Opinion handed down May 12, 2015
A deputy of the Division of Employment Security (“DES”) determined that Gateway Taxi Management, d/b/a Laclede Cab Company (“Laclede”), owed unemployment taxes because Laclede’s drivers had performed services for “wages” and were “employees” of Laclede.[1] Laclede appealed the DES decision to the appeals tribunal, which reversed the determination.[2] Thereafter, the DES appealed to the Labor and Industrial Relations Commission (“LIRC”), which reversed the appeals tribunal’s decision on the basis that Laclede’s drivers were employees.[3] The instant decision followed, after the court of appeals issued an opinion and the Supreme Court of Missouri granted transfer.[4] The Supreme Court of Missouri affirmed the LIRC’s ruling after finding that competent and substantial evidence supported the LIRC’s holdings that Laclede paid wages to its drivers for their services and that the drivers were employees of Laclede.[5]
I. Facts and Holding
Laclede operates a taxi service in St. Louis, Missouri.[6] Laclede drivers sign an “Independent Contractor Agreement” upon being hired, which provides that the status of the driver is that of an independent contractor.[7] Aligned with the status of independent contractor, drivers are given a certain amount of control over their operations.[8] Drivers can use their own vehicles or lease cabs from an affiliate of Laclede.[9] Drivers who choose to lease a vehicle can choose between twelve- and twenty-four-hour shifts.[10] Laclede pays for insurance and maintenance on the leased cabs, but drivers must pay for cleaning and fuel.[11]
On the other hand, some restrictions are imposed on the drivers, and Laclede is given a degree of control.[12] First, drivers who use their own vehicles must paint their cabs to match those cabs that are leased, use the same signage, and pay a weekly fee to Laclede.[13] Second, drivers who lease vehicles are restricted to two options for shift length, must only use the cabs for business purposes, and must not sublease the cabs.[14] Third, all drivers are required to use Laclede’s GPS-based dispatch system, and the drivers are not allowed to have cell phones while driving for Laclede.[15] Additionally, drivers may keep all cash collected, but Laclede takes a ten percent cut from credit card receipts and company voucher receipts, both of which drivers must accept.[16] Lastly, drivers are subject to the Metropolitan St. Louis Taxicab Commission’s Vehicle for Hire Code, which requires compliance from Laclede and its drivers in regards to: driver’s licensing, appropriate and authorized colors, logo, trademark, symbols, and lettering, and necessary equipment.[17]
A DES deputy determined that Laclede owed unemployment taxes for the period of 2009 to 2011 because Laclede’s “drivers performed services for ‘wages’ in the ‘employment’ of Laclede,” as defined by Missouri Revised Statutes Section 288.034.[18] Laclede appealed the DES finding and the appeals tribunal reversed.[19] DES then appealed to the LIRC, which reversed after finding Laclede’s drivers to be employees.[20] After an appeal to the Missouri Court of Appeals for the Western District, which found Laclede’s drivers to be independent contractors instead of employees, the Supreme Court of Missouri granted transfer to determine whether the Missouri Employment Security Law, contained in Missouri Revised Statutes Sections 288.010 to 288.390, covers Laclede and its drivers.[21]
II. Legal Background
The Missouri Employment Security Law (the “Law”), enacted in 1937, recognizes economic security as a “serious menace to health, morals, and welfare of the people . . . .”[22] With this danger at the forefront, the Law seeks to promote employment security by increasing job opportunities through the use of public employment offices and the payment of compensation to unemployed individuals.[23]
In regard to payment of unemployment compensation, the Law mandates unemployment reserves be set aside for the purpose of benefiting “persons unemployed through no fault of their own.”[24] Such reserves are funded solely through a tax levied on employers and no deductions are made from workers’ wages to fund the unemployment insurance.[25]
The requirements of the Law, however, do not apply to all entities.[26] At the most fundamental level, an employment relationship, defined by Section 288.034.1, must exist.[27] If it does, the next level of inquiry looks to whether the workers are employees or independent contractors.[28] The Law applies only to an entity’s payments to employees.
