Department of Labor, Licensing & Regulation v. Fox

RODOWSKY, Judge. This appeal involves liability for unemployment insurance taxes under Maryland Code (1991), § 8-607 of the Labor and Employment Article (LE). 1 The appellant, Department of Labor, Licensing and Regulation (the Department), contends that persons placed in temporary jobs at dentists’ offices by ⁴⁸⁷ the appellee are employees of the appellee for unemployment insurance tax purposes. The appellee, Nancy S. Fox (Fox), denies liability for the tax, maintaining that the temporary workers are independent contractors who are not engaged in covered employment. On judicial review of the Department’s determination that the workers were covered employees, the Circuit Court for Carroll County held that they were independent contractors.

Prior to consideration of the Department’s appeal by the Court of Special Appeals, this Court granted certiorari on its own motion. We shall reverse the circuit court for the reasons set forth herein. I Because the decision of this case is governed by statutory rules, and not by common law principles relating to master and servant, we first present the relevant statutes. During the period involved here, any “employing unit” must pay unemployment insurance contributions on the first $7,000 of annual taxable wages for “covered employment” performed for the employing unit. § 8-607.

Section 8-201 defines the scope of covered employment in relevant part as follows: “Except as otherwise provided in this subtitle, employment is covered employment if: (1) regardless of whether the employment is based on the common law relation of master and servant, the employment is performed: (i) for wages; or (ii) under a contract of hire that is written or oral or express or implied____” Subject to exceptions not here relevant, the term “ ‘|w]ages’ means all compensation for personal services ----” § 8-101(v)(1). Under § 8-201 proof by the Department of employment for wages or under a contract of hire creates a presumption of covered employment, and the burden is upon the employer to demonstrate an exemption from covered employment. Blue Bird Cab Co. v. Maryland Dep’t of Employment ⁴⁸⁸ Sec., 251 Md. 458, 464 , 248 A.2d 331, 334 (1968); Department of Employment Sec. v. Charlie’s Barber Shop, 230 Md. 470, 475 , 187 A.2d 695, 698 (1963); and Warren v. Board of Appeals, 226 Md. 1, 16-17 , 172 A.2d 124, 131 (1961). See also Md. Regs.Code tit. 09, § 32.01.18A (1973) (COMAR).

One of the exceptions to “covered employment” is § 8-205, “Independent contractors.” That section reads: “Work that an individual performs under any contract of hire is not covered employment if the Secretary is satisfied that: (1) the individual who performs the work is free from control and direction over its performance both in fact and under the contract; (2) the individual customarily is engaged in an independent business or occupation of the same nature as that involved in the work; and (3) the work is: (i) outside of the usual course of business of the person for whom the work is performed; or (ii) performed outside of any place of business of the person for whom the work is performed.” The burden is on the employer to persuade the Secretary of the Department that each of the conjunctively stated elements of the exemption has been satisfied. Blue Bird Cab, 251 Md. at 464-65 , 248 A.2d at 334 ; Charlie’s Barber Shop, 230 Md. at 475 , 187 A.2d at 697-98 ; Warren, 226 Md. at 16-17 , 172 A.2d at 131 . II Fox is a sole proprietor who trades as “Dental Placements.” She furnishes temporary help exclusively to dentists’ offices in the greater Baltimore metropolitan area. Principally Fox refers hygienists and dental assistants, but she also occasionally refers dentists and dental secretaries.

Fox maintains a registry of those persons qualified, and, where required, licensed to render the four types of services ⁴⁸⁹ described above. Persons interested in work at a dental office on a temporary basis through referral by Fox complete a questionnaire describing their skills, licensing, education, references, and availability. Fox verifies the information furnished by the applicant. If Fox is satisfied to include the prospective worker on Dental Placements’ registry, the worker must sign a contract headed, “Subcontractor Agreement,” under which the applicant agrees to specified conditions.

They are: 1. “To acquire any malpractice insurance necessary to the performance” of the applicant’s duties in a dental office to which the applicant is referred; 2. “To accept any placement assigned by Dental Placements in the capacity of an Independent Contractor ... ”; 3. “To be compensated for [the applicant’s] services in accordance with the current fee schedule available upon request from Dental Placements, at the completion of [the applicant’s] placement assignment ... ”; and 4. Not to accept permanent placement offered or found as a result of temporary assignment arranged by Dental Placements until the prospective employer has paid Fox a placement fee. Dentists who wish to avail themselves of the services of Dental Placements also sign a written contract, labeled “Policy Statement” or “Policy Contract.” It specifies the fees to be paid by the dentists to Fox for various types of temporary placement. These fees are payable upon receipt of Fox’s invoice by the dentist.

