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Workers' Compensation

California Employer-Employee Relationship: Conviction in a Criminal Matter Related to Workers’ Compensation Insurance

By Hon. Susan V. Hamilton, Former Assistant Secretary and Deputy Commissioner, California Workers’ Compensation Appeals Board

At the heart and center of every workers’ compensation system is the existence of an employment relationship. That isn’t news—it’s a given. Without an employer-employee relationship, workers’ compensation law simply doesn’t apply. We understand that as part of “the compensation bargain,” workers’ compensation law imposes various obligations upon employers. The same is true of other labor and related laws. Some of those obligations are subject to criminal penalty for violation. For example, in California the failure to secure workers’ compensation insurance coverage is a misdemeanor, punishable by either a fine up to $10,000, imprisonment in the county jail for one year, or both. (Lab. Code § 3700.5). Similarly, willful violations of the reporting and payment requirements imposed on an employer under Unemployment Insurance Code sections 2117.5 and 2118.5 are subject to criminal penalty, including imprisonment and fine or both.

In a criminal prosecution for such violations, the key issue is the existence of an employment relationship. So, it shouldn’t come as a surprise that the criminal court’s analysis of that issue is essentially identical to what we would expect to see in a workers’ compensation employment dispute. While the standard of proof is different—the prosecutor must prove the existence of an employer-employee relationship beyond a reasonable doubt—the elements of the relationship are the same as those in a workers’ compensation case. A recent appellate decision from the appeal of a criminal conviction for violations of the Labor and Unemployment Insurance code provisions is a perfect example. Perhaps the most intriguing aspect of the decision is its meticulously detailed analysis of the multi-factor “Borello” test. (S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341.) The case is People v. Czirban (HO47748, 8/17/21) 2021 Cal. App. LEXIS 679 (certified for publication.)

Facts of Case

Ian Czirban (Czirban), the owner of Czirban Concrete Construction, became licensed as a concrete contractor in 2010. He first obtained workers’ compensation insurance coverage in May 2011 through State Compensation Insurance Fund (SCIF). The policy was rescinded several months later for non-payment of premium, leading to the suspension of his contractor’s license. Czirban then filed an exemption from workers’ compensation insurance requirements on the basis that he had no employees. His contractor’s license was reinstated.

During an on-site visit to a work site less than one year later, an employee of the Contractor’s State Licensing Board (CSLB) observed that Czirban had three employees on the job but no workers’ compensation insurance. Czirban’s contractor’s license was suspended again. Then, in January 2013, Czirban obtained another workers’ compensation insurance policy, also from SCIF. That policy, however, was cancelled in September 2013 for failure to pay the premium and submit payroll records.

In January 2014, Czirban obtained yet another workers’ compensation insurance policy from SCIF for a one-year period. The certificate of coverage was sent to CSLB, with a copy to Czirban. That policy was rescinded in early February 2014 because the initial deposit check was returned by Czirban’s bank for insufficient funds.

In April 2014, Czirban met with the heavy equipment coordinator for CAL Fire about the opportunity to become an equipment vendor for CAL Fire. As an equipment vendor, Czirban would be called upon during fire suppression to provide heavy equipment and equipment operators as needed. CAL Fire required its equipment vendors to have certain insurance—either workers’ compensation coverage for employees or major medical insurance for independent contractors. Before approving an equipment agreement, CAL Fire required the vendor to submit proof of insurance coverage and would also inspect the vendor’s equipment. An approved equipment vendor could choose to work a 12-hour shift or a 24-hour shift. If the equipment vendor chose the 24-hour shift option, the vendor would be required to provide two equipment operators, with each to work a 12-hour shift.

In May 2014, Czirban signed an agreement to provide equipment to CAL Fire. He also provided CAL Fire with the certificate of workers’ compensation insurance coverage that SCIF issued in January 2014 but later rescinded retroactively when the initial deposit check bounced. Under the agreement, Czirban agreed to provide a bulldozer, bulldozer operator, and trailer transport as needed for fire suppression for a period of three years.

During the period from June 2014 to September 2015, Czirban provided equipment and equipment operators to assist CAL Fire on its wildfire suppression efforts. Sometimes Czirban was the only bulldozer operator, but on other occasions he provided an additional bulldozer operator.

Coincidently, in November 2014, Czirban and his insurance agent discussed Czirban’s failure to secure workers’ compensation insurance. The insurance agent told Czirban that CSLB could suspend his contractor’s license for that reason. Czirban then applied for workers’ compensation insurance for his concrete business with a different insurer. His application identified three employees and annual business payroll. The application did not disclose Czirban’s multi-year equipment agreement with CAL Fire. Czirban was successful in obtaining workers’ compensation coverage effective December 1, 2014, but the policy was cancelled on January 28, 2015 for non-payment of premium.

