O.M.A. Constr. v. Wash. State Dep't of Labor & Indus.

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O.M.A. CONSTRUCTION, INC., Appellant, v. WASHINGTON STATE DEPARTMENT OF LABOR AND INDUSTRIES, Respondent.

No. 85203-5-I

Court of Appeals of Washington, Division 1

April 29, 2024

Order filed date: 6/14/24

ORDER GRANTING MOTION TO PUBLISH

Respondent Washington State Department of Labor and Industries, moved for publication of the opinion filed on April 29, 2024. Respondent, O.M.A. Construction, Inc., filed an answer to the motion, stating that the respondent takes no position on the motion to publish. A panel of the court has considered the motion and has determined that the motion to publish should be granted.

Now therefore, it is hereby

ORDERED that the motion to publish is granted.

Díaz, J.

OMA Construction, Inc. (OMA) is a civil contractor which employs dump truck drivers to transport various materials to, from and within construction sites of large public works projects. Under the Industrial Insurance Act (IIA), Washington classifies occupations or industries by their level of hazard for purposes of setting premiums for workers' compensation insurance. OMA appeals the superior court's order affirming the decision of the Board of Industrial Insurance Appeals (Board), which found that OMA (1) misclassified its business as performing excavation rather than truck driving, and (2) did so knowingly, subjecting it to significant penalties. OMA also brings a due process challenge against the Board's processes. We affirm.

I. BACKGROUND

The following facts are undisputed: OMA is a contractor and subcontractor for, among other things, public works construction projects. OMA's employees drive dump trucks, which carry various materials to, from and within construction or reclamation sites. Approximately 70-75% of its employees' driving is on or within construction sites. Its drivers may drive 100-200 miles in one day within the boundaries of a single large construction site. For example, OMA's truck drivers hauled dirt away from the SR-99 tunnel in Seattle; hauled material within and around various highway and light rail tunnel construction sites; and hauled material to and from a reclamation site in Maple Valley. Its truck drivers primarily stay in the cab of the truck, and do not run excavation equipment.

In June 2015, the Department of Labor and Industries (Department) audited OMA and found it had improperly classified its dump truck drivers as performing "clerical" and "landscaping" work under the rating system for Washington workers' compensation insurance. OMA asked the Department to reconsider, and OMA's president met with Department specialists. In various meetings, the Department instructed OMA to select the "intrastate trucking" risk classification if its dump truck drivers were driving, and to select the "excavation" risk classification if they were excavating.

The Department audited OMA two more times. After the next (second) audit, OMA unilaterally adjusted the industrial insurance premium it paid because it believed it was overpaying its premium. Specifically, OMA believed it had fewer actual losses than the Department calculated, and OMA could address the discrepancy by selecting a different (less expensive) risk classification.

In 2020, pursuant to its third audit, the Department found OMA underreported the hours its employees worked and misclassified its business as excavation rather than truck driving, ordering OMA to pay $380,000 in additional premiums, $1.1 million in trebled penalties, and other fines, totaling approximately $1.7 million (hereinafter, Order).

OMA appealed to the Board, which affirmed the Order after several days of evidentiary hearings consisting of testimony from 14 witnesses. The Industrial Appeals Judge (IAJ) found: (1) the "Department correctly classified OMA's dump truck drivers" under the intrastate trucking classification; (2) "OMA knowingly underreported and misrepresented its hours, knowingly misclassified and misrepresented their dump truck drivers as excavation workers to the Department"; and (3) "failed to maintain and provide records for inspection as required."^[1] The IAJ concluded OMA failed to prove by a preponderance of the evidence the Order was incorrect.

OMA filed a petition for judicial review in the King County Superior Court, which also affirmed the Board. OMA sought reconsideration of the court's judgment and order, which the court denied. OMA now timely appeals.

II. ANALYSIS

A. Overview of the IIA and Standard of Review

"The Industrial Insurance Act . . . was a 'grand compromise' that granted immunity to employers from civil suits initiated by their workers and provided workers with 'a swift, no-fault compensation system for injuries on the job.'" Dep't of Labor & Indus. v. Simmons, 28 Wn.App. 2d 609, 613, 537 P.3d 701 (2023) (quoting Dep't of Lab. and Indus. v. Lyons Enters., Inc., 185 Wn.2d 721, 733, 374 P.3d 1097 (2016)). "As part of this compromise, employers must maintain workers' compensation coverage through the Department." Id. (quoting RCW 51.16.060). "The Department can audit employers and issue assessments for any past-due premiums." Id. (quoting RCW 51.16.035; RCW 51.48.030).

