Justia.com Opinion Summary: King County sought ways to provide legal defense services to indigent criminal defendants. The County settled on a system of using nonprofit corporations to provide services funded through and monitored by the County's Office of the Public Defender (OPD). Over time, the County took steps to improve and make these nonprofit organizations more accountable to the County. In so doing, it asserted more control over the groups that provided defender services. Respondents are employees of the defender organizations who sued the County for state employee benefits. They argued the County's funding and control over their "independent" organizations essentially made them state employees for the purposes of participating in the Public Employees Retirement System (PERS). Applying the pertinent statues and common law principles, the Supreme Court agreed that employees of the defender organizations are "employees" under state law, and, as such, are entitled to be enrolled in the PERS.
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IN THE SUPREME COURT OF THE STATE OF WASHINGTON
KEVIN DOLAN and a class of
similarly situated individuals,
)
)
)
Respondents,
)
v.
)
)
KING COUNTY, a political sub)
Division of the State of Washington, )
)
Petitioner.
)
______________________________ )
No. 82842-3
En Banc
Filed August 18, 2011
CHAMBERS, J. — In Gideon v. Wainwright, 372 U.S. 335, 83 S. Ct. 792, 9
L. Ed. 2d 799 (1963), the United States Supreme Court guaranteed to indigents the
right of legal representation at public expense. King County, like other local
governments in this state, sought ways to provide the required defense services to
indigent criminal defendants. After investigating several different models, the
county settled on a unique system using nonprofit corporations to provide services
funded through and monitored by the county’s Office of the Public Defender (OPD)
(formerly the Office of Public Defense). It is, in many ways, a model system
providing quality representation to the poor. Over time, the county has taken steps
to improve and make these nonprofit organizations more accountable to the county.
In so doing, it has asserted more control over the groups that provide defender
services. Kevin Dolan contends that the defender organizations are now no
different than any other agency of King County and that the employees of these
defender organizations are now, and for some time have been, entitled to be enrolled
Dolan (Kevin) v. King County, No. 82842-3
in the government’s Public Employees Retirement System (PERS). After a trial on
the record, the trial court agreed with the class. Applying the pertinent statutes and
common law principles, we hold that the employees of the defender entities are
“employees” under RCW 41.40.010(12) and are entitled to be enrolled in the PERS.
We affirm the trial court and remand to that court for further proceedings regarding
remedies.
FACTS AND PROCEDURAL HISTORY
Resolution of the issues presented requires a detailed review of the
relationship between King County and its public defender organizations. In 1969,
the first King County nonprofit public defender entity, The Defender Association
(TDA), was created as a joint venture with the city of Seattle and the federal Model
Cities Program. The independent nature of TDA was a primary reason for the
county’s adoption of this model. The county thought public defense “must be
divorced as far as possible from the control of the entity which is placing the
recipients’ liberty in jeopardy, that is, from King County.” Clerks Papers (CP) at
1314 (Report of King County Council Operations and Judiciary Committee).
Over the years, the system evolved into its present form, with four public
defense organizations providing almost all indigent defense services for the county.
The Associated Counsel for the Accused (ACA) was created in 1973. The Society
of Counsel for the Representation of Accused Persons (SCRAP) was formed at the
request of the county in 1976. The Northwest Defenders Association (NDA) was
established in 1987 in response to the county’s desire for an organization with a
larger number of minority management and board members. Another public defense
2
Dolan (Kevin) v. King County, No. 82842-3
organization, the Eastside Defender Association, was formed in 1978 and then
discontinued in 1984.
A few years after its formation, TDA had several King County
representatives on its board of directors. At the time, local government participation
seemed “necessary to assure the visibility and longevity of the program.” CP at
1336 (Letter from King County Executive). However, by 1979, all the nonprofit
public defender groups had independent boards and substantial autonomy over
operations. See id. at 1336-37; see also CP at 1340-42 (1979 TDA Contract).
Each defender organization negotiated a contract with the county for the services the
organization would perform for a fee. The county managed its public defense
program through the OPD, a division of King County’s Department of Community
and Human Services and ultimately part of the county’s executive branch. The OPD
was and is responsible for screening eligible defendants, assigning cases, negotiating
and administering the contracts with the four defender groups, and managing the
funds provided by the county. The OPD and the public defender organizations
negotiate new contracts annually.
Over the course of several decades the county began to exert more and more
control over the defender organizations. This evolution of greater county control
was in response to several events and the county’s desire for efficient budgeting,
high quality of defender services, and parity in pay among deputy prosecutors and
public defenders doing similar work. An event in 1984 seems critical to the
evolution of the relationship between the county and defender organizations. An
audit of the Eastside Defender Association revealed that the director was engaged in
3
Dolan (Kevin) v. King County, No. 82842-3
some self-dealing, including renting space from his daughters and paying his wife
for financial advice, and that the organization’s board consisted of himself, his wife,
and his mechanic.1 These revelations caused the county to cancel its contract with
Eastside Defender Association, which immediately then ceased to exist. It also
caused the county to carefully scrutinize expenditures and to require a
reorganization of its relationship with all the defender organizations.
