CHAGANTI & ASSOCIATES, P.C.,
)
)
Appellant,
)
)
v.
) Consolidated Case No. WD78968
)
DIVISION OF EMPLOYMENT SECURITY, )
)
Respondent.
)
________________________________________________________________________
RESPONDENT’S BRIEF
________________________________________________________________________
Appeal from the Missouri Labor and Industrial Relations Commission
Commission No. CR-3549 & CR-3550
Appeal No. E-268-13 & E-141-14
________________________________________________________________________
NINION S. RILEY
#32399
MANDOLIN JACKSON Rule 13
Post Office Box 59
Jefferson City, Missouri 65104
TEL: (573) 751-3844
FAX: (573) 751-2947
ninion.riley@labor.mo.gov
Attorney for the respondent,
Division of Employment Security
Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM
IN THE MISSOURI COURT OF APPEALS,
WESTERN DISTRICT
Page
TABLE OF CASES .........................................................................................
2
JURISDICTIONAL STATEMENT ................................................................
6
STATEMENT OF FACTS ..............................................................................
7
POINTS RELIED ON .....................................................................................
24
ARGUMENT ...................................................................................................
STANDARD OF REVIEW ..........................................................................
25
I. The workers were not independent contractors .........................................
31
II. The penalty was appropriate ....................................................................
52
CONCLUSION ................................................................................................
62
CERTIFICATE OF SERVICE ........................................................................
63
WORD COUNT AND VIRUS FREE .............................................................
63
Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM
TABLE OF CONTENTS
I. CASES:
Pages
A.J. Meyer & Co. v. Unemp. Comp. Com., 152 S.W.2d 184 (Mo. 1941) .......
60
Ayers v. Sylvia Thompson Residence Ctr., 211 S.W.3d 195 (Mo.App. 2007)
26
Beal v. Industrial Commission, 535 S.W.2d 450, 458 (Mo.App. 1975) .........
29
Burns v. Labor & Indus. Com’n, 845 S.W.2d 553 (Mo. banc 1993) ..............
25
Chandler v. Hemeyer, 49 S.W.3d 786 (Mo.App. 2001) ..................................
33
Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989) ............
36-37
D.E.S. v. Hatfield, 831 S.W.2d 216 (Mo.App. 1992) ......................................
36
D.E.S. v. Westerhold, 950 S.W.2d 618 (Mo.App. 1997) .................................
57, 60
E.P.M. Inc. v. Buckman, 300 S.W.3d 510 (Mo.App. 2009) .....................
26, 39
Ewing v. SSM Health Care, 265 S.W.3d 882 (Mo.App. 2008) ................
27
Fendler v. Hudson Services, 370 S.W.3d 585 (Mo. banc 2012) ..............
27
Forms World, Inc. v. L.I.R.C., 935 S.W.2d 680 (Mo.App. 1996) ............
56
Fritts v. Division of Employment Security, 992 S.W.2d 375 (Mo.App. 1999)
37
Gateway Taxi Management v. D.E.S., 461 S.W.3d 830 (Mo. banc 2015) ......
passim
Haggard v. Div. of Emp. Sec., 238 S.W.3d 151 (Mo. banc 2007) ..................
37, 39
Hampton v. Big Boy Steel Erection, 121 S.W.3d 220 (Mo. banc 2003) .........
26
Hanks v. L.I.R.C., 639 S.W.2d 252 (Mo.App. 1982) ......................................
61
Higgins v. Mo. D.E.S., 167 S.W.3d 275 (Mo.App. 2005) ...............................
58
K & D Auto Body, Inc. v. D.E.S, 171 S.W.3d 100 (Mo.App. 2005) ...............
passim
Keller v. Mo. Baptist Hospital of Sullivan, 800 S.W.2d 35 (Mo.App. 1990) ..
35
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Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM
TABLE OF CASES
39
Klausner v. Brockman, 58 S.W.3d 671, 676 (Mo.App. 2001) .......................
30
Merick Trucking, Inc. v. Mo. D.E.S., 902 S.W.2d 871 (Mo.App. 1995) .........
49
Mo. D.E.S. v. L.I.R.C., 651 S.W.2d 145 (Mo. banc 1983) ..............................
30
NLRB v. Associated Diamond Cabs, Inc., 702 F.2d 912 (11th Cir. 1983) .......
33
Nuttelman v. Vossberg, 753 F.2d 712 (8th Cir. 1985) ......................................
41
Panzau v. JDLB., Inc., 169 S.W.3d 122 (Mo.App. 2005) ...............................
27
Peck v. La Macchia Enterprises, 202 S.W.3d 77 (Mo.App. 2006) .................
27
Pulitzer Pub. Co. v. L.I.R.C., 596 S.W.2d 413 (Mo. banc 1980). ...................
25, 27
St. Charles County v. Hunter, 950 S.W.2d 593 (Mo.App. 1997) ....................
52
Seck v. Department of Transportation, 434 S.W.3d 74 (Mo. banc 2014) .......
27
The Bedford Falls Co. v. D.E.S., 998 S.W.2d 851 (Mo.App. 1999) ...............
26, 39
Travelers Equities Sales, Inc. v. D.E.S., 927 S.W.2d 912 (Mo.App. 1996) ....
33, 36, 41
United States v. Josephberg, 562 F.3d 478 (Second Cir. 2009) ......................
35
United States v. Silk, 331 U.S. 704 (1947) ......................................................
41, 42
Wimberly v. L.I.R.C. of Mo., 479 U.S. 511 (1987) ..........................................
36, 54
II. STATUTES:
Section 288.020 RSMo. ...................................................................................
28
Section 288.030.1(22)(b) RSMo. .....................................................................
29, 53
Section 288.034.5 RSMo. ................................................................................
6, 28, 53
Section 288.036.2 RSMo. ................................................................................
53
Section 288.038 RSMo. ...................................................................................
29, 53
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Kirksville Pub. Co. v. Div. of Emp. Sec., 950 S.W.2d 891 (Mo.App. 1997) ...
29
Section 288.090.1 RSMo. ................................................................................
53
Section 288.160.2 RSMo. ................................................................................
56
Section 288.160.5 RSMo. ................................................................................
57
Section 288.160.6 RSMo. ................................................................................
57, 60
Section 288.210 RSMo ....................................................................................
6-7, 25
Section 288.220.5 RSMo .................................................................................
55
III. OTHER CITATIONS:
8 CSR 10-4.030(1) ...........................................................................................
55
8 CSR 10-4.150(1) ...........................................................................................
31-32, 34
Revenue Rule 55-144, 1955-1 C.B. 483 ..........................................................
46
Revenue Rule 55-593, 1955-2 C.B. 610 ..........................................................
42
Revenue Rule 55-695, 1955-2 C.B. 410 ..........................................................
42
Revenue Rule 56-660, 1956-2 C.B. 693 ..........................................................
49
Revenue Rule 56-694, 1956-2 C.B. 694 ..........................................................
43, 44, 45
Revenue Rule 63-115, 1963-1 C.B. 178 ..........................................................
42
Revenue Rule 66-381, 1966-2 C.B. 449 ..........................................................
39
Revenue Rule 68-248, 1968-1 C.B. 431 ..........................................................
45
Revenue Rule 68-460, 1968-2 C.B. 449 ..........................................................
32
Revenue Rule 68-598, 1968-2 C.B. 464 ..........................................................
39
Revenue Rule 70-309, 1970-1 C.B. 199 ..........................................................
45, 48, 50
Revenue Rule 70-572, 1970-2 C.B. 221 ..........................................................
48
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Section 288.060.4 RSMo. ................................................................................
40
Revenue Rule 71-524, 1971-2 C.B. 346 ..........................................................
47
Revenue Rule 73-591, 1973-2 C.B. 337 ..........................................................
43
Revenue Rule 74-389, 1974-2 C.B. 330 ..........................................................
46
Revenue Rule 75-41, 1975-1 C.B. 323 ............................................................
49
Revenue Rule 87-41, 1987-1, C.B. 296. ..........................................................
32, 34, 35
26 CFR § 31.3121(d)-1(c) ...............................................................................
34
I.R.S. Publication 15-A ....................................................................................
35
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Revenue Rule 70-630, 1970-2 C.B. 229 ..........................................................
The primary issue before this Court is whether the Labor and Industrial Relations
Commission (“Commission”) could have reasonably found that certain workers
performed services in employment of Chaganti & Associates, P.C. (“Appellant”), i.e.,
Appellant did not satisfy its burden of showing that the workers were independent
contractors under Section 288.034.5 RSMo 2000. 1
This case is a consolidated appeal of two Commission decisions. The issue in the
second decision before this Court is whether the Commission erred in affirming the
imposition of a penalty because Appellant failed to file timely Contribution and Wage
Reports that listed the remuneration paid to its employees, after being granted an
additional 30 day grace period to correct the deficiencies.
In this brief, the administrative transcript will be cited as “Tr. __”, the legal file
will be cited as L.F. __” and Appellant’s Brief will be cited as “Br. __”. Unless stated to
the contrary, all statutory references hereinafter are to the Revised Statutes of Missouri
2000. The respondent, Division of Employment Security will be called “the Division”
and Dr. Surendra Chaganti, Appellant’s owner and president, will be called “Dr.
Chaganti”.
The Division agrees that this Court has jurisdiction over both matters. Section
288.210.
1
Unless otherwise stated, all references are to Missouri Revised Statutes, as amended.
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INTRODUCTORY STATEMENT
Respondent provides its own statement of facts pursuant to Rule 84.04(f).
Employment of disputed workers:
Appellant is a professional corporation of Dr. Chaganti, a psychiatrist, doing
business as a psychiatric medical practice (Tr. 30-31, 250-251, 1137). Appellant engaged
certain individuals, including those named in the determination, to perform personal
services for that practice as Dr. Chaganti’s staff. Appellant paid all of them for their
personal services. (Tr. 66-67, 259, 1049, 1301-1304, 1176-1181). As will be explained
below, Margaret Schroeder and Janet Yates performed office and clerical services, and
Janet Murdick and Carol Blacksher performed services as licensed nurse practitioners.
Margaret Schroeder (Schroeder) performed office management, administrative,
and support work for Appellant, including paying bills, billing, and maintaining the
medical records of Dr. Chaganti’s patients. (Tr. 30, 47-48, 52-60, 225-320, 347-375,
799-804, 807-872). Dr. Chaganti told Schroeder how to perform her services, often
orally, (Tr. 99, 138-139), and provided her with some training. (Tr. 52, 64-65, 78).
