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Department of Labor and Industry v. Workers' Compensation Appeal Board (Lin and Eastern Taste)

Supreme Court of Pennsylvania

June 26, 2018


          ARGUED: March 6, 2018

          Appeal from the Order of Commonwealth Court entered on February 17, 2017 at No. 627 CD 2016 reversing the order entered on March 23, 2016 by the Workers' Compensation Appeal Board at No. A15-1320.


          WECHT, JUSTICE

         In this appeal, we consider whether an individual contracted to perform renovations for a restaurant falls within the Construction Workplace Misclassification Act ("CWMA" or "the Act"), 43 P.S. §§ 933.1-933.17, such that he may be eligible for compensation under the Workers' Compensation Act.[1] The Commonwealth Court determined that the CWMA is inapplicable under these circumstances, that the claimant otherwise failed to establish that he was an employee of the restaurant, and that he accordingly is ineligible for workers' compensation benefits. We affirm the order of the Commonwealth Court.

         The material facts are undisputed. On February 21, 2011, Fu Xiang Lin began performing remodeling work for Eastern Taste, a restaurant that had not yet opened for business. Lin and three other individuals were hired by Lin's sister-in-law, Sai Zheng Zheng, who was the owner of Eastern Taste. They did not sign a written contract, but Lin was to be paid for his services on a per diem basis. Zheng's husband, Kond Bin Wang, oversaw the project. Wang told Lin what sort of work needed to be done, but he did not direct Lin's specific activities because Lin was a seasoned remodeler. Lin had worked in remodeling for fifteen years, and he was the most experienced individual involved in the project. Although Wang purchased the materials necessary for the project, Lin brought and used his own tools. Lin was hired only to complete the remodeling work, and he was not expected to work at the restaurant after it opened.

         On March 28, 2011, while repairing a chimney, Lin fell from a beam and landed on a cement floor, suffering serious injuries. In addition to numerous bone fractures, the impact caused trauma to Lin's spinal cord, rendering him paraplegic. On December 22, 2011, Lin filed a workers' compensation claim petition against Eastern Taste. On February 27, 2012, because Eastern Taste did not maintain workers' compensation insurance, Lin additionally filed a petition for benefits from the Uninsured Employers Guaranty Fund (the "Fund").[2] Both Eastern Taste and the Fund filed answers denying, inter alia, the existence of an employment relationship. Lin's claim petitions were consolidated and assigned to Workers' Compensation Judge Bruce Doman (the "WCJ") for disposition.

         At a hearing before the WCJ on April 27, 2012, Lin testified on his own behalf. Eastern Taste presented the testimony of Wang and Gheng Renkuar, another individual who worked on the remodeling project. Based upon the testimony, the WCJ concluded that the "critical facts in this matter are essentially undisputed," and made the following findings: a. Eastern Taste is a restaurant, not a construction business.

b. [Lin] was hired to do remodeling before the restaurant had ever opened.
c. The most experienced person on the job in the construction business was [Lin].
d. The owner's husband was in charge of what needed to be done.
e. [Lin] was paid on a per diem basis to do it along with three others.
f. [Lin] used his own tools and van. The owner's husband provided tools and materials as well.

         WCJ Decision, 4/17/2013, at 3. The WCJ further found that Lin's work was not conducted "in the regular course" of Eastern Taste's business, and that Lin's "employment was casual in character." Id.[3] Accordingly, the WCJ concluded that Lin failed to prove that he was an employee[4] of Eastern Taste, and, thus, that Lin was ineligible for workers' compensation benefits.

         Nonetheless, the WCJ recognized that "the result would be entirely different" if the CWMA applied. Id. at 4. In relevant part, the CWMA prohibits the "improper classification of employees" as independent contractors so as to avoid liability for workers' compensation benefits, and provides that "an individual who performs services in the construction industry for remuneration" may be classified as an independent contractor only if certain conditions are met. 43 P.S. § 933.3(a).[5] The WCJ concluded that the CWMA was inapplicable to Eastern Taste because it "is a restaurant in the restaurant business and not in the construction business." WCJ Decision, 4/17/2013, at 4.

         With regard to the relationship between Wang and Lin, the WCJ observed that Wang merely informed Lin what tasks he wanted to be completed, and it was Lin's job to do them. The WCJ opined that "[t]his is essentially the same relationship that property owners typically have with painters, plumbers, electricians, carpenters and other remodelers. These specialists bring their time and expertise." Id. Essentially, the WCJ concluded that, although these types of contractual relationships may involve construction activities, the individual who hires such a specialist is not "in the construction industry" for purposes of the CWMA. Because the CWMA was inapplicable, the WCJ determined that Lin's classification as an independent contractor rather than an employee was not improper under 43 P.S. § 933.3. Accordingly, the WCJ entered an order denying Lin's claim petitions.

