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Vail v. S/L Services, Inc.

United States District Court, D. North Dakota

January 10, 2017

Dawn Vail, individually and as Trustee for North Dakota Workforce Safety & Insurance, Plaintiff,
v.
S/L Services, Inc., Defendant.

          REQUEST FOR ANSWERS TO CERTIFIED QUESTIONS AND ORDER FOR TRANSMITTAL TO THE NORTH DAKOTA SUPREME COURT

          Charles S. Miller, Jr., Magistrate, United States District Court Judge

         I. CERTIFIED QUESTIONS

         Pursuant to N.D. R. App. P. 47, the United States District Court for the District of North Dakota respectfully requests that the North Dakota Supreme Court answer the following questions that have arisen in this action between plaintiff Dawn Vail (“Vail”) and defendant S/L Services, Inc. (S/L Services):

1. In this case, where Vail was an employee as a matter of law at all times she worked for S/L Services but S/L Services (a) treated Vail on its payroll and otherwise as an independent contractor prior to her workplace injury, (b) thereafter opposed Vail's claim for workers' compensation benefits on the basis that she was not an employee, and (c) omitted Vail's wages from its premium payroll report in August 2013 (even after being told by WSI in July 2013 that it needed to include Vail as an employee) may (a), (b), and/or (c), either independently or in combination with one another, serve as a failure “to secure coverage for employees” for purposes of N.D.C.C. § 65-04-33(2) if done willfully within the meaning of that section, even if S/L Services later paid a premium that included consideration of Vail's wages for the period in which she was injured after WSI demanded it do so?
2. In this case, where Vail was an employee as a matter of law at all times she worked for S/L Services but S/L Services (a) treated Vail on its payroll and otherwise as an independent contractor prior to her workplace injury, (b) thereafter opposed Vail's claim for workers' compensation benefits on the basis that she was not an employee, and (c) omitted Vail's wages from its premium payroll report in August 2013 (even after being told by WSI in July 2013 that it needed to include Vail as an employee) may (a), (b), and/or (c), either independently or in combination with one another, serve as a misrepresentation of the “amount of payroll upon which a premium under this title is based” for purposes of N.D.C.C. § 65-04-33(2) if done willfully within the meaning of that section, even if WSI calculated the premium for the period during which Vail was injured using Vail's wages and S/L Services paid that premium?
3. In this case, where S/L Services failed to include in its wage report for the August 2012 - August 2013 premium period the wages of some six or seven welder's helpers who were similarly situated to Vail and whose wages were not included in WSI's calculation and billing for that premium period, but were later included in a subsequent billing by WSI following a 2014 audit and paid by S/L Services at that time, can the failure on the part of S/L Services to include the wages of these other welder's helpers in the August 2012 - August 2013 wage report constitute a violation of § 65-04-33(2), if it was done willfully within the meaning of that section, and can Vail rely upon that alone to support a claim that S/L Services has lost its immunity from a common law suit for damages for her workplace injury?
4. In order to prove a violation of § 65-04-33(2), is Vail required to demonstrate that S/L Services knew at the time it engaged in the conduct that Vail claims amounts to a violation that she or any of the other workers similarly situated were employees as a matter of law and entitled to workers' compensation coverage?
5. In proving a violation of § 65-04-33(2), can Vail satisfy the statute's scienter requirement if she proves that S/L Services acted in reckless disregard of the fact that she and any other workers similarly situated were employees as a matter of law and entitled to worker's compensation coverage at the time it engaged in the prohibited conduct?
6. In proving a violation of § 65-04-33(2), can Vail satisfy its scienter requirement by proving only that S/L Services intentionally, and not inadvertently, committed an act prohibited by the statute and not prove any other state-of-mind, including that S/L Services had knowledge of the relevant obligations imposed on an employer under the worker's compensation laws, that S/L Services knew that Vail was an employee as a matter of law, that S/L Services intended to deceive WSI or otherwise violate the law, or that S/L Services acted in reckless disregard of the law's requirements or that Vail was an employee as a matter of law?
7. Can S/L Services avoid a finding of a violation of § 65-04-33(2) if it can be demonstrated that, at the time it engaged in the conduct that is alleged to have constituted a violation, it believed in good faith that Vail or other similarly situated workers were not employers as a matter of law, even though that belief was mistaken?