Schroeder was required to perform her services personally; she could not, and did not,
subcontract her own administrative services to anyone else. (Tr. 89). While her son and
daughter-in-law performed part-time payment posting services they were hired with the
approval of Dr. Chaganti, and they were paid by Appellant, not Schroeder. (Tr. 89,
94,222-230, 946-949, 999-1000).
Schroeder worked full-time for Appellant from well before January 1, 2010 until
the time of her separation in early 2012. (Tr. 29). Schroeder’s days and hours of work
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STATEMENT OF FACTS
the office area in her home dedicated to Appellant’s office functions. (Tr. 46, 77, 142144). Some of Schroeder’s services were also performed at Dr. Chaganti’s shared office
in a local hospital, where she would assist Dr. Chaganti with patient records and
incoming mail. (Tr. 153-154, 275-278, 282). Dr. Chaganti set the order in which
Schroeder performed her services. (Tr. 30). Schroeder was paid a regular salary for her
services weekly by way of a check drawn on Appellant. (Tr. 32-36). Schroeder incurred
some business expenses in connection with her services for the doctor. (Tr.134-146). She
used an unoccupied bedroom in her home as office space; and she furnished a desk and a
personal computer. Appellant provided Schroeder with a lot of equipment, chairs, filing
cabinets, a copier, fax machine, another computer, office supplies, cell phones and cell
phone service and medical software for Schroeder’s personal computer. 2 (Tr. 46, 77-78,
79-84, 157-161, 164). Schroeder testified as follows regarding the office in her home and
working in the doctor’s other offices:
A: Dr. Chaganti rented office space.
It was a timeshare at the Saint
Alexius, um, doctor's office. That was for, um, the psychiatry and
they--he was given specific dates, specific times.
Also, other
physicians of psychiatry were renting the same office space, sometimes
at the same time and the same days as he. There was no place--there
was no place for me to work because it was filled and Saint Alexius
2
When the work relationship ended Dr. Chaganti removed a truck load of equipment and
supplies, at which point Schroeder did not have the ability to work any further. (Tr. 46).
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were set by Dr. Chaganti. (Tr. 40-44). Some of Schroeder’s services were performed at
patients that were coming in and checking them out. He had an office
in Festus and that office was only utilized one day per week, which was
a Thursday. He also subleased an office in South County from another
physician and he saw patients there, maybe, between every Saturday to
every Sat--other Saturday and there was no place for me to work. So,
he set up a home office for me to be able to do the work that he needed
to be--have done. [Tr. 77-78].
* * *
A: Normally, my hours did not start at 8 a.m. I started anywhere from
6:30 in the morning to 7:00 in the morning and I worked continuously
until probably 6 o'clock each evening. My day would consist of, um,
getting, um, things prepared, uh, to meet with Dr. Chaganti. He had an
office rental, uh, at Saint Alexius Hospital. I met with him, um, three
days a week and I would have--uh, could be patient charts that needed
to be reviewed for refills. It could be that I had, um, bills for the
Corporation that needed to be signed. Um, I opened all of the mail and
I separated it into their, uh, areas of priority and sent a--and, met with
Dr. Chaganti for him to go over. And, then, after I met with him, I
followed his directions of how to handle those. [Tr. 47].
Q: Would--was there a set schedule on when you would meet with him or
was it just as needed?
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hired their own secretaries to be able to handle all of the physicians’
Fridays. There were times that those, uh, hours--I normally met with
him at 8 o'clock in the morning. Normal--some--there were a few
times that it changed; that he would call me that he was running behind
or he had a pat--a heavy patient load and asked me to come at 10 a.m.,
noontime or perhaps 2:00 in the afternoon.
Q: And, was there a set routine for what--what you would do on those
Mondays, Wednesdays and Fridays when you met with him?
A: I--yes. A lot of times opening up that mail they would be--um, mail
that pertained to a particular, um, patient that I would need
(unintelligible) to pull a patient's chart to have it reviewed to go over it
with Dr. Chaganti. It could be from a prescription to a disability
request or any other information that was needed. It could be a lab
that, uh, came in the mail that I had opened on, all of the mail that they
had given me, and I had to pull the patient's chart. I had to get it ready
and to go over those items with the doctor to review. [Tr. 48].
Schroeder had no other investment in her business (Tr. 88), and did not believe that she
could realize a loss performing her services for the appellant. (Tr. 97). While she worked
for the appellant, Schroeder did not perform similar services for other entities, and did not
hold herself out to the public as being available to do so. (Tr. 44). Either Schroeder or
the appellant could end the relationship at any time without incurring liability. (Tr. 4447).
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A: Normally, I met with Dr. Chaganti on Mondays, Wednesdays, and
Chaganti controlled how his staff performed services for his patients:
Q: Oh, you're fine. Thank you. Um, what did you do for Chaganti and
Associates? [Tr. 30]
A: I did a variety of job, uh, duties. My main job duties was office management,
administrative work, paying bills, um, corporate files, um, preparing patient
billing, patient medical records, scheduling, uh, and mail intake were my main
daily duties of mostly on day to day but it changed as each day had a different
priority at times.
Q: Uh, who set the priorities?
A: Dr. Chaganti.
* * *
Q: So, who arranged--who arranged that you carry, uh, two cell phones? One to
answer the--your personal--uh, one to answer Dr. Chaganti's calls and one to
answer the two business numbers. [Tr. 61].
A: Dr. Chaganti.
Q: Okay. And, who set up or who arranged for the two business numbers to be
directed to your phone?
A: Dr. Chaganti.
* * *
Q: Um, and, he--okay, your understanding is that he was hands on in terms of his
practice details.
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Following is testimony of Schroeder regarding her duties and whether Dr.
Q: Okay. As far as treating which patients should be treated, how--what
medications should be given to whom, etcetera. [Sic]
A: Yes.
Q: Okay.
A: And, he directed the nurse practitioners at all times, too. [Tr. 901].
Janet Yates (Yates) performed part-time services as an office assistant at Dr.
Chaganti’s Crystal City office. (Tr. 1047-1048). Yates typically worked from 8:00 a.m. to
4:30 p.m. Monday, Tuesday, Wednesday, and Friday (Tr. 1047) in the office Dr.
Chaganti and some other doctors rented from the hospital, but she was paid by the
hospital for those duties. (Tr. 1080-1081). Yates considered the hospital to be her “job”;
she has been there for 40 years. (Tr. 1046, 1080). The hospital treated Yates as an
employee, providing her with fringe benefits, like medical and life insurance. (Tr. 1082).
Yates was very busy answering the phones, checking patients in, checking patients out
for Dr. Chaganti and the other doctors at the shared hospital office. (Tr. 155). During
2010 and 2011, Yates also performed services one day per week in Dr. Chaganti’s
Crystal City office. (Tr. 1049). Dr. Chaganti set Yates’ hours of work on Thursday, (Tr.
1047), which were typically 9:00 a.m. to 2:00 or 3:00 p.m. (Tr. 1049). While in Dr.
Chaganti’s Crystal City office, Yates was responsible for scheduling patient
appointments, checking patients in, entering information in patient medical records (“face
sheets”), contacting patient insurance companies to verify insurance, answering the
telephone, and related duties. (Tr. 1054-1055, 1058-1060, 1091, 1100). Dr. Chaganti
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A: He knew exactly what was going on and he called the shots at all times.
services. (Tr. 1063-1065). Dr. Chaganti provided Yates with some on-the-job training.
(Tr. 1055, 1065-1067). Yates’ presence at the Crystal City location was necessary to the
doctor’s business. Yates was expected to perform her services personally; the possibility
of her subcontracting her services to another individual, or her hiring her own assistants,
was not contemplated. (Tr. 1070-1071, 1106-1107). Dr. Chaganti set the order in which
Yates performed her services; she had to work when the doctor’s patients were scheduled
to be there. (Tr. 1072-1074). Appellant paid Yates $15 per hour for her services by way
of a weekly check. (Tr. 259, 1049, 1053-1054). Yates incurred no significant expenses
for tools, materials, or other items, and had no investment in her own facilities and
equipment. (Tr. 1060-1061, 1075-1078). Yates could not realize a loss performing her
services for Appellant. (Tr. 1078-1079). Yates did not make her services available to the
general public. (Tr. 1078). Either Yates or Appellant could end the relationship at any
time without incurring liability. (Tr. 1080-1082).
Carol Blacksher and Janet Murdick performed services as nurse practitioners for
Appellant. (Tr. 1273). Under state law at the time, to perform their professional services
nurse practitioners were required to be a party to “collaborative agreement” with a
physician (in this case Dr. Chaganti), (Tr. 1136-1137, 1139-1140, 1204-1205), and
Blacksher and Murdick had such agreements with Dr. Chaganti and Appellant. (Tr.
1273, 1322-1333). 3
3
The agreement was signed twice by Dr. Chaganti, once as the collaborating physician
and once as “President Employer.” (Tr. 1724).
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could, and sometimes did, provide specific instructions to Yates as to how to perform her
delegate to the nurse practitioner the authority to deliver specified health care services
and treatments and to administer, dispense and prescribe certain drugs under specific
conditions and subject to his supervision. (Tr. 1135-1128, 1267). Under the
collaborative practice agreement, there were geographic limits (Tr. 1325-1327) on the
locations at which the nurse practitioner could perform services, (Tr. 1221-1222), the
physician had to be immediately available at all times for consultation with the nurse
practitioner either in person or by telecommunication, (Tr. 1274), and the physician had
to review (and document the review of) the records of the nurse practitioner’s services at
least once every two weeks and had to be present with the nurse practitioner at least once
every two weeks for a sufficient period of time to provide “necessary medical direction,
medical services, consultations, and supervision of the health care staff.” (Tr. 104 & Tr.
1720). The nurse practitioner was prohibited from delegating these duties, except for
communicating prescriptions to a pharmacist. (Tr. 1720).
Blacksher and Murdick performed services as psychiatric nurse practitioners for
Dr. Chaganti’s patients. (Tr. 1253, 1275-1278, 1334-1335). They did psychiatric
evaluations, diagnosed related conditions, prescribed certain kinds of medications,
developed care plans, and kept medical records of their activities on forms provided
Appellant. (Tr. 1161-1169, 1267). They performed some services at Dr. Chaganti’s
hospital office, and performed some services at other locations, including hospitals,
nursing homes and residential care facilities, where Dr. Chaganti’s patients resided. (Tr.
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The stated purpose of the collaborative practice agreement was for Dr. Chaganti to
their choosing.
