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Thayer v. Uninsured Employers Fund

Court of Workers Compensation of Montana

December 8, 1994

GERALD THAYER (Deceased) PHYLLIS THAYER Petitioner
v.
UNINSURED EMPLOYERS' FUND Respondent/Insurer.

          FINDINGS OF FACT, CONCLUSIONS OF LAW AND JUDGMENT

          MIKE McCARTER, JUDGE

         Summary: Laborer in salvage operation died from burn injuries after his clothing caught fire while he was cutting metal with a torch. His widow sought benefits from the Uninsured Employers' Fund. Employer contended the decedent was an independent contractor.

         Held: Although employer sought to minimize his control over salvage operation workers, the Court was convinced the employer retained the right of control over workers, making them employees for purposes of the Workers' Compensation Act. The decedent's designation as an independent contractor by the employer is not conclusive as to his status, nor is the fact that he owned an independent scrap business. Though this satisfied the independently established trade criterion of part (b) of section 39-71-120(1), MCA (1991) for independent contractor status, part (a) was not satisfied where the employer retained control over decedent's work, paid him by the hour and then piece-meal, and furnished necessary equipment.

         Topics:

Constitutions, Statutes, Regulations, and Rules: Montana Code Annotated: section 39-71-120, MCA (1991). Although employer sought to minimize his control over salvage operation workers, the Court was convinced the employer retained the right of control over workers, making them employees for purposes of the Workers' Compensation Act. The decedent's designation as an independent contractor by the employer is not conclusive as to his status, nor is the fact that he owned an independent scrap business. Though this satisfied the independently established trade criterion of part (b) of section 39-71-120(1), MCA (1991) for independent contractor status, part (a) was not satisfied where the employer retained control over decedent's work, paid him by the hour and then piece-meal, and furnished necessary equipment.
Independent Contractor: Generally. Although employer sought to minimize his control over salvage operation workers, the Court was convinced the employer retained the right of control over workers, making them employees for purposes of the Workers' Compensation Act. The decedent's designation as an independent contractor by the employer is not conclusive as to his status, nor is the fact that he owned an independent scrap business. Though this satisfied the independently established trade criterion of part (b) of section 39-71-120(1), MCA (1991) for independent contractor status, part (a) was not satisfied where the employer retained control over decedent's work, paid him by the hour and then piece-meal, and furnished necessary equipment.

         The trial in this matter was held on March 29, 30, and 31, 1994 in Great Falls, Montana. Petitioner, Phyllis Thayer (claimant), was present and represented by Mr. Norman J. Newhall. The Uninsured Employers' Fund (UEF) was represented by Mr. Claren J. Neal and Mr. Kevin Braun. Richard Smith, was present and represented by Mr. Leo S. Ward. Richard Smith, Harold Brownell, Phyllis Thayer, Gerald Ruth, Garry Thompson, Jim Filipowicz, Betty Pfeifer, Chester Heitmann, Steve Greenwood, Ralph Gobert, James Printy, David Larson and Mike Christen testified in person. By agreement of the parties, Marilyn Groussman testified by telephone from Salt Lake City, Utah. The depositions of James Collins, Tim Wells, Ken Halko, Robert Smith, Robert Michaels, William Dagel, Betty Dagel, Bert Guith, Harold Brownell, Phyllis Thayer and Susan Thayer were submitted for the Court's consideration. Exhibits 1, 3, 4, 5, 5A, 6, 8, 9, 12, 13, 15, 16, 18-38, 41-44 and 48 were admitted. Exhibits 10, 11 and 39 were refused. Exhibit 17 was not offered. Exhibits 2, 7 and 14 were withdrawn. Exhibit 40 is a duplicate of Exhibit 1. There were no Exhibits 45 and 46. Exhibit 47 was admitted for demonstrative purposes only.

         Issue Presented: The issue in this case is whether the claimant's husband, Gerald Thayer, was an employee of Richard Smith at the time he was fatally injured on October 15, 1992. A second issue as to whether claimant may be entitled to compensation pursuant to the provisions of section 39-71-405, MCA, was not mediated and is not considered.

