DWIGHT E. DAHL, d/b/a

BIG SKY CONCRETE

Appellant

vs.

UNINSURED EMPLOYERS' FUND

Respondent.

Summary: Concrete worker began his own business using employees obtained through a temporary employment agency. The agency billed on a monthly basis for all expenses related to each worker, including wages, taxes and workers' compensation insurance coverage, plus an add-on percentage for the agency's profit. UEF commenced proceedings against the concrete worker maintaining he was uninsured under the WCA for failing to have his own workers' compensation insurance policy in place. A DOL hearing officer found the concrete business uninsured. This appeal followed.

Held: Statutory requirements are satisfied where a workers' compensation policy covered the workers, even though it was a policy purchased by the employment agency and not the entity for whom the workers were performing work. [Note: WCC reversed on this issue in Dahl v. Uninsured Employers' Fund, 1999 MT 168 (98-418).]

Topics:

Constitutions, Statutes, Regulations and Rules: Montana Code: section 39-71-401(1), MCA (1993). Statutory requirements are satisfied where a workers' compensation policy covered the workers, even though the policy was purchased by an employment agency and not the entity for whom the workers were performing work. [Note: WCC reversed on this issue in Dahl v. Uninsured Employers' Fund, 1999 MT 168.]

Employers: Insurance. Statutory requirements are satisfied where a workers' compensation policy covered the workers, even though the policy was purchased by an employment agency and not the entity for whom the workers were performing work. [Note: WCC reversed on this issue in Dahl v. Uninsured Employers' Fund, 1999 MT 168.]

Employment: Leased Employees. Statutory requirements are satisfied where a workers' compensation policy covered the workers, even though the policy was purchased by an employment agency and not the entity for whom the workers were performing work. [Note: WCC reversed on this issue in Dahl v. Uninsured Employers' Fund, 1999 MT 168.]

Employment: Temporary Employees. Statutory requirements are satisfied where a workers' compensation policy covered the workers, even though the policy was purchased by an employment agency and not the entity for whom the workers were performing work. [Note: WCC reversed on this issue in Dahl v. Uninsured Employers' Fund, 1999 MT 168.]

¶1 This is an appeal from a decision of the Department of Labor and Industry (Department) finding that workers employed by appellant, Dwight E. Dahl (Dahl), were his employees and not temporary employees.

¶2 The record on appeal consists of the transcript of a hearing conducted on January 29, 1996, and the Department file, including the exhibits admitted at the hearing.

¶3 Dahl has been a concrete worker for over 13 years.

¶4 In 1992 Dahl signed up for work with Olsten's Temporary Services (Olsten's). Olsten's is a temporary employment agency headquartered in New York. It has an office in Great Falls, Montana, managed by Darlene Schulke (Schulke).

¶5 Olsten's signs up skilled workers who are seeking work. It then contracts with businesses to provide them with the services of those workers. Olsten's performs all bookkeeping and payroll functions with respect to the workers and remits employee and employer taxes for them. It deems the workers its employees and maintains workers' compensation insurance coverage for them. Businesses using workers from Olsten's are billed on a monthly basis for all expenses related to each worker, including wages, taxes and workers' compensation insurance coverage, plus an add-on percentage to pay Olsten's for its services and a profit.

¶6 In 1993 Dahl decided to start his own concrete business. He began his operation as a sole proprietorship. On April 12, 1994, he incorporated his business.

¶7 The concrete business is seasonal. Generally, there is no work during the winter months. In the spring, the business is subject to the vagaries of the weather. Dahl, as a new business, had no guarantee of jobs. When he started his business he could not guarantee anyone full-time work.

¶8 Dahl's lack of training in business management and accounting induced him to contract with Olsten's since it offered bookkeeping, payroll support, workers' compensation coverage, and would supply workers as needed. His agreement with Olsten's took effect the week of July 4, 1993.

¶9 Dahl was aware of workers' compensation requirements. In conversations with Schulke, he verified that all workers furnished by Olsten's would be covered by workers' compensation insurance. He did not purchase a separate workers' compensation insurance policy. That failure triggered this proceeding.

¶10 Olsten's furnished Dahl with workers from July 4, 1993, through mid-November, 1993, and again from mid-March, 1994 through August of 1994. Dahl ceased business in August 1994.

