Jack Rabbit Services, LLC v. Director

Citations: 2016 Ark. App. 410; 500 S.W.3d 202; 2016 Ark. App. LEXIS 430; 2016 WL 4916836Docket: E-15-602

Court: Court of Appeals of Arkansas; September 14, 2016; Arkansas; State Appellate Court

Original Court Document: View Document

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Jack Rabbit Services, LLC (JRS) appeals a decision by the Arkansas Board of Review mandating that it pay unemployment-insurance taxes for Orlando Mosley and similar contractors, who were determined to be employees for tax purposes. JRS contests the Board's finding, claiming lack of substantial evidence. The Arkansas Department of Workforce Services had previously issued a liability determination on December 2, 2014, categorizing Mosley and others as employees.

During a hearing on March 12, 2015, Kenneth Jennings from the Department's Wage Investigation Unit testified that JRS did not meet specific criteria under Ark. Code Ann. 11-10-210(e), notably failing the "free from control and direction" and "services performed outside the usual course of business" tests. Jennings asserted that JRS was presumed to provide dispatch services.

Conversely, David Hain, JRS’s managing member, argued that JRS operates as a broker connecting laborers with contracts, without providing dispatch services. He emphasized Mosley's autonomy in choosing work, lack of a set schedule, and absence of supervision from JRS. Hain clarified that payment to Mosley was based on billed services rather than hours worked, and that JRS did not oversee how work was performed. He also indicated that Mosley represented himself as an independent contractor, with no indications of employee status to the public. Additionally, Hain noted that Mosley had his own investment in the job, requiring personal transportation and tools. The Board's decision was ultimately affirmed.

Mosley was not reimbursed for expenses and could incur profits or losses while contracted with JRS. Hain testified that Mosley would not be discharged for advertising or owning a business. Compensation per job was negotiable, and JRS does not advertise or provide roadside assistance directly, lacking a public contact number or website for such services. JRS can receive documentation from a third-party dispatch company to verify service call details, including contractor acceptance or refusal of calls. Hain confirmed JRS did not exercise control over Mosley, provide training, or require statements from service recipients. Contractors must wear identifying materials for stranded motorists' comfort. JRS has a contract with Jack Rabbit USA to find labor and provide related information, with Hain having no stake in JRU and his compensation not tied to service calls. JRS would cover expenses even without independent contractors accepting calls, although it is unclear who pays the contractors. Hain noted that paragraph seventeen of the contract was not enforced and aimed to limit liability. The Board determined JRS did not meet the three exemption requirements under Arkansas Code Annotated section 11-10-210(e) and ruled JRS liable for unemployment-insurance taxes concerning Mosley and others. JRS contends the Board erred in its decision. The Board's findings must be supported by substantial evidence, meaning relevant evidence that a reasonable mind could accept as adequate to support the conclusion. The review of the Board's decision focuses on whether it was reasonable based on the evidence presented, with the Board holding the authority to assess witness credibility and testimony weight. Section 11-10-210(e) classifies service performed for wages as employment unless proven otherwise.

An individual must meet three criteria to be considered an independent contractor: 1) they must be free from control and direction in the performance of their service, both contractually and in practice; 2) the service must be performed outside the usual course of the business or outside the business’s locations; and 3) the individual must be engaged in a trade or business of the same nature as the service provided. JRS contends that it is not the employer of roadside-assistance providers, asserting it does not control them, that the services are outside JRS's business operations, and that the providers are engaged in an independent trade. JRS criticizes the Board for an overly broad application of the control test, referencing O’Dell v. Director, where the court reversed a finding of employer-employee status based on minimal control over typists. The court in O’Dell concluded that basic guidelines and the right to terminate do not constitute sufficient control to establish an employer-employee relationship. However, the Board found JRS to have exercised significant control over the contractors, including requiring identification as JRS contractors, mandating training, and restricting work for other companies. This control led the Board to determine that JRS did not meet the first prong of the independent contractor test. The court upheld the Board’s decision, affirming that substantial evidence supported the finding that JRS failed to satisfy the statutory exemption. As a result, further discussion of additional statutory exemptions was deemed unnecessary.