The defender organizations were required to provide the county with a
detailed budget of the costs of providing anticipated defender services, and those
estimated costs became part of the contract amount between the county and the
organization. CP at 1270-71 (Boruchowitz Decl). By 1990, the county went to a
cost pass-through budget system, also referred to as a zero-based budget system.2
Id. at 1273, 1275. Expenses of each defender organization became a line item in the
county’s budget. CP at 628-29 (Chapman Decl.). The contract budgets were based
on the defender organizations’ actual costs and the county’s projection of the case
load, which in turn determined the number of defense lawyers needed and the ratios
of staff to lawyers. Id. at 629, 634. Later the defender organizations were advised
by the county that equipment purchased for $1,000 or more belonged to the county.
CP at 1279 (Boruchowitz Decl.). Through this process, the county had effective
right of control and approval over all leases and other defender organizations’
expenditures. E.g. CP at 2891-92 (Daly Dep.).
Also during the 1980s, the defender organizations argued that defender
1
Despite the irregularities, there did not appear to be any violations of the law or the contract
between the Eastside Defender Association and the county. CP at 1345.
2
The county used the same budget system for its own agencies and departments. CP at 628
(Chapman Decl.).
4
Dolan (Kevin) v. King County, No. 82842-3
lawyers should receive the same pay as prosecutors because they did similar work
and, unlike prosecutors, defenders were constitutionally mandated. In 1989, the
county commissioned the Kenny Group to study prosecutors and public defenders,
classify their positions, and address the issue of pay parity for public defenders.
The Kenny Group created and classified five levels of deputy prosecuting attorneys,
three levels of senior deputy prosecuting attorneys, four levels of public defense
attorneys, and three levels of senior public defense attorneys. CP at 627 (Chapman
Decl.). The Kenny classifications became known as the Kenny Scale. Id. at 626.
The county provided by ordinance that salary parity would be phased in over two
years.3 The record before us is less than crystal clear on parity. It appears that
while the county made an effort toward parity, the defender organizations never felt
parity was achieved. According to the defender organizations, the county failed to
provide funding for senior defender positions and therefore the organizations had to
classify defenders in lower classifications than prosecutors with similar experience.4
CP at 1282 (Boruchowitz Decl.). The county also took the position that parity only
applied to base pay and not benefits. Id. at 1277. The county did provide funding
for mandatory employer taxes such as the Federal Insurance Contribution Act tax
and unemployment insurance. Id. at 1278. The county also provided sufficient
funding for medical benefits; however, the county did not provide sufficient funding
for the defender organizations to make meaningful retirement contributions. CP at
662 (Chapman Decl.). Apparently the defender organizations had goals of
3
King County Ordinance 9221 (Nov. 22, 1989) (CP at 715-20).
The defender organizations sought funding for 17 new “senior” positions based on the Kenny
Scale classifications, but the county rejected the request. CP at 1282 (Boruchowitz Decl.).
4
5
Dolan (Kevin) v. King County, No. 82842-3
providing retirement benefits of up to four percent but funding only permitted a
contribution of one percent, two percent, or nothing depending on the budget. Id.;
CP at 1278 (Boruchowitz Decl.).
In 2002, NDA sought to rent some office space in downtown Seattle that
carried a higher rent than customary for defender groups. In August 2002, the
county audited NDA and found what it considered several irregularities. NDA,
perhaps believing it could legitimately do so as an independent organization
contracting with the county, was branching out into civil and for-profit work and
rented office space for these purposes. The county perceived NDA’s actions as
using some of the county’s funding for improper purposes. Further, the county
believed NDA did not have a properly constituted board of directors and had leased
a space unapproved by the county. The county’s Department of Community and
Human Services brought a receivership action against NDA. On September 27,
2002, the trial court granted the county’s motion to have a receiver appointed for
NDA. The receiver was given “exclusive possession and control over all assets [of
NDA], with the power and authority to preserve, protect, and liquidate them for the
benefit of plaintiff [King County].”5 CP at 2335.
In the process of reorganizing NDA, the county required changes in the
composition of the board of directors, bylaws, corporate articles, employee policies,
financial practices, and contract with the county for all of its public defender
organizations. CP at 3120 (Robinson Dep. at 27-29); CP at 2236-37 (Farley Decl.).
All defender groups were made subject to a new contract that gave King County the
5
The order was amended on November 15, 2002, upon request for clarification by the receiver,
to read “for the benefit of Northwest Defenders Association.” CP at 2341.
