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Life Force Caregivers, Inc. v. Unemployment Ins. Appeal Board

Superior Court of Delaware, New Castle

August 15, 2012

LIFE FORCE CAREGIVERS, INC., a Delaware corporation, Appellant,

Submitted: May 23, 2012.

Upon Consideration of Appeal From the Unemployment Insurance Appeal Board.

Michael W. Arrington, Esquire.

Thomas H. Ellis, Deputy Attorney General.


Joseph R. Slights, III, Judge.

1. The issue before the Court is whether Life Force Caregivers, Inc. ("Life Force") is exempt from insurance tax assessments under Delaware's unemployment insurance statute.[1] On December 15, 2010, the Unemployment Insurance Appeal Board (the "Board") affirmed the Appeals Referee's determination that Life Force is subject to insurance tax assessments.[2] The Board found that Life Force failed to prove that it is exempt from insurance tax assessments pursuant to the three-pronged test of 19 Del. C. § 3302(K)(10). The appellant, Life Force, denies liability for the tax, maintaining that G.J. Pour ("Claimant") is an independent contractor who is not engaged in covered employment pursuant to the three-pronged statutory test.

2. Because the Board in its initial decision failed to address the initial threshold question of whether Claimant performed "services" for "wages" within the definition of "employment" under 19 Del. C. § 3302 (10)(K), the Court remanded the case for a detailed factual determination on that issue.[3] The Board provided its second decision on the requested issue, dated April 25, 2012, in which it concluded that Claimant performed "services" for "wages." Life Force provided a supplemental memorandum of law in response arguing that the Board's decision is not supported by substantial evidence and reiterating that both of the Board's decisions are legally deficient.[4] The Court is now satisfied that the Board applied the correct legal standards and its decision was supported by substantial evidence. The decisions of the Board dated December 15, 2012 and April 25, 2012 are, therefore, AFFIRMED.

3. On appeal from the decision of an administrative agency, this Court's scope of review is limited to determining whether the Department's decision was supported by substantial evidence and free from legal error.[5] Substantial evidence is defined as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion."[6] The Court does not weigh evidence, assess credibility, or make independent factual findings.[7] "As such, if substantial evidence exists for the decision and there is no mistake of law, the decision must be affirmed."[8] Issues of statutory construction are subject to plenary review.[9] "A reviewing court may accord due weight, but not defer, to an agency interpretation of a statute administered by it."[10]

4. The main question before the Board was whether Life Force was exempted from paying insurance assessment taxes as provided in 19 Del. C. § 3302. The Board correctly cited the applicable statute and Delaware case law to support its decision. Unemployment insurance taxes are governed by the definitions in 19 Del. C. § 3302. Pursuant to these definitions, "employment" encompasses:

[S]ervices performed by an individual for wages, unless and until it is shown to the satisfaction of the Department that:

(i) Such individual has been and will continue to be free from control and direction in connection with the performance of such service, both under the individual's contract for the performance of services and in fact; and
(ii) Such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and
(iii) Such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.[11]

Under this framework, the first determination to be made by the Board is whether the individual was in a relationship of employment with the company, i.e., whether the individual performed services for wages.[12] This relationship must be established by the party implementing the statute for purposes of unemployment tax assessments (usually the Department of Labor), at which point the burden then shifts to the party seeking the benefit of the statutory exemption (usually the employer) to prove each of the three enumerated criteria.[13] Simply put, wages are "all remuneration for personal services...."[14] As the Board noted, in most cases, "services" must be performed on behalf of the employer and not for personal customers of the claimant from whom the employer receives no benefit.[15]

5. The facts provided in the Board's supplemental decision provide substantial evidence that Life Force paid "wages" directly to Claimant for "services" performed to Life Force clients on its behalf. Significantly, the Board pointed to the fact that Life Force "negotiate[s] the remuneration or other benefits involved individually with each client and each worker."[16] Life Force determines the payment scheme for its caregivers or "direct care workers" depending on the services to be provided; there is no set percentage paid to all direct care workers. Furthermore, Life Force pays the direct care worker's wages from the clients' payments to Life Force, taking out a portion for its own fee (which is not a set percentage either). In Cavan, the Court noted that even if fees are first paid to the "employer, " and then distributed to the workers, those facts are not dispositive of a "wage, " because the workers, in that situation, could still charge whatever fees they wanted.[17] Direct care workers, in this case, have the ability to reject a proposed assignment altogether, but otherwise have no negotiation power over fees or payment. Furthermore, the Board found that Life Force pays its direct care workers "regardless of payment by its clients."[18] The Court finds this fact highly relevant, as did this Court in Spar Marketing Services, Inc. v. Unemployment Insurance Appeal Board.[19]

