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Esparza v. Employment Security Department

February 10, 1997

BRIAN ALEXANDER ESPARZA, APPELLANT,
v.
EMPLOYMENT SECURITY DEPARTMENT, RESPONDENT.



Appeal from Superior Court of King County. Docket No: 95-2-00614-1. Date filed: 09/27/95. Judge signing: Hon. Robert S. Lasnik.

PER CURIAM. The Employment Security Department (State) disqualified appellant, Brian A. Esparza, from receiving unemployment compensation. Because the State improperly forced Esparza to allocate his business expenses on a weekly basis rather than prorating the expenses over the period at issue, we remand for redetermination of Esparza's employment status and recalculation of any overpayment amount. *fn1

During a period in which he was receiving unemployment benefits of $273 per week, Esparza was self-employed as an independent commission salesperson of vacuum cleaners for Kirby of Lakewood. Although Esparza earned income from his sales job, he continued to report on his unemployment claims forms he was not working. The State found Esparza knowingly withheld material facts (i.e., that he was employed by Kirby) and thereby obtained benefits to which he was not entitled. Because of his misrepresentation, the State found him at fault and liable for an overpayment of $3,822.

Esparza appealed the determination and had a hearing before an administrative law Judge (ALJ). He testified he worked part-time, was free to set his own hours and was paid solely by commission. His work hours varied, depending on whether he had funds to cover the costs of child care and travel. His weekly gross earnings ranged from $213 to more than $4,400.

Esparza contended he did not knowingly misrepresent any material facts because he acted on the advice of a State employee at the Auburn branch office who said he did not have to report his sales job as employment.

Ronald Staples, a State employee at the Auburn branch, admitted it would have been "possible" an employee gave Esparza such advice, and that there were several new employees in the office at the time. But Staples said it would be unusual for an employee to say self-employment need not be reported; he estimated the chance such advice was given at less than 10 percent.

The ALJ noted he needed to determine the amount of Esparza's business expenses, which were to be deducted from his earnings, to determine whether he was unemployed and to calculate the proper overpayment amount. In his brief, Esparza says he provided the ALJ with a "Profit & Loss Statement" that showed his expenses. In its brief, the State says the ALJ considered and rejected the expense statement. Finding the expenses had to be broken down on a weekly basis, the ALJ recessed the hearing for nearly two months to give Esparza an opportunity to provide a weekly allocation of his expenses.

When the hearing resumed, the ALJ referred to information submitted by Esparza that "shows a bunch of payments . . . but your expenses are going to have to be broken down by week." The ALJ granted Esparza a ten-minute recess to break the expenses down on a weekly basis, and went off the record.

When the hearing resumed, the ALJ explained some "calculation" had occurred during the break. Esparza maintains the ALJ decided, while off the record, not to allow some of the expenses. The state represents the ALJ accepted some expense evidence and rejected other evidence as not credible. As the record does not show the ALJ reviewing the expense evidence for its validity, we presume the review occurred during the ten- minute recess while the hearing was not recorded. On the record, the ALJ considered expenses totaling $1,752.82 for the period at issue. Esparza's lowest weekly expense amount was zero and the highest $517.41.

In his written findings and Conclusions, the ALJ found Esparza was engaged in commission sales on a less than full-time basis. He limited his consideration of expenses to those put on the record at the hearing. The ALJ concluded Esparza did not qualify as being unemployed during his time as a salesperson. The Judge found when claiming benefits, Esparza reported neither work nor earnings. He found Esparza failed to offer an acceptable explanation for this failure. The ALJ concluded the State proved by clear, cogent and convincing evidence that Esparza should be disqualified from receiving benefits for knowingly misrepresenting a material fact under RCW 50.20.070 *fn2 He concluded Esparza was at fault for making the misrepresentation and was liable to repay a modified overpayment amount of $3,549.

Esparza filed a petition for review to a commissioner. The commissioner adopted the ALJ's findings and Conclusions and affirmed the decision. Esparza filed a petition for judicial review in superior court. After hearing argument from the parties, the court upheld the State's decision.

Esparza filed a notice of appeal to this Court. He assigns error to the Conclusion he should be disqualified from benefits for misrepresentation, as well as the manner in which the Conclusion was drawn; to the ALJ's exclusion of evidence by which Esparza sought to establish his net income; to the ALJ's limitation on the amount of business expenses he could deduct from his net income; to the ALJ's decision not to prorate his net income over the entire period at issue; and to the ALJ's failure to maintain a complete record of the adjudicative proceeding.

Judicial review is governed by the Washington Administrative Procedure Act (WAPA). The WAPA allows a reviewing court to reverse an administrative ruling when, inter alia,: (1) the agency has failed to follow a prescribed procedure; (2) the agency has erroneously interpreted or applied the law; (3) the decision is not supported by substantial evidence; (4) the order is based on an unexplained inconsistency with a rule of the agency; or (5) the decision is arbitrary or capricious. RCW 34.05.526(3). This Court sits in the same position as the superior court, applying the standards of the WAPA directly to the record before the agency. Tapper v. Employment Security Dep't, 122 Wash. 2d 397, 402, 858 P.2d 494 (1993). The agency's decision is prima facie correct and the burden of proving otherwise is on the party opposing it. Read v. Employment Security Dep't, 62 Wash. App. 227, 232-33, 813 P.2d 1262 (1991).

The main issue is whether the State correctly found Esparza knowingly misrepresented his employment status by failing to report he was working and earning income from Kirby of Lakewood.

An individual shall be disqualified for benefits for any week with respect to which he has knowingly made a false statement or representation involving a material fact or knowingly failed to report a material fact and has thereby obtained or attempted to obtain any benefits . . . . RCW 50.20.070. Only an "unemployed" individual is eligible for benefits. RCW 50.20.010. We must look to the definition of "unemployed," for if Esparza ...


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