6
Dolan (Kevin) v. King County, No. 82842-3
authority to terminate the contract without cause upon 45-days notice, to review
client files, to unilaterally determine whether funds were properly expended, and
which also restricted the organizations’ ability to turn down individual cases.6,7 Id.
at 2238; CP at 1279 (Boruchowitz Decl.); CP at 646 (Chapman Decl.); CP at 23932413, 2394, 2395, 2397, 2411 (2003 NDA Contract).
The record reflects that many defender board members had serious
misgivings about the new order of things and were very concerned about the new
limits on the defender organizations’ ability to limit assignments and thereby run the
risk of ethical dilemmas. One board member said the county was transforming a
supposedly independent nonprofit into a “‘vassal agency.’” CP at 4331 (TDA
Board Minutes). But, because the county was the source of the vast majority of
revenue, to refuse to agree to the contract meant that the organizations, like the
Eastside Defender Association, would cease to exist.8
6
In subsequent years, the contract language was softened, including the termination clause. CP at
5690-5710 (2007 Contract). Rather than at will by the county, contracts after 2004 could be
terminated “for convenience by either party” upon 60-days notice. Id. at 5695.
7
As part of its budgeting matrix, the county also required each defender organization to maintain
a reserve fund that would provide sufficient funds to complete services to clients assigned to the
organization in case of contract termination. CP at 643-44 (Chapman Decl.).
8
In 2004, the city of Seattle ended its 20-year arrangement with King County to provide defense
services through its defender organizations. It contracted directly with ACA, and ACA now
receives approximately $3 million a year from the city, about one quarter of the total operating
budget. However, ACA could not continue its public defense operations without the $9 to $10
million provided by county funding. CP at 660 (Chapman Decl.). TDA receives approximately
90 percent of its funding from King County, with some additional grants from the county and the
State for racial disparity and sexually violent predator programs, and other funding sources for
public defense related work, such as a contract with Seattle Municipal Courts, making up the
balance. CP at 1285 (Boruchowitz Decl.). TDA could not continue in its present form without
county funding. Id. SCRAP receives 98 percent of its annual $10 million budget from King
County, with the remainder made up of two small grants from the county and the State for public
defense related projects. CP at 1733 (Daly Decl.). The county was the sole source of funds for
NDA in 2003. CP at 2238 (Farley Decl.). It appears that was still the case until at least 2008.
7
Dolan (Kevin) v. King County, No. 82842-3
According to evidence in the record, these board members agreed to the new
arrangement primarily out of concern for what would happen to the organizations’
employees and because of concern for the organizations’ client base. See CP at 64647 (Chapman Decl.); CP at 1281 (Boruchowitz Decl.). Ultimately all defender
groups signed the contract despite serious misgivings.
In 2005, the county developed a new and complex “public defense payment
model.” CP at 648-52 (Chapman Decl.). The budgets of all of the defender
organizations were blended together for presentation to the county, and the county
calculated an average percentage to be allocated to each organization on the basis of
projected caseloads, the Kenny Scale, attorney to staff ratios, and past data on the
overhead expenses and administrative costs for each organization. The new model
effectively treats the four defender organizations as one for budgeting purposes. CP
at 652 (Chapman Decl.).
There is no dispute the defender organizations have autonomy to make day-today decisions on the representation of indigent clients. Because, of course, the
county is bringing the charges against the defendants represented by the defender
organizations, the county has made an effort not to interfere with attorney/client
relationships or trial strategies.
On January 24, 2006, Dolan filed a class action in the Pierce County Superior
Court on behalf of the employees of the four King County defender organizations
seeking enrollment in PERS. The trial court certified the class of “[a]ll W-2
employees of the King County public defender agencies and any former or
See id. at 2243.
8
Dolan (Kevin) v. King County, No. 82842-3
predecessor King County public defender agencies who work or have worked for
one of the King County public defender agencies within three years of filing this
lawsuit.” CP at 7087 (Findings of Fact and Conclusions of Law at 1). The parties
agreed to separate the trial into two distinct phases: liability first, then remedies.
The parties further agreed that, if the court denied summary judgment, the judge
should decide the issues on the basis of the written record alone. The trial court
denied both parties’ motions for summary judgment and commenced a bench trial
on the written record to determine liability.
The class presented evidence that the county treated the defender
organizations exactly like the county treated any other agency of the county. For
example, defender groups participate in the county budgeting process exactly like
any other agency. See CP at 2684 (Cruz Decl.); CP at 2646-47 (Thoenig Decl.).
Each item of expense such as rent, payroll, lease payments on equipment, and other
costs, becomes a separate line item in the budget.9 It is the budget process that
determines the amount the defender group receives. In the event of a budget crisis
where there is a countywide reduction in budget, the defender groups must reduce
their budgets in the same percentage as other agencies.1 CP at 628 (Chapman
Decl.). Once the budget is approved, the total budget amount becomes the contract
amount. Id. at 625. According to evidence presented by the class, there is no real
negotiation of the contract, and signing the contract is a formality, which sometimes
9
It is not clear whether this remains the case after the new 2005 budget process came into effect.
