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The Pivotal Law Blog

Case Law Update – Employee or Independent Contractor?

Posted Wednesday, November 8, 2017 by McKean J. Evans

Whether a worker is an employee or an independent contractor is a critical distinction for employees and employers alike. For employees, the distinction can affect entitlement to overtime, breaks, legal protections and additional benefits. The distinction’s importance to employers is underscored by the Washington Court of Appeals’ recent decision in Swanson Hay, et al. v. Emp’t Sec. Dep’t., in which several Washington employers were found liable for six figure back tax penalties for unemployment insurance on employees the employers mistakenly treated as independent contractors.

In Swanson Hay, three motor carriers challenged the State’s assessments of unemployment insurance taxes on amounts the employers paid for services provided by their “owner operators.” The “owner operators” were workers who owned trucking equipment, leased it to a carrier, and then used that equipment under contract to haul freight for the carrier. While the motor carriers hoped this relationship relieved them of responsibility for paying unemployment insurance tax, the court disagreed.

Washington’s Employment Security Act was enacted in 1937 based on drafts of similar federal legislation. The Act authorized taxes in order to provide unemployment benefits to individuals “unemployed through no fault of their own” under an insurance program. The Act defined employment broadly with very limited exceptions. Only workers falling into the narrow exception were exempt from the unemployment insurance tax. Washington revised the Act substantially in 1945, further broadening its definition of employment.

The motor carriers in Swanson Hay made several arguments against having to pay the unemployment tax. First, they argued that, even if their “owner operators” really were employees under Washington law, Washington’s unemployment insurance law was preempted by federal long haul trucking regulations. The court rejected this argument because Washington’s requirement that truckers’ employers pay unemployment insurance tax was sufficiently narrow that it did not disrupt federal law governing truckers. Nor did paying the tax destabilize the motor carriers to such a degree as to affect prices or services that the federal law was intended to govern.

Second, the motor carriers argued that their “owner operators” should be treated as independent contractors rather than employees, which would permit the motor carriers to refrain from paying unemployment tax on those workers. The court again disagreed, finding the motor carriers possessed sufficient control over the “owner operators” to render the “owner operators” employees for purposes of Washington unemployment tax.

Describing “the right to control the methods and details of the worker’s performance” as “the crucial issue,” the court considered the motor carriers’ control over their “owner operators.” Among other things, the motor carriers had exclusive control and possession of their “owner operators’” equipment, required the “owner operators” to use the motor carriers name, address and operating authority number, and required the “owner operators” to keep scrupulous records.

This decision underscores the practical importance of getting the employee-independent contractor distinction right.

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Court of Appeals Rules on Case of Business Collapse and Attempted Murder

Posted Wednesday, November 1, 2017 by McKean J. Evans

In a recent unpublished decision, the Court of Appeals ruled on a business dispute between two former partners involving the business’ loss in the 2008 crash and one partner’s attempt to murder the other to collect insurance money.

Dr. Michael King and Dr. Michael Mockovak successfully owned and operated multiple Lasik eye surgery clinics in the United States and Canada. The business venture was successful until the 2008-2009 recession, when demand for elective eye surgeries dropped. Despite selling several practices, the business was more than $2.8 million in debt by the end of 2009. The businesses became unable to pay both King and Mockovak.

In late 2009, King and Mockovak decided to part ways. Before they could divide up the business however, the FBI arrested Mockovak for trying to arrange King’s murder. The plan was to kill King and collect on a $4 million key-man life insurance policy on King’s life. A jury ultimately convicted Mockovak of attempted murder and attempted theft and sentenced him to 20 years in prison. Thereafter, King formed a new business and continued practicing.

King and Mockovak sued each other over the losses to the business as well as Mockovak’s attempt to solicit King’s murder. The jury found mostly in favor of King. On appeal, Mockovak made several unsuccessful arguments.

Mockovak argued the trial judge should have dismissed potential jurors who stated Mockovak’s attempt to murder King would make them less likely to find in Mockovak’s favor in the lawsuit. Although some jurors indicated Mockovak’s attempted murder might make them hesitate to award him money, every juror represented to the judge that they were nevertheless able to be fair and impartial. Thus, the Court of Appeals found no error.

Mockovak also argued that the trial judge erred in not instructing the jury that it could not consider testimony regarding the attempted murder. The Court of Appeals ruled that the jury should not have been told it could not consider any argument or testimony regarding Mockogak’s crimes because those crimes could have had an effect on the businesses. The Court of Appeals also noted the trial judge was appropriately concerned with Mockvak’s attempts to refuse to answer questions regarding the criminal activity in the context of the business dispute.

The Court of Appeals also ruled King’s lawyer’s statements to the jury regarding Mockovak’s crimes did not deprive Mockovak of a fair trial. In closing arguments, King’s lawyer commented to the jury regarding Mockovak’s failure to take responsibility for the business’ debts, as well as his character and the harm to King. The Court of Appeals determined that these statements were insufficiently flagrant to warrant a new trial.