Included in the agreement is the dentist’s promise to pay a cancellation fee for any cancellation after confirmation of a temporary placement and a higher cancellation fee for cancellation on the day for which the temporary work was scheduled. Participating dentists also agree to pay Fox a fee if the temporary work results in a permanent placement. As of February 15, 1992, that fee was $1,075 for a hygienist who had worked for the hiring dentist for thirty hours or more in the preceding twelve months. ⁴⁹⁰ At the time of the agency evidentiary hearing, the fee paid to Fox by a dentist for the services of a hygienist for a fall day was $209, and under her then fee schedule Fox would pay the hygienist $155. Fox unilaterally determines the amount of fee that she will pay to the workers.

She testified that if a hygienist was not satisfied with the scheduled amount to be paid, the hygienist “can go on her merry way.” If a dental office is dissatisfied with a temporary worker, it is the dentist, and not Fox, who has the authority to remove that individual from the temporary position. She furnishes no tools to the workers. Further, Fox holds no license in the dental services field and does not hold herself out as qualified to perform any services in that field for which no license is required. She is an administrator.

To the extent that the workers are directed how to perform their services while on a temporary job, the direction is given by persons at the particular dentist’s office. In July 1992 a field auditor employed by the State of Maryland audited Dental Placements’ records from 1990 forward and concluded that the workers were engaged in covered employment for Fox. Fox was unsuccessful in first level, intraagency review. She administratively appealed, and an evidentiary hearing was held December 14, 1993, before a special examiner of the Department of Economic and Employment Development. 2 The special examiner found that Fox exercised “more than minimal control” over the workers because she determined “what individuals would be referred to each appropriate dentisVdental clinic” and determined on a “take it or leave it” basis the specific fee to be paid to the worker for that person’s services.

The special examiner noted that Fox decided who would be placed on the registry, and he also relied on the ⁴⁹¹ provisions of the contract for hire that dealt with permanent placement. With respect to the second element that Fox was required to prove under § 8-205(2), the special examiner concluded: “There was no evidence presented by the employer to support [her] contention that any or all of the individuals listed in the Agency’s audit were customarily engaged in an independently established occupation or business of the same nature as that involved in the service in question during the calendar years 1990,1991 and 1992.” With respect to the third element of § 8-205, the special examiner found that “all such work was performed outside of any place of business owned by [Fox].” The special examiner concluded that, with the exception of seven persons not here involved, the individuals listed in the agency’s audit of Fox for 1990, 1991, and 1992 were engaged in covered employment. 3 The Board of Appeals of the Department of Economic and Employment Development (the Board) adopted the findings of facts and conclusions of law of the special examiner and affirmed the examiner’s decision. On Fox’s petition for judicial review the Circuit Court for Carroll County reversed for the reasons stated in a written opinion. 4 The heart of the circuit court’s rationale was as follows: ⁴⁹² “In this case, Fox does not control the work procedures or standards of the professionals. Fox provides nothing to the dental professionals except the opportunity to take a job placement.

The dental professionals who need licenses or special education, get those items themselves. The professionals obtain their own insurance, uniforms and instruments, when needed. The professionals need not ever go to Fox’s office. No work is performed at Fox’s office.

Fox cannot ‘fire’ the dental professionals. They are contracted to perform work for a dental office. Only the dental office can fire the professional. The Board argues that because Fox has the power to decide who gets which placements, she controls these professionals.

This does not make any sense to the Court because the professional decides whether or not to take a job and the dental office themselves tell the professionals how they want a job performed. Fox has no control over these professionals and their performance of their duties for the dental offices.” Ill The scope of judicial review of a determination by the Board in an unemployment insurance tax case is set forth in § 8-512(d). “In a judicial proceeding under this section, findings of fact of the Board of Appeals are conclusive and the jurisdiction of the court is confined to questions of law if: (1) findings of fact are supported by evidence that is competent, material, and substantial in view of the entire record; and (2) there is no fraud.” In Baltimore Lutheran High School v. Employment Sec. Admin., 302 Md. 649 , 490 A.2d 701 (1985), we considered substantially the same statute in an earlier form and concluded that ordinarily the reviewing court “shall determine (1) the legality of the decision and (2) whether there was substantial evidence from the record as a whole to support the decision.” Id. at 662 , 490 A.2d at 708 . ⁴⁹³ IV Here, the circuit court concentrated its analysis on matters of control over the details of the work as well as on the right to hire and, particularly, to fire. In so doing the circuit court paid little heed to the direction of § 8-201(1) under which there is a presumption of covered employment “regardless of whether the employment is based on the common law relation of master and servant.” Prior decisions of this Court forcefully illustrate the difference between covered employment and a common law master-servant relationship. In Department of Employment Sec. v. Charlie’s Barber Shop, 230 Md. 470 , 187 A.2d 695 , a “master barber” who owned and operated a barbershop in Ocean City leased chairs in his shop to other barbers.