After oral argument, Dolan submitted supplemental evidence regarding furloughs. The county
responded with a motion to strike the supplemental evidence and impose sanctions. We grant the
motion to strike but decline to impose sanctions. In addition, King County submitted an answer
to an amicus brief filed by the Washington Attorney General, and Dolan responded with an
objection, which we are treating as a motion to strike. The motion is denied.
1
9
Dolan (Kevin) v. King County, No. 82842-3
occurs after the contract period has expired. Id. at 625, 631, 638-39. The county
has maintained that the defender organizations may not retain for their own purposes
any profits or any funds that may be left over from the budget. CP at 2233 (Farley
Decl.); see also CP at 1237-38 (Daly Decl.). Nor are they held liable for any
budget shortages. See CP at 7176 (Resp’ts’ WAC Factor Chart). The class also
points out that, like the defender organizations, county agencies have authority to
exercise discretion in day-to-day activities including the hiring and firing of
employees. CP at 268-82 (Cruz Decl.).
The county points out that the defender organizations have historically been
independent, with their own articles and bylaws, control over day-to-day operations,
and independent boards of directors. Moreover, the organizations file Form 990
with the Internal Revenue Service (IRS), which confirms their status as private
nonprofits. See, e.g., CP at 6146 (TDA tax exemption form). The county also
asserts that the organizations have complete control over their funds, stating that the
budgetary formula “generated a sum of money that each corporation could spend
any way it wanted.”11 Br. of Pet’r at 43.
The county has made an admirable effort to establish parity among the
lawyers who work for the prosecutor’s office and the defender organizations. All
receive the same cost-of-living increases. All employees of the defender
organizations must comply with the county’s “‘Employee Code of Ethics.’” CP at
1747 (Daly Decl.).
The trial court found the class was eligible for PERS enrollment on the
11
In fact, the portion of the record cited for the proposition states that the organizations can
“allocate the total contractual sum in a variety of ways.” CP at 5465 (emphasis added).
10
Dolan (Kevin) v. King County, No. 82842-3
separate but overlapping ground that the defender organizations were arms and
agencies of the county, and the county was an employer of the organizations’
employees. The court granted an injunction ordering enrollment, but left the
enrollment date open pending further motions by the parties. The trial court did not
reach the issue of remedies. The county moved for certification for immediate
discretionary review under RAP 2.3(b)(4) and a stay of proceedings pending appeal.
The trial court granted both motions, and we accepted review. Thus, the question
before this court is the eligibility of the class for enrollment in PERS. Since we
have never interpreted or applied the PERS statutes and regulations at issue here, it
is a question of first impression.
ANALYSIS
1. Standard of Review
Where the record at trial consists entirely of written documents and the trial
court therefore was not required to “‘assess the credibility or competency of
witnesses, and to weigh the evidence, nor reconcile conflicting evidence,’” the
appellate court reviews de novo. Progressive Animal Welfare Soc’y v. Univ. of
Wash., 125 Wn.2d 243, 252, 884 P.2d 592 (1994) (quoting Smith v. Skagit County,
75 Wn.2d 715, 718, 453 P.2d 832 (1969)). However, where competing
documentary evidence must be weighed and issues of credibility resolved, the
substantial evidence standard is appropriate. In re Marriage of Rideout, 150 Wn.2d
337, 351, 77 P.3d 1174 (2003). The county argues that de novo review is proper
here.
11
Dolan (Kevin) v. King County, No. 82842-3
Dolan responds that the substantial evidence standard is more appropriate in
this case. Dolan points out that the trial court was required to weigh over 6,000
pages of testimony and exhibits, resolve conflicts, and issue formal findings of fact
as required by CR 52(a)(1). In essence, Dolan argues that the complexity and size
of the record, and the careful weighing of that record for over three months by the
trial court, make the substantial evidence standard preferable to de novo review
despite the lack of any specific issues of credibility.
Appellate courts give deference to trial courts on a sliding scale based on how
much assessment of credibility is required; the less the outcome depends on
credibility, the less deference is given to the trial court. Washington has thus
applied a de novo standard in the context of a purely written record where the trial
court made no determination of witness credibility. See Smith, 75 Wn.2d at 719.
However, substantial evidence is more appropriate, even if the credibility of
witnesses is not specifically at issue, in cases such as this where the trial court
reviewed an enormous amount of documentary evidence, weighed that evidence,
resolved inevitable evidentiary conflicts and discrepancies, and issued statutorily
mandated written findings. See Rideout, 150 Wn.2d at 352; Anderson v. City of
Bessemer City, 470 U.S. 564, 574-75, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985)
(deference rationale not limited to credibility determinations but also grounded in
fact-finding expertise and conservation of judicial resources). We apply the
substantial evidence standard in this case because of the size and complexity of the
record and the need to resolve conflicting assertions. Having examined the record
carefully, however, we would reach the same result if we applied a de novo
12
Dolan (Kevin) v. King County, No. 82842-3
standard of review.