Dr. Chaganti provided the nurse practitioners with instructions and training by use
of forms, memos, phone calls, written instructions, and revised practice forms. (Tr. 11451151, 1161, 1255, 1278, 1290-1292, 1298,). Blacksher had a thirty-day on-the-job
training period at the beginning of the relationship with Dr. Chaganti, where she observed
him. (Tr. 1150-1151). The nurse practitioners were required to perform their services
personally. (Tr. 1170-1171, 1293). The nurse practitioners did not hire, supervise, or pay
their own assistants, and the agreement prohibited it. (Tr. 1171-1172, 1293-1294, 1720).
The working relationship between the nurse practitioners and Appellant was continuing,
with Blacksher working full-time for Appellant. (Tr. 1172). Murdick worked full-time
for another doctor (Dr. Co, d/b/a Advanced Psychiatric Services) (Tr. 1315-1316) and
part-time for Dr. Chaganti. (Tr. 1284-1288, 1318). Murdick testified that Advanced
Psychiatric Services was her “main place of employment.” (Tr. 1309). She worked fulltime for Dr. Co under a collaborative agreement. (Tr. 1315). Murdick “used to do things
on a routine basis for Dr. Chaganti”, but decreased the amount of work because of some
personal health issues. (Tr. 1275). Blacksher’s office hours were set by Dr. Chaganti,
and she set her own appointment sequence when she visited Dr. Chaganti’s patients in
nursing homes and hospitals. (Tr. 1153-1157). Murdick went into the office only a few
days each year (Tr. 1298-1300) and other times set her own hours when treating Dr.
Chaganti’s patients in the nursing homes. (Tr. 1295-1297). Both nurse practitioners
performed some services at Dr. Chaganti’s office, and Blacksher each week. (Tr.1175-15-
Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM
1142-1145, 1274). There was no evidence that they performed services at locations of
order of services. When they visited the doctor’s patients elsewhere, they were allowed
to schedule the patient visits. (Tr. 1153-1157, 1300). Nurse practitioners are required to
keep accurate records of their activities for the doctor’s review, and are required to
submit information regarding patient billing codes to the doctor. (Tr. 1152-1153).
Murdick was paid 50% of the revenue billed and collected by Appellant for her services.
(Tr. 1301-1304) If Appellant was not paid for Murdick’s services, Murdick was not paid,
although this was unusual. Blacksher was paid 65% of the amount billed for her services,
whether Appellant received payment or not. (Tr. 1176-1181). Both nurse practitioners
bore their own transportation expense to the office or patients (Tr. 1187-1190); and bore
the expenses of professional licensure, continuing education and malpractice insurance.
(Tr. 1183, 1190-1192, 1307-1311). Neither nurse practitioner furnished any tools or
materials, or had any investment in facilities and equipment. (Tr. 1192, 1193, 1313).
Neither nurse practitioner believed that she could realize a loss in performing her services
for Appellant. (Tr. 1193, 1313-1315). While working for Appellant, Blacksher did not
perform similar services for other entities, (Tr. 1194-1195), but Murdick worked full-time
for Dr. Co. (Tr. 1315-1317). Neither nurse practitioner made her services available to
general public. (Tr. 1195-1196). They could not do so because they were required to be
in a collaborative agreement with a physician in order to practice their profession. (Tr.
1317-1318). Under the collaborative agreement, either Appellant or the nurse
practitioner could end the relationship with 90 days written notice. (Tr. 1197-1200, 13181320).
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Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM
1176). When the nurse practitioners worked in Dr. Chaganti’s office, Appellant set the
those of Blacksher. (Tr. 1266-1267). Blacksher testified that if she thought a patient’s
medication should be changed, she would ask Dr. Chaganti for permission, and then do
as instructed by him. (Tr. 1204). “He's the physician. I am the nurse practitioner.” Id.
The following testimony of Blacksher then transpired [still at Tr. 1204]:
Q: But what--what I’m trying to get it is does he--does Mr. Chaganti have the
ultimate authority when it comes to prescribing?
A: Yes.
Q: Okay. Uh, you know and--and in terms of other treatment does Dr. Chaganti
have the ultimate authority in how these patients are being treated?
A: You know that’s—it’s really, uh, uh, a blurry line, okay. Because ultimately
they are his patients, okay, so, yes. He has the ability to change anything that
I write.
Administrative actions:
The Division determined that Schroeder, Yates, Murdick and Blacksher performed
services in employment of Appellant and received wages from Appellant. (L.F. 01).
Appellant appealed the determination. (L.F. 2-4). After a hearing, the referee issued a
decision affirming the Division determination. (L.F. 3-8). The referee’s decision made
significant factual findings and declared the disputed workers to be Appellant’s
employees. (L.F. 3-8). The referee stated the following:
Some factors suggest that the appellant had the right to control the
named individuals, and some do not. The Appeals Tribunal has considered
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Murdick testified that there was no substantial difference between her duties and
balance, that the appellant did not have the right to control the individuals.
The appellant has not sustained its burden of establishing that it did not
have the right to control the individuals under the common law of agency
test, and so has not established that the individuals performed services as
independent contractors.
(L.F. 17).
Appellant appealed to the Commission. (L.F. 19-22). The Commission’s decision
affirmed and adopted the referee’s decision, with some significant additions. (L.F. 2325). The Commission castigated Appellant’s attorney, stating the following:
We note that the transcript created at the hearing before the Appeals
Tribunal is unusually voluminous for an appeal of this nature. This, for the
most part, was the product of the conduct of Naren Chaganti, who acted as
attorney for [appellant] at the hearing.
Specifically, Mr. Chaganti
conducted a cross-examination of the office manager, Margaret Schroeder,
that spanned an entire day and a half of proceedings.
This cross-
examination was remarkable not only for the duration but also for Mr.
Chaganti’s rancorous tone and tortuous digressions into matters wholly
irrelevant to these proceedings.
(L.F. 24).
The Commission then issued a credibility finding, noted the absence of Dr.
Chaganti and made critical factual findings:
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all applicable common law factors, and in this case is not persuaded, on
herculean patience in the face of Mr. Chaganti’s conduct at the hearing, as
well as to make explicit our finding that Ms. Schroeder’s testimony in this
matter is credible despite some minute inconsistencies generated as the
inevitable byproduct of the exhaustive examination she endured. Whatever
Mr. Chaganti’s intention in conducting himself as he did with regard to Ms.
Schroeder, he ultimately created a record thereby that overwhelmingly
compels a finding that appellant not only retained the right to control the
manner and means whereby Mr. Schroder accomplished her work, but also
continually exercised that right. We are convinced that Ms. Schroeder was,
without question, an employee. We also credit the testimony from the clerk
Janet Yates (and so find) that appellant both retained and regularly
exercised the authority to change the methods whereby she accomplished
her work; we conclude Ms. Yates was also an employee.
* * *
Remarkably, though, appellant failed to present any testimony in this
matter. Particularly relevant might have been testimony from Dr.
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We write both to commend the Appeals Tribunal referee for this
As a result of appellant’s failure to present such testimony, the record is
bereft of evidence to establish Dr. Chaganti’s views as to whether he sought
to retain the right to control the manner and means whereby the nurse
practitioners performed their services.
While it does appear from their own testimony that certain of the
indices of control (e.g. factors 2, 10, 12, 13, and 14) would favor a
determination that Ms. Murdick and Ms. Blacksher were independent
contractors, both of these witnesses ultimately agreed that if there were any
disagreement between themselves and Dr. Chaganti with regard to the
manner and means of their providing healthcare services to appellant’s
clients, they were required to defer to Dr. Chaganti’s authority. As the case
law makes clear, it is the right to control that is determinative, even if that
right is infrequently exercised: “it is not necessary that the employer
actually direct and control the manner in which services are performed; it is
sufficient if he [or she] has the right do so.” Higgins v. Mo. Div. of Empl.
Sec., 167 S.W.3d 275, 287 (Mo. App. 2005). Given this testimony from
4
Appellant did provide an affidavit from Dr. Chaganti, and the Appeals Tribunal
admitted it into evidence for the purpose of completing the record, but we (like the
referee) deem this document wholly unpersuasive and lacking any probative value where
appellant failed to present Dr. Chaganti as a live witness subject to cross-examination by
the Division. (L.F. 24).
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Surendra Chaganti, the physician who supervised the nurse practitioners. 4
contrary evidence from appellant, we must conclude that appellant has
failed to meet its burden of proof.
(L.F. 24-25).
Appellant appealed the Commission’s employment decision to this Court. (L.F.
30-36).
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Ms. Murdick and Ms. Blacksher, and in the absence of any credible
With one exception, Appellant filed quarterly Contribution and Wage Reports for
2010 and 2011 listing remuneration paid only to Schroeder. 5 (Tr. 1855-1862). The one
exception is that the Contribution and Wage Report for the fourth quarter of 2010 also
listed remuneration paid to Dr. Chaganti. (Tr. 1859). Appellant filed quarterly
Contribution and Wage Reports for 2012 listing no employees and no remuneration. (Tr.
1487, 1851-1854).
In its employment determination, the Division informed Appellant that it must
supplement its prior Contribution and Wage Reports for 2010 through 2012 [because the
original reports failed to list employees (the disputed workers) and their remuneration].
(L.F. 01, Tr. 1486). The determination waived the penalty if the supplemental reports
were filed within 30 days of March 15, 2013. (L.F. 01). A Division representative told
Appellant’s attorney that the original reports must be supplemented, even if there was an
appeal pending. (Tr. 1463). The Division assured the attorney that the supplemental
reports could be filed, without prejudice. (Tr. 1424). The reports were not filed within
the thirty day grace period. (Tr. 1491). The information was provided to the Division in
October of 2013. (Tr. 1429). When Appellant failed to correct the original reports within
the grace period, the Division issued an assessment against Appellant, which imposed a
penalty for failing to report all of its employees on its quarterly Contribution and Wage
Reports. (L.F. 26, Tr. 1912).
5
The reports were filed by Appellant’s office manager, Schroeder. (Tr. 1855-1862).
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Contribution and Wage Reports:
Tribunal affirmed the assessment. (L.F. 30-33). Appellant appealed to the Commission.
(L.F. 34-37). The Commission affirmed and adopted the Tribunal’s decision. (L.F. 38).
Appellant filed a consolidated appeal to this Court. (L.F. 39-45).
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Appellant filed an appeal to the penalty assessment. (L.F. 27-29). The Appeals
I.
The Commission did not err in finding that the workers were employees, and
not independent contractors, because the Commission’s findings are supported by
competent and substantial evidence in the record, in that Appellant retained the
“right to control” the performance of the workers and exercised the right when
needed. [This corresponds to Appellant’s Points I-IV].
Gateway Taxi Management v. Div. of Emp. Sec., 461 S.W.3d 830, 833 (Mo. banc 2015);
8 CSR 10-4.150;
Section 288.034.5 RSMo.