¶11 The number of workers furnished Dahl by Olsten's depended on Dahl's contracts and the weather. There were times when Dahl was able to give only one or two days notice of how many workers he might need for a project.

¶12 Dahl did not specify which workers Olsten's should send. Nonetheless, the same workers were assigned by Olsten's week after week. Their assignment, however, reflected the small pool of skilled concrete workers signed up with Olsten's. At least some of the workers sent by Olsten's were also sent at other times to other concrete businesses utilizing Olsten's services.

¶13 Sometime prior to August 5, 1994, James Watts (Watts), an auditor for the Uninsured Employers' Fund of the Department of Labor and Industry, received a complaint from the State Compensation Insurance Fund asking that the Department investigate Dahl. (Tr. at 9, 64.) On August 5, 1994, Watts sent a letter to Dahl advising him of his intent to conduct an audit, setting a date for the audit, and identifying documents which Dahl was to have available for review. (Ex. 9)

¶14 Watts conducted his audit on August 25, 1994. On August 30, 1994, Watts sent a second letter to Dahl stating that he had determined Dahl was "the actual employer of the workers being provided by Olsten's Temporary Services." (Ex. 3.) In his letter, Watt notified Dahl that he was "required to obtain a workers compensation insurance policy" in his own name. (Id.)

¶15 Dahl took issue with the audit. In a letter received by the Department on October 3, 1994, he challenged Watts' conclusions and asked that they be reconsidered. The Department treated his letter as a request for a contested case hearing, thus triggering the present proceeding. Meanwhile, Dahl ceased doing business.

¶16 Apparently unaware that Dahl had ceased doing business, on October 17, 1994, Watts issued a Cease and Desist Order notifying Dahl that he did not have workers' compensation coverage as required by law and that he must cease operations until he obtained proper coverage. (Ex. 7.)

¶17 On January 29, 1996, a hearing was held before a Department hearing officer. On June 12, 1997, the hearing officer issued an order finding that nine workers used by Dahl were his employees. Two other workers were characterized as temporary employees, and therefore employees of Olsten's. This appeal followed.

¶18 The standards of review are set forth in section 2-4-704, MCA. Although the section, which is part of the Montana Administrative Procedures Act, generally applies to district court review of agency decisions, the standards have been utilized in judicial review cases under the jurisdiction of the Workers' Compensation Court. E.g., State Compensation Mutual Insurance Fund v. Lee Rost Logging, 252 Mont. 97, 102, 827 P.2d 85 (1992) (applying the "clearly erroneous" standard of 2-4-704 (2)(a)(v)). The section provides in relevant part:

(2) The court may not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because:

(a) the administrative findings, inferences, conclusions, or decisions are:

(i) in violation of constitutional or statutory provisions;

(ii) in excess of the statutory authority of the agency;

(iii) made upon unlawful procedure;

(iv) affected by other error of law;

(v) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record;

(vi) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion;

¶19 On appeal, Dahl raises several issues. First, he argues that the hearing officer disregarded the standards articulated by this Court in C. Loney Concrete Construction v. Uninsured Employers' Fund, WCC No. 9305-6788 (December 28, 1993 [Loney I]) and in C. Loney Concrete Construction v. Uninsured Employers' Fund, WCC No. 9607-7578 (August 15, 1997 [Loney II]), for determining whether workers were temporary employees. Second, he argues that the hearing officer failed to distinguish between Dahl operating as a sole proprietor between July 1993 and April 1994, and his operations as a corporation thereafter. Third, he argues that Dahl in fact provided workers' compensation insurance in compliance with the law and that the notice indicating his uninsured status was erroneous. Finally, he urges that the statute governing temporary employees is unconstitutionally vague and therefore unenforceable.

