TWISM Ents., L.L.C. v. State Bd. of Registration for Professional Engineers & Surveyors

Citation: 2022 Ohio 4677Docket: 2021-1440

Court: Ohio Supreme Court; December 28, 2022; Ohio; State Supreme Court

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Until published in the Ohio Official Reports, the opinion may be cited as TWISM Ents. L.L.C. v. State Bd. of Registration for Professional Engineers, Slip Opinion No. 2022-Ohio-4677. This slip opinion is subject to revision, and readers should report any errors to the Supreme Court of Ohio. The case involves TWISM Enterprises, L.L.C. appealing the Ohio Board of Registration for Professional Engineers and Surveyors' denial of its application for a certificate of authorization to provide engineering services. 

The key legal issue is the interpretation of R.C. 4733.16(D), which requires a firm to designate a full-time manager for its engineering activities. The Board argued that only employees could hold this position, not independent contractors. The court of appeals initially deferred to the Board’s interpretation, concluding that the statute barred independent contractors from acting as full-time managers. 

However, the Supreme Court of Ohio clarified that judicial deference to administrative agency interpretations is not mandatory but permissive, applicable only in cases of statutory ambiguity. The court asserted its role in determining statutory meaning and found no language in R.C. 4733.16(D) that prohibits independent contractors from serving as full-time managers. Consequently, the court reversed the appellate judgment and remanded the case for further proceedings.

The Board denied TWISM's application for a certificate of authorization to provide engineering services in Ohio. According to R.C. 4733.16(B), engineering firms must obtain authorization from the Board, which requires designating a full-time state-registered engineer responsible for the firm's professional engineering activities (R.C. 4733.16(D)). The Board has a mandatory duty to issue a certificate if the firm meets statutory requirements (R.C. 4733.16(E)). TWISM designated James Cooper as its manager, asserting he was a full-time engineer in responsible charge of the firm's activities. However, Cooper's status as an independent contractor (reported on a 1099 form) instead of a W-2 employee was a key factor in the Board's denial. The Board argued that a full-time manager must be a W-2 employee to ensure adequate control over professional engineering activities. The hearing officer upheld the Board's decision, stating that the Board's interpretation of the law warranted deference. The Board identified two main issues: first, Cooper did not meet the definition of full-time work as outlined in Ohio Adm.Code 4733-39-02(B), and second, his independent contractor status did not fulfill the requirement of having a full-time manager. The Board's strict interpretation necessitated a W-2 employment relationship for a designated professional engineer.

The common pleas court applies de novo review, while the court of appeals defers to the agency's interpretation. TWISM appealed the Board's adjudication to the Hamilton County Court of Common Pleas, which reversed the Board's decision without granting deference. The court rejected the Board's interpretation that R.C. 4733.16(D) requires a full-time W-2 employee as a manager, concluding that the statute's plain text does not mandate this. It determined that Cooper, who performs nearly all engineering work for TWISM, qualifies as full-time under the administrative code. Consequently, the court ordered the Board to issue TWISM a certificate of authorization.

The Board then appealed to the First District Court of Appeals, which framed the issue as whether the statute allows an independent contractor to act as a full-time manager for certification purposes. The Board argued that the trial court should have only evaluated the reasonableness of its interpretation, which it asserted requires deference. However, the court of appeals ruled that deference is warranted only after determining the statute's ambiguity, which it found present, as R.C. 4733.16(D) could be interpreted in multiple reasonable ways.

The court concluded that "full-time manager" is ambiguous, necessitating deference to the Board's interpretation. TWISM's appeal to the higher court seeks a review of the deference issue and whether its application meets R.C. 4733.16(D)'s requirements. The attorney general represents the Board and has submitted an amicus brief, taking no position on the outcome but advocating against granting deference to agencies' legal interpretations. The key legal question remains whether TWISM can designate an independent contractor as its full-time manager under the statute, with the Board urging that the language of R.C. 4733.16(D) clearly necessitates an employer-employee relationship.

The Board's request to decide the case based on different legal positions is declined for two main reasons. First, R.C. 4733.16(D) does not specify any employment requirement for the designated engineer, who must be a manager or similar, allowing for the possibility of outsourcing management roles to independent contractors. This challenges the Board's assertion that the law mandates a W-2 employment relationship. Second, throughout the litigation, the Board has relied on a position that requires deference to its interpretations unless deemed unreasonable, and changing this position at such a late stage does not resolve the underlying deference issue.

Before determining TWISM's entitlement to a certificate of authorization, the court must assess the level of deference owed to the Board's interpretation of engineering laws. The court plans to review its precedent regarding deference and clarify when an agency's interpretation can be considered. Ohio lacks a systematic deference doctrine comparable to the federal Chevron framework, and its approach to administrative deference has not been consistently defined. There are three lines of cases regarding deference: one mandates conclusive deference to a reasonable agency interpretation of a statute it enforces; the second applies conclusive deference to reasonable interpretations of ambiguous statutes; and the third allows courts to consider agency expertise without requiring deference. Ultimately, the judiciary retains the authority to interpret the law.

When a statute is genuinely ambiguous, courts may consider administrative interpretations of the law, as supported by certain authorities. However, the current state of case law in Ohio lacks a consistent standard for agency deference, warranting a reassessment grounded in fundamental principles. Ohio's separation of powers prohibits mandatory deference to agency interpretations, contrasting with federal justifications that assume legislative delegation of policy-making authority to agencies.