         Having considered the Pretrial Order, the testimony presented at trial, the demeanor and credibility of the witnesses appearing at trial, the exhibits, the depositions, and the arguments of the parties, the Court makes the following:

         FINDINGS OF FACT

         1. On October 15, 1992, the claimant's husband, Gerald Thayer (Thayer), was injured in an industrial accident at the Flying J Refinery site near Cut Bank, Montana. His clothes caught fire while he was cutting metal with a cutting torch. He was badly burned. On October 31, 1992, Thayer died from his injuries.

         2. Claimant thereafter filed a workers' compensation claim seeking death benefits.

         3. Thayer's alleged employer, Richard Smith (Smith), did not have workers' compensation insurance coverage at the time of the accident. However, Smith contends that claimant was an independent contractor.

         4. The Uninsured Employers' Fund (UEF) denies liability, also contending that Thayer was an independent contractor.

         Richard Smith and His Salvage Business

         5. Richard Smith has been engaged in salvage work since the 1960's. Salvage work involves dismantling, cutting up and selling materials for scrap. Some components, such as valves, are recycled. Metal materials sold for scrap must be cut into smaller pieces for shipping to scrap dealers.

         6. Until the mid 1980's Smith principally salvaged derailments for the Burlington Northern Railroad, working in twenty-three different states, often cutting up damaged railroad cars. (Tr. at 55-57.) He retired in the mid-1980's but began working again in the late 1980's when he cut up and salvaged a ship in Superior, Wisconsin. (Tr. at 62-64.)

         7. Smith's 1992 gross receipts from his salvage business were $483, 200; his net profit was $208, 510. (Ex. 5A.)

         8. Smith has never maintained any separate business accounts. (Tr. at 113.) All income and expenses from his salvage operations have been run through his personal checking account. (Id.)

         9. Over the years Smith has hired other individuals to assist in cutting up scrap. For example, he hired twenty (20) other individuals to cut up a ship in Superior, Wisconsin. (Tr. at 65.) However, Smith claims that every person who has ever worked for him on a salvage project has been an independent contractor. He claims that he has never had an employee, (Tr. at 113) and he requires every person working for him to sign a release similar to the one quoted in Finding 33. (Tr. at 91.)

         Flying J Refinery Salvage Contract

         10. The Flying J Refinery (Flying J) is located near Cut Bank, Montana. It is no longer used and its owner entered into a contract with Smith to clean, remove and dispose of petroleum storage tanks and equipment located on the site.

         11. The contract names RRS, Inc. as the contractor. However, RRS, Inc. is a pseudonym used by Smith and is not a legally organized corporation.

         12. The contract provided that Smith was entitled to all monies from any sale of the salvaged tanks and equipment.

         13. The contract period commenced July 15, 1991 and terminated December 31, 1992. (Ex. 6.) It required Smith to obtain all necessary "licenses and permits." (Id.) It also required Smith to indemnify Flying J against all liabilities and to secure liability insurance in the amount of $1, 000, 000 prior to commencement of work. (Id.)

         Work at the Flying J Job Site - General Description

         14. Smith's contract called for him to dismantle and remove the refinery equipment and petroleum storage tanks. Some components, for example pipes, brick, cooling towers, cylinders, motors and valves, were dismantled, put on pallets and sold for resale. (Tr. at 83-84.) Iron components which could not be sold for their original use were sold as scrap. (Tr. at 80-85.) Iron sold for scrap had to be cut into pieces no larger than two feet (2') by five feet (5'). (Tr. at 81.) The pieces were then loaded onto railroad cars and shipped to scrap dealers. (Tr. at 78-81.) Unsalable materials, such as contaminated metal, cardboard, and paper were loaded onto a trailer and taken to a dump. (Tr. at 79-80.)