A. “Employment” Under Section 288.034.1
First, for the Law to extend to an entity, an employment relationship must exist. Section 288.034.1 defines “employment” as “service . . . performed for wages . . . .”[29] Further, Missouri Revised Statutes Section 288.036.1 defines “wages” as “all remuneration, payable or paid, for personal services including commissions and bonuses and . . . the cash value of all remuneration paid in any medium other than cash.”[30]
In Higgins v. The Missouri Division of Employment Security, there was a question of whether there was an employment relationship as defined under Section 288.034.1.[31] The alleged employer argued that the cab drivers of her company were not paid wages.[32] A Missouri court of appeals found that the cab drivers were paid remuneration under Section 288.036.1 even though the fare was retained by the cab drivers each night and the money was never under the dominion or control of the employer.[33]
In Higgins, the cab drivers, at the end of their shift, totaled up the gross amount of fares collected, subtracted the amount spent on gas, and kept fifty percent of the cash balance.[34] The driver then left the remainder of the cash and a three-dollar fee with the employer.[35] In finding that wages were paid and an employment relationship existed, the court noted, “[t]he fact that Higgins employed the convenience of having the drivers pay themselves by retaining their portion of the fares rather than deliver the money to her for redistribution does not mean the drivers were not ‘paid’ or that the wages were not ‘payable’ within the context of [S]ection 288.036.1.”[36]
- “Employee” or “Independent Contractor” Under Section 288.034.5
Once an employment relationship is found, the burden is on the employer to prove that the workers were independent contractors, rather than employees.[37] Section 288.034.5 provides guidance in making this determination, as it expressly states, “In determining the existence of the independent contractor relationship, the common law of agency right to control shall be applied.”[38]
The common law right to control test examines whether the alleged employer retains the right to control the manner and means by which the results are to be accomplished or only the results.[39] If there is control over the manner and means, the individual who performs the service is considered to be an employee; if there is control only over the results, the individual who performs the service is considered to be an independent contractor.[40]
In addition to the common law test, a state regulation was implemented in 1990 for the purpose of ensuring consistent interpretation of Section 288.034.5.[41] This regulation provides that courts should look to Title 26, Section 3306(i) of the United States Code and consider case law, Internal Revenue Service (“IRS”) regulations, and IRS letter rulings in interpreting and applying the Statute.[42] Under this authority, courts often analyze the following factors recognized by the IRS for determining employment status:
(1) Instructions; (2) training; (3) integration; (4) services rendered personally; (5) hiring, supervising, and paying assistants; (6) continuing relationship; (7) set hours of work; (8) full time required; (9) doing work on employer’s premises; (10) order or sequence set; (11) oral or written reports; (12) payment by hour, week, month; (13) payment of business and/or traveling expenses; (14) furnishing of tools and materials; (15) significant investment; (16) realization of profit or loss; (17) working for more than one firm at a time; (18) making service available to general public; (19) right to discharge; and (20) worker’s right to terminate.[43]
III. Instant Decision
The Supreme Court of Missouri reviewed the LIRC’s decision to determine whether it was “supported by competent and substantial evidence upon the whole record.”[44] The court determined the LIRC’s findings to be supported by such evidence and affirmed the LIRC’s decision.[45]
In determining whether the Law covered Laclede and its drivers, the court first examined whether the relationship between Laclede and its drivers was one of “employment” as defined by Section 288.034.1.[46]
Laclede argued that it did not pay its drivers remuneration and attempted to convince the court that passengers, not Laclede, paid the drivers.[47] The court was not persuaded, and agreed with DES that the LIRC was correct in finding that Laclede’s drivers had received remuneration from Laclede for their personal services.[48] The court noted that the case would be clear if the drivers had been required to turn over all customer fares to Laclede and were later paid a percentage of those fares by Laclede as remuneration.[49] The fact that this “shuffle” was avoided by drivers simply retaining their share of the fares and subsequently turning the remainder over to Laclede does not change the end result – Laclede paid their drivers “wages” for personal services.[50]
Upon establishing that competent and substantial evidence supported a finding that Laclede paid its drivers “wages” for “employment,” the court next analyzed whether Laclede met its burden under Section 288.034.5 of proving that the drivers were independent contractors.[51] The court noted that Section 288.034.5 requires the application of the common law agency right to control test.[52]
The court also noted that DES interpreted Section 288.034.5 in light of case law and IRS regulations and service letter rulings.[53] The court stated that these sources include the IRS’s revenue ruling that creates twenty factors for determining employment status and recognized that it has approved consideration of these factors in determining whether an entity is an employer or independent contractor.[54]
The court went on to state that its review in this instance was confined to “whether there was substantial evidence to support the LIRC’s finding that the worker’s were [Laclede’s] employees.”[55] Applying this standard, the court did not reweigh the factors, but looked to ensure that there was competent and substantial evidence to support the LIRC’s decision.[56] After noting that the LIRC found that thirteen of the twenty IRS factors weighed in favor of an employer/employee relationship, the court affirmed the LIRC’s decision that Laclede’s drivers were employees, not independent contractors.[57]
IV. Comment
The Supreme Court of Missouri properly decided the issues presented by Gateway Taxi. First, the court followed Higgins in refusing to get overly technical in determining whether an employment relationship existed. Services were rendered, for which remuneration was paid, even though the fares in this case were never in Laclede’s control. This is the appropriate result, because, plainly, payment by way of a more convenient manner should not shield the employer from payment of unemployment taxes. Second, the court avoided allowing the twenty IRS factors to take over its analysis of the employee-independent contractor distinction and stuck to the standard of review, properly examining only the issue of whether there was sufficient evidence to support the LIRC’s findings.
In light of the desired liberal construction of the Law[58] and the facts of the case, the Supreme Court of Missouri succinctly reached the appropriate result in the instant case.
[22] William C. Martucci, Legislation, 37 Mo. Practice, Emp’t Law & Practice § 14:1 (Nov. 2014); Mo. Rev. Stat. § 288.020 (2015).
[23] § 288.020.
[28] § 288.034.5.
[29] § 288.034.1.
[31] 167 S.W.3d 275, 276 (Mo. Ct. App. 2005).
[37] Mo. Rev. Stat. § 288.034.5 (2015) (“Service performed by an individual for remuneration shall be deemed to be employment subject to this law unless it is shown to the satisfaction of the division that such services were performed by an independent contractor.”).
[43] Gateway Taxi Mgmt. v. Div. of Emp’t Sec., 461 S.W.3d 830, 834 (Mo. 2015) (en banc) (citing Rev. Rul. 87–41, 1987– 1 C.B. 296).
