Divided COA reverses unemployment tax ruling


Olivia Covington for www.theindanalawyer.com

An Indiana business will not have to pay unemployment insurance taxes on wages paid to an independent contractor after a divided panel of the Indiana Court of Appeals found the contractor was not statutorily considered the business’ “employee.”

In January 2013, a claimant entered into a contract with Q.D.-A., Inc. — which works as a middleman between drivers and companies that manufacture recreational vehicles — to provide drive-away services. The claimant later filed for unemployment with the Indiana Department of Workforce Development, which, in turn, notified Q.D.-A. that it had misclassified its payments to the claimant.

A liability administrative law judge agreed, finding the services the claimant provided constituted “employment” requiring the company to pay the state owed unemployment insurances taxes on its payments to the claimant. Q.D.-A. appealed, arguing the ALJ’s conclusion was unreasonable, and a divided panel of the Indiana Court of Appeals agreed. Senior Judge Ezra Friedlander wrote for the majority that under Indiana Code section 22-4-8-1(a), the claimant should not have been considered an “employee” of the company.

Specifically, Friedlander noted the claimant had the right to negotiate his compensation and was free to decline to make a trip for Q.D.-A. based on the compensation negotiations under the contract with the company, which confirmed it does not employ in-house individuals to perform drive-away services. That means the claimant was free from the company’s control, Friedlander said, the first factor that must be met to disprove his “employment.”

Similarly, the company’s testimony established that though it is licensed to transport motor vehicles, it is not actually in the business of transporting and hires independent contractors like the claimant. Thus, the evidence showed Q.D.-A. mainly works as an intermediary between contractors and its customers, meaning the claimant’s work is outside the scope of the company’s usual business, the second factor, Friedlander said.

Finally, all parties agreed the claimant was working for Q.D.-A.in “an independently established trade, occupation, profession or business of transporting commodities,” the third and final factor that must be met to disprove the claimant’s employment with Q.D.-A. With all three factors proven, the majority joined by Judge Edward Najam reversed the ALJ’s conclusion as unreasonable.

But In a dissenting opinion, Judge Melissa May pointed to the similar case of Company v. Indiana Department of Workforce Development, 86 N.E.3d 204 (Ind. Ct. App. 2017), in which an appellate panel affirmed an ALJ’s decision based on a finding that the second factor had not been proven. The majority acknowledged that decision, but maintained its reversal based on the specifics facts of the instant case. May, however, found little difference between the cases.

“Because the facts herein are not appreciably different from the facts in that case, I would reach the same result and affirm the LALJ’s conclusion that Claimant’s service was within the Company’s usual course of business, such that Claimant was an employee of Company,” May wrote.

The case is Q.D.-A., Inc. v. Indiana Department of Workforce Development, 93A02-1703-EX-556.