After receiving a tip that BNA Construction, Ltd., was engaging in alleged fraud, the Ohio Department of Job and Family Services began an employment audit of the company. A few months later, in March 2014, the auditor informed BNA’s accountant that she would be reclassifying as employees all BNA workers who had formerly been classified as independent contractors. Six days later, the auditor participated in a phone call with the owner of BNA, Horatio Lucero.
On September 19, 2014, the auditor issued a letter informing BNA of the audit results. The auditor concluded that numerous workers should have been classified as employees rather than independent contractors and that BNA underreported total wages by approximately $1 million. The next day, the Ohio Office of Unemployment Compensation (OOUC) issued BNA a tax notification with the company’s computed liability and contribution rate.
BNA requested reconsideration of its contribution rate, and the OOUC reconsidered the matter, with no change in the outcome. BNA appealed the reconsidered decision to the Ohio Unemployment Compensation Review Commission (OUCRC).
Over 5 months, the OUCRC held a multiday hearing, during which the auditor, Lucero, and BNA workers testified. The auditor testified that during the audit, BNA did not produce any W-2s, payroll records, or reported wage records. Further, she described the March phone call with Lucero. During the call, she spoke with Lucero about his workers’ standing based on the Ohio Revised Code’s 20-factor test used to differentiate employees and independent contractors.
The factors include who hires the workers, who furnishes the tools used by the workers, and who sets the hours during which the work is performed. Ultimately, the auditor chose to reclassify BNA’s workers as employees rather than independent contractors.
Lucero testified that (1) he was merely a middleman between large contractors and small subcontractors, (2) he had no employees, (3) the people who worked for him could refuse work, negotiate prices, bid for projects, set their own hours, and perform work for other companies, and (4) workers supplied their own tools, including trucks. The testimony of at least one frequent worker confirmed Lucero’s testimony.
The OUCRC ultimately decided that BNA’s workers were employees, not independent contractors. Although the commission recognized that certain factors—including a lack of training requirements, a lack of established work hours, and the fact that workers brought their own supplies—supported an independent contractor classification, those factors were not dispositive. Because the workers performed services under the Ohio Unemployment Compensation Law, the OUCRC found that BNA was liable for unemployment tax contributions.
BNA appealed to the Franklin County Court of Common Pleas, which affirmed the OUCRC’s decision. BNA then appealed the lower court’s decision to the Ohio Court of Appeals, 10th Appellate District.
The court of appeals held that the lower court did not abuse its discretion by concluding that the OUCRC’s decision was supported by substantial, reliable, and probative evidence. The court noted that the OUCRC clearly applied the 20-factor test laid out by the Ohio Revised Code, and more than 10 of the applicable factors supported the claim that BNA’s workers were employees. For example, Lucero hired the workers for his jobsites, oversaw their work, and prohibited them from sending substitutes.
Further, the court held that the OUCRC’s process for reconsidering BNA’s appeal was fair. The commission conducted a five-month hearing that included cross-examinations of four witnesses and the use of a Spanish interpreter for Lucero. BNA Constr. Ltd. v. Ohio Dept. of Job & Family Servs., 2017-Ohio-7227.
This case is a useful reminder that the line between employees and independent contractors may not always be as clear as one would assume. Although the OUCRC conceded that BNA’s workers did not meet any specific training requirements, work a set schedule, or use the company’s tools, the commission (and the courts) found that they were still employees under the law.
Always keep in mind that there is no predetermined formula used to decide whether a worker qualifies as an employee or independent contractor. Also, remember that Ohio courts grant the OUCRC broad discretion to make conclusions regarding required unemployment contributions.