees of Loney. Based on that determination, and Loney's undisputed lack of workers' compensation insurance coverage after June 22, 1992, the examiner determined that the Cease and Desist Order was properly issued.

         Record On Appeal

         On May 11, 1993 the appellant (Loney) filed a NOTICE OF APPEAL with this Court. The record on appeal consists of the DLI file, including a transcript of the hearing, the exhibits and the hearing examiner's decision.

         On May 14, 1993 Loney moved to supplement the record by presenting additional evidence. No response was filed to the motion and it was granted. The additional evidence, consisting of additional testimony of Clay Loney, Darlene Schulke and Val Stekly, was presented at a hearing held in Great Falls on September 8, 1993. A newspaper article was also offered into evidence but was excluded on hearsay grounds. Loney was represented at the hearing by Antonia P. Marra. The DLI was represented by Daniel B. McGregor.

         Val Stekly gave testimony, based on her meetings with representatives of the State Fund, concerning her understanding of workers' compensation provisions on temporary employees. Interpretation of workers' compensation statutes, however, is a matter for the Court. Moreover, the State Fund is not the agency charged with applying laws concerning uninsured employers. Its interpretations are therefore not entitled to deference. Cf. Montana Dept. of Revenue v. Kaiser Cement Corp., 245 Mont. 502, 507, 803 P.2d 1061 (1990) (deference may be shown to the interpretation given a statute by the agency charged with its administration).

         Ms. Schulke also testified about bid requests she received from various agencies of the State of Montana for temporary employees. The requests were not from the DLI and were for employees to be hired for specific, short periods of time.

         Loney's additional testimony was offered to show why Ms. Stekly's testimony had not been offered at the time of the DLI hearing.

         Appellant's Grounds For Appeal

         Loney's NOTICE OF APPEAL listed eleven separate grounds of alleged error. However, in subsequent briefs submitted in support of his appeal, the issues presented have been consolidated to the following ones:

1) Whether the late filing of its list of exhibits and witnesses should have precluded the Uninsured Employers' Fund from presenting evidence at the DLI hearing.
2) Whether the burden of proof was improperly placed on Loney.
3) Whether Loney was denied due process of law by the hearing examiner's consideration of evidence outside the record, or by permitting the UEF to present evidence in light of its untimely filing of its list of exhibits and witnesses.
4) Whether DLI misinterpreted applicable statutes.
5) Whether the applicable statutes are unconstitutionally vague or over-broad.
6) Whether the DLI decision is supported by substantial evidence.
7) Whether the errors committed in the proceeding were harmless.

         Standard Of Review

         The present controversy arises out of the DLI's enforcement of section ...

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