Express, Inc. (DEI) challenges the Board of Industrial
Insurance Appeals' (Board) decision that DEI is obligated
to pay Industrial Insurance Act (IIA) premiums for some of its
drivers. Because substantial evidence supports the
Board's finding that the essence of the drivers'
independent contracts with DEI was their personal labor, DEI
failed to establish the drivers were exempt under the
leased-truck exemption of RCW 51.08.180, and the drivers'
status as sole proprietors does not exclude them from
coverage under RCW 51.12.020, we affirm.
provides same-day, next-day, and next-week Seattle delivery
service, including courier, freight, logistics and freight
forwarding. It advertises 24-hour on-call courier services
anywhere in Western Washington. When initially founded in
November 1996, DEI obtained a Washington Utilities &
Transportation Commission (WUTC) intrastate common carrier
permit, purchased vehicles, and hired drivers for whom it
paid workers' compensation premiums. In 2000, its
founder, David Hamilton, decided to expand DEI's business
by contracting with drivers who provided their own vehicles.
DEI started using an independent contractor agreement, under
which it "leased" the vehicle and driver and, in
return, paid the driver a commission for each completed
delivery. DEI contracted with drivers of 24-foot box trucks,
passenger cars, and "everything in between."
the terms of the agreements, the drivers were deemed
independent contractors providing transportation services to
DEI customers. Each driver was required to furnish and
operate a vehicle, pay the cost of operating and maintaining
the vehicle, and refrain from competing with DEI for any
customer whose freight the driver transported under a bill of
lading issued by DEI. The agreements identified the vehicle
the driver intended to use but did not mandate any size,
make, or model.
uses a dispatcher "app" to notify drivers of
available work. Some drivers have specific routes they drive
on a daily basis. Most, however, are "on demand,"
meaning once they download DEI's app onto their handheld
device, they can log in and wait for a delivery assignment.
The on-demand drivers can accept or reject any specific
delivery, although there is scant evidence they ever rejected
a job. The cargo delivered ranged from small items-such as
escrow documents and other paperwork, blood samples or
medical specimens, T-shirts, and computer hardware-to larger
items-such as lumber, raw materials, and non-inventory stock
for grocery and department stores.
February 2010, the Department of Labor & Industries
notified DEI it intended to conduct an audit for the calendar
year 2009 to determine DEI's compliance with workers'
compensation laws. By October of that year, the Department
notified DEI that the firm's independent contractor
drivers were covered workers under the HA. The Department
concluded the drivers did not meet any exemption under either
RCW 51.08.180 or 51.08.195. It notified DEI that
effective July 1, 2010,  DEI needed to report all driver hours
under a risk classification for "parcel delivery."
spoke with the Department auditor, Gina Bautista, by phone
and disagreed with her conclusions. One finding in particular
seemed to stick out to Hamilton-namely, that the drivers
rendered the same services as DEI did. Rather than appeal the
decision, DEI decided to change its business model and become
a "freight broker," rather than a common carrier.
On April 20, 2011, DEI ceased operating as a common carrier
when it obtained a freight broker license from the WUTC and
the United States Department of Transportation.
DEI changed its business model, it asked its drivers to
obtain a motor carrier license from the WUTC and required
them to execute new agreements, called broker-carrier
agreements. This agreement made no mention of
"leasing" any vehicles. Instead, it identified DEI
as the "broker" and the independent contractor as
the "motor carrier." Under the broker-carrier
agreement, the drivers agreed to "provide motor vehicle
equipment with drivers to provide small package/parcel pick
up and delivery service to [DEI's] shippers and
consignees." As under the former contractor agreement,
the drivers were paid a commission of each invoice DEI issued
to its customers. The covenant not to compete with DEI also
remained the same.
believed that by converting DEI's business model from
common carrier to freight broker, he was bringing the company
into compliance with the Department's audit because DEI
and the drivers would no longer be in the same line of
business. DEI did not pay any IIA premiums for the drivers
after it was notified of the 2009 audit results.
February 2011, the Department notified DEI it would conduct a
second audit for the calendar year 2010. The Department later
modified the audit period to include only the last two
quarters of 2010 and all of 2011. Once again, the Department
determined the drivers were covered workers.
September 19, 2012, the Department notified DEI that, as a
result of the audit, it was assessing $841, 639 in
workers' compensation premiums, penalties, and interest.
The Department imposed a penalty of $127, 500 for failing to
maintain adequate records under RCW 51.48.030 and a penalty
of $50, 000 for "knowingly and intentionally evad[ing]
paying workmen's compensation insurance."
sought reconsideration of the Department's order of
assessment. After receiving and reviewing additional
documents from DEI, the Department denied reconsideration on
January 17, 2014. DEI then appealed the Department's
assessment order to the Board. The Board granted the appeal
and referred the matter to an Industrial Appeals Judge (IAJ)
for an evidentiary hearing.
conducted the hearing beginning in the autumn of 2014 and
concluding in the summer of 2015, and, in June 2016, issued a
proposed decision and order affirming in part and reversing
in part the Department's assessment order. The IAJ found
that the majority of drivers were not exempt under RCW
51.08.180 or 51.08.195 but found three drivers qualified for
an exemption. It reversed the misrepresentation penalty and
affirmed the penalty for failing to maintain adequate
records. Because the Department's premium calculation
included three drivers whom the IAJ determined should be
excluded, the IAJ remanded the matter to the Department for a
recalculation of the premiums DEI owed.