2. PERS Eligibility
a. Arms and Agencies
A PERS eligible employee must work for a PERS employer. See RCW
41.40.010(12) (former RCW 41.40.010(22) (1997)); RCW 41.40.010(13) (former
RCW 41.40.010(4) (1993)). A PERS “employer” is defined in relevant part as
“every branch, department, agency, commission, board, and office of the state.”
RCW 41.40.010(13)(a), (b). Counties are “but arms or agencies of the state.” State
ex. rel. Taylor v. Superior Court, 2 Wn.2d 575, 579, 98 P.2d 985 (1940). Thus, if
we conclude, as Dolan contends, that the defender organizations are in fact arms or
agencies of the county, then the defender organizations’ employees are employees
as defined by RCW 41.40.010(12).
Dolan asserts that under common law standards the county has such a right of
control over the organizations that the organizations are arms and agencies of the
county, and thus the State, and therefore employees of the organizations are PERS
eligible. Dolan argues the county has general control over the organizations through
its budget process and the fact that the organizations would not exist without county
funding.12 Dolan asserts the county has used that control to “rewrite articles of
12
For example, as mentioned above, the contract price is not a negotiated term, but is determined
the previous year by the county’s budget process. CP at 625, 631, 638-39 (Chapman Decl.). The
contracts appear to be considered mere details; the constitutionally mandated services of the
defender organizations are often performed without any contract for the corresponding period
having been signed. Id.; CP at 1734 (Daly Decl.). The contract is presented in a “take it or leave
it” form, where “leaving it” means the organizations would cease to exist. In essence, Dolan
argues that the county creates its own public defense budget each year, then uses the
organizations as a “pass-through of County funds to pay salaries of its lawyers and staff.” CP at
2243 (Farley Decl.). According to the record, the budget “is the main way that the County
Council exercises its authority over County operations.” CP at 2684 (Cruz Decl.).
13
Dolan (Kevin) v. King County, No. 82842-3
incorporation, bylaws, and contracts, renegotiate leases, and change employee
policies and procedures.” Resp’ts’ Br. at 23-24. Dolan points out the defense
organizations are thoroughly integrated into the county budgeting process and
administrative procedures to the extent that the only difference between the King
County nonprofit entities and the Pierce County Department of Assigned Counsel,
an official county department, is formal, not functional. Resp’ts’ Br. at 20-21, 30
(citing CP at 662-62 (Chapman Decl.); CP at 2648 (Thoenig Decl.)). Dolan also
contends the many limitations imposed on the defender groups are further evidence
of control, including prohibitions on other sources of revenue, affiliation with other
entities, leasing of office space, competition with other defender organizations for
market share, and spending budgeted funds from the county. Resp’ts’ Br. at 24-25,
34-36 (citing, e.g., CP at 660-61 (Chapman Decl.); CP at 1738, 1749 (Daly Decl.);
CP at 2237, 2239 (Farley Decl.)).
King County calls Dolan’s claim a “de facto agency” argument and contends
de facto agencies are disfavored under Washington law. The county maintains that,
even if there is such a thing as a de facto agency in Washington, the defender
organizations are independent both historically and in their day-to-day operations, as
their private nonprofit status in contracts, corporate documents, and tax forms
indicates. Br. of Pet’r at 54-55 (citing, e.g., CP at 6183-6299 (Organizations’
Articles of Incorporation); CP at 5903-6168 (Organizations’ IRS Filings)). The
county asserts contrary to Dolan’s claims that a defender organization could spend
the lump sum budgeted to it “any way it wanted.” Pet’r’s Br. at 43 (emphasis
removed). It also disputes that the organizations are required to have an exclusive
14
Dolan (Kevin) v. King County, No. 82842-3
relationship with the county. Pet’r’s Br. at 17 n.3 (citing, e.g., CP at 2843-44
(Chapman Dep. at 113-14)). As discussed above, the county argues that it is
undisputed the defender organizations have autonomy to hire and fire and promote
employees. The defenders respond that their limited authority to decide how to
spend funds and to hire and fire is no different than the authority enjoyed by other
county agencies.
Dolan relies largely on two sources of authority for the proposition that the
control the county has over the defender organizations can render them arms and
agencies of the State. In 1956, the Washington Attorney General issued an opinion
that stated that the Associated Students of the University of Washington (ASUW), a
nonprofit corporation that is the primary student organization at the university, was
an “arm and agency” of the university—and thus the State—because the university
had the right of final approval of all actions taken by the ASUW. 1956 Op. Att’y
Gen. No. 267, at 2-3. Thus, employees of ASUW were entitled to be included as
members of the state retirement system. Id. at 6.
