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Daily Court Reporter - News Employment agency owes $3.5 million in unpaid workers’ compensation premiums

 

Employment agency owes $3.5 million in unpaid workers’ compensation premiums

Dan Trevas, Supreme Court of Ohio

A Columbus temporary-employment agency owes the Ohio Bureau of Workers’ Compensation (BWC) nearly $3.5 million in unpaid premiums that were owed by another employment agency it acquired, the Ohio Supreme Court ruled recently.

A Supreme Court majority determined that Daily Services LLC, an employment agency owned by Ryan Mason, wholly succeeded I-Force LLC, also owned by Mason. I-Force owed $3.5 million in unpaid premiums for 2008 when it closed in 2009 and appeared to continue to operate through Daily Services. Daily Services challenged the BWC’s decision, denying that under the bureau’s administrative rules in place in 2009 Daily Services had “wholly succeeded” I-Force and was responsible for the unpaid funds.

Chief Justice Maureen O’Connor and Justices Judith L. French and Mary DeGenaro joined the per curiam opinion. Justice Patrick F. Fischer concurred in judgment only.

In a dissenting opinion, Justice Sharon L. Kennedy sided with Daily Services, finding that under the rule, which was modified in 2010, Daily Services did not wholly succeed I-Force. Justices Terrence O’Donnell and R. Patrick DeWine joined her opinion.

BWC Audit Discovers Sudden Change of Temp Agency Status

Daily Services operates in Columbus and is focused on short-term and daily staffing. I-Force operated in an adjacent building and focused on long-term staffing. Each agency had its own workers’ compensation policy.

In 2008, I-Force’s workers’ compensation premium increased to $3.5 million based on its poor claim history, and I-Force did not pay its premium for the second half of 2008, which was due in February 2009.

The BWC audited Daily Services in April 2009 and learned that I-Force closed over the weekend of March 21-22, 2009, but that the business appeared to be operating through Daily Services. BWC concluded that Daily Services was the successor-in-interest to I-Force and responsible for that agency’s existing and future financial obligations. The bureau combined the workers’ compensation experiences of the two companies to set a premium rate for Daily Services, and sent Daily Services an invoice for $3.48 million for I-Force’s unpaid premiums.

In June 2009, Daily Services filed a protest, objecting to the bureau’s determination that it was the successor to I-Force. The protest was sent to a bureau “adjudicating committee,” which affirmed the bureau’s decision to combine the experiences of the two entities for rating purposes. Daily Services did not appeal the committee’s order.

After a period of inaction, the bureau determined that the adjudicating committee never resolved the issue of the 2009 successorship protest. Two bureau employees testified in a March 2013 hearing about their investigation of the transfer of I-Force. The BWC committee denied the protest, finding Mason’s maneuvering of I-Force amounted to a voluntary transfer of business operations, which made Daily Services the successor. Daily Services appealed the decision, which was referred to a representative of the BWC administrator.

The representative determined that Daily Services hired I-Force’s permanent staff over the same March 21-22 weekend that I-Force shut down, assumed I-Force’s property and computer leases, paid I-Force’s federal quarterly taxes, and purchased the right to use the I-Force name. BWC also determined that Daily Services contacted I-Force customers and had them sign new contracts with a name change only. The bureau noted that Mason ceased all I-Force business operation on Monday, March 23, 2009.

Company Seeks Court Order

Daily Services sought a writ of mandamus from the Tenth District Court of Appeals, alleging the bureau’s denial of its protest was an abuse of discretion. The Tenth District assigned a magistrate to consider the matter. The magistrate noted that under the version of the Ohio Administrative Code in effect in 2009, the term “wholly succeeds” was not defined and very little case law provided guidance on the matter. The magistrate noted the rule, OAC 4123-17-02(C)(1), was amended in 2010 to state that an employer “wholly succeeds” another in the operation of a business when the “succession transaction is entered into for the purpose of escaping obligations under the workers’ compensation law.”

The magistrate concluded that under the 2009 version, the facts did not support a finding the Daily Services wholly succeeded I-Force. The Tenth District adopted the magistrate’s decision, and granted a writ ordering the bureau to vacate the order. The bureau appealed the decision, which the Supreme Court was required to hear.

Court Determines if Bureau Abused its Discretion

Ohio’s workers’ compensation system is funded by mandatory contributions from employers, and the bureau is required to adopt rules to administer the fund. The rule for succeeding employers, OAC 4123-17-02(C), in effect in 2009 stated, “Where one employer wholly succeeds another in the operation of a business, the bureau shall transfer the predecessor’s rights and obligations under the workers’ compensation law.”

The Supreme Court’s lead opinion stated that the Court had to determine whether the bureau abused its discretion when it found Daily Services wholly succeeded I-Force. The Court stated “an abuse of discretion occurs when there is no evidence upon which the bureau could have based its decision.”

The bureau argued that it deemed an employer to “wholly succeed” another employer if after the successor employer assumes the predecessor’s business operations, nothing remains of the predecessor’s business. The BWC maintained that while Daily Services did not assume every I-Force customer, it wholly succeeded the I-Force operations.

“As of March 23, 2009, nothing remained of I-Force except the business functions that were assumed by Daily Services. The bureau did not abuse its discretion when it determined that Daily Services wholly succeeded the business operations of I-Force,” the opinion stated.

The lead opinion stated the bureau has an obligation to safeguard the workers’ compensation fund and the “responsibility includes detecting and thwarting an employer’s scheme to avoid its workers’ compensation liabilities.”

The Court stated that the Tenth District acknowledged Mason intentionally orchestrated a business strategy for Daily Services to take over the most profitable aspects of I-Force. The Court reversed the Tenth District’s decision and denied the writ.

Dissent Finds Company Not Wholly Succeeded

In her dissent, Justice Kennedy wrote that the Court is obligated to interpret administrative rules in the same manner it interprets statutes, and when the language of the rule is “plain and unambiguous” the Court must apply the rule as written.

The dissent stated that according to “Webster’s Third New International Dictionary,” “wholly” means “to the full or entire extent; without diminution or reduction: ALTOGETHER, COMPLETELY, TOTALLY.” It also noted that the rule required a successor to notify the BWC when it succeeded the business operations of another “in whole or in part,” yet in the next sentence, the rule provided for successor liability only “[w]here one employer wholly succeeds another in the operation of a business.”

“Successor liability therefore applies only when one employer voluntarily transfers the entire business operations to another,” the dissenting opinion stated.

A succession in part, a business reorganization, or anything short of total transfer does not establish that one employer has wholly succeeded the business of another, the opinion stated. The dissent noted that the bureau found that Daily Services had acquired only about half of I-Force’s business and 30 percent of its customers. It concluded that I-Force did not transfer its entire business operations, but rather, Daily Services entered new contracts with some of I-Force’s employees, clients, and landlords, and that was “not sufficient to demonstrate the Daily Services wholly succeeded I-Force’s business operations.”

The dissent would affirm the Tenth District’s decision to vacate the bureau’s decision.

The opinion can be read online at: http://www.courtnewsohio.gov/cases/2018/SCO/0606/170251.asp#.Wxkh0SAh2Uk

2017-0251. State ex rel. Daily Services LLC v. Morrison, Slip Opinion No. 2018-Ohio-2151.

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion, but only for noteworthy cases. Opinion summaries are not to be considered as official headnotes or syllabi of court opinions. The full text of this and other court opinions are available online.

Date Published: June 28, 2018

 

Supreme Court of Ohio

 

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