II.
The Commission did not err in affirming imposition of the non-filing penalty
because Appellant’s Contribution and Wage Reports were deficient in that
Appellant omitted employees who should have been on the reports, and failed to
correct the reports within the 30 day grace period granted by the Division. [This
corresponds to Appellant’s Points V, VI, VI and VII].
8 CSR 10-4.030(1);
Subsection 288.160.2 RSMo;
Forms World, Inc. v. L.I.R.C., 935 S.W.2d 680 (Mo.App. W.D. 1996).
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Points Relied On
Standard of Review
This applies to both Points of this Brief.
In its Standard of Review, Appellant omits any mention of the standard to be used
for the Commission’s witness credibility findings and who has the burden of proof.
Appellant is really asking this Court to disregard the Commission’s credibility finding
regarding Ms. Schroeder, disregard all favorable evidence, disregard all favorable
inferences and disregard all favorable factual findings that are supported by the evidence.
Appellant would have this Court view the evidence in Appellant’s favor. This is contrary
to the standard of review under Chapter 288.
The Court of Appeals may reverse, remand, or set aside the Commission’s
decision in an unemployment matter only where the Commission acted without or in
excess of its powers, the decision was procured by fraud, the decision is not supported by
the facts, or the decision is not supported by “sufficient competent evidence in the
record[.]” Section 288.210, RSMo.
It is the function of the reviewing court to decide whether the Commission
reasonably could have made its findings and drawn its conclusions. Burns v. Labor &
Industrial Relations Commission, 845 S.W.2d 553 (Mo. banc 1993). “If evidence before
the administrative body would warrant either of two opposed findings, the reviewing
court is bound by the administrative determination, and it is irrelevant that there is
supportive evidence for the contrary finding.” Pulitzer Pub. Co. v. Labor & Indus.
Relations Com’n, 596 S.W.2d 413, 417 (Mo. banc 1980). The court must determine
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Argument
evidence to support the award.” Hampton v. Big Boy Steel Erection, 121 S.W.3d 220, 223
(Mo. banc 2003).
Unless there is fraud, the Commission’s findings of fact are conclusive if
supported by substantial and competent evidence. An appellate court is not bound by the
Commission’s findings on questions of law; the court reviews questions of law
independently. Ayers v. Sylvia Thompson Residence Ctr., 211 S.W.3d 195, 198 (Mo.App.
2007).
Whether a worker is an employee or an independent contractor is a finding of fact,
on which an appellate court defers to the Commission’s determination, if supported by
competent and substantial evidence. E.P.M., Inc. v. Buckman, 300 S.W.3d 510, 513
(Mo.App. W.D. 2009). Without citation, Appellant incorrectly asserts that this is a legal
conclusion to be reviewed without deference. (Br. 16).
“Once it is shown that an individual receives remuneration, the presumption of an
employer-employee relationship is established. The burden of proof shifts to the
employer to show that, under the common law right to control test, the worker is an
independent contractor. “Concomitant with the burden of proof is the risk of
nonpersuasion.”’ [Citations omitted]. The Bedford Falls Co. v. Division of Employment
Security, 998 S.W.2d 851, 856 (Mo.App. W.D. 1999); Gateway Taxi Management v.
Division of Employment Security, 461 S.W.3d 830, 833 (Mo. banc 2015).
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“whether, considering the whole record, there is sufficient competent and substantial
The Commission found Ms. Schroeder’s testimony credible, despite minute
inconsistencies generated by an exhaustive examination. (L.F. 24). While admitting that
the Commission believed Schroeder’s testimony (Br. 3), Appellant attacks her credibility
in its brief. It calls her testimony “fantastic” (Br. 2), “contradicted” (Br. 3, 23), and
“patently false”. (Br. 24). Appellant is really asking this Court to disregarding
Schroeder’s testimony, in favor of contradictory evidence. As will be explained below,
however, this Court should adopt Schroeder’s testimony and disregard all contradictory
evidence.
A court does not “reweigh the evidence; the Commission judges the weight to be
given to conflicting evidence and the credibility of witnesses.” Panzau v. JDLB., Inc.,
169 S.W.3d 122, 126 (Mo.App. E.D. 2005). A court “defers to the Commission on issues
involving the credibility of witnesses and the weight given to testimony.” Fendler v.
Hudson Services, 370 S.W.3d 585, 588 (Mo. banc 2012); see also, Seck v. Department of
Transportation, 434 S.W.3d 74, 79 (Mo. banc 2014). If evidence before the
administrative body would warrant either of two opposed findings, the reviewing court is
bound by the administrative determination, and it is irrelevant that there is supportive
evidence for the contrary finding. Pulitzer Pub. Co. v. Labor & Indus. Relations Com’n,
596 S.W.2d 413 (Mo. banc 1980); Peck v. La Macchia Enterprises, 202 S.W.3d 77, 82
(Mo.App. W.D. 2006); Ewing v. SSM Health Care, 265 S.W.3d 882 (Mo.App. E.D.
2008).
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Credibility findings:
Appellant is asserting that the workers should be denied unemployment coverage
because Appellant satisfied its burden to show that they are independent contractors,
exclusion within § 288.034.5. Because of the nature of the Missouri Employment
Security Law, this statute should be strictly construed against the exclusion of workers.
Section 288.020 states as follows:
Public policy declared-construction of law. -- 1. As a guide to the
interpretation and application of this law, the public policy of this state is
declared to be as follows: Economic insecurity due to unemployment is a
serious menace to health, morals, and welfare of the people of this state
resulting in a public calamity. The legislature, therefore, declares that in its
considered judgment the public good and the general welfare of the citizens
of this state require the enactment of this measure, under the police powers of
the state, for compulsory setting aside of unemployment reserves to be used
for the benefit of persons unemployed through no fault of their own.
2. This law shall be liberally construed to accomplish its purpose to
promote employment security both by increasing opportunities for jobs
through the maintenance of a system of public employment offices and by
providing for the payment of compensation to individuals in respect to their
unemployment.
People do not receive unemployment benefits just because they are unemployed.
Whether a person is eligible for unemployment benefits, and the amount of those
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Interpretation of Employment Security statutes:
unemployment. An “insured worker” is one who has been paid “wages for insured work,
of at least $1,500 in a calendar quarter and one and one-half times that amount during the
base period year. Section 288.030.1(22)(b). The amount of the person’s weekly benefit
amount and the person’s maximum benefit amount is also based upon his “wages in
insured work.” Sections 288.038 & 288.060.4. So, if these workers are not in Appellant’s
employ for Employment Security Law purposes because they are “independent
contractors”, they cannot receive unemployment benefits because they are not an
“insured worker” in that they did not earn “wages for insured work.” Appellant is
asserting that Dr. Chaganti has a medical practice wherein his nurses and office staff
cannot receive unemployment benefits. As will be explained below, this Court should
strictly construe the law against Appellant when reviewing this case.
The court stated the following in Beal v. Industrial Commission, 535 S.W.2d 450,
458 (Mo.App. W.D. 1975): 6
… [T]he general purpose of the Employment Security Law is to provide for
the compulsory setting aside of unemployment reserves for the benefit of
persons unemployed through no fault of their own, and that the Act is to be
liberally construed. O’Dell v. Division of Employment Security, 376 S.W.2d
137, 141-142(2,3) (Mo.1964). Thus, it appears that the taxing provisions of
the Act are incidental to its paramount and remedial purpose of relief, and a
6
This case was subsequently overruled on another issue.
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benefits, depends upon the amount of “wages” he earned “in insured work” prior to his
that purpose.
See also, Klausner v. Brockman, 58 S.W.3d 671, 676 (Mo.App. W.D. 2001).
Disqualifying provisions of the unemployment compensation law are to be
construed against the disallowance of benefits to unemployed but available workers. See,
Mo. Div. of Employment Sec. v. Labor & Indus. Relations Comm’n, 651 S.W.2d 145, 148
(Mo. banc 1983).
These are difficult economic times for the citizens of Missouri. It is more
important than ever for the courts to broadly construe the term “employee” and narrowly
construe the term “independent contractor.”
“The standard of review does not instruct this Court to reweigh the factors but,
rather, determine whether there was substantial evidence to support the LIRC’s decision.”
Gateway Taxi Management, 461 S.W.3d 835. In Gateway, the Missouri Supreme Court
affirmed the Commission’s employment decision, when the Court of Appeals had
previously reversed the Commission because it disagreed on a number of the factors. As
will be explained below, the Commission’s factors in this matter are supported by
substantial evidence.
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liberal construction of ‘employer’ and ‘employment’ is warranted to secure
The Commission did not err in finding that the workers were employees, and
not independent contractors, because the Commission’s findings are supported by
competent and substantial evidence in the record, in that Appellant retained the
“right to control” the performance of the workers and exercised the right when
needed. [This corresponds to Appellant’s Points I-IV].
Section 288.034.5, RSMo, provides the following statutory test for determining
whether an individual is an independent contractor under the Employment Security Law:
Service performed by an individual for remuneration shall be deemed to be
employment subject to this law unless it is shown to the satisfaction of the division
that such services were performed by an independent contractor. In determining
the existence of the independent contractor relationship, the common law of
agency right to control shall be applied. The common law of agency right to
control test shall include but not be limited to: if the alleged employer retains the
right to control the manner and means by which the results are to be accomplished,
the individual who performs the service is an employee. If only the results are
controlled, the individual performing the service is an independent contractor.
[Emphasis added].
In order to avoid confusion regarding the many different tests regarding the
common law right to control test, the Division adopted a regulation. 8 CSR 10-4.150,
which states as follows:
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POINT I.
1989, the division shall apply the common law rules applicable in
determining the employer-employee relationship under 26 U.S.C., Section
3306(i). In applying the provisions of 26 U.S.C., Section 3306(i) the
division shall consider the case law, Internal Revenue Service regulations
and Internal Revenue Service letter rulings interpreting and applying that
subsection.
Since 1989, the independent contractor test that must be satisfied to exclude
workers from Missouri unemployment coverage is the common law right to control test.
The problem within all such controversies is that a person can become distracted by the
employer’s broad self-serving statements, such as “I don’t tell them what to do”, and
corroborating statements by the current workers who want to retain their jobs. To brunt
this misdirection, governmental agencies and courts have established methods to focus
the reviewer’s attention on a number of evidentiary facts which tend to reflect whether
the business or the worker reserved the right to control the manner and means of
performing the services, when desired.
It is the right to control, not the exercise of control:
The true test is whether the employer reserved the right to control the worker, not
whether the employer exercised the right of control. Revenue Ruling 68-460, 1968-2 C.B.