Similarly, the Oregon Court of Appeals held a private nonprofit formed by the
city of Portland to manage its energy policy was an instrumentality of the city for the
purposes of Oregon’s PERS. State ex rel. Pub. Emps.’ Ret. Bd. v. City of Portland,
69 Or. App. 117, 684 P.2d 609 (1984)). Specifically, the court found that control
over day-to-day operations was not necessary for its ruling because under the
articles of incorporation the city council could dissolve the corporation at any time,
and the directors served at the council’s pleasure. Id. at 121-22. The fact that the
city never exercised that authority did not matter—just having it was enough to
15
Dolan (Kevin) v. King County, No. 82842-3
make the nonprofit corporation an instrumentality of Portland. Id. at 122.
These sources support Dolan’s position that, analytically, the issue is the
nature of the relationship between the county and the defender organizations. There
is a substantial body of law distinguishing between the employment relationship and
the independent contractor relationship. The bedrock principle upon which
relationships are analyzed under the common law is the right of control.
Hollingbery v. Dunn, 68 Wn.2d 75, 80-81, 411 P.2d 431 (1966). The focus is on
substance and not on corporate forms, titles, labels, or paperwork. See WAC 41502-110(2)(c) (noting that for purposes of PERS eligibility, “whether the parties
regard the worker as being an independent contractor is not controlling” and
“disclaimers . . . are not binding on the department for the purpose of determining
employer-employee status”).
Dolan’s argument is further supported by the statutory definition of
“employee.” In 1997, the legislature amended the PERS statutes. Laws of 1997,
ch. 254. The definition of “employee” in former RCW 41.40.010(22), recodified as
RCW 41.40.010(12), was amended with instructions to the Department of
Retirement Systems (DRS) to “adopt rules and interpret [the] subsection consistent
with common law.” Laws of 1997, ch. 254, § 10(22). The legislature made clear
that the amendments were meant to be “consistent with long-standing common law
of the state of Washington and long-standing department of retirement systems’
interpretations of the appropriate standard to be used in determining employee
status.” Id., § 1(2). Therefore, if the “arm and agency” theory asserted by Dolan is
part of Washington common law or relied on by DRS, the county’s control over the
16
Dolan (Kevin) v. King County, No. 82842-3
organizations may be determinative of whether the organizations’ employees are
employees as defined by RCW 41.40.010(12).
The attorney general opinion relied on by Dolan is both a part of Washington
common law and used by DRS in determining employee status. In that opinion, as
described above, the attorney general found that ASUW was an “arm and agency”
of the State because the university had the power to control its actions, and thus its
employees were PERS eligible. 1956 Op. Att’y Gen. No. 267, at 2-3. First, this
court, albeit in a different context, adopted and applied the reasoning of the attorney
general opinion over 30 years ago, and explained that, although the university had
never exercised its power, failure to exercise it did not mean the power did not exist.
Good v. Associated Students of Univ. of Wash., 86 Wn.2d 94, 97-99, 542 P.2d 762
(1975). The court therefore rejected the contention of three students that ASUW
was an independent organization and not an “arm and agency” of the university. Id.
at 99.
Second, the same attorney general opinion has been relied on by DRS in the
context of PERS eligibility. According to the record, following a newspaper exposé
claiming that the Washington State University (WSU) bookstore was operating for
profit, “it was questioned whether the bookstore’s employees should be covered
under [PERS].” CP at 6608 (DRS Mem.). Further investigation revealed that the
“State Auditor . . . did not consider this entity either as part of WSU or as another
state agency or political subdivision.” Id. The bookstore’s payroll officer likewise
asserted that “the bookstore is considered a separate operation and not part of the
University.” Id. The DRS audit team requested review from the DRS Legal Affairs
17
Dolan (Kevin) v. King County, No. 82842-3
Unit. Id. at 6610. In answering the question of whether the bookstore was a valid
PERS employer, and thus whether its employees were validly enrolled in PERS, the
DRS response stated that under the 1956 attorney general opinion it did not matter
whether the bookstore was considered a separate PERS employer or simply part of
the university. CP at 6606 (DRS Letter Ruling, Dec. 31, 1990). The letter
explained that “the Bookstore is an arm and agency of WSU (AGO 55-57 No. 267),
as the entire capital stock of the Bookstore is under the control of the WSU Board