         15. Much of the work involved the razing of storage tanks. Initially, the tanks, standing in place, were cut into large segments. The segments were then pulled to the ground and cut into pieces no larger than two (2') feet by five (5') feet. Exhibit 3, a videotape, shows the basic operation.

         16. Cutting the tanks into sections, and thereafter into the smaller pieces, required use of cutting torches. The cutting torches were fueled by propane and oxygen.

         Smith's Hiring of Salvage Workers: Jerry Ruth and Garry Thompson

         17. After entering into the agreement with Flying J, Smith hired Jerry Ruth (Ruth) and Garry Thompson (Thompson) to help him remove and salvage the Flying J tanks and equipment. Both Ruth and Thompson had worked for Smith on many occasions over the years, putatively as independent contractors.

         18. Thompson drove one of Smith's trucks from Minnesota to Cut Bank, Montana so that it could be used in the Flying J salvage operation. (Tr. at 363.) He then returned to Minnesota for his own truck. On a second trip from Minnesota to Montana, Thompson drove his own truck and pulled a trailer with Smith's forklift and some of Smith's materials on it. (Id.)

         19. Thompson and Ruth were paid by the hour. (Tr. at 292, 368.) According to Ruth, the primary reason for hourly rather than some other basis of compensation was the variety of tasks they were to do on the project. (Tr. at 292.) Smith also provided housing to both men. (Tr. at 340.)

         Gerald Thayer

         20. At the time of his death Gerald Thayer was 45 years old. He had a limited education. He did not complete high school and it is unclear what grade in school he did complete. (Tr. at 235.) He had difficulty reading (Tr. at 243) and was unable to pick up a book and read it (Susan Thayer Dep. at 7.)

         21. From what is known about Thayer's employment history, he worked as a musician, farm and ranch hand, laborer and logger. (Tr. at 224, 232, 235, 236, 259; Susan Thayer Dep. at 21-22.)

         Thayer Scrap Cutting Business

         22. Over the years, Thayer also engaged in a small scrap cutting business. Thayer's daughter, Susan Thayer, testified that Thayer had cut and sold scrap iron off and on since she was a little girl. (Susan Thayer Dep. at 21.)

         23. Thayer and claimant moved to Montana in approximately 1988. It is unclear when he began cutting and hauling scrap after his move but by 1990 he was cutting and hauling scrap metal for farmers and ranchers in the Cut Bank area. (Tr. at 205-206, 407-408, 488, 502-505; Michaels Dep. at 5-8; Robert A. Smith Dep. 5; Exs. 20-21.) The scrap was typically old equipment and machinery.

         24. During 1990 and 1991, Thayer sold the scrap metal to various businesses, including Carl Weissman and Sons (Tr. at 320; Ex. 19); Cut Bank Hide and Fur (Tr. at 488; Exs. 20-21); Ruth's Salvage and Scrap in Valier (Claimant's Dep. at 63 and Ex. 22); Filipowicz Brothers in Black Eagle (Claimant's Dep. at 129 and Ex. No. 23); and Jim's Auto in Cut Bank (Tr. at 511; Ex. 24).

         25. On one occasion Thayer approached Jim Filipowicz (Filipowicz), a fifteen-year employee of Weissmans, and offered to cut scrap for Weissmans for $25 per ton. (Tr. at 320.) Decedent told Filipowicz that he cut scrap for a living, charging a flat rate per ton. (Tr. at 322.)

         26. Thayer sold scrap to Cut Bank Hide and Fur frequently in the fall of 1990. (Tr. at 488; Exs. 18, 20 and 21; Halko Dep. at 7; Ex. 18.) Chester Heitmann (Heitmann), who owned the company in 1990, testified that Thayer was a regular provider when he first started selling scrap and sold one or two loads of scrap per week. Heitmann loaned Thayer money to buy equipment for cutting scrap. (Tr. at 489.) Thayer told Heitmann that he was cutting scrap as a business. (Tr. at 490.)

         27. Thayer had no employees and did all of his own work. However, on one occasion he paid Ralph Gobert (Gobert) to haul three loads of scrap at the rate of $20 per load. (Tr. at 505.)