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WA Supreme Court Clarifies Standard For Asserting Discrimination Claims; Reinstates Age And Gender Discrimination Lawsuit

Posted Wednesday, October 25, 2017 by McKean J. Evans

The Washington Supreme Court’s recent En Banc ruling in Mikkelsen v. Public Utility District No. 1 of Kittitas County clarifies what an employee must allege in order to sue for illegal discrimination under Washington law. In that case, Kim Mikkelsen sued the Kittitas County Public Utility District No. 1 (“District”), alleging the District fired her due to her manager’s bias against women and older employees. Mikkelsen alleged her termination violated Washington’s Law Against Discrimination.

Mikkelsen worked for the District for several decades without incident until the Board hired a new general manager, Charles Ward, in 2010. Mikkelsen claimed Ward excluded Mikkelsen from emails with Mikkelsen’s male co-workers, was belligerent with her, talked over her in meetings and undermined her authority in front of other employees.
After Mikkelsen complained to the District and emailed the District a survey she proposed sending to other employees asking if they felt Ward engaged in gender discrimination, Ward fired Mikkelsen. Mikkelsen had not previously been reprimanded or disciplined during her employment at the District. The District replaced Mikkelsen with a 51 year old woman and subsequently fired Ward.

The Supreme Court clarified that Mikkelsen could allege age and gender discrimination claims even though the District replaced her with a 51 year old woman. The court observed nearly every federal court to address the question under analogous federal law reached the same result. The fact that a female or over-40 plaintiff claiming discrimination was replaced by another woman over age 40 might be relevant evidence that no discrimination occurred, but, the court ruled, it does not foreclose proving the plaintiff was fired for a discriminatory reason.

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Federal Appeals Court Affirms $6.6 Million Jury Verdict In Favor Of Police Officers On Race Discrimination Claims

Posted Wednesday, October 18, 2017 by McKean J. Evans

The Ninth Circuit Court of Appeals recently affirmed a $6.6 million jury verdict in favor of the plaintiffs, three police officers of Latino descent, against the City of Westminster’s police department. In Flores v. City of Westminster, the court declined to overturn the jury’s decision that the City violated the federal Civil Rights Act and the California Fair Employment and Housing Act.

The plaintiffs alleged the City discriminated against them by denying them promotions that were awarded to less-experienced officers and tolerating other officers’ racial slurs. When the officers complained, the City retaliated against the officers by finding pretexts to reprimand them. Prior to their complaints, the officers had good discipline records and commendations.

Before the Ninth Circuit, the City argued the court should throw out the jury’s verdict in favor of the officers. The court rejected the City’s arguments.

First, the City claimed the jury erred in ruling in the officers’ favor. The City claimed none if its conduct supported the jury’s conclusion the City discriminated against the officers. The court disagreed, finding the evidence presented at trial permitted a rational jury to conclude the City discriminated against the officers. Among other things, the evidence showed the City reprimanded the officers after they complained about discrimination, that the reprimands were for violations of policies the City applied inconsistently, that the City took these actions with knowledge the officers had complained, and that the timing of the City’s reprimands relative to the officers’ complaints supported the inference the City retaliated against the officers.

Second, the City claimed the jury improperly awarded the officers a “double recovery” by awarding the officers damages under both state and federal antidiscrimination laws. The court rejected this argument. The court ruled that the evidence permitted the jury’s conclusion that the officers were entitled to recover under both statutes.

Third, the City argued that the at-issue federal civil rights law, Section 1981, did not apply because it prohibits only discrimination with respect to contracts and the officers’ employment was not pursuant to contract. The court acknowledged that the applicable state law provided that public employment is governed by statute, not contract. But the court noted that Congress expanded Section 1981 in 1991 specifically to broaden its reach. In light of the 1991 amendments and the statute’s purpose, the court found that reading California law to deprive the officers of their rights under Section 1981 would be inconsistent with federal law.

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Federal Judge Declines To Block Washington’s “Cyberstalking” Law, But Doubts Its Constitutionality

Posted Wednesday, October 11, 2017 by McKean J. Evans

On Tuesday, October 10, 2017, a Tacoma federal judge issued a ruling declining to block Washington’s anti-cyberstalking law, but expressed concerns the law may be unconstitutional. The plaintiff in the lawsuit alleges the law is unconstitutional because, among other things, it prohibits online speech designed to embarrass other people that is otherwise protected by the First Amendment. The plaintiff was threatened with prosecution under the law after he made online statements and sent repeated texts that criticized, but did not threaten, a local activist in a disagreement about whether a memorial to World War II internment camps should also address modern indefinite detention in the war on terror.

Washington’s cyberstalking law prohibits electronic communications made with the intent to “harass, intimidate, torment or embarrass” other persons using indecent or obscene language, are made anonymously, or threaten to inflict injury. The law closely resembles Washington’s telephone-harassment law, which has been upheld by courts. But by applying to all electronic communications, Washington’s cyberstalking law is significantly broader in scope.

In expressing concerns about the law’s constitutionality, the judge criticized the defendant, Kitsap County Prosecutor’s Office, for its “reluctance to address the constitutionality of the statute.” The judge ruled the law’s constitutionality was better addressed by a Washington state court as part of the plaintiff’s appeal of a protection order the activist obtained against him over the same conduct.

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