6. Although the Court agrees that direct care workers provide most services directly to clients, and not directly to Life Force, the direct care workers are performing services on behalf of Life Force and the clients are, ultimately, Life Force's clients.[20] As a state licensed personal assistance services agency ("PASA"), Life Force is required to maintain the quality of its referred caregiv ers a nd, ultimate ly, "maintains responsibility for all services provided to the consumer."[21] The Board similarly noted that Life Force screens and manages all of its workers.[22] These facts lend substantial evidence to the Board 's conclusion that Claimant provided "services" for "wages" on behalf of, if not directly to, Life Force. In other words, a reasonable mind would accept this relevant evidence as support for the Board's decision.

7. After the initial burden of proving the employee performed "services" for "wages, " the employer bears the burden of proving that it meets all three of the statutory conditions under 19 Del. C. § 3302(10)(K).[23] In its initial decision, the Board properly stated that a "'failure of the employer to demonstrate a claimant's relationship of even one of the statutory conditions will leave him within the parameters of the Act.'"[24] In addition, the Board correctly explained that, in examining the nature of the relationship, the determination is based on the actual circumstances of employment and not solely on the understanding of the parties.[25]The Court adds that the determination is statutory and not limited to the common law principles of master and servant.[26]

8. The first requirement of the statute is that Life Force prove the Claimant "has been and will continue to be free from control and direction in connection with the performance of [her] service, both under the individual's contract for the performance of services and in fact."[27] The Board's application of its factual findings to an instructive Delaware case, Department of Labor v. Medical Placement Services, Inc., [28] was legally sound.[29] The Board found, as did the court in Medical Placement Services, the following facts provided substantial evidence of control over the Claimant: (1) Life Force maintains a pool of caregivers that are contacted by Life Force on an "as-needed basis;" (2) each caregiver must sign an "Independent Contractor Agreement;" (3) the caregivers receive their assignments from Life Force; and (4) Life Force determines the rate and schedule of payment and pays directly to caregivers from its own accounts.[30] In addition, the Board found that the Independent Contractor Agreement, itself, contains a provision that "prohibits caregivers from contacting Life Force clients directly without authorization in writing from Life Force"[31] - - another indication of control over Claimant. The Court finds this to be substantial evidence that Life Force exercises control and direction over its direct care worker in terms of performance of services.[32] Therefore, Life Force failed to meet its burden of proving all three requirements of 19 Del. C. § 3302(10)(K). Because the employer falls within the statute if it fails to prove any one prong, and Life Force failed to prove its exemption under the first prong, the Court need not reach the second and third prongs of the statute.[33]

9. Finally, the Court will address Life Force's argument that the legislature intentionally gave licensed PASAs, like Life Force, the ability to employ or contract with direct care workers.[34] Life Force contends that such latitude is "an essential component to the effective provision of services to the needy" because it allows Life Force to "meet the needs of consumers without the unjustified risk of liability under the doctrine of respondeat superior."[35] Life Force argues that the Board ignored the implications of the PASA regulations and thus, legally erred.

10. In fact, the Board did not ignore the PASA regulation but found it did not take Life Force out of the parameters of Delaware's unemployment compensation statute.[36] The Boa rd's factual findings and legal determinations pursuant to 19 Del. C. § 3302 were appropriate. First, the PASA regulation allows an agency to employ or contract with direct care workers. Based on that language, the statute allows, but does not require that a PASA hire independent contractors. The Board's determination regarding the status of a claimant (employee or independent contractor) is factually based.[37] Second, although 16 Del. Admin. C. § 4469 may be considered when determining whether Life Force meets the requirements of 19 Del. C. § 3302(10)(K), the determination remains within the statutory framework of the unemployment insurance statute, which the Board found by substantial evidence that Life Force failed to meet. Finally, the general nature of the work provided by a PASA, including personal care services that can be intimate and bordering on medical, suggests to the Court that the legislature may prefer that a PASA maintain a certain degree of control over its employees.[38]

11. For the reasons herein stated, the decisions of the Board are AFFIRMED.


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