449; Revenue Ruling 87-41, 1987-1 C.B. 296.
Appellant asserts that Dr. Chaganti’s control over the nurses must be “pervasive”
in order for them to be employees. Appellant cites to language within K & D Auto Body,
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In order to interpret section 288.034.5, RSMo, effective June 30,
compliance with government regulations do not evidence control unless pervasive control
by the employer exceeds to a significant degree the scope of the government imposed
control.” 171 S.W.2d 106. (Br. 39). This language came from a National Labor and
Industrial Relations case, which cited only federal labor law cases for this proposition.
NLRB v. Associated Diamond Cabs, Inc., 702 F.2d 912, 922 (11th Cir. 1983). As
discussed below, this Court should decline to adopt federal case law outside the tax area.
The “pervasive control” language was sited with approval by the appellate court in
Gateway Taxi Management v. Division of Employment Security, Case No. WD76886
(July 29, 2014); the court found the taxi drivers to be independent contractors primarily
upon this premise and discounted many factors because of the Metropolitan Taxicab
Commission Vehicle for Hire Code (VHC). The issue of a business requiring its workers
to comply with governmental rules was one of the three issues raised in the Division’s
Application For Transfer filed with the Missouri Supreme Court in Gateway Taxi. 7 The
Application discussed the ultimate impact of Travelers Equities. (Pg. 6-7). The Missouri
Supreme Court accepted jurisdiction. Near the beginning of the decision, the Supreme
Court acknowledged that the business and the drivers were subject to the VHC. 461
S.W.3d 831-832. That was the last time the court mentioned the VHC. The court did not
adopt or apply the Travelers Equities, K & D Auto Body language when the court found
the drivers to employees. The Supreme Court upheld factors found by the Commission
7
Courts are permitted to take judicial notice of their own records in other proceedings.
Chandler v. Hemeyer, 49 S.W.3d 786, 791 (Mo.App. W.D. 2001).
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Inc. v. D.E.S, 171 S.W.3d 100 (Mo.App. 2005) that “reasonable efforts to insure
461 S.W.3d 835.
When a business tells a worker to “do it this way or you are fired” it should be
irrelevant why the business wants it done that way, the owner’s personal choice, to satisfy
a customer or to satisfy a regulatory agency. Regardless, the worker is complying
because the business is demanding it.
Therefore, the Division requests this Court discontinue use of the NLRB
“pervasive control” approach when applying the 20 factor test.
This is a 20 factor test, not a 22 factor test:
As an aid in determining whether the common law agency right to control test is
satisfied, the Division follows Internal Revenue Service (I.R.S.) guidance and case law
relating to 26 U.S.C., Section 3306(i), which defines “employee” for federal
unemployment taxes. 8 CSR 10-4.150(1). This guidance includes the 20 factor method
of review established by the Internal Revenue Service (“I.R.S.”) in 26 CFR § 31.3121(d)1(c) and Revenue Rule 87-41. See, Gateway Taxi, 461 S.W.3d at 834.
Respondent’s computer research failed to find any negative federal history
concerning this revenue ruling. It appears that the I.R.S. has not distinguished, limited or
withdrawn Revenue Rule 87-41. If the I.R.S. had abandoned the 20 factor approach, or
additional factors have been added by federal courts, the I.R.S. would not have left
Revenue Rule 87-41 intact.
Federal courts are still using the 20 factor approach and have rejected the
argument that the approach has been modified in some fashion by the I.R.S. in
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that were rejected by the Court of Appeals because of the need for “pervasive control”.
resolving “independent contractor” issues for tax matters. In United States v.
Josephberg, 562 F.3d 478 (Second Cir. 2009), the U.S. Court of Appeals stated the
following at 498-499.
IRS publications, though “aimed at explaining existing tax law to
taxpayers,” do not have the force of law. Taylor v. United States, 57 F.Cl.
264, 266 (2003. “The authoritative sources of Federal tax law are the
statutes, regulations, and judicial decisions; they do not include informal
IRS publications.” Miller v. CIR, 11 T.C. 184, 195, 2000 WL 309121 (U.S.
Tax Ct. 2000).
The Code itself defines “employee” to include “any individual who,
under the usual common law rules applicable in determining the employeremployee relationship, has the status of an employee.” 26U.S.C.§ 3121(d).
IRS regulations provide detailed guidance for determining whether a person
providing services to an individual is an employee of that individual rather
than an independent contractor, see 26 C.F.R. § 31.3121(d)-1 (“Who are
employees”); id. § 31.3121(d)–2 (“Who are employers”), and official IRS
interpretations set out 20 factors to be considered in making that
determination, see IRS Rev. Rul. 87-41; 26 C.F.R. §§ 31.3306(i)-1,
31.3401(c)-1.
There are many other variations of the common law test for Missouri and federal
purposes. The variations have similarities and differences. See for example, Keller v.
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Publication 15-A. Also, federal courts do not look outside the tax area of case law when
wrongful death medical case). The Division’s regulation specifically adopted only
federal Internal Revenue Service tax law to avoid confusion, since the Missouri
unemployment laws are part of a federal-state program funded by federal money
collected under the Federal Unemployment Tax Act. Wimberly v. Labor and Industrial
Relations Commission of Missouri, 479 U.S. 511 (1987). The Division’s regulation does
not adopt case law from other Missouri areas of concern, like Workers’ Compensation
law. The regulation also does not adopt case law relating to other federal areas of
concern, like copy right laws, labor laws, or the Employee Retirement Income Security
Act (ERISA). I.R.S. and federal tax cases do not have any additional factors.
The Missouri Court of Appeals deviated from this path in some decisions, but the
Missouri Supreme Court has not. In Division of Employment Security v. Hatfield, 831
S.W.2d 216, 218-219 (Mo.App. W.D. 1992), the court correctly found that 26 U.S.C.,
Section 3306(i) adopts the common law definition of employee elsewhere in the tax laws,
26 U.S.C., Section 3121(d)(2). Unfortunately, the court then cited a decision involving
federal copy right litigation, instead of cases involving federal tax laws, Community for
Creative Non-Violence v. Reid, 490 U.S. 730, 751-752 (1989). The Hatfield court did not
mention or use the Internal Revenue Service 20 factor test. Id. In Travelers Equities
Sales, Inc. v. Division of Employment Security, 927 S.W.2d 912 (Mo.App. W.D. 1996)
the court mentions that Reid listed 12 factors, the Restatement contains a 10 factor list,
and the Internal Revenue Service set forth a 20 factor test. 927 S.W.2d 921. The court
then stated the following:
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Missouri Baptist Hospital of Sullivan, 800 S.W.2d 35, 38 (Mo.App. E.D. 1990)(Missouri
the IRS. Therefore, we will also review the 20 factors in order.
927 S.W.2d 921. It should be noted that the Division focuses only on the 20 factor test,
to the exclusion of other State and Federal common law tests, or blends of them.
Reid was later cited in Missouri unemployment cases to support the addition of
two more factors (employee benefits and employer’s tax treatment). Fritts v. Williams
and Division of Employment Security, 992 S.W.2d 375, 385 (Mo.App. S.D. 1999). In K
& D Auto Body, Inc. v. Division of Employment Security, 171 S.W.3d 100, 105 (Mo.App.
2005), the court stated that the Division and the Internal Revenue Service considers 20
factors to determine whether sufficient control is present for a worker to be an employee.
However, the K & D Auto Body court then added the two additional factors at the end of
the decision. 171 S.W.3d 112.
The Missouri Supreme Court has never added these additional factors when
addressing this issue. In Haggard v. Div. of Emp. Sec., 238 S.W.3d 151 (Mo. banc 2007),
the Commission found that workers were Ms. Haggard’s employees, after applying the
20 factor test. 238 S.W.3d 153. . In Haggard, the Court of Appeals set aside the
Commission’s decision as void because the Division was represented at the hearing by a
non-lawyer and the Missouri Supreme Court accepted jurisdiction. The Supreme Court
found that the Division’s representation was inappropriate but affirmed the Commission’s
employment decision because it was not in error. 238 S.W.3d 152, 157. The Supreme
Court declared that the Division “considers 20 factors derived from federal law”, citing to
page 105 of K & D Auto Body. 238 S.W.3d 156. Immediately after citing K & D Auto
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The Division has chosen to focus primarily on the 20 factors designated by
Court did not add the two additional factors or cite to page 156 of K & D Auto, where the
appellate court added them.
In Gateway Taxi Management, Case No. WD76886 (July 29, 2014), the Court of
Appeals used the 20 factor test with the two additional factors identified in K & D Auto to
reverse the Commission’s decision that taxi cab drivers were Gateway’s employees. The
Missouri Supreme Court accepted jurisdiction. The Supreme Court listed the Division’s
regulation, listed the 20 factors and then stated the following: “This court has approved
consideration of these 20 factors to assist in distinguishing whether an entity is an
employer or independent contractor.” 461 S.W.3d at 834 (citing Haggard). The Gateway
Taxi court did not mention two additional factors. The Gateway Taxi court affirmed the
Commission’s employment decision.
The Missouri Supreme Court has twice affirmed use of the Internal Revenue
Service 20 factor method in these matters, to the exclusion of all other common law tests,
or the blending of them. Respondent, therefore, requests this Court approve of the 20
factor test from federal tax law and discontinue the use of additional factors taken from
other federal or state common law tests.
Application of the twenty factor test:
The twenty factors are not intended to serve as a bright-line rule with
no flexibility, but rather are indices of control.… Not every factor is
applicable in every situation, and each case is decided on the basis of its
own facts.
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Body as “see”, the Supreme Court listed the 20 factors in footnote 7. Id. The Supreme
clearly in favor of either employment or independent contractor status may be treated as
neutral.
The decision “does not rest on a numerical count of the factors favoring employee
or independent contractor status[.]” E.P.M., 300 S.W.3d at 515. There is no “magic
formula” for determining how many or which factors must be in favor of an employment
relationship in order to find that the worker is an employee. Haggard, 238 S.W.3d at 157.
The “bedrock” consideration is “the right to control the manner and means of
performance.” The Bedford Falls Co., 998 S.W.2d 858.
The Commission found that the office staff and the nurses to be employees based
upon the 20 factors. “The standard of review does not instruct this Court to reweigh the
factors but, rather, determine whether there was substantial evidence to support the
LIRC’s decision.” Gateway Taxi Management, 461 S.W.3d 835. Following are the
Commission’s 20 factors, and the substantial evidence to support them.
Factor 1 - Instruction
If the business has the right to require the worker to follow its instructions, it has
control over the work, which indicates an employer/employee relationship. Rev. Rul. 68598, 1968-2 C.B. 464; Rev. Rul. 66-381, 1966-2 C.B. 449.