September 2016, both parties asked the Board to review the
IAJ's proposed decision and order. On November 3, 2016,
the Board adopted the IAJ's decision and order as its
filed a petition for judicial review in King County Superior
Court, which affirmed in substantial part the Board's
decision. DEI appeals, arguing that the drivers are exempt
from IIA coverage for all or a portion of the audit period
under two separate provisions of RCW 51.08.180, or
alternatively, as sole proprietors under
Administrative Procedure Act, chapter 34.05 RCW, governs this
court's review of the Board's MA premium
assessments. RCW 34.05.570(3) provides that this court
may grant relief from an agency order if the agency has
erroneously interpreted or applied the law, or the order is
not supported by substantial evidence. We thus review the
Board's factual findings for substantial
evidenceand view the evidence in the light most
favorable to the Department, the party who prevailed before
the Board. The Board's conclusions of law are
reviewed de novo, giving substantial weight to the
contends the Board erred in finding that the drivers are
"workers" under two separate provisions of RCW
51.08.180. This statute extends MA coverage to:
every person in this state who is engaged in the employment
of or who is working under an independent contract, the
essence of which is his or her personal labor for an employer
under this title, . . . PROVIDED, That a person is not a
worker for the purpose of this title, with respect to his or
her activities attendant to operating a truck which he or she
owns, and which is leased to a common or contract carrier.
Board found that personal labor for delivering items was the
essence of the contract between DEI and most of its drivers,
and that these drivers were "workers" covered by
the IIA. The Board also found the drivers did not lease their
vehicles to DEI, making the leased-truck exemption
challenges the factual basis for the Board's
"essence of the contract" finding and the
Board's failure to define the word "truck"
under the leased-truck exemption.
"Essence of the Contract"-the White Test
determine whether the essence of a contract is personal
labor, this court looks "to the contract, the work to be
done, the situation of the parties, and other attendant
circumstances." The court focuses on the realities of
the situation.Whether a particular individual is a
"worker" under this provision of RCW 51.08.180 is a
mixed question of law and fact.
White v. Department of Labor &
Industries. the Supreme Court held that personal
labor is not the essence of a contract with an independent
contractor (1) when the independent contractor owns or
supplies machinery or equipment (as distinguished from the
usual hand tools) to perform the contract; (2) when the
independent contractor cannot perform the contract without
assistance; and (3) when the independent contractor either
chooses to or must employ others to do all or part of the
work he or she has contracted to perform.
court held in Henry Industries. Inc. v. Department of
Labor & Industries,  a factually analogous case,
that a courier service company's independent contracting
drivers were workers under RCW 51.08.180 because vehicles
they used to deliver packages were not specialized equipment
needed to perform the contracted work. As in
Henry, there is substantial evidence supporting the
Board's finding that the drivers' personal labor is
the essence of the agreements between DEI and the drivers.
The primary object is not the machinery the drivers own; it
is the service of driving packages from point A to point B.
paragraph 1 of the contractor agreement and paragraph 4 of
the broker-carrier agreement identify the purpose of the
agreements as providing delivery or transportation services.
The drivers testified that their full time "job"
was delivering packages for DEI, that DEI required them to
log in on a regular basis, that they logged in early in the
morning and remained available the entire day, that they
drove eight hours a day, Monday through Friday, for DEI, and
that they never hired anyone or asked anyone to help with the
deliveries, or asked anyone to log in on their behalf when
they were not available. This evidence supports a finding
that the work DEI needed was the labor of driving from one
location to another to pick up and drop off packages.
neither the contractor agreements nor the broker-carrier
agreements specified that the drivers had to provide any
particular type of vehicle. The majority of drivers used
small passenger cars, such as Toyota Yaris, Corolla, Scion
and Prius, Subaru Legacy, Honda Fit, Ford Focus, Chevrolet
Cavalier, Kia Rio, Nissan Maxima, Hyundai Elantra, and Nissan
Versa. As the court in Henry noted, these types of
vehicles are not the "'necessary machinery or
equipment' which, under White, would take this
agreement outside the operation of the
the contractor agreements imposed appearance and conduct
requirements on the drivers. For example, the agreement
required the drivers to "conduct themselves courteously
(both on the road and while with customers) and in a
professional manner." They were required to be
"neatly attired" and to wear "clean and
wrinkle free" uniforms. Hair had to be "clean, neat
and conservatively styled," and any mustaches or beards
had to be "neatly trimmed." These appearance and
behavior provisions are evidence that DEI placed more
emphasis on how the drivers interacted with its customers
than it did on the equipment the drivers used.
both the contractor agreements and the broker-carrier
agreements contain non-compete clauses that limit the
drivers' ability to solicit business from DEI customers,
both during the term of the agreement and for 6 to 12 months
thereafter. Such a clause is another strong indication that
DEI entered into a contract with the driver for his or her
personal skills at delivering packages in an efficient
manner, rather than simply leasing a vehicle to effectuate
evidence provides substantial support for the Board's
finding that the drivers' personal labor was the essence
of their contracts with DEI.