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The Rough Notes Company Inc.

Partner or employee?

Partner or employee?

August 27
12:43 2018

Partner or employee?

Mark Pilling was injured on the job while working for ACTMESS, a businessthat he operated with his wife, Sandra, that specialized in the sale, installation, and service of satellite communication systems. ACTMESS was organized as a partnership of Mark and Sandra until 2005, when Sandra registered ACTMESS as a sole proprietorship with Sandra as its owner and Mark as the only employee.

In ACTMESS’s day-to-day operations, Mark provided the technical expertise and labor for the installation, service, and repair of systems, and Sandra handled the business end, including communicating with clients, bidding on and scheduling jobs, and overseeing finances, bookkeeping, and clerical functions. Sandra also occasionally assisted Mark in the field. Neither Mark nor Sandra ever received a paycheck from ACTMESS. Instead, Sandra testified, the proceeds of the business were used first to pay business expenses and then the family’s expenses.

Mark and Sandra filed a joint personal income tax return for 2012 showing zero taxable income. Under “occupation,” the return stated that Sandra was “self-employed disabled” and that Mark was disabled. On Schedule C of the return, Sandra reported a gross profit of $17,668 from ACTMESS and a net loss of $16,032, with no wages paid.

In 2012 the City of Portland entered into a contract with ACTMESS for the installation of a satellite system and required ACTMESS to have workers compensation and liability insurance. Sandra applied for a policy with Travelers Insurance Company in her name, doing business as ACTMESS, and told the agent that she wished to obtain workers compensation coverage for Mark, whom she listed as ACTMESS’s only employee.

Travelers determined the premium based on Sandra’s description of Mark’s and Sandra’s job duties. Although ACTMESS had never paid Mark wages, at Travelers’ request Sandra provided information that

“$1500 of *** payroll can be put toward this if needed. There is only one employee and he does everything.”

Under “remarks,” the application stated:

“Employee (Mark Pilling, husband) has been computer tech for over 15 years and in this line of business since 1970. Sandra is a small business consultant. They have experience running own business for over 20 years. No employees.”

The policy issued by Travelers covered ACTMESS’s employees but did not include an endorsement electing coverage for Sandra or any nonsubject workers.

Sandra ordered the necessary hardware for the City of Portland job. She and Mark traveled from their home to Portland for the installation, which they expected would take several days. The couple stayed at their daughter’s home. On the last day of the job Mark was injured in a motor vehicle accident while driving to the job site. He sought treatment in the emergency room for head, neck, and shoulder pain and subsequently filed an injury claim with Travelers. Travelers denied the claim. By the time of an administrative law judge hearing, Travelers did not dispute that the injury arose out of and in the course and scope of Mark’s employment. It contended, however, that Mark was not a subject worker because he and Sandra were partners in the business and Mark was therefore excluded from coverage because there had been no application for or election of coverage under state statutes that govern (1) the election of coverage by sole proprietors, limited liability company members, partners, and independent contractors and (2) the election to provide coverage for workers not subject to the workers compensation law.

On Mark’s request for a hearing, the administrative law judge determined that Mark was a “worker” under the statute and that “the nature of the work” test indicated an employment relationship.

The workers compensation board adopted the administrative law judge’s findings as well as its conclusion that Mark was a “worker” under the statute. The board nonetheless upheld the denial, concluding that Mark was not a “subject worker” because he was a partner in the business with Sandra and had not applied for or elected coverage under the state statute describing application by a nonsubject partner or the statute describing the election of coverage by a nonsubject worker.

With respect to the issue of whether Mark was a partner in the business, the court agreed with Mark that there was some evidence from which it might be inferred that Sandra and Mark intended to create an employment relationship; there also was substantial evidence in support of the board’s finding that Mark and Sandra were co-owners of the business and therefore partners.

The board found that the sharing of profits gave rise to a presumption that Mark and Sandra were partners, implicitly rejecting Mark’s contention that profits were “received in payment” of wages. That finding, the court said, was supported by undisputed evidence that Mark never actually received “payment” of any kind; rather the parties simply used funds remaining after payment of business expenses for household expenses. Based on the foregoing, the court concluded that substantial evidence supports the board’s finding that Mark was in a partnership under Oregon law.

The court concluded that the application for insurance failed to provide the required notification that the insured was seeking coverage for a partner. Sandra’s representation on the application that Mark was an employee did not disclose that he was a partner and cannot be squared with the requirement of the statute. The court rejected Mark’s remaining contentions.

The judgment of the lower court was affirmed.

Pilling vs. Travelers Insurance Company-Court of Appeals of Oregon-January 4, 2018-2018 WL 286134.

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