CSLB suspended Czirban’s contractor’s license in December 2015 for failure to obtain or maintain workers’ compensation insurance coverage. Czirban renewed his contractor’s license in March 2016. Along with the renewal form, Czirban certified that he was exempt from the requirement of workers’ compensation insurance because he had no employees.

On July 24, 2016, CAL Fire contacted Czirban to request his assistance with a fire in Monterey County. Czirban asked his friend, David Vonderahe (David), to assist him with the assignment and David agreed. David had driven Czirban’s bulldozer a number of times on previous wildfire assignments, and Czirban had paid him for his work. In the past, David had his own vendor agreement with CAL Fire to provide a bulldozer and operators during fire suppression assignments. David worked fulltime for Caltrans as a heavy equipment operator. David agreed to work on the Monterey County fire with Czirban from July 24 through July 26 and expected to be paid for his work. Between June 15, 2015 and July 26, 2016, David had been paid more than $100 by Czirban for operating Czirban’s bulldozer.

Since David was unable to operate the bulldozer beyond July 26 on the Monterey County fire, Czirban contacted Robert Reagan (Reagan), who he had seen on other fires. Reagan had his own business, and he also had an equipment agreement to provide a water truck to assist CAL Fire when needed. Reagan agreed to operate Czirban’s bulldozer on the Monterey Country Fire. Reagan agreed to relieve David on July 26 and work the evening shift, which allowed Czirban to leave the fire and attend to other business. Czirban met Reagan in Los Banos on July 26 and gave him a ten-minute briefing. The plan was for Reagan to meet David on the fire line in Monterey County that night. Czirban gave Reagan a map, the incident action plan, information regarding David’s location, the name of the road he should take to get to the fire, the radio frequency to use, and the name of his contact. Reagan then drove to the fire and Czirban drove home. While operating Czirban’s bulldozer on the fire the evening of July 26, 2016, Reagan was killed when the bulldozer overturned and crushed him.

An investigation ensued following the Reagan’s fatal accident. The CSLB determined that Czirban did not have an active policy of workers’ compensation insurance in effect at the time of Reagan’s death, and that Czirban had claimed exemption from workers’ compensation insurance requirements on the basis that he had no employees.

A tax specialist with the California Employment Development Department (EDD) conducted an investigation to determine if Czirban was complying with the reporting and payroll requirements in the Unemployment Insurance Code. Briefly, if an employer pays an employee $100 or more in a single quarter, the employer must register with EDD, file a quarterly payroll return and pay taxes. EDD could find no evidence that Czirban had registered, filed returns or paid taxes.

Criminal Charges & Appeal

Czirban was charged with offering a false or forged instrument (the workers’ compensation insurance certificate), tax evasion, and failing to collect, account for or pay taxes. He was also charged with the failure to secure workers’ compensation insurance. He was tried by a judge and convicted of the charges. Imposition of the sentence was suspended, and Czirban was placed on probation with various requirements, including payment of the $10,000 penalty for failure to secure workers’ compensation insurance. (Lab. Code § 3700.5.)

Czirban appealed his conviction, claiming that his bulldozer operators were independent contractors, not employees. He also argued that the trial court abused its discretion when it imposed the maximum $10,000 penalty under Labor Code section 3700.5.

Court of Appeal Use of Borello Test

On review, the appellate court agreed that the existence of an employer-employee relationship between Czirban and the bulldozer operators was a necessary prerequisite to conviction on each charge, and that it was the prosecutor’s burden to prove that relationship beyond a reasonable doubt. The appellate court also accepted as proper the parties’ trial court agreement to use the multifactor “Borello” test rather than the “ABC” test set forth in Dynamex Operations West, Inc. v. Superior Court (Dynamex) (2018) 4 Cal. 5th 903, 916, because the allegations against Czirban predated the decision in Dynamex. While the appellate court observed that Czirban’s legal brief does mention the “ABC,” test and the evolution of various laws revising that test since Dynamex issued and the “ABC” test became codified, Czirban never claimed that the “ABC” test should have been applied; rather, he contended that under the multifactor Borello test, the bulldozer operators were independent contractors and not his employees.