         II. STATEMENT OF FACTS

         Except to the extent indicated otherwise, the following facts should be taken as true for the purposes of the certified questions.

         S/L Services, a Montana based company, submitted an “Application for Insurance” to WSI on August 23, 2012. (Doc. No. 9-2). Prior to submitting its application, S/L Services did not have North Dakota workers' compensation coverage for the work it was doing within the state, relying instead upon extra-territorial coverage from the State of Montana. In the application, S/L Services estimated that in the next 12 months it would have 42 employees and total taxable wages of $976, 500.00. (Id.).

         On August 28, 2012, WSI issued S/L Services a “Premium Billing Statement” charging an estimated premium for the period from August 23, 2012 to August 31, 2013 that was based upon the number of employees that S/L Services reported and their estimated wages. (Doc. No. 9-3, p. 2). S/L Services paid the premium by check dated September 4, 2012. (Id. at p. 3). On September 10, 2012, WSI issued S/L Services a “Certificate of Premium Payment” with an expiration date of November 14, 2013. (Doc. No. 9-6).

         Within days of S/L services having paid its initial premium, Vail came to work for S/L Services as a welder's helper. Initially, she worked with welder Steve Basse. After several months she was paired with welder Tell Cook, although on occasion she did other work as assigned. (Doc. No. 40-4).

         Vail worked for S/L Services for the better part of eight months up to the time that she suffered a workplace injury on May 25, 2013. During that time, Vail worked every week, except for the last two weeks of December 2012 and for the month of January 2013. In most weeks, Vail logged over 40 hours per week and in some weeks more than 70 hours. (Doc. No. 37-10).

         During the entire time that Vail worked for S/L Services, she was treated as an independent contractor. She was paid a flat amount per hour for the hours she worked with no withholdings for federal income tax and social security. Before she started work, S/L Services required that she complete a form W-9 and, for the 2012 tax year, S/L Services reported to the IRS the compensation paid her using Form 1099, Schedule 2.[1] (Doc. No. 15-9). Finally, Vail was not paid overtime for the many weeks she worked in excess of 40 hours as required by North Dakota's wage and hour laws for employees. (Doc. No. 37-10).[2]

         After suffering her on-the-job injury on May 25, 2012, Vail filed a claim with WSI in late May for compensation for her injuries. (Doc . No 52-1, p.2). After Vail filed her claim, WSI required that S/L Services complete a form that asked for certain information about Vail's employment, including her dates of employment, her hourly wage, and whether her work was full time, part time, or seasonal. In addition, the form asked whether S/L Services was contesting the claim, and, if so, what the basis for contesting it was. In response to that question, S/L Services wrote: “Dawn Vail is a subcontractor not an S/L Services Inc. employee.” (Doc. No. 15-8).

         Because of this response, WSI required that S/L Services complete a “Worker Relationship Questionnaire, ” which WSI stated would be used in helping to determine whether Vail was an employee or an independent contractor. S/L Services completed the form and the answers that it gave were consistent with its position that Vail was not an employee. (Doc. Nos. 37-6).[3]

         Notwithstanding S/L Services' objection to Vail's claim, WSI, in a “Notice of Decision Establishing Employee Status and Accepting Claim and Awarding Benefits” dated July 10, 2013, advised that it “ha[d] determined S L Services Inc. is an employer of Dawn Vail and any similarly situated workers and awarded Vail benefits.” (Doc. No. 15-4). The notice further ordered pursuant to N.D.C.C. § 65-04-33 that S/L Services was required to “submit all wages for all employees including Dawn Vail, and any similarly situated employees, to WSI for the previous six (6) years.” (Id.). Finally, the notice advised that S/L Services had 30 days in which to seek reconsideration of the order and that, if reconsideration was not sought, the decision establishing Vail as an employee and the award of benefits would become final. (Id.).