The Ohio Constitution establishes a clear separation of legislative, executive, and judicial powers, aimed at preserving individual liberties. Each branch is limited to its expressly delegated powers, ensuring that the interpretation and enforcement of laws are distinct functions. While other branches may interpret laws during their operations, ultimate authority lies with the judiciary, making mandatory deference to agency interpretations inconsistent with separation-of-powers principles. Such deference could undermine judicial independence, particularly in cases involving disputes between government agencies and private parties.

Additionally, Ohio statutes do not endorse mandatory deference. Unlike federal law, which implies delegation from Congress to agencies in ambiguous situations, Ohio has not articulated a theoretical basis for deference. The Ohio Administrative Procedures Act provides that parties affected by agency decisions can appeal to the court, which conducts a de novo review. This standard requires courts to independently interpret the law, further indicating that deference is not supported within Ohio's legal framework.

R.C. 1.49 indicates that the legislature did not intend to delegate interpretive authority to administrative agencies, allowing courts to consider administrative interpretations only in cases of statutory ambiguity. Such deference is permissive, not mandatory, meaning ambiguity does not imply an automatic delegation of power to agencies. Courts are not required to defer to agency interpretations; rather, they retain exclusive authority to interpret the law. The court must first determine if a statute is ambiguous before considering agency interpretations, which should not alter clear statutory meaning. If ambiguity exists, a court may evaluate an agency's interpretation based on its persuasive power, not merely because it is offered by an agency. Deference in Ohio aligns with the U.S. Supreme Court's Skidmore standard, where agency interpretations provide guidance but do not control judicial interpretation.

A court should consider the distinctions between agency and judicial competencies when evaluating the persuasiveness of an agency's interpretation of law. Courts typically handle the interpretation of common language independently, without needing to reference agency interpretations. However, in cases involving specialized technical meanings within an agency's expertise, agency insights may assist the court, though the judiciary retains the ultimate interpretive authority. The weight given to an agency's interpretation hinges on its persuasiveness.

Recent trends show that about half of U.S. states have shifted towards de novo review of agency interpretations. For instance, Wisconsin's Supreme Court acknowledged that allowing agencies to interpret law could infringe on judicial power, leading to the adoption of a de novo standard. Similar transitions have occurred in Utah, Arkansas, Delaware, Kansas, Michigan, and Mississippi.

In the current dispute regarding TWISM, the legal question is whether R.C. 4733.16(D) allows an engineering firm to appoint an independent contractor as its professional-engineering manager. The court found that TWISM met the necessary conditions for authorization to provide engineering services, as the relevant requirements are set by the General Assembly, not the Board. TWISM was required to designate a registered professional engineer responsible for its services, and the Board had previously claimed that only full-time employees could fulfill this role. However, the Board's position lacked substantial textual support, and its regulations define "full-time" to include individuals working all engineering hours, which Cooper, the independent contractor in question, fulfills. Furthermore, the term "manager" does not stipulate that the individual must be a W-2 employee. The Board has now conceded that managers can be independent contractors, undermining its previous stance. Therefore, the court concluded that an independent contractor like Cooper can indeed serve as a full-time manager.

The Board has shifted its argument in court, claiming that while independent contractors can be managers, they cannot be in "responsible charge" of a hiring entity’s work. This new position differs from its prior stance, raising potential concerns of forfeiture; however, as TWISM has not argued forfeiture and the new argument can be addressed, it will be considered. TWISM's operating agreement identifies Cooper as the responsible manager for engineering activities. The Board asserts that the terms "responsible for" and "in responsible charge of" have technical meanings in engineering that imply liability and control, which can only apply to employees, not independent contractors.

Despite this, the ordinary meanings of "responsible charge" and "responsible for" align with the Board's interpretations. The Board argues that TWISM cannot control Cooper's work methods, but this concern is irrelevant to the statutory language of R.C. 4733.16(D), which only requires that the engineer be in responsible charge of the firm's activities without stipulating control over the manager. The Board's arguments reflect policy concerns rather than statutory interpretation, suggesting that allowing independent contractors to manage firms creates issues for liability and oversight. However, these concerns overlook the ability of parties like TWISM and Cooper to negotiate terms and the existence of insurance options. Ultimately, the Board's contentions are about its preferences for how the statute should function, rather than its actual provisions. If the legislature intended to mandate an employment relationship for managers, it could have explicitly stated so in the law.

An additional "who" requirement is not necessary for the designation of being "in responsible charge of," as the law specifically outlines who can hold this designation. The court asserts that statutory requirements should be explicitly stated in the statute, referencing Wheeling Steel Corp. v. Porterfield. The Board's belief that a W-2 employment relationship is required does not arise from R.C. 4733.16(D), which stipulates that TWISM must designate a full-time manager who is responsible for its engineering activities. TWISM has fulfilled the requirements set forth in R.C. 4733.16(E) and is entitled to a certificate of authorization to provide professional engineering services. The Board's denial of TWISM’s application was not in accordance with the law. Consequently, the court reverses the judgment of the court of appeals and remands the matter to the Board for further proceedings consistent with this opinion. The concurring justices include KENNEDY, FISCHER, and DONNELLY, while O’CONNOR, C.J. and STEWART and BRUNNER, JJ. concur in judgment only. Various legal representatives and amici participated in support of the appellant and in urging reversal.