“With respect to the
‘instructions’ factor, the right to control is manifested in control over the ‘when, where,
and how’ work is completed.” Kirksville Pub. Co. v. Div. of Emp. Sec., 950 S.W.2d 891,
897 (Mo.App., W.D. 1997).
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K & D Auto Body, 171 S.W.3d 106. A factor that does not apply or that does not weigh
detailed instructions about the performance of their services. (Tr. 41). Elements of
supervision were actually written into the collaborative practice agreement between the
nurse practitioners and the appellant. (Tr. 1225, Collaborative Agreement: D-1 p 104 or
Tr. 1720).) The Commission correctly found that for all the named individuals, this
factor suggests employment.
Factor 2 – Training
Training of a worker by requiring an experienced employee to work with the
worker, by corresponding with the worker, by requiring the worker to attend meetings or
by using other methods, indicates that the person for whom the services are performed
wants the services performed in a particular method or manner, and thus indicates
employment. Rev. Rul. 70-630, 1970-2 C.B. 229. An independent contractor ordinarily
uses his own methods and receives no training from the purchaser of the services.
Appellant provided a period of training for Blacksher by having her observe Dr.
Chaganti’s treatment of his patients. (Tr. 1150-1151). Dr. Chaganti also provided some
training for the others, as well in the form of revisions and memos, (Tr. 99, 103-104,
1145-1151, 1161, 1255, 1278, 1290-1292, 1298). While the Commission could have
found that this factor slightly suggests employment, it did not. It found that this factor
slightly suggests independent contractor.
Factor 3 – Integration
Integration of the worker’s services into the business “shows that the worker is
subject to direction and control.” “The integration factor refers to whether a business
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Both of the clerical employees recognized the authority Dr. Chaganti to give them
services are more likely to be subject to the business’ control.” United States v. Silk, 331
U.S. 704 (1947); K & D Auto Body, 171 S.W.3d 107.
The services of all the named individuals were highly integrated into Appellant’s
business. The nurse practitioners performed medical services to Dr. Chaganti’s patients.
(Tr. 1253, 1275-1278, 1334-1335). The clerical employees performed necessary support
services in direct furtherance of the medical practice. (Tr. 40-41, 1058- 1060). The
Commission found this factor strongly suggests employment.
Appellant argues that “integration” should be neutral because the services could be
performed by an independent contractor. (Br. 20). Appellant cites to Travelers Equity,
which failed to cite any authority for this approach. 927 S.W. 922. This form of analysis
for this factor is contrary to IRS Revenue Rulings and not supported by any federal or
state case law, and is inconsistent with federal and state authority. The test is “whether
the person rendering the service works in the course of the recipient's business rather than
in an ancillary capacity.” Nuttelman v. Vossberg, 753 F.2d 712, 714 (8th Cir. 1985).
This type of reasoning “puts the cart before the horse.” The purpose of the 20
factor approach is to ascertain whether the relationship is such that the business would
“reserve” the right to control the worker. Analysis of a factor should not be impacted by
the assertion that, “I don’t control them” or the assertion that “an independent contract
could do this”. The Division, therefore, requests this Court discontinue using this
analysis of factor 3, instead of following the IRS and federal tax case law.
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could continue without the contribution of the services in question; as such, integral
When the services must be performed by a particular individual, “it indicates
control over the method of performance, which indicates employment status.” Rev. Rul.
55-695, 1955-2 C.B. 410; K & D Auto Body, 171 S.W.3d 107.
All of the named individuals were required to perform their services personally.
(Tr. 1070, 1171-1172, 1293). The nurses’ agreement prohibited delegation of their
duties. (Tr. 1720). The Commission found this factor suggests employment.
Factor 5 – Assistants
Hiring, supervising, and paying assistants by the person for whom the services are
performed generally shows employer control over workers on the job. However, if one
worker hires, supervises and pays the other assistants pursuant to a contract under which
the worker agrees to provide materials and labor, this factor indicates independent
contractor status. Compare, Rev. Rul. 63-115, 1963-1 C.B. 178 with Rev. Rul. 55-593,
1955-2 C.B. 610.
None of the named individuals hired or paid for their own assistants, and for the
most part the possibility was not even contemplated. (Tr. 89, 946-949, 999-1000, 10701071, 1171-1172, 1293-1294). The Commission found this factor suggests employment.
Factor 6 – Continuing Relationship
A continuing relationship exists if work is performed at frequently occurring
although irregular intervals. A continuing relationship indicates employment. United
States v. Silk, 331 U.S. 704 (1947); K & D Auto Body, 171 S.W.3d 108.
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Factor 4 – Services rendered personally
regular, recurring and continuing. (Tr. 71-72, 1070-1071, 1172, 1318). The Commission
found this factor suggests employment.
Factor 7 – Set hours of work
If the business sets the hours of work, this indicates control and an employment
relationship. Rev. Rul. 73-591, 1973-2 C.B. 337.
Appellant set the hours of work of the clerical staff. (Tr. 41, 1072). Appellant set
the hours of work for Blacksher when she worked in the office. Although Appellant set
Blacksher’s hours of work when she was at the office, Blacksher could schedule her
appointment times with Dr. Chaganti’s outside patients (Tr. 1153-1157), and so could
Murdick. (Tr. 1300). For the clerical staff, the Commission found this factor suggests
employment. For Blacksher, the Commission found this factor slightly suggests
employment. For Murdick, the factor suggests independent contractor.
Factor 8 – Full time work required
The requirement that the worker perform for the business full time or near full
time indicates employment because the business has control over the amount of time the
worker spends working and impliedly restricts the worker from doing other gainful work.
Rev. Rul. 56-694, 1956-2 C.B. 694.
Schroeder and Blacksher worked full-time for the appellant. (Tr. 40-41, 1171).
For them, this factor suggests employment. Yates and Murdick worked part-time for
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The relationship between the appellant and all of the named individuals was
1315-1316). For Yates and Murdick, this factor suggests independent contractor. 8
Factor 9 – Doing work on employer’s premises
Work that is done on the employer’s premises indicates control, especially if the
work could be done somewhere else but the employer requires that it be done on his
premises. Rev. Rul. 56-694, 1956-2 C.B. 694. The importance of this factor depends on
the nature of the service involved and the extent to which an employer generally would
require that employees perform such services on the employer’s premises.
However, the nature of some services dictate when and where the services are
performed, such as tow truck services. K & D Auto Body, 171 S.W.3d 106.
All of Yates’ services for Appellant were performed at Appellant’s premises. (Tr.
1072). Some of Schroeder’s and Blacksher’s services were performed at the appellant’s
premises and the other services were performed where directed by Dr. Chaganti. (Tr.
1275-1278). Schroeder’s home office was chosen by and furnished primarily by Dr.
Chaganti; he did not have space for her in his other offices. A few of Murdick’s services
were performed at the appellant’s premises and the other services were performed where
directed by Dr. Chaganti. (Tr. 1298-1300). By its nature, treatment of some patients must
be performed at the patients’ location. None of the workers performed services at a place
8
It should be noted that they had full-time jobs elsewhere, which should mitigate the
importance of this factor. Also, in Burns v. L.I.R.C., 845 S.W.2d 553, 556 (Mo. banc
1993), the court indicated that an individual may have a personal business, but still be an
employee of another company when performing services for the other company.
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Appellant and full-time for a hospital or another doctor, respectively. (Tr. 1284-1288,
slightly. They all did some work at his locations.
Factor 10 – Order or sequence set.
If the business establishes a particular order or sequence to the tasks, it indicates
employment because the worker is not allowed to follow his own pattern of work. Often,
because of the nature of an occupation, the person for whom the services are performed
does not set the order of services. Rev. Rul. 56-694, 1956-2 C.B. 694.
Appellant had the right to set the order or sequence in which Yates and Schroeder
performed their services. (Tr. 30-32, 64, 1073-1074). Appellant had the right to set the
order or sequence in which Blacksher performed her services when she was working in
Appellant’s offices. For these individuals, this factor suggests employment. Typically,
Appellant did not set the order or sequence of the patients seen by Murdick. For
Murdick, this factor suggests independent contractor.
Factor 11 – Oral or Written Reports
The requirement that reports be submitted to the business indicates control. Rev.
Rul. 70-309, 1970-1 C.B. 199 and Rev. Rul. 68-248, 1968-1 C.B. 431.
The nurse practitioners were required to keep detailed patient records of their
activities with Dr. Chaganti’s patients, and were required to submit records of billing
codes to Appellant. (Tr. 889, 898-905). Yates maintained the patients’ medical records
for Dr. Chaganti’s patients. For all of them, this factor suggests employment.
The Commission found that this factor suggests independent contractor for
Schroeder because she did not provide regular reports about her activities.
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of her choosing. The Commission found this factor suggests employment for everyone,
Payment by the hour, week, or month generally indicates employment. Rev. Rul.
74-389, 1974-2 C.B. 330. Payment that is by the job or a strict commission generally
indicates independent contractor. Id.
Schroeder and Yates were paid by the unit of time, Schroeder a full-time salary
and Yates an hourly wage. (Tr. 35, 40, 126). For the clerical staff, this factor suggests
employment. The nurse practitioners were paid on a percentage of the bill (and in
Murdick’s case, if paid). For the nurse practitioners, this factor suggests independent
contractor.
Factor 13 – Payment of business or traveling expenses
The payment of travel or other business expenses generally indicates employment,
because an employer who is paying these expenses will try to control its expenses by
regulating the workers’ activities. Rev. Rul. 55-144, 1955-1 C.B. 483. An employer, to
be able to control expenses, generally retains the right to regulate and direct the worker’s
business activities.
Schroeder and Yates did not incur significant expenses and this suggests
employment. The nurse practitioners incurred traveling and professional expenses.
However, these expenses were so de minimis that they could not seriously impacted their
jobs and threatened the profitability of the employment relationship. Travel to a local job
site is usually an employee’s burden. For the nurse practitioners, this factor slightly
reflects independent contractor.
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Factor 12 – Payment by hour, week, or month
The fact that the person or persons for whom the services are performed furnish
significant tools, materials and other equipment tends to show the existence of an
employer-employee relationship. Rev. Rul. 71-524, 1971-2 C.B. 346.
The nurse practitioners’ jobs did not require tools or materials. This factor is not
applicable to them. Even though Appellant supplied significant equipment, supplies and
material used in the clerical jobs, the Commission found this factor was not applicable.
Factor 15 – Significant Investment
A worker’s significant investment in facilities that are used by the worker in
performing services and not typically maintained by employees (such as the maintenance
of an office rented at fair value) tends to show an independent contractor status. On the
other hand, lack of investments in facilities indicates dependence on the person for whom
the services are performed for such facilities and indicates an employment relationship.
