State v. Badger Roustabouts, LLC

964 N.W.2d 514

STATE of North Dakota BY AND THROUGH WORKFORCE SAFETY AND INSURANCE, Appellant

v.BADGER ROUSTABOUTS, LLC, Appellee

No. 20210022

Supreme Court of North Dakota.

FILED SEPTEMBER 16, 2021

Jacqueline S. Anderson, Special Assistant Attorney General, Fargo, ND, for appellant.

Jonathon Yunker, Devils Lake, ND, for appellee.

Jensen, Chief Justice.

[¶1] Workforce Safety and Insurance (WSI) appeals from a district court order and judgment affirming an administrative law judge's (ALJ) order reversing a WSI order. The reversed WSI order had determined Badger Roustabouts was an employer of individuals providing roustabout services. In addition to affirming the ALJ's order, the court awarded attorney's fees to Badger under N.D.C.C. § 28-32-50. We affirm the judgment affirming the ALJ's order and reverse the court's award of attorney's fees.

I

[¶2] Badger is a limited liability corporation that has provided roustabouts to oil drilling companies since 2012. Judd Sturm owns Badger. At the times relevant to this case, Badger provided roustabouts exclusively to Continental Resources, Inc. under a Master Service Contract between Badger and Continental.

[¶3] In October 2018, WSI issued a notice of decision determining an employer-employee relationship existed between Badger Roustabouts and Thomas Quandt. The notice also determined Badger was the employer of other workers similarly situated to Quandt. Badger and Quandt requested reconsideration.

[¶4] In April 2019, WSI issued an administrative order concluding Badger was an employer of Quandt and the similarly situated workers, Badger was liable for payment of worker's compensation premiums, and Badger's officers—Judd Sturm and Michelle Sturm—were personally liable for unpaid workers’ compensation premium, penalties, interest, and costs owed by Badger in the amount of $3,041.27. Badger requested a hearing before an ALJ.

[¶5] In January 2020, an administrative hearing was held before an ALJ. In May 2020, the ALJ issued final findings of fact, conclusions of law, and an order reversing WSI's April 2019 order. On the evidence presented at the evidentiary hearing, the ALJ found Badger had rebutted the statutory presumption that Quandt was an employee. In applying the twenty common-law factors and the right to control test, the ALJ concluded Quandt was an independent subcontractor of Badger, rather than Badger's employee. The ALJ concluded Badger is not liable for payment of worker's compensation premiums for Quandt or any of the similarly situated workers. The ALJ also reversed the determination that Badger's officers were personally liable for unpaid premiums.

[¶6] WSI appealed the ALJ's final order to the district court. After a September 2020 hearing, the court entered an order affirming the ALJ's decision. The court concluded the ALJ's findings are reasonable and not against the weight of the evidence. Badger applied for an award of attorney's fees, to which WSI objected. In January 2021, the court entered an order and judgment awarding Badger its attorney's fees and expenses.

II

[¶7] Under the Administrative Agencies Practice Act, N.D.C.C. ch. 28-32, courts exercise limited appellate review of an administrative agency final order. State by and through Workforce Safety & Ins. v. Questar Energy Servs., Inc. , 2017 ND 241, ¶ 6, 902 N.W.2d 757. Under N.D.C.C. §§ 28-32-46 and 28-32-49, the district court and this Court must affirm an agency order unless:

1. The order is not in accordance with the law.

2. The order is in violation of the constitutional rights of the appellant.

3. The provisions of this chapter have not been complied with in the proceedings before the agency.

4. The rules or procedure of the agency have not afforded the appellant a fair hearing.

5. The findings of fact made by the agency are not supported by a preponderance of the evidence.

6. The conclusions of law and order of the agency are not supported by its findings of fact.

7. The findings of fact made by the agency do not sufficiently address the evidence presented to the agency by the appellant.

8. The conclusions of law and order of the agency do not sufficiently explain the agency's rationale for not adopting any contrary recommendations by a hearing officer or an administrative law judge.

N.D.C.C. § 28-32-46.