Each lessee paid the barber a fixed weekly sum for use of a chair along with $5 per week for tonics and linens. Id. at 473 , 187 A.2d at 696 . The terms of the lease also stipulated that each lessee had use of his chair during normal working hours but was under no compulsion to report to work; was free to set his own prices (although all of the barbers’ prices were uniform); kept all fees and tips without accounting to the shop owner; had his own key to the shop, his name posted behind his chair, his own price list posted, and his own business cards; furnished his own tools; and paid self-employed social security tax. Id. at 473 , 187 A.2d at 696-97 .

The lessees did not list themselves as individual barbers in the telephone directory. Id. at 473 , 187 A.2d at 696 . The agency’s finding that the lessees were engaged in covered employment was reversed by the circuit court. Id. at 472 , 187 A.2d at 696 .

This Court reinstated the agency’s decision, holding that there was substantial evidence that the lessees were not free from control, based largely on a “working in harmony” clause in the leases. We said: “As to freedom of control or direction, it appears that [the master barber] could not tell the other barbers how to provide services for a customer, nor could he control their working hours. It also appears that the contract of lease ⁴⁹⁴ could not be broken by [the master barber] if he no longer wished to have one of the [lessees] work in the shop, except for the clause that states they must work ‘in harmony’ with the others. It would be unrealistic to believe that he could not ‘fire’ one of the barbers if he found it necessary to do so in order to protect the business patrons of the shop, particularly in the face of no applicable standards of what is to constitute ‘harmony.’ ...

We feel that there is not the absence of control or direction so as to satisfy [the statutory predecessor of § 8-205(a) ]. Although [the master barber] may not have had the full freedom to terminate the employment relationship as is usually found in such cases, he did have such power as to amount to constructive control.” Id. at 475-76, 187 A.2d at 698 . In Blue Bird Cab Co. v. Maryland Dep’t of Employment Sec., 251 Md. 458 , 248 A.2d 331 , we addressed the issue of whether drivers who operated taxicabs owned by a taxicab company were employees of the company for unemployment insurance tax purposes. Blue Bird Cab Company (Blue Bird) owned seventy-four cabs bearing its name and leased them to holders of valid chauffeurs’ licenses.

Id. at 460-61 , 248 A.2d at 332 . According to the terms of the lease, drivers paid a flat fee to Blue Bird. They purchased gasoline at their cost wherever they chose. Drivers could use the cabs for personal use and take them out of state.

Id. at 461 , 248 A.2d at 333 . Although a driver was required by law to keep a daily manifest, Blue Bird received no part of the drivers’ fares or tips and required no financial reports from the drivers. Id. at 462 , 248 A.2d at 333 . A dispatcher located at Blue Bird’s central office used a two-way radio system to inform drivers of calls for cabs, but drivers were not required to undertake the fare.

Id. at 461 , 248 A.2d at 332 . Blue Bird provided all maintenance for the automobiles. Id. at 461 , 248 A.2d at 333 . The agency found that the drivers were engaged in covered employment, and the circuit court affirmed.

Id. at 459-60 , 248 A.2d at 332 . On appeal, this Court affirmed. We focused on the specifics of the lease arrangement under which the drivers agreed “ ‘to ⁴⁹⁵ obey the operating rules of the Owner, ... covering general minimum standards of operation and cleanliness,’ ” and on the drivers’ agreement not to “ ‘sublet or allow any other party to use said leased equipment.’ ” Id. at 465 , 248 A.2d at 3 .35. The drivers further agreed to “ ‘reimburse Lessor on return of the equipment to Lessor for any breakage, shortage, or damage to said leased equipment.’ ” Id.

We held that these lease provisions provided Blue Bird with enough control over the drivers to exclude the drivers from being treated as independent contractors. Id. Here, there was substantial evidence that the workers were not free from control by Fox with the result that Fox failed to satisfy the requirement for exemption set forth in § 8-205(1). We base our holding on the following facts.

Dental Placements is not a mere referral or brokering service which matches the needs for staffing of dentists’ offices with the availability of independent contractors. Under the Dental Placements’ system of doing business there is an express contract between Fox and a dentist and a separate express contract between Fox and the worker. The fee paid by the dentist to Fox covers both Fox’s service in matching need with help and the wages to the