of Regents.” Id. Thus there was no question that the employees were PERS
eligible; the only question was the administrative one of whether the bookstore
should have reported as a separate entity or under the umbrella of WSU. Id. at
6607. The letter did not to answer that question. Id.
According to the attorney general opinion adopted by this court and DRS, the
State may have such control over an entity that it is an arm and agency of the State,
and its employees therefore eligible for PERS as “employees” under RCW
41.40.010(12).13 We thus can consider whether, under the common law as
13
The county is correct that both this court’s opinion in Good and the DRS interpretation
addressed above are distinguishable because the right to control was explicit in the corporate
articles or bylaws of the organizations at issue, but that fact should not end the inquiry. As in
Hollingbery and the common law, we must look beyond formalities to the actual nature of the
relationship. Hollingbery, 68 Wn.2d at 80 (“Whether in a given situation, one is an employee or
an independent contractor depends to a large degree upon the facts and circumstances of the
transaction and the context in which they must be considered.”). The county makes two
arguments disputing this proposition. First, the county asserts that the definition of a public
employer for PERS purposes does not include private nonprofit corporations. See RCW
41.40.010(13)(a), (b) (former RCW 41.40.010(4)(a), (b)). The county argues that because the
statute defines a PERS employer in relevant part as “every branch, department, agency,
commission, board, and office of the state” the defender organizations cannot be PERS
employers. See id. It asserts that because the county did not enact ordinances designating the
organizations as official county departments, they cannot be PERS employers under the statute.
The county’s argument is high formalism, and entirely overlooks the fact that the “arms and
18
Dolan (Kevin) v. King County, No. 82842-3
incorporated into former RCW 41.40.010(22), the employees of the defender
organizations are state employees.
b. County Control Over Defender Organizations
We would like to emphasize that no single factor controls. Hollingbery, 68
Wn.2d at 81. An independent contractor, whether for profit or nonprofit, does not
lose its independence simply because it is providing a public service at the request
of the government. Further, government can and should exact high standards of
performance from its independent contractors. Prudent financial controls and
careful oversight of contract compliance does not render a contractor an agency of
the government.14 “‘The retention of the right to inspect and supervise to insure the
proper completion of the contract does not vitiate the independent contractor
relationship.’” Hennig v. Crosby Group, Inc., 116 Wn.2d 131, 134, 802 P.2d 790
(1991) (quoting Epperly v. City of Seattle, 65 Wn.2d 777, 785, 399 P.2d 591
(1965)). However, government cannot create an agency to perform a government
function, incorporate it into its yearly budget process and control it like any other
agencies” determination rests on the amount of control the county has, not the method by which
the county creates its departments. We reject such a limited view of what constitutes a
government agency. Second, the county argues that “de facto” agencies are disfavored under
Washington law. Br. of Pet’r at 55. It bases this argument on “the well-understood concept that
while there can be a de facto officer, there can be no officer de facto without an office de jure.”
Id. The county also cites some case law that has little discernable relevance to the case at hand.
See Higgins v. Salewsky, 17 Wn. App. 207, 562 P.2d 655 (1977). This argument is at best
obscure and at worst nonsensical.
14
The dissent incorrectly asserts that our decision rests “on contractual provisions permitting the
County to supervise the end-level quality of the product it bargained for.” Dissent at 11. Despite
the dissent’s characterization, the problem does not lie with any particular contractual provisions.
The defender organizations can no longer be considered independent contractors not because the
county has inserted supervisory provisions in the contract, but because the county has in actual
practice expanded its control far beyond the supervision of end-level quality.
19
Dolan (Kevin) v. King County, No. 82842-3
government agency, and claim it is an independent contractor simply because of the
form of name or title.
The county argues that “[t]he proper focus . . . is the County’s control over
the manner in which the corporations’ attorneys and staff perform their work.”
Reply Br. of Pet’r at 4. The county argues that the defenders are free to defend
clients without interference and may hire and fire without interference, and that the
county does not interfere with the defender groups’ day-to-day activities. Thus the
county reasons that it merely seeks a result as a principle and does not control the
manner in which the independent contractors perform. Id. at 21 (citing Hollingbery,
68 Wn.2d at 80-81; Restatement (Second) of Agency § 220 (1958)). Under its
reasoning, the county could turn its sheriff’s department into a nonprofit corporation
and because the sheriff generally has authority to hire and fire and carry out police
work, the sheriff’s department would become an independent contractor. The
county is wrong.15
15
The dissent argues, like the county, that lack of control over the day-to-day job performance of
the organizations’ employees precludes a finding that the employees are entitled to PERS benefits.
The dissent is correct that control over the details of the work is generally the fundamental inquiry
in determining employment relationships. However, that test is unhelpful in this case for several
reasons. First, “a public defender is not amenable to administrative direction in the same sense as
other employees of the State.” Polk County v. Dodson, 454 U.S. 312, 321, 102 S. Ct. 445, 70 L.
