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Employee or Independent Contractor? The Appellate Commission Applies its Own Facts to Overturn Magistrate’s Decision

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Tyler J. Olney
Foster Swift Workers' Compensation Update
February 21, 2020

In July 2019, the Michigan Compensation Appellate Commission (“the Commission”) issued an Opinion in the case of Christopher Parshall v Worden & Company, Inc. In Parshall, the Commission reversed the magistrate’s factual determination that Mr. Parshall was an independent contractor and not an employee as defined by the Workers’ Disability Compensation Act (“Act”).

For employment on or after January 1, 2013, MCL 418.161(n) requires the use of a standard derived from IRS Revenue Ruling 87-41. This new test, known as the “20-factor test,” is now used to determine whether a worker is an employee or an independent contractor. The distinction is significant because, while an employee is entitled to workers’ compensation benefits, an individual classified as an independent contractor is not.

Parshall arose out of intervening plaintiff Acuity Mutual Insurance’s (“Acuity”) application seeking recoupment of the first party no-fault automobile benefits paid to Mr. Parshall. Acuity sought a determination from the magistrate as to Mr. Parshall’s employment status and entitlement to workers’ compensation benefits. Acuity argued that Mr. Parshall was an employee of defendant Worden & Company, Inc. (“Worden”). Section 3109 of Michigan’s No-fault Act provides that workers’ compensation is primary to no-fault -- and it entitles the no-fault carrier to reimbursement (from the employer) where that no-fault carrier has paid benefits to or on behalf of a worker who is later found entitled to workers’ compensation. See MCL 500.3109. Thus, if Acuity prevailed on its argument that Mr. Parshall was an employee, it would be entitled to reimbursement from the employer and its workers’ compensation insurance carrier for the $280,000.00 in medical benefits it paid on behalf of the plaintiff.

At trial, only Acuity, the no-fault carrier, took the position that Mr. Parshall was an employee. As noted, only if Mr. Parshall were an employee, would Acuity be entitled to recoup, from the employer, for all the medical expenses Acuity had paid. If the magistrate determined that Mr. Parshall was in fact an independent contractor, Acuity would not be entitled to reimbursement. Notably, Mr. Parshall himself believed he was an independent contractor.

Mr. Parshall worked as a mechanic servicing trucks for Worden. He was injured while on Worden’s premises when one of Worden’s trucks ran him over. He testified that he was on a Military disability and Social Security disability at the time that he commenced performing services for Worden. During the duration of his work for Worden, he underwent psychological treatment with a Veteran’s Administration counselor. Those records showed that Mr. Parshall referred to the “work” he performed for Worden as “therapy.” He reportedly told his therapist that he was under stress due to the work he performed, the “rigors” of repairing trucks, and the fact he was asked to fire another worker at Worden.

There was conflicting testimony about Mr. Parshall’s compensation for the work performed. It is undisputed that the agreed upon rate was $10.00 per hour. However, there was a dispute among the parties whether he ever actually received any payment. An employee for the insured testified that Mr. Parshall received paychecks on a regular basis. Mr. Parshall claimed he was never paid.

The magistrate reviewed and applied each and every one of the 20 statutory factors as required by the Act. The magistrate determined that application of the following statutory factors supported Acuity’s contention that Mr. Parshall was an employee of Worden: his work was essential to the employer’s operations; he performed work on the employer’s premises; Mr. Parshall did not invest in or maintain separate facilities; and he did not make his mechanic services available to the general public.

However, the magistrate determined that the majority of the factors supported the employer’s contention that Mr. Parshall was an independent contractor: he received little to no instructions; Worden did not provide any training; Mr. Parshall was free to come and go as he chose; he could set the priority and order of his jobs; he did not provide any written reports; he furnished most of his own tools; though he worked significant hours, there was no testimony to support that he was required to work full time; and finally, he never received payment for his services and “clearly sustained a loss.”

The magistrate held that Acuity, as the intervening plaintiff, had the burden of proof relative to Mr. Parshall’s employment status. The magistrate noted that there were factors which favored both sides; however, she determined Acuity failed to meet its burden of proof. Thus, she found Mr. Parshall was an independent contractor. 

Acuity appealed to the Commission. The Commission noted that the magistrate addressed and applied each of the 20-factors as she was required to do. The Commission further acknowledged that a magistrate is entitled to great deference on findings of fact.  The Commission stated that a magistrate’s “[f]indings of fact…shall be deemed conclusive if supported by competent, material, and substantial evidence on the whole record.” Notwithstanding this deference to be accorded to findings of fact, the Commission nevertheless elected to substitute its own findings of fact for those of the magistrate.

The Commission determined that the evidence simply did not support, with competent material and substantial evidence, the magistrate’s decision that Mr. Parshall was an independent contractor. The Commission performed its own qualitative review of the facts presented at trial, applied each of the 20-factors, and ultimately decided that the factors supported a finding that Mr. Parshall was an employee. Thus, the Commission decided that Worden and its worker’s compensation carrier were obligated to reimburse Acuity for the medical expenses Acuity had paid.

It is quite interesting that the Commission acknowledged that the magistrate properly reviewed and discussed the 20-factor test. Yet, the Commission substituted its judgment for that of the magistrate. Some might argue that the Commission overstepped in this case by substituting its own fact finding where the record contained competent material and substantial evidence that supported the magistrate’s decision.

For context -- this Opinion was issued by the Commission in July 2019, just days before Governor Gretchen Whitmer issued Executive Order No. 2019-13. That Order abolished the old Michigan Compensation Appellate Commission and established the Workers’ Disability Compensation Appeals Commission. The three commissioners who issued this Opinion were appointed to and remain on the newly formed Commission.  

The Parshall Opinion may be a sign that the Commission intends to become more actively involved in fact-finding of its own. Of course, here the Commission’s decision primarily benefited a no-fault carrier in its quest for reimbursement from a worker’s putative employer. And, while Mr. Parshall neither sought, nor benefited from the Commission’s decision that he was an “employee,” this decision may signal that the Commission’s inclination to find an “employment” relationship where the nature of the worker’s relationship is contested. In most cases, this will inure to the benefit of the worker.

If you have any questions, please contact a member of Foster Swift's Workers' Compensation practice group.