Rev. Rul. 71-524, 1971-2 C.B. 346; K & D Auto, 171 S.W.3d at 110-111.
Appellant had significant investments in facilities and equipment used by Yates
and Schroeder, and was used in behalf of the services rendered by the nurse practitioners,
and they had no investment. None of the workers had a significant investment in
facilities and equipment. While Schroeder used her spare bedroom and personal
computer, at times, Appellant provided most of the equipment in her home and Schroeder
used Appellant’s office and equipment. This factor suggests employment.
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Factor 14 – furnishing tools and materials
A worker who can realize a profit or suffer a loss as a result of the worker’s
services (in addition to the profit or loss ordinarily realized by employees) is generally an
independent contractor, but the worker who cannot is an employee. Rev. Rul. 70-309,
1970-1 C.B. 199. For example, if the worker is subject to a real risk of economic loss
due to significant investments or a bona fide liability for expenses, such as salary
payments to unrelated employees, that factor indicates the worker is an independent
contractor. The risk that a worker will not receive payment for his services, however, is
common to both independent contractors and employees and thus does not constitute a
sufficient economic risk to support treatment as an independent contractor. The fact that
a worker can experience a profit or loss, in addition to that normally experienced by an
employee, indicates independent contractor status.
None of the named individuals believed that they could run a significant risk of
loss in performing their services for Appellant, while Appellant had such a risk. (Tr.
1078-1079). This factor suggests employment.
Factor 17 – Working for more than one firm at a time
Performing more than de minimis work for more than one business at a time
generally indicates independent contractor status. Rev. Rul. 70-572, 1970-2 C.B. 221.
The operative term here is de minimis.
Neither Schroeder (Tr. 44) nor Blacksher performed similar services for another
entity while working for Appellant, which suggests employment. (Tr. 1137). Murdick
and Yates had full-time jobs elsewhere, while working part-time for Appellant. (Tr.
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Factor 16 - Realization of Profit or Loss.
suggests independent contractor for Murdick and Yates.
Factor 18 – Making services available to the general public
A worker who makes his services available to the general public “on a regular and
consistent basis” is likely an independent contractor. Rev. Rul. 56-660, 1956-2 C.B. 693.
This may be evidenced by the worker having his own office and assistants, hanging out a
"shingle" in front of his home or office, holding business licenses, maintaining business
listings in telephone directories or advertising in newspapers, trade journals, magazines,
etc.
None of the named individuals made their services available to the general public,
(Tr. 1079), and the nurse practitioners could not lawfully do so. This factor suggests
employment.
Factor 19 – The right to discharge
The right to discharge a worker is a critical factor indicating employment. An
employer exercises control through the threat of dismissal, which causes the worker to
obey the employer’s instructions. Rev. Rul. 75-41, 1975-1 C.B. 323; Merick Trucking,
Inc. v. Missouri Division of Employment Security, 902 S.W.2d 871 (Mo.App. 1995).
“Clearly, the right to discharge without liability creates the right to control....” Id. at 875.
An independent contractor, on the other hand, cannot be “fired” so long as the contractor
produces a result that meets the contract specifications.
Appellant could end the relationship with either Schroeder or Yates (Tr. 44-47) at
any time without incurring liability. For them, this factor suggests employment.
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1284-1288, 1315-1316). The performed services for only one other firm. This slightly
least 90 days advance notice of separation to the nurse practitioners, the agreement sets
out no consequence for failing to do so. The Commission found this factor did not
suggest independent contractor for the nurse practitioners.
Factor 20 – The right to quit
The right to quit at any time without incurring liability indicates employment. Rev.
Rul. 70-309, 1970-1 C.B. 199. An independent contractor usually agrees to complete a
specific job and is responsible for its satisfactory completion or is legally obligated to
make good for failure to complete the job.
Schroeder and Yates could end the relationship at any time without incurring
liability. (Tr. 44-47, 1080-1082). For them, this factor suggests employment.
Although the nurse practitioners were required by the collaborative practice
agreement to give at least 90 days advance notice of separation to the appellant, the
agreement contains no consequences for failing to do so. (Collaborative Agreement: D-1
p 104 or Tr. 1719). The Commission found this factor did not suggest independent
contractor for the nurse practitioners.
The evidence supports the Commission’s determination that the workers were
employees. Therefore, the factors are not subject to reweighing by an appellate court.
Gateway Taxi Management, 461 S.W.3d 835.
For Schroeder: 1 factor strongly suggests employment, 15 suggests employment, 1
slightly suggests employment, 1 suggests independent contractor, 1 slightly suggests
independent contractor and 1 is not applicable.
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Although the appellant was required by the collaborative practice agreement to give at
slightly suggests employment, 1 suggests independent contractor, 2 slightly suggests
independent contractor and 1 is not applicable.
For Murdick: 1 factor strongly suggests employment, 8 suggests employment, 1
slightly suggests employment, 4 suggests independent contractor, 3 slightly suggests
independent contractor, 1 is not applicable and 2 does not suggest independent contractor.
For Blacksher: 1 factor strongly suggests employment, 11 suggests employment, 2
slightly suggests employment, 1 suggests independent contractor, 2 slightly suggests
independent contractor, 1 is not applicable and 2 does not suggest independent contractor.
The strongest factors supporting employee status are the following: the degree to
which the workers’ duties are integrated into Appellant’s business; Appellant’s
significant investment in offices and equipment; and the fact that none of the workers had
an independent business to fall back on. The nurses did not have offices, equipment or
patients. While Yates and Murdick worked part-time for Appellant, they worked fulltime elsewhere; they did not have a independently established business elsewhere.
Because of the significant investment and the medical responsibility to the patients,
Appellant would retain the right to exert control over the services when Dr. Chaganti
thought that anyone was acting inappropriate (and in fact did so). While the nature of the
work was such that it did not require much actual day-to-day supervision, Appellant’s
control was exhibited when appropriate, and everyone agreed that Dr. Chaganti had the
final say at all times, “he was the doctor.”
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For Yates: 1 factor strongly suggests employment, 14 suggests employment, 1
import. The arrangement is subject to scrutiny and the label the parties assign is not
controlling.” St. Charles County v. Hunter, 950 S.W.2d 593, 594 (Mo.App., E.D. 1997).
It is in Appellant’s financial interest to treat everyone as an independent contractor, and it
should be presumed that Yates, Blacksher and Murdick were aware of this interest during
their testimony. The only worker who was not employed by Appellant at the time of the
hearing is Schroeder, and Appellant is asking this Court to disregard her testimony.
Appellant has a medical practice with all of the costs and liabilities associated
therewith. He is subject to a malpractice claim and lose of his license if he does not
adequately supervise his nurses. The workers had nothing of value. While the nurses
have a degree and a license, they do not have an office or patients. The employment
security law is intended to protect workers when they lose their jobs, and these workers
should be covered by that law.
II.
The Commission did not err in affirming imposition of the non-filing penalty
because Appellant’s Contribution and Wage Reports were deficient in that
Appellant omitted employees who should have been on the reports, and failed to
correct the reports within the 30 day grace period granted by the Division. [This
corresponds to Appellant’s Points V, VI, VI and VII].
Appellant filed quarterly Contribution and Wage Reports for 2010 and 2011 that
omitted three of its employees. (Tr. 1855-1862) Appellant filed quarterly Contribution
and Wage Reports for 2012 listing no employees and no remuneration. (Tr. 1487, 1851-52-
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The fact that a worker believed she was an “independent contractor” is of no
grace period given after the omissions were discovered by the Division. Appellant
asserts that the law does not provide any penalty for its failure to provide the information
during the grace period.
While this matter concerns a small employer, there are employers who omit large
groups of employees. To allow such an employer to file a “no payroll” report without
penalty is contrary to the purpose of the Missouri Employment Security Law. As
discussed below, there is a penalty for failing to file timely an accurate Contribution and
Wage Report. This is the penalty imposed herein.
In fiscal 2014: 145,488 covered employers were liable for contributions in
Missouri regarding wages paid to 2.64 million workers; and Missouri workers filed
354,575 initial claims for benefits, receiving $383 million of benefits. Missouri
Department of Labor and Industrial Relations Annual Report, 2014. The amount of an
employer’s unemployment tax liability (§ 288.036.2) and the amount of unemployment
benefits available to an employee (§§ 288.030.1(22)(b); 288.038) are based upon the
employees’ wages. A covered employer must pay contributions on a quarter annual basis
(§ 288.090.1) and the employee’s unemployment benefits are based upon wages earned
during four calendar quarters (Id.). Therefore, the Division needs quarter annual
Contribution and Wage Reports from employers that accurately list the employees and
their wages. The Division cannot calculate claimants’ unemployment benefits without an
accurate accounting their wages.
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1854). The Division imposed a penalty for failing to correct the omissions within the
Meystrik, 425 F.Supp. 40, 41 (E.D. Mo. 1977); Wimberly, 479 U.S. 514-515. 9 A state’s
unemployment insurance laws must conform to the provisions of Title III of the Social
Security Act and the Federal Unemployment Tax Act in order for the State to receive
payment for the costs of administration and for the State’s private employers to receive
federal tax credits. 42 U.S.C. §§ 502 & 503. In addition, the United States Department of
Labor (“USDOL”) establishes unemployment insurance standards and guidelines with
which each state must comply. Id. USDOL conveys some of its requirements to the
states in Unemployment Insurance Program Letters (“UIPL”), which have legal effect.
UIPL 01-96. 10 The Division is a under federal mandate to pay 87% of claimants’ first
compensable weekly claims benefits within 14 days following the end of the week. 20
C.F.R. § 640.5. This means that 87% of the first payments to the 354,575 claimants
during 2014 must be issue within approximately 21 days of when the claimants file their
initial claim for benefits. In order to calculate claimants’ unemployment benefits, the
Division must have the claimants’ accurate wages in the Division’s data base when they
file their initial claims. The Division cannot meet the federal payment requirements
unless employers file timely Contribution and Wage Reports that accurately list all
employees, and their wages. The current controversy has been pending approximately
9
For a detailed explanation of the federal – state requirements, with supporting
documents, please see the Division’s suggestions in opposition to Appellant’s motion to
vacate, filed herein on January 5, 2016.
10
For UI Program Letters go to: http://workforcesecurity.doleta.gov/unemploy/dms.asp
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The unemployment insurance system is a federal-state partnership. Graves v.
recalcitrant employers to withhold the workers’ identity and remuneration during the
litigation is contrary to timely payment of benefits. This is the reason why the law and
regulations require the timely filing of accurate reports, and why there is a penalty for
failing to do so. Claimants must be paid their unemployment benefits when due.