         Lin appealed the WCJ's order to the Workers' Compensation Appeal Board ("Board"). On January 6, 2015, the Board reversed, concluding that Lin's employment was not "casual" in nature, and that Lin was an employee of Eastern Taste for purposes of workers' compensation. However, because the Board based its decision upon the general definition of an employee under the Workers' Compensation Act, it did not consider the applicability of the CWMA. The Board remanded to the WCJ to make any necessary findings and to enter an award of compensation. On October 28, 2015, in accordance with the Board's order, the WCJ made additional findings regarding the extent of Lin's injuries, wages, and litigation costs, then entered an order granting Lin's claim petition against Eastern Taste, with the Fund secondarily liable for the payment of compensation.

         The Fund appealed the WCJ's order to the Board. However, because the Board previously had considered the dispositive legal issue, the Fund merely sought to make the Board's earlier order final for purposes of appeal to the Commonwealth Court.[6] The Board obliged on March 23, 2016, and the Fund appealed the Board's order to the Commonwealth Court.

         On February 17, 2017, the Commonwealth Court reversed the Board's order, holding that Lin is ineligible for workers' compensation benefits. Dep't of Labor & Indus., Uninsured Emp'rs Guar. Fund v. W.C.A.B. (Lin & Eastern Taste), 155 A.3d 103 (Pa. Cmwlth. 2017). As was the case before the WCJ and the Board, the dispositive question was whether Lin was an employee of Eastern Taste or an independent contractor. Because independent contractors cannot recover workers' compensation benefits, the Commonwealth Court noted, "[w]hether one's status is that of an employee or independent contractor 'is a crucial threshold determination that must be made before granting workers' compensation benefits.'" Id. at 109 (quoting Universal Am-Can, Ltd. v. W.C.A.B. (Minteer), 762 A.2d 328, 330 (Pa. 2000)).

         The Commonwealth Court first reviewed the Board's stated bases for reversal of the WCJ's decision and determined that the Board relied upon facts that were inconsistent with the WCJ's findings. Stressing that the WCJ's findings of fact are binding upon the Board if supported by substantial evidence, the Commonwealth Court observed that the Board "exceeded its authority by making 'findings,' which, at a minimum, went beyond those made by the WCJ." Id. Because the WCJ's findings were supported by substantial evidence, the court concluded that "the Board engaged in impermissible fact-finding and then relied on those 'facts' to support its conclusion that [Lin] was an employee." Id. In other words, "[t]he Board did not base its legal conclusion on the facts as found by the WCJ, and that was error." Id. (emphasis in original).

         After rejecting the Board's "findings" and confining its inquiry to the facts as found by the WCJ, the Commonwealth Court analyzed whether those facts supported the conclusion that Lin was an employee of Eastern Taste, as opposed to an independent contractor. To resolve that question, the Commonwealth Court relied upon the multifactorial inquiry that this Court set forth in Universal Am-Can, which directs a court to consider:

Control of manner work is to be done; responsibility for result only; terms of agreement between the parties; the nature of the work or occupation; skill required for performance; whether one is engaged in a distinct occupation or business; which party supplied the tools; whether payment is by the time or by the job; whether work is part of the regular business of the employer, and also the right to terminate the employment at any time.

Id. at 110 (quoting Universal Am-Can, 762 A.2d at 333). The Commonwealth Court stressed the WCJ's finding that Wang was "in charge of what needed to be done," but that he "did not control the manner in which the work was to be completed." Id. The court reiterated the WCJ's comparison to the contractual relationship between property owners and "painters, plumbers, electricians, carpenters and other remodelers," who have the status of independent contractors, not employees. Id. The court noted that Eastern Taste is a restaurant, not a construction business, and that Lin was hired to perform remodeling work, not to work in the restaurant when it opened. Lastly, the Commonwealth Court found significance in Lin's use of his own tools. Because these factors tended to demonstrate that Lin was an independent contractor, the Commonwealth Court found no error in the WCJ's original determination that Lin failed to satisfy his burden of proof to establish an employer/employee relationship. Id. at 110-11; see Universal Am-Can, 762 A.2d at 330 ("It is a claimant's burden to establish an employer/employee relationship in order to receive benefits.").