         The thirty days in which S/L Services had to seek review of WSI's determination that Vail was an employee and entitled to benefits ended on or about August 9, 2013. S/L Services has presented no evidence that it sought review of that determination during this 30-day period or obtained an extension to do so.

         On August 22, 2013, S/L Services submitted its “Employer Payroll Report” for the period from August 23, 2012 to August 31, 2013. (Docket No. 9-4). To complete the report, S/L Services was required to provide the name, classification, and payroll information of each of its employees. Despite the outstanding order from WSI that S/L Services provide the payroll information for Vail and others similarly situated, S/L Services did not include in the payroll report Vail's wages or the wages of some six or seven other welder's helpers who WSI later determined were similarly situated. (Id.; Doc. Nos. 15-6, 52-1). Further, while some wages were reported for four other welder's helpers, there is evidence which suggests that, for one or more of these persons, this information was provided because S/L Services had paid them wages for a short period of time before reclassifying them as independent contractors and that S/L Services did not include the amounts of compensation that were paid after reclassification.

         In an affidavit filed by Steve Belka, Premium Audit Supervisor for WSI, he stated the following with respect to the wage report filed by S/L Services for the August 2012-August 2013 reporting period:

16. WSI did not make a determination of whether or not S/L Services “willfully” misrepresented payroll to WSI. We did determine that Dawn Vail and others were not reported as employees during the August 2012-August 2013 reporting period.

(Doc. No. 52-1, p.2).

         On September 6, 2013, WSI issued S/L Services a “Premium Billing Statement” for the period from August 23, 2012 to August 31, 2013, in the amount of $26, 737.23. (Doc. No. 9-5). While S/L Services had reported a total of $1, 022, 324.29 in adjusted wages for premium purposes in its wage report, [4] WSI increased the adjusted total to $1, 065, 204.29 in its premium billing. (Id.). According to Premium Audit Supervisor Steve Balka, this adjustment included an amount for Vail's wages for the premium period in question because of WSI's earlier determination that Vail was an employee. (Doc. No. 45-1, p.2). In other words, WSI caught the fact that at least Vail's wages had not been included in S/L Services' wage report.

         S/L Services paid the full amount of the billed premium by check dated September 12, 2013. (Doc. No. 9-5). That is, S/L Service did pay a premium for the billing period of August 23, 2012 to August 31, 2013 that was based in part on the compensation paid Vail for the premium period in which she suffered her injury.

         In November 2013, S/L Services, acting through its accountant, sent a letter to WSI dated November 18, 2013, asking it to reconsider its decision to classify Vail as an employee and pay her benefits. (Doc. No. 18-1).[5] S/L Services has offered no evidence that WSI acted upon this request, much less changed its earlier decision. In any event, it is immaterial now with S/L Services having acknowledged for purposes of this action that Vail was an employee, as discussed later.

         In the first quarter of 2014, WSI audited S/L Services for the period from August 23, 2012 through August 31, 2013, i.e., the period of Vail's injury as well as for the then current reporting period . (Docket No. 15-6). WSI's “Audit Remarks and Message” discussing the audit states, in part:

The business issued 24 1099s during the audited period totaling $665, 189.38. They were issued for the services of welding. The 1099s were reviewed closely as per the notes on the account, an individual reported a claim under this account and was claiming to be an employee while the employer stated they were a 1099 individual. After much review with these 1099s, it was determined we will be picking up the individuals that do not have a contract on file with the employer, are not currently listed as employees of the company, and do not have a business name. Many detailed questions were asked to the employer to get a better understanding of these individuals and the burden of proof was not met to treat them as independent. For this reason, these individuals were picked up as employees. See Payroll Cap Worksheet None to 6301.