[¶8] In reviewing an ALJ's findings of fact, a court may not make independent findings of fact or substitute its judgment for the ALJ's findings; rather, the court must decide only whether a reasoning mind reasonably could have determined the findings were proven by the weight of the evidence from the entire record. Questar , 2017 ND 241, ¶ 7, 902 N.W.2d 757 (citation omitted); see also Power Fuels, Inc. v. Elkin , 283 N.W.2d 214, 220 (N.D. 1979). Similar deference is given to an independent ALJ's factual findings because the ALJ has the opportunity to observe and assess witnesses’ credibility and resolve conflicts in the evidence. Questar , at ¶ 7. A court reviews the independent ALJ's legal conclusions in the same manner as legal conclusions generally, and questions of law are fully reviewable. Id. [¶9] "Whether a worker is an independent contractor or an employee is a mixed question of fact and law." State ex rel. Workforce Safety & Ins. v. Larry's On Site Welding , 2014 ND 81, ¶ 14, 845 N.W.2d 310 (quoting Matter of BKU Enters., Inc. , 513 N.W.2d 382, 387 (N.D. 1994) ). "In reviewing a mixed question of fact and law, the underlying predicate facts are treated as findings of fact, and the conclusion whether those facts meet the legal standard is a question of law." Id. "Whether an employer has retained the right to direct and control the services performed by workers is a finding of fact." Id. ; see also Questar , 2017 ND 241, ¶ 9, 902 N.W.2d 757.

III

[¶10] Section 65-01-03(1), N.D.C.C., provides a presumption that a worker is an employee: "Each individual who performs services for another for remuneration is presumed to be an employee of the person for which the services are performed, unless it is proven that the individual is an independent contractor under the common-law test." A party asserting that an individual is an independent contractor has the burden of proving that fact. Id. In Larry's On Site Welding , 2014 ND 81, ¶ 17, 845 N.W.2d 310, this Court further explained:

"[T]he label the parties place on the relationship is not determinative. It is how the relationship between the parties actually operates which is important." Midwest Prop. Recovery, Inc. v. Job Serv. of N.D. , 475 N.W.2d 918, 923 (N.D. 1991). "The central question in determining whether an individual is an employee or independent contractor is: Who is in control?" Myers-Weigel Funeral Home v. Job Ins. Div. of Job Serv. N.D. , 1998 ND 87, ¶ 9, 578 N.W.2d 125 ; see also Matter of BKU Enterprises, Inc. , 513 N.W.2d 382, 385 (N.D. 1994) (stating, "the common law test focuses upon the employer's right to direct and control the means and manner of performing the work").

[¶11] WSI has promulgated N.D. Admin. Code § 92-01-02-49(1)(a), delineating the common-law test:

An employment relationship exists when the person for whom services are performed has the right to control and direct the individual person who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so. The right to discharge is a significant factor indicating that the person possessing that right is an employer. The right to terminate a contract before completion to prevent and minimize damages for a potential breach or actual breach of contract does not, by itself, establish an employment relationship. Other factors indicating an employer-employee relationship, although not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work to the person who performs the services. The fact that the contract must be performed at a specific location such as building site, does not, by itself, constitute furnishing a place to work if the nature of the work to be done precludes a separate site or is the customary practice in the industry. If a person is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, the person will likely be an independent contractor. A person performing services as an independent contractor is not as to such services an employee.

[¶12] Section 92-01-02-49(1)(b), N.D. Admin. Code, contains twenty factors as a guide for determining whether a worker is an independent contractor or an employee. Cf. N.D. Admin. Code § 27-02-14-01(5)(b) ("The degree of importance of each factor varies depending on the occupation and the factual context in which the services are performed."). Under N.D. Admin. Code § 92-01-02-49(2), eight of the factors are given more weight in deciding whether an employer-employee relationship exists: integration; continuing relationship; significant investment; realization of profit or loss; working for more than one firm at a time; making services available to the general public; right to dismissal; and the right to termination. See Larry's On Site Welding , 2014 ND 81, ¶ 18, 845 N.W.2d 310.

IV

[¶13] WSI argues that the ALJ misapplied N.D.C.C. § 65-01-03 and N.D. Admin. Code § 92-01-02-49 in deciding Badger had rebutted the presumption of employee status of Quandt and other roustabouts. The primary focus of WSI's argument is that Quandt was doing the "same type of work" as some of Badger's other roustabouts who were treated as employees and that Badger did not rebut the statutory presumption of employment and prove the roustabouts who received remuneration for services under Badger's MSC with Continental were, in fact, independent...