         28. Thayer had no office or shop. (Tr. at 238.) He had no separate business telephone number, business license or business cards. (Tr. at 207.) He performed his work wherever he found scrap, and arranged to cut and salvage the scrap through personal contacts.

         29. Thayer used his own equipment for cutting and hauling scrap metal, and purchased his own supplies. He owned one propane tank and rented another. (Claimant's Dep. at 86.) He also owned two trucks, a boom, a torch, cutting tips for the torch, hoses, regulators, fuel, gloves, goggles, boots and coveralls. (Claimant's Dep. at 75-78; Tr. at 211, 412-414, 462.)

         30. In 1990, Thayer earned at least $1, 040 from cutting and selling scrap metal. (Exs. 20 and 47.) In 1991, Thayer earned at least $3, 031.46 from cutting and selling scrap metal. (Exs. 18-21 and 47.) During those years he was also employed as a farm worker. His income from farm work was $4, 800 in 1991 and $10, 500 in 1990. (Ex. 4.)

         31. The evidence shows that Thayer operated a small-time scrap cutting business.

         Hiring of Gerald Thayer

         32. In January of 1992, Gerald Thayer approached Smith and offered to cut scrap for him. (Tr. at 86.) He told Smith that he had twenty (20) years of experience cutting scrap. (Tr. at 528.) Smith agreed to hire[1] Thayer on.

         33. On January 17, 1992, Thayer signed a document entitled "PERSONAL RELEASE." The document stated inter alia: "THIS IS TO CONFIRM THAT I AM AN INDEPENDENT CONTRACTOR." In full part, it stated:

         PERSONAL RELEASE

         THIS IS TO CONFIRM THAT I AM AN INDEPENDENT CONTRACTOR

         JOB LOCATION Flying J - Refinery

         TYPE OF WORK TO BE DONE Cutting - Scrap.

         DATED 1-17-1992

I do here-by assume all risk of personal injury or death, and loss of or damage to property in my custody or possession, which shall in any manner arise from or be caused by any defects, or other equipment or apparatus of any kind whatsoever, or by any accident of any kind whatsoever, however it may occur or be caused. [sic] whether due to the negligence of Richard Smith and or other employees or otherwise, in any manner arising or growing out of the above mentioned permission, and I here-by, for myself, my heirs, and legal representatives, release and forever discharge Richard Smith and Flying J Inc. and Flying J. Refinery, from all claims, liabilities and costs of every kind by reason of any injury, death, or loss or damage to property.
This form MUST be completed before entering job site.
WITNESS:
D. Smith Jan 17-92 /s/ Jerry Thayer

(Ex. 1.) The document was prepared by Smith, who required that it be signed as a condition of work. (Tr. at 91.)

         34. While Thayer signed the release, it is doubtful he read or understood it. (Tr. at 233, 243.)

         Generalized Use of the "Release"

         35. Ruth and Thompson signed similar releases prior to going to work on the Flying J project. Indeed, Smith requires all persons who work for him to sign similar releases. (Tr. at 91.)

         Thayer's Commencement of Work

         36. Thayer began work in early February of 1992. (Ex. 9 at 20-21.) From that time until his industrial accident he cut metal into pieces for shipment to scrap dealers. Most of his cutting was on storage tanks.

         Thayer's Compensation and Hours of Work

         37. The initial agreement between Smith and Thayer called for Smith to pay Thayer on an hourly basis at $8 an hour. (Tr. at 87.) The $8 an hour was the amount requested by Thayer. Smith later raised the hourly amount to $10 an hour. (Tr. at 87.) Exhibit 9 indicates that the hourly basis of pay continued until at least May 1992.

         38. Claimant, initially recorded Thayer's hours for pay purposes. (Tr. at 87-88.) However, after a disagreement over the record keeping, Smith took over the responsibility for recording Thayer's hours of work. (Tr. at 244, 452.) Claimant testified:

Q Did there come a time when you discontinued keeping records of his ...

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