¶20 As in Loney I and Loney II, this controversy arises under the Department's powers to enforce Montana statutes requiring employers to provide workers' compensation insurance coverage for their employees. Section 39-71-507, MCA, empowers the Department to order uninsured employers to "cease operation" until insurance is procured. Watts' August 25, 1994 letter, which triggered the present proceeding, found that Dahl was uninsured. The letter was a preliminary to a Cease and Desist Order under section 39-71-507, MCA. In fact, on October 19, 1994, Watts issued a cease and desist order. In light of the fact that Dahl had already ceased business by that time, the hearing officer deemed the notice of "no effect." Nonetheless, the notice demonstrates that the determination appealed by Dahl was an integral part of the statutory process to interdict and punish uninsured employers. Indeed, Watts calculated that Dahl could be punished by requiring him to pay 200% of the premiums he would have had to pay if he had insured the workers furnished by Olsten's. (Findings of Fact, Conclusions of Law and Order, Finding 25.) That amount was $42,221.81. The hearing officer did not impose the penalty, reserving "final determination" of any fine until the matter "is processed through the Uninsured Employers' Fund following completion of the appeal process." (Id.)

¶21 Thus, this proceeding is fundamentally rooted in the Department's determination that Dahl is an uninsured employer. That determination is dispositive on appeal since the evidence presented below does not support a finding that Dahl was uninsured.

¶22 As set forth in the hearing officer's Finding of Fact 11, the workers working for Dahl were in fact covered by workers' compensation insurance:

11. Mr. Dahl was concerned that the workers supplied by Olsten's were always covered by workers' compensation insurance. He checked and double checked with Ms. Schulke to be absolutely sure of full compliance with all such insurance requirements. In fact, all workers supplied to the petitioner by Olsten's were at all times covered by workers' compensation insurance through Hartford Insurance Company, the policy for which was in the name of and the premiums for which were paid by Olsten's. (Testimony of Ms. Schulke and Mr. Watts)

That finding ties into Dahl's third assignment of error. It begins and ends the inquiry in this case.

¶23 As a general matter, Montana employers are required to procure and maintain workers' compensation insurance coverage for their employees. Section 39-71-401, MCA, provides:

39-71-401. Employments covered and employments exempted. (1) Except as provided in subsection (2), the Workers' Compensation Act applies to all employers, as defined in 39-71-117, and to all employees, as defined in 39-71-118. An employer who has any employee in service under any appointment or contract of hire, expressed or implied, oral or written, shall elect to be bound by the provisions of compensation plan No. 1, 2, or 3. Each employee whose employer is bound by the Workers' Compensation Act is subject to and bound by the compensation plan that has been elected by the employer. [Emphasis added.]

An uninsured employer is "an employer who has not properly complied with the provisions of section 39-71-401." § 39-71-501, MCA.

¶24 If Dahl has complied with the insurance requirement of section 39-71-401, MCA, then he is not uninsured. The hearing officer found as fact that his workers, as furnished by Olsten's, were insured under a policy obtained by Olsten's and paid for by Dahl. Thus, the decision below must stand or fall on whether section 39-71-401, MCA, required Dahl to obtain workers' compensation in his own name. I find that it did not. It was sufficient that his workers were insured.

¶25 Section 39-71-401, MCA, contains no requirement that insurance be procured in the name of the employer. A fundamental rule of statutory construction prevents the Department and this Court from writing in such requirement. Russette v. Chippewa Cree Hous. Auth., 265 Mont. 90, 93-94, 874 P.2d 1217, 1219 (1994). The section does not prescribe how the employer is to procure insurance. It does not preclude procuring insurance through an agent or by other means. And, it would surely be a perverse interpretation of the statute if, notwithstanding the fact that his workers were covered by workers' compensation insurance, the Court were to hold he was nonetheless an uninsured employer and therefore stripped of the protection of the exclusive remedy provision provided under section 39-71-411, MCA.

¶26 1. The decision of the Department of Labor and Industry is reversed. As found by the Department's hearing officer, the appellant in fact provided workers' compensation insurance for his workers and was therefore not an uninsured employer. Petitioner is not subject to the penalties applicable to uninsured employers.

¶27 2. This JUDGMENT is certified as final for purposes of appeal pursuant to ARM 24.5.348.

¶28 3. Any party to this dispute may have 20 days in which to request an amendment or reconsideration of this decision.

DATED in Helena, Montana, this 12th day of May, 1998.

(SEAL)

\s\ Mike McCarter
JUDGE

c: Mr. Stephen A. Doherty
Mr. Daniel B. McGregor
Date Submitted: March 4, 1998