         Having rejected the Board's conclusion that Lin was an employee of Eastern Taste under Section 104 of the Workers' Compensation Act pursuant to the Universal Am-Can framework, the Commonwealth Court turned to the separate inquiry of whether Lin may be deemed an employee pursuant to the CWMA. Noting that this was a question of first impression, the Commonwealth Court observed that, as a general matter, "[t]he CWMA concerns the construction industry and affects the determination of who is an independent contractor versus an employee" for purposes of workers' compensation. Lin, 155 A.3d at 111. Although Section 2 of the CWMA, 43 P.S. § 933.2, incorporates the definitions of "employer" and "employee" used in Sections 103 and 104 of the Workers' Compensation Act, 77 P.S. §§ 21, 22, the CWMA sets forth distinct criteria that must be satisfied before an "individual who performs services in the construction industry for remuneration" may be classified as an independent contractor for purposes of workers' compensation. See 43 P.S. § 933.3(a). The Commonwealth Court observed that, "[i]f a worker falls within the purview of the CWMA and does not meet the requirements to be considered an independent contractor under the CWMA, then that individual will be deemed to be an employee for purposes of workers' compensation." Lin, 155 A.3d at 111.

         The Commonwealth Court noted that the operative language of the CWMA restricts the application of the Act to services performed "in the construction industry." 43 P.S. § 933.3(a). Thus, the court reasoned, whether the Act applies to a given individual depends upon the correct interpretation of this phrase. Noting that the CWMA defines the term "construction, "[7] but provides no definition for the term "industry," the Commonwealth Court concluded that the latter term must be construed according to its common and approved usage. Lin, 155 A.3d at 112 (citing 1 Pa.C.S. § 1903(a)). The court observed that "[t]he term 'industry' is commonly defined as 'skill, employment involving skill' and 'a department or branch of a craft, art, business or manufacture.'" Id. (quoting Industry, Webster's Third New International Dictionary 1155 (2002)).

         Lin argued that the CWMA applied to his relationship with Eastern Taste because the Act does not specify a primary business purpose of the employer as a prerequisite to its applicability; Eastern Taste had not yet opened for business and was engaged only in construction activities at the time of his injury; and, by undertaking the remodeling project, Eastern Taste essentially took on the role of a general contractor in the construction industry. The Commonwealth Court elected to give Lin the "benefit of the doubt that arguably, the meaning of the phrase 'in the construction industry' is ambiguous," and thus, the court turned to the rules of statutory construction in order to ascertain the intent of the General Assembly in drafting the CWMA. Id; see 1 Pa.C.S. § 1921(c).

         Pursuant to the canons of statutory construction, the Commonwealth Court consulted the legislative history of the CWMA, as well as the manner in which the Pennsylvania Department of Labor and Industry ("Department") has interpreted and applied the Act. See 1 Pa.C.S. § 1921(c)(7)-(8). The court noted that, during debates in the Pennsylvania House of Representatives, Representative Brian Lentz, a sponsor of the bill that would become the CWMA, stated that "[s]ome construction firms routinely classify their employees as 'independent contractors' for the specific purpose of avoiding the payment of decent wages, health benefits, pensions, as well as Federal and State and local employment taxes that other legitimate employers pay." Lin, 155 A.3d at 112 n.17 (quoting H.R. Journal, No. 193D-33, at 743 (May 5, 2009)) (emphasis added). The court further relied upon an annual report issued by the Department's Secretary in 2015, which detailed the Department's enforcement of the Act during 2014. Notably, the Department provided explanations for instances in which the Department found no violation of the CWMA, which included determinations that the employers in question were not in the construction industry. Id. at 113. Moreover, the Department's standard complaint form for the reporting of alleged CWMA violations asks complainants to identify the type of construction services that the putative employer performs. Id. The Commonwealth Court accordingly concluded that both the legislative history of the CWMA and administrative guidance from the Department suggest that "it is the character and context of the putative employer that is determinative" of the applicability of the CWMA. Id. (emphasis added).

         Finally, the Commonwealth Court noted that courts must "presume that the General Assembly did not intend a result that is absurd or unreasonable." Id.; see 1 Pa.C.S. § 1922(1). Under Lin's suggested interpretation of the CWMA, the court reasoned, the Act would apply to contractual relationships far beyond its intended reach, "turning every individual and business choosing to undertake any remodeling project into an employer 'in the construction industry.'" Id. at 114. In the ...

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