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Penick v. Employment Security Department

filed: April 19, 1996.


Superior Court of Lewis County. Superior Court Docket No. 92-2-00510-5. Date Filed In Superior Court: August 23, 1994. Superior Court Judge Signing: H. Hall.

Written By: Seinfeld, C.j., Concurred IN By: Morgan, J., Houghton, A.c.j.

Author: Seinfeld

SEINFELD, C.J. -- Donald Penick challenges a $32,890.26

assessment for unpaid contributions to the employment security fund. He contends that the drivers of his company's trucks were independent contractors, not his employees. We conclude that Penick failed to present evidence qualifying him for the exemption set forth in RCW 50.04.140. Thus, we affirm.


Penick owns Double Eagle Trucking (Double Eagle), a sole proprietorship that engages in the interstate transportation of goods. Primarily, it transports wood shakes from Washington to Northern California.

With the deregulation of the trucking industry, Penick found it increasingly difficult to compete using truck drivers whom he paid by the mile traveled. Consequently, he required his employee-drivers to sign a contract changing their status to that of joint venturers or independent contractors. However, Double Eagle continued to own the trucks and operate them under its authority from the Interstate Commerce Commission (ICC). It also continued to provide fuel repairs and maintenance, license, and insurance and to handle state and federal reporting requirements.

The contracts, which could be terminated by either party at any time, entitled the contract drivers to 20 percent of the gross revenue generated by the loads they hauled. The drivers paid their own federal income tax, social security and medicare taxes, and motel and food expenses; they did not receive sick leave, vacation, or other benefits. The drivers could hire a "lumper" if they needed help in loading or unloading.

In the event of an accident, the contract required the drive to pay damages not covered by the $2,500 deductible provision of Double Eagle's insurance policy. The drivers were also liable for shortages and cargo damage.

Double Eagle assigned the contract drivers to specific trucks. The drivers often installed a variety of amenities

to make life on the road more comfortable, e.g., stereo systems, televisions, refrigerators.

Penick also used the services of owner/operator drivers to whom he paid 80 percent of their gross revenues. Double Eagle leased trucks from owner/operators for a specified period of time, but the owner remained responsible for truck repair and maintenance, insurance, license fees, trip expenses, and fuel costs. The leased trucks carried the Double Eagle insignia and were operated under Double Eagle's ICC authority. Penick agreed to give owner/operators 20-days notice before termination.

Although Penick usually secured the load for the outgoing trip, the contract and owner/operators drivers occasionally obtained their own loads. Once Penick obtained a load, he selected a driver without preference between his lists of contract drivers and owner/operator drivers. Any driver was free to reject an offer to haul a load secured by Penick and could choose, instead, to haul a load obtained by the driver.

Although Penick did not bear the responsibility for finding a load for the return trip, both Penick and the drivers profited from a return load. Penick obtained return loads for about half the trips; the drivers found their own return loads for the other half of the trips.

Double Eagle handled the billing and collection and provided bi-weekly draws for trip expenses to the drivers. It also made bi-weekly payments to the drivers for their share of the payment for a particular haul. The driver did not receive payment until the customer paid Double Eagle.

Penick required his drivers to clean the inside and outside of the truck, adhere to all federal and state laws and safety regulations, and to call in every day by 10 a.m. while en route. But he allowed the drivers to select their own routes and to select their driving hours, so long as the hours complied with legal requirements regarding maximum driving time and rest periods. He also permitted drivers to take others with them.

The Employment Security Department (Department) assessed

Double Eagle for unpaid contributions to the fund, penalties, and interest for the period 1988 through the first half of 1990. Penick appealed the assessment.*fn1 An Administrative Law Judge (ALJ) heard testimony from Penick, from his company manager, and from a Department tax specialist.

Penick introduced as evidence copies of the contracts. He also provided federal income tax returns for two of the 44 individuals he had identified as contract drivers and evidence of separate insurance for a third individual who was both an owner/operator and a contract driver.

The ALJ, the Employment Security Commissioner and the superior court all affirmed the Department's determination that the contract drivers were in employment and not exempt. On appeal, Penick contends that (1) the Commissioner lacked jurisdiction to decide the matter; (2) the contract drivers were not in his employment, as that term is used in RCW 50.04.100; and (3) he was entitled to an exemption for the contract drivers.


The purpose of the Employment Security Act (the Act) is to mitigate the negative effects of involuntary unemployment on the individual and society. RCW 50.01.010. The Legislature found that it could achieve this goal "only by application of the insurance principle of sharing the risks, and by the systematic accumulation of funds during periods of employment." RCW 50.01.010. To accomplish this goal, courts must liberally construe the statute, viewing with caution any construction that would narrow coverage. Shoreline Community College Dist. No. 7 v. Employment Sec. Dept., 120 Wash. 2d 394, 842 P.2d 938 (1992).

RCW 50.04.100 and 50.04.140 guide the Commissioner in determining who is covered by the Act. Penick alleges

that the Commissioner incorrectly interpreted both statutes with respect to Double ...

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