Appealed From No. 95-R-0070-1. State Agency Department of Labor and Industry.
Before: Honorable Doris A. Smith, Judge, Honorable Bonnie Brigance Leadbetter, Judge, Honorable Charles P. Mirarchi, Jr., Senior Judge. Opinion BY Judge Smith.
The opinion of the court was delivered by: Smith
John H. Cameron and John H. Cameron and Sons, Inc. (Cameron) petition this Court for review of an order of the Department of Labor and Industry denying Cameron's petition for reassessment of unemployment compensation taxes related to wages paid to certain employees for services performed by them at Cameron's facility during 1993 through the second quarter of 1994. The Department concluded that Cameron was the employer of the employees covered by the assessment issued by the Bureau of Employer Tax Operations pursuant to Section 304 of the Unemployment Compensation Law (Law), Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. § 784.
The primary issue in this case of first impression is whether Cameron may exempt itself from unemployment compensation tax liability by entering into an employee leasing agreement with Human Resources, Inc. (HRI) and thereafter claiming that HRI gained control or direction over employees at Cameron's facility pursuant to terms of the agreement. Cameron also questions whether a valid employee leasing agreement existed between Cameron and Our Staff, another employee leasing company engaged by Cameron after its agreement with HRI was mutually terminated, and whether the Department committed an error of law or an abuse of discretion in disregarding the evidence presented.
On June 6, 1995, the Bureau of Employer Tax Operations filed a notice of assessment against Cameron for unemployment compensation contributions due and owing on wages paid to workers determined to be employees of the corporation during 1993 through the first quarter of 1995. On June 21, 1995, Cameron filed its petition for reassessment, and a hearing was held approximately three weeks later before a presiding officer, who certified the record to the Deputy Secretary of Labor and Industry for final decision. The parties stipulated that the assessment period should be revised to cover only 1993 and the first and second quarters of 1994; that the Bureau would grant a credit to Cameron for the contributions previously made by HRI on behalf of Cameron; and that the amount at issue was $58,714.32, for assessed contributions and interest.
The following pertinent findings of fact were made. Cameron is a heating, installation and contracting business, which began its operations in 1964. John H. Cameron is the President and sole shareholder of the business. On December 10, 1992, Cameron entered into an employee leasing agreement with HRI, which began its operations in 1993 as a staff leasing/personnel administration business. Cameron had a relatively high unemployment compensation rate, and HRI had a low contribution rate because it was a "newly liable employer." HRI had limited expertise in the heating and installation business, and after the execution of the leasing agreement, HRI hired Mr. Cameron as its on-site supervisor at the Cameron facility.
The presiding officer additionally found that Mr. Cameron had total control over the hiring, firing, payment of wages, discipline and supervision of the employees, who for the most part were employees of Cameron prior to the leasing agreement. Customers paid Cameron for work and services performed by the employees, and Cameron fully reimbursed HRI for any and all payments for salaries, health insurance and dental programs, 401K plans and pension plan on behalf of the leased employees. As of July 1994, the employee leasing agreement between Cameron and HRI was mutually terminated. Without requesting or receiving permission of the employees, Cameron transferred their employment from HRI to Our Staff after the second quarter of 1994.
The Department rendered its decision on September 5, 1996, denying Cameron's petition for reassessment. Noting the legislative intent behind the establishment of a newly liable employer contribution rate contained in Section 301(a)(4) of the Law, 43 P.S. § 781(a)(4), the Department stated that an experienced employer may not avoid a statutory tax obligation by entering into an employee leasing agreement to take advantage of tax relief granted to a new employer. Moreover, a newly liable employer may not sell its low contribution rate to an employer liable for contributions at a higher rate. The Department concluded that the evidence demonstrated that Cameron was the employer of the employees involved in the assessment. *fn1
Section 4(l)(2)(B) of the Law, 43 P.S. § 753(l)(2)(B), provides the definition of "employment" for purposes of assessment of unemployment compensation tax, and it governs Cameron's classification in this case. The section provides in pertinent part:
(2) The term 'Employment' shall include an individual's entire service performed within or both within and ...