The IIA granted the Department broad discretion to create a "rating system" for classifying occupations and industries based on their degrees of hazard and to fix corresponding industrial insurance premium rates. Di Pietro Trucking Co. v. Dep't of Labor and Indus., 135 Wn.App. 693, 704, 145 P.3d 419 (2006) (citing Laws of 1971, 1st Ex. Sess., ch. 289, § 16; RCW 51.16.035). The legislature delegated further authority to the Department to "adopt rules governing the method of premium calculation and . . . to encourage accident prevention and to facilitate collection." RCW 51.16.035(2). If an employer fails to pay the proper premium, the Department may "issue a notice of assessment certifying the amount due." RCW 51.48.120.

"Under the APA, a plaintiff has the burden to show that an agency acted outside statutorily-granted authority or that an agency erroneously interpreted or applied the law." Di Pietro Trucking Co., 135 Wn.App. at 700-701 (citing RCW 34.05.570). "We review the Board's conclusions of law de novo to determine whether the Board correctly applied the law and whether the Board's findings of fact support its conclusions of law." Pro-Active Home Builders, Inc. v. Dep't of Labor & Indus., 7 Wn.App. 2d 10, 16, 465 P.3d 375 (2018).

As to conclusions of law, we review interpretation of a statute de novo. Di Pietro Trucking Co., 135 Wn.App. at 701. "We interpret statutes to carry out the Legislature's intent." Id. "If a statute is clear on its face, we derive its meaning from the language of the statute." Id. "'The appellate court may substitute its interpretation for that of the agency . . . [b]ut, we must 'accord substantial weight to the agency interpretation.'" D.W. Close Co., Inc. v. Dep't of Labor & Indus., 143 Wn.App. 118, 129, 177 P.3d 143 (2008) (quoting Everett Concrete Prods. v. Dep't of Labor & Indus., 109 Wn.2d 819, 823, 748 P.2d 1112 (1988)).

These "'[r]ules of statutory construction apply to administrative . . . regulations.'" D.W. Close, 143 Wn.App.at 126 (quoting State v. Burke, 92 Wn.2d 474, 478, 598 P.2d 395 (1979)) (alteration in original). "The initial examination focuses on the plain language of the regulation. 'If an administrative rule or regulation is clear on its face, its meaning is to be derived from the plain language of the provision alone.'" Id. (quoting Cannon v. Dep't of Licensing, 147 Wn.2d 41, 56, 50 P.3d 627 (2002)). "[R]egulations are interpreted as a whole, giving effect to all the language and harmonizing all provisions." Id. (quoting Cannon, 147 Wn.2d at 57) (alteration in original). And, we have held the Department, "acting within the ambit of its administrative functions normally is best qualified to interpret its own rules, and its interpretation is entitled to considerable deference by the courts." Id. at 129 (quoting Pacific Wire Works v. Dep't of Labor & Indus., 49 Wn.App. 229, 236, 742 P.2d 168 (1987)).

As to factual determinations, "[w]e review the Board's findings of fact for substantial evidence." Pro-Active Home Builders, 7 Wn.App. 2d at 16. "Evidence is substantial where it is sufficient to persuade a fair-minded, rational person of the finding's truth." Id. "The [Board's] conclusions of law must also flow from its findings." Henry Indus., Inc. v. Dep't of Labor & Indus., 195 Wn.App. 593, 599-600, 381 P.3d 172 (2016). "We view the evidence and reasonable inferences in the light most favorable to the prevailing party-here, the Department." Frank Coluccio Constr. Co. v. Dep't of Labor & Indus., 181 Wn.App. 25, 35, 329 P.3d 91 (2014).

"On appeal from the superior court, this court 'sit[s] in the same position as the superior court and review[s] the agency's order based on the administrative record rather than the superior court's decision.'" Henry Indus., 195 Wn.App. at 599-600 (quoting B & R Sales, Inc. v. Dep't of Labor & Indus., 186 Wn.App. 367, 374, 344 P.3d 741 (2015)) (alteration in original).

B. Whether the Risk Classification Was Properly Assigned and Supported

1. Further Regulatory Background on the Rating System for Classifications

Again, the Department classifies "occupations or industries by their level of hazard." WAC 296-17-31011. "Classification descriptions contained in WAC 296-17A-0101 through 296-17A-7400 establish the intended purpose or scope of each classification." WAC 296-17-31002 (emphasis added).

At its most general level, a "basic classification" is a "grouping of businesses or industries having common or similar exposure to loss without regard to the separate employments, occupations or operations which are normally associated with the business or...