In a detailed discussion that covers three and one-half pages, the appellate court carefully lays out the Borello factors, and then precisely applies them to the underlying facts. Those factors include the right to control the work details; the right to discharge at will without cause; the kind of occupation and whether in the locality the work is typically done under the supervision of a principal or by a specialist without supervision; the skill required to perform the work; whether the principal or the worker supplies the tools, instruments, and place of work for the person doing the work; the length of time for which the services are to be performed; the method of payment, whether by time or by job; whether the work is part of the regular business of the principal; and whether the parties believe they are creating an employer-employee relationship.

As to the right to control the work details, the court notes it was Czirban who decided to accept 24-hour assignments from CAL Fire (including the fire in Monterey County), with the understanding that he would need to enlist other bulldozer operators to complete such assignments. Therefore, it was Czirban who controlled the overall scope of work, the number of operators needed to complete each assignment, who the bulldozer operators would be, and the overall period of time the operators would work. These factors, the court states, demonstrate that Czirban had the right to control the manner and means of accomplishing the desired result—the ability to work 24-hour shifts, which required two operators, and guaranteed a higher rate of compensation from CAL Fire for Czirban.

Next, the court finds significant the fact that Czirban entered into a multi-year contract with CAL Fire to provide his bulldozer and bulldozer operators for fire suppression efforts, as needed. He also held himself out to be an employer and provided CAL Fire with a certificate of workers’ compensation insurance coverage (albeit the certificate was no longer valid since SCIF had rescinded the policy). Czirban used the services of David consistently throughout work assignments during fire season. These actions, the court states, show that Czirban’s bulldozer operators were integrated into his business of providing equipment and operators to CAL Fire, an indicator that Czirban functioned as an employer.

Czirban also owned and provided the bulldozer that his operators used during wildfire assignments. Thus, it was Czirban who provided the instrumentalities necessary for the work done by David and Reagan. Also, Czirban was the one who briefed Reagan and provided Reagan with the information necessary to operate the bulldozer during the Monterey County fire. Admittedly Czirban did not actively supervise David or Reagan on the fire line, but both David and Reagan were experienced bulldozer operators, and the nature of the work did not require detailed supervision since CAL Fire directed the work done on the fire line.

Further, during the wildfire assignments that Czirban chose to accept, neither David or Reagan were engaged in a distinct occupation or business. Czirban engaged them to drive his bulldozer so that he (Czirban) could benefit from his equipment vendor agreement with CAL Fire. Neither David or Reagan had the opportunity to independently benefit—incur profit or loss—while operating Czirban’s bulldozer. And they were paid by Czirban for operating his bulldozer on the fire line.

The fact that David believed himself to be an independent contractor and not an employee of Czirban is not dispositive, the court concludes, given the totality of the evidence demonstrating an employer-employee relationship beyond a reasonable doubt under the Borello multi-factor test. Accordingly, the court affirmed Czirban’s conviction.

What if ABC Test Had Been Applied Instead?

The $64,000 question is whether Czirban would have been found to have an employment relationship with his bulldozer operators had the “ABC” test set forth in Dynamex, supra, been applied instead of Borello’s multi-factor test. Under that test, a worker is considered an employee rather than an independent contractor unless the alleged employer demonstrates the existence of all of the following conditions: First, the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for performance of the work and in fact. Second, the worker performs work that is outside the usual course of the hiring entity’s business. Finally, the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

While it is only a guess, it seems quite likely that the appellate court would also have affirmed Czirban’s conviction under the “ABC” test. The totality of the facts convinced the court that it was Czirban who controlled the overall scope of work of David and Reagan on the Monterey County fire. Czirban decided to work 24-hour shifts with the full understanding that he would need to provide additional drivers to operate his bulldozer. It was also Czirban who briefed David and Reagan. Although Czirban did not directly supervise David or Reagan on the fire line, the court concluded that direct supervision was not essential to Czirban’s status as their employer. The nature of the work performed did not require direct supervision because both David and Reagan were experienced bulldozer operators and since CAL Fire directed the fire suppression work. Furthermore, as regards the Monterey County fire, the nature of Czirban’s business was to provide a bulldozer and bulldozer operators to assist CAL Fire on the fire line. Therefore, the operation of a bulldozer was within the scope of Czirban’s business, and the bulldozer was owned by Czirban. Finally, neither David nor Reagan were independently engaged in the bulldozer business. David worked full-time for California Department of Transportations and Reagan had his own water truck business.

Takeaway

Regardless of whether Borello, “ABC,” or some other test controls, there will be times when the existence of an employment relationship is key to a criminal prosecution like it was in Czirban. In those instances, the prosecutor’s job is to prove the elements of that relationship—the very same elements routinely applied in workers’ compensation matters—beyond a reasonable doubt.

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