Subsection 288.220.5 states as follows:
Subject to the approval of the director of the department of labor and
industrial relations and the commission, the director shall adopt, amend or
rescind the rules and regulations as are necessary to implement any of the
provisions of this law not relating to the internal management of the
division; however, the rules and regulations shall not become effective until
ten days after their approval by the commission and copies thereof have
been filed in the office of the secretary of state.
Because of the need for timely wage information for the collection of
unemployment taxes and the payment of unemployment benefits, the Division
promulgated 8 CSR 10-4.030(1), which states as follows:
On or before the last day of the month following each calendar
quarter each employer shall complete and file contribution and wage
reports with division containing, along with other relevant information, data
as to the wages paid by that employer, and to whom paid, within the
calendar quarter, on forms to be obtained from, or approved by, the
division.
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three years, which is not uncommon for independent contractor cases. Allowing
month following each calendar quarter, employers are required to complete and file with
the Division of Employment Security contribution and wage reports identifying their
employees and the wages paid to them in that calendar quarter.” Forms World, Inc. v.
Labor and Industrial Relations Commission, 935 S.W.2d 680, 682 (Mo.App. W.D.
1996).
There is a penalty for failing to file the report timely. Subsection 288.160.2 states
as follows:
If any employer neglects or refuses to file any required report by the
last day of the month following the due date there shall be imposed a
penalty, equal to the greater of one hundred dollars or ten percent of the
contributions required to be shown on the report, for each month or fraction
thereof during which such failure continues, provided, however, that the
penalty shall not exceed the greater of two hundred dollars or twenty
percent of the contributions in the aggregate.
The filing of an inaccurate report does not satisfy an employer’s obligations. It is
disingenuous to suggest that the penalty does not apply when an employer, with
employees, files a “no payroll” report and fails to provide the information later.
The Division understands that an employer may not realize that it is subject to the
law, or fails to include some employees because of a misunderstanding. That is why the
Division grants a 30 day grace period for some businesses to provide the missing
information. In this fashion, the Division can fulfill its duties while the business litigates
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“Pursuant to the Missouri Employment Security Law, on or before the last day of the
prevails. If the business withholds the information beyond the grace period, it is subject
to the penalty when the Division prevails. The penalty is not, as alleged by Appellant, for
failure to file a supplemental report. Rather, the penalty is for failure to file an accurate
report on the original due date. There is no exception to the penalty for “good cause”
because the Division must have the wage information during the pendency of the
litigation.
If a single omitted worker is declared to be an employee, the penalty should be
imposed. If the business prevails and all of the omitted workers are declared to be
independent contractors, then the original reports were accurate. In which case, the
penalty should be abated.
WHEREFORE, this Court should affirm imposition of the penalty for each
Contribution and Wage Report that omitted one or more of Appellant’s employees.
The Division had three years to impose the penalty:
Appellant asserts in its Point V that the Division has only two years to impose a
penalty under the Employment Security Law, citing § 516.390 RSMo. (Br. 51). Section
516.390 RSMo concerns civil suits concerning penalties given to state or local entities.
This provision is not applicable because the Division’s administrative collection actions
are not civil suits. See, Division of Employment Security v. Westerhold, 950 S.W.2d 618,
621 (Mo.App. E.D. 1997). The Division may mail an assessment for any contributions,
interest or penalties “within three years of the date upon which the payment of the
contributions was due….” Section 288.160.6(1). The first inaccurate report in question is
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its issue. The business need only pay the contributions, plus interest, when the Division
assessment was mailed on May 2, 2014, within three years. All of periods within the
assessment are within the three year statute of limitations.
Therefore, this Court should deny Appellant’s Point V.
The federal “Safe Harbor” does not apply:
In its Point VI, Appellant asserts that the “safe harbor” provision of the Revenue
Act of 1978 provides for treating these workers as independent contracts for Missouri
unemployment purposes. (Br. 52-54). Appellant’s reliance upon the federal safe harbor
provision is misplaced because Missouri does not have such a provision in the
employment security law.
This safe harbor argument was rejected the court in Higgins v. Missouri Division
of Employment Security, 167 S.W.3d 275 (Mo.App. W.D. 2005). In rejecting use of the
federal safe harbor, the court stated the following:
Higgins relies on Howard’s Yellow Cabs, Inc. v. United States, 987
F.Supp. 469 (W.D.N.C.1997), in support of her argument that the faresplitting arrangement she had with the drivers did not constitute “payment”
under Missouri's Unemployment Law. Howard’s is inapposite. The issue
in Howard’s was whether the taxpayer, a cab company owner, was entitled
to relief from past liability for federal employment taxes pursuant to section
11
The last day of the month following the close of this quarter was April 30, 2011, a
Saturday. When the last day falls on a Saturday, Sunday or holiday, the due date is the
next business day (Monday, May 2 in this case). Section 288.240 RSMo.
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the first calendar quarter of 2011. (L.F. 26). This report was due May 2, 2011. 11 The
determined to be its common law employees. Id. at 473 As explained
therein:
* * *
Irrespective of whether a worker is in fact an employee or an independent
contractor, § 530 protects taxpayers from subjective application by the IRS
of the twenty common law factors applicable
Id. at 475-76 (emphasis
added.) Thus, Howard’s considered the cab owner's past federal
employment tax liability in light of a federal “safe harbor” statute to protect
employers. Id. No such safe harbor provision exists under Missouri's
Unemployment Law. Instead, the existence of the employer-employee
versus independent contractor relationship for purposes of Missouri
unemployment tax liability is determined by consideration of Missouri
statutes and regulations. The decision in Howard's “that [the cab owner] did
not exercise control over all the proceeds such that the proceeds could be
considered income to [the owner], or that the division of proceeds between
[the owner] and its drivers constituted a ‘payment’ in the legal sense,” id. at
479, is not binding upon this court.
167 S.W.3d 280. In A.J. Meyer & Co. v. Unemployment Compensation Commission, 152
S.W.2d 184, 190 (Mo. 1941) the Missouri Supreme Court stated that Missouri’s
“unemployment compensation act is not circumscribed by the federal act ….”
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530 of the Internal Revenue Act of 1978 … even if the cab drivers were
discussed in the Standard of Review, the affidavit is not competent evidence.
This Court should reject Appellant’s Point VI because the federal safe harbor
provision is not application in Missouri matters and the penalty is for failing to file
complete and accurate original reports, not for failing to file supplemental reports.
Appealing the Division’s employment determination does not delay litigation
of the penalty:
In its second Point VI, Appellant asserts that the Commission should have decided
the penalty issue until after Appellant’s employment determination appeal is resolved.
(Br. 55-56).
Appellant is correct when asserting that there is no penalty due if all of the omitted
workers are found to be independent contractors under the Missouri unemployment laws.
If some of them are found to be employees, however, the penalty should be affirmed.
Appellant’s argument in this point disregards the reason why the Division issued
the assessment on May 2, 2013, which is the statute of limitation. As discussed
previously, the Division has three years to mail an assessment to an employer regarding
unpaid contributions, interests or penalty. Section 288.160.6(1). The giving of an
assessment notice tolls the statute of limitations on collection of the debt. D.E.S. v.
Westerhold, at 950 S.W.2d 620. However, the statute of limitation within § 288.160 is
tolled when the Division is prohibited by court order from making the assessment. Hanks
v. Labor and Industrial Relations Commission, 639 S.W.2d 252, 255 (Mo.App. W.D.
1982). Since there was no prohibition in the current controversy, the Division needed to
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Appellant’s use of Dr. Chaganti’s affidavit in this point is inappropriate. As
everyone, including this Court, to resolve the penalty assessment while deciding the
employment determination.
This Court should reject Appellant’s second Point VI because the Commission
acted appropriately in deciding the assessment issue after deciding the employment
determination.
The Division did not set an arbitrary due date for the delinquent reports and
the Division’s policy of granting 30 days to cure the problem is not harmful:
In its Point VII, Appellant asserts that the Division cannot arbitrarily set a due date
for the supplemental reports, not imposing the penalty was highly prejudicial and the
Division failed to provide Appellant with adequate notice. (Br. 57-58).
Appellant’s argument seems to be based upon the argument that the Division
imposed the penalty because supplemental reports were not filed in a timely fashion.
That is incorrect because the due date that was violated was set by statute and regulation,
which is the due date for filing an accurate Contribution and Wage report; i.e., the last
day of the month following the last day of the calendar quarter. While the Division has a
policy of notifying certain employers of the deficiency when it is discovered and granting
them 30 days from the notification date to correct the report; this is not establishing a new
due date. If the employer corrects the reports within the grace period, the Division
waives the penalty. 12 If the employer fails to correct the report, the penalty is calculated
12
The employer can appeal the employment determination, but the Division must have
the workers’ identity and wages for unemployment claims filed during the litigation.
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mail the assessment in a timely fashion. For judicial economy, it is appropriate for
a report is not harmful or prejudicial, it is helpful to employers who comply. It provides
employers with notice of the problem and a chance to cure.
This Court should reject Appellant’s Point VII because the Division’s practice of
notifying employers of a problem and granting them 30 days to correct deficient
Contribution and Wage Reports is not prejudicial, harmful, or unconstitutional.
CONCLUSION
The Commission’s employment decision should be affirmed. Dr. Chaganti has a
significant investment in his medical practice. He retained the right to control the
workers whenever it suited him. The workers were not in their own businesses, but
rather were engaged by Dr. Chaganti to assist him in his business.
The Commission’s penalty should also be affirmed. Appellant failed to file
accurate Contribution and Wage Reports within the time established by statute and
regulation.
Respectfully submitted,
/s/ Ninion S. Riley
NINION S. RILEY
#32399
MANDOLIN JACKSON Rule 13
Post Office Box 59
Jefferson City, Missouri 65104
TEL: (573) 751-3844
FAX: (573) 751-2947
ninion.riley@labor.mo.gov
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with the statutory due date. The Division’s practice of granting additional time to correct
I certify that on February 1, 2016, a true copy of the foregoing brief was served via
the electronic filing system upon Randall C. Cahill.
/s/ Ninion S. Riley
Ninion S. Riley
CERTIFICATE OF WORD COUNT
I hereby certify the following:
1. The foregoing brief complies with the word count limitations.
2. The foregoing brief contains 13,621 words.
/s/ Ninion S. Riley
Ninion S. Riley
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CERTIFICATE OF SERVICE
Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM
Electronically Filed - WESTERN DISTRICT CT OF APPEALS - February 01, 2016 - 12:08 PM