(Docket No. 15-6, p. 5). On June 20, 2014, WSI sent S/L Services a “Notice of Decision” advising that, as a result of the audit, S/L Services would be charged an additional premium for the audit period and for the period from September 1, 2013 to August 31, 2014. (Docket No. 18-2). This was subsequently paid by S/L Services.

         With respect to the 2014 audit, Premium Audit Supervisor for WSI, Steve Balka, stated the following in another affidavit that he has executed in connection with this case:

13. Because we suspected that S/L Services had improperly classified other workers as independent contractors (and therefore omitted their wages from payroll reporting), we conducted an audit of their account in April 2014. The audit covered the August 2012-August 2013 reporting period. As a result of that audit, we identified seven individuals whom S/L did not report as employees in August 2013 whose wages should have been disclosed for premium calculations. We calculated additional premium owed on these employees. These individuals were Charles Vap, Jesse LaBoy, Joseph Long, John Young, Juan Ramon Rodriguez, Enrique Parra, and Joshua Schneider.
14. S/L was then asked to pay additional premium based on the wages paid to the above individuals, which S/L did. WSI relies on employers to accurately report the wages paid to individuals on their annual payroll report.
15. WSl has the authority under NDCC 65-04-33 to assess a penalty against employers who willfully misrepresent payroll.
16. WSI did not make a determination of whether or not S/L Services "willfully" misrepresented payroll to WSI. We did determine that Dawn Vail and others were not reported as employees during the August 2012-August 2013 reporting period.

(Doc. No. 52-1). While it appears that Balka's affidavit testimony is uncontradicted, it should be assumed as being true for purposes of the certified questions.

         In addition to seeking workers' compensation benefits from WSI, Vail also filed a claim with the North Dakota Department of Labor on November 2, 2013, seeking a recovery of overtime pay she claimed she was entitled to based on her status as an employee. S/L Services contested the claim, contending she was an independent contractor and not an employee. It also attempted to assert a “counterclaim” for per diem amounts it had advanced to Vail but that Vail purportedly had not properly documented she was entitled to retain. (Doc. No 37-10). In a written determination dated June 6, 2014, the Department of Labor determined that Vail was an employee and that she was entitled to the overtime pay she claimed. (Id.).

         S/L Services has now acknowledged in deposition testimony that Vail was an employee for the entire period that she performed work for S/L Services - a point that it had initially continued to contest in this action.[6]

         III. THE FEDERAL ACTION

         Vail initiated this action on January 23, 2014, suing in her own capacity and as trustee for WSI. S/L Services moved to dismiss prior to answering. The court denied the motion, concluding that Vail had stated a claim based on the facts pled in the complaint as well as in selected documents presented by the parties from the underlying WSI administrative process over which there was no dispute. In particular, the court rejected S/L Services' argument that the mere opening of an account and paying some premium insulated it from any claim pursuant to § 65-04-33(2). Vail v. S/L Services, Inc., No. 4:14-cv-008, 2015 WL 1393161, at **8-10 (D.N.D. Mar. 25, 2015). And, while the court noted the difficulty of applying the relevant statutes given the manner in which WSI collects its premiums, it concluded that one possible pathway open to Vail was if she could prove that S/L willfully misrepresented its payroll as to the compensation paid Vail during the period in which she was injured. Id. The court also noted the possibility of making an argument for failure to secure coverage. Id. at *10 n.6.

         Following the completion of discovery, this matter is back before the court upon a motion for summary judgment filed by S/L Services. S/L Services contends in its motion that Vail does not have a claim of violation of § 65-04-33(2) as a matter of law because S/L Services not only secured workers' compensation coverage for its employees but also because it did pay a premium for coverage for the period in which Vail was injured that was based in part on the amount of compensation it paid Vail, even though the payment came after Vail was injured and after the acts that Vail claims violated § 65-04-33(2). In the alternative, S/L Services contends that at no time did it “willfully” fail to secure coverage or misrepresent its payroll within the meaning of § 65-04-33(2).

         IV. DISCUSSION OF THE ...


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