Macmillan-piper, Inc. v. Department Of Employment Security
75534-0
| Wash. Ct. App. | Dec 26, 2017Background
- MacMillan-Piper contracted with independent owner-operators to provide drayage using the company's operating authority; contracts contained numerous lease provisions giving MacMillan rights over equipment, reporting, inspections, decals, and the right to reject drivers.
- Contracts required owner-operators to report by 7:30 a.m. and comply with safety and reporting requirements; owner-operators bore operating expenses and could hire drivers.
- The Employment Security Department audited MacMillan (2009–Q1 through 2011–Q3), reclassified 69 owner-operators as "in employment," and assessed $130,440.81 in unemployment taxes; MacMillan administratively appealed.
- The ALJ and the commissioner concluded MacMillan exerted extensive control over the methods and details of driving services and therefore failed the control prong of the RCW 50.04.140(1) independent-contractor exemption; superior court affirmed.
- MacMillan challenged (1) the control finding under RCW 50.04.140(1)(a), (2) federal preemption under the FAAAA/Rowe, and (3) the Department’s assessment as arbitrary, capricious, and violative of due process.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether owner-operators were "free from control" under RCW 50.04.140(1)(a) | MacMillan: federally mandated lease terms do not demonstrate employer control; contracts reflect required federal provisions and owner-operator independence | Department: MacMillan's contract terms and practices gave it extensive right to control method and details of driving services | Held: MacMillan failed the control prong — owner-operators were in employment, not exempt |
| Whether federal law (FAAAA/Rowe) preempts application of state unemployment tax here | MacMillan: FAAAA preempts state regulation that affects carriers' prices, routes, or services; assessment threatens business model | Department: ESA is a generally applicable background law and does not directly regulate transportation of property or carrier services | Held: No preemption — ESA does not have the requisite direct effect on carriers' prices/routes/services to trigger FAAAA preemption |
| Whether the audit assessment was arbitrary and capricious (allocation between equipment vs. services) | MacMillan: Department arbitrarily used 1099 totals without bifurcating payments; evidence showed equipment portion should be excluded | Department: MacMillan failed to produce required payroll/accounting records; assessment based on available information and statutory audit rules | Held: Not arbitrary or capricious — Department lawfully used available 1099 data after employer failed to provide records |
| Whether the audit/assessment violated procedural or substantive due process or exceeded statutory authority | MacMillan: lacked adequate notice/opportunity, Department acted in bad faith, prior informal allocations should bind Department | Department: MacMillan received statutorily required notice and appeals; no prejudice shown; agency acted within authority | Held: Due process and jurisdictional challenges rejected — MacMillan had notice and opportunity to be heard and no voiding defect shown |
Key Cases Cited
- Swanson Hay Co. v. State Emp't Sec. Dep't, 404 P.3d 517 (Wash. Ct. App. 2017) (owner-operator lease provisions can establish control for unemployment-tax purposes)
- Western Ports Transp., Inc. v. Emp't Sec. Dep't, 41 P.3d 510 (Wash. Ct. App. 2002) (consideration of federal lease requirements in control analysis under RCW 50.04.140)
- Rowe v. New Hampshire Motor Transp. Ass'n, 552 U.S. 364 (2008) (FAAAA preemption analysis; state laws that directly bind carrier services, prices, or routes can be preempted)
- Dan's City Used Cars, Inc. v. Pelkey, 569 U.S. 251 (2013) (limits on the scope of FAAAA/ADA preemption; preemption requires a law to concern transportation of property)
- Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429 (1st Cir. 2016) (motor carriers subject to many state regulations; shifts in costs alone do not establish preemption)