Ed. 2d 509 (1981). Because “a public defender works under canons of professional responsibility
that mandate his exercise of independent judgment on behalf of the client,” and “it is the
constitutional obligation of the State to respect the professional independence of the public
defenders whom it engages,” insistence on the traditional test of control over the details of the
employee’s day-to-day job performance is unworkable in this context. Id. at 321-22. Second, the
DRS itself has, for similar reasons, determined that an employee relationship existed under similar
circumstances despite lack of control over details. Resp’ts’ Br. at 40. The DRS held that a judge
who contracted with the City of Kent was an employee for PERS purposes despite an explicit
disclaimer in the contract, and despite the fact that the city had no control over the details of his
work. CP at 2183-96 (In re the Petition of Robert McSeveney (9/16/2003)). Many of the factors
applied to the judge by the DRS are strikingly similar to the factors as applied to the agency
20
Dolan (Kevin) v. King County, No. 82842-3
A review of the record reveals that the county, perhaps for very legitimate
reasons, has gradually extended its right of control over the defender organizations
until they indeed have become vassal agencies of the county. The following
examples of the county’s right of control over the defender organizations support
our conclusion that, under common law principles, the defender organizations are in
fact agencies of the county. The defender organizations were created specifically to
carry out a constitutionally mandated function of the county. Generally,
independent contractors determine their own formal structure, such as the
composition of their boards, articles, and bylaws; but the county has imposed
stringent control over the defender organizations’ formal structure. Generally,
independent contractors may have many clients, but the defender organizations are
true captives of the county in the sense that they cannot have other clients without
the county’s consent and the county provides virtually all of the organizations’
funding.16 Independent contractors can usually bid for or negotiate contracts; the
employees. Compare CP at 2193-94 (DRS WAC Factor Chart), with CP at 7171-81
(Respondents’ WAC Factor Chart). Finally, the dissent’s limitation of the common law control
test to individual employees entirely ignores the fact that an organization may be an arm and
agency of the State. That determination, as we have described, turns on the nature of the
relationship between organizations, not individual employees within the organizations.
16
The county counters that like an independent contractor, some of the organizations can and do
contract separately with municipalities other than King County. Br. of Pet’r at 17 n.3 (citing, e.g.,
CP at 2843-44 (Chapman Dep. at 113-14)). Presumably the county means the city of Seattle,
since that is the only other municipality with which the record shows the organizations contracted.
E.g., id. at 659-60. Other than cities and other government entities, the county strictly limits with
whom the organizations may contract. The county code states that the county “may enter into
agreements with nonprofit corporations formed for the specific purpose of rendering legal
services in behalf of indigents to provide legal services to persons eligible for representation
through the public defense program.” King County Code 2.60.040. The county has interpreted
this to mean the organizations, unlike a true independent contractor, may never “engage[] in
providing [] any other form of legal representation – whether for profit or pro bono.” CP at 2232
(Farley Decl.).
21
Dolan (Kevin) v. King County, No. 82842-3
contracts of the defender organizations are merely a pass-through of the county’s
budgeting process.17 Independent contractors may generally lease space or acquire
property without approval; the defender organizations may not lease or acquire
property without the county’s approval and the county has asserted that property
owned by the organizations belongs to the county.18
Further, independent contractors would generally realize profits or losses and
nonprofit entities would be entitled to set aside money for future growth and
expansion. Independent contractors generally do not have customers establish a pay
scale for their employees or require the independent contractors to give their
employees the same cost-of-living increases that the customer’s employees
receive.19 While no single factor or combination of factors is controlling, we hold
that the county has exerted such a right of control over the defender organizations as
to make them agencies of the county.2 We hold that under Washington common law
as adopted in RCW 41.40.010(12), the employees of the defender organizations are
17
The dissent chooses to ignore this fact completely when it states that “the corporations could
negotiate with the County on their own accord” to receive pension funding. Dissent at 10. The
lack of any real negotiating power on the part of the public defender organizations is evidenced by
the numerous unilateral decisions made by the county over the years. In the context of the facts
of this case, it is remarkable to suggest that the organizations could have negotiated pensions if
they wanted them.
18
The county appears to have changed its rent approval requirements upon being made aware of
the employees’ claims in this lawsuit. CP at 2834-35 (Chapman Dep.).
19
Also unlike a true independent contractor, as noted above, the county inserted a “termination at
will” clause in 2003, which effectively gave the county the power to terminate the existence of
any or all of the organizations at its slightest displeasure. This clause was replaced by a
“termination for convenience” clause in the following years, which is not easily distinguished in
actual effect.
2
The dissent suggests our holding “places numerous government contracts with independent
contractors at risk of being misconstrued as creating employer-employee relationships.” Dissent at
11 n.6. The dissent cites no examples of contractors whose circumstances even remotely
resemble those of the public defenders here.
22
Dolan (Kevin) v. King County, No. 82842-3
employees of the county for purposes of PERS.
3. King County’s Affirmative Defenses
a. Collateral Estoppel
The county argues collateral estoppel bars Dolan’s claim on the basis of an
unpublished summary judgment order in White v. Northwest Defenders Ass’n that
found an NDA employee was not an employee of the King County OPD for the
purposes of a wrongful termination claim. Order Granting Summ. J., White v. NDA,
No. 94-2-09128-0 (King County Super. Ct., Wash. Dec. 2, 1994). Collateral
estoppel requires, at a minimum, that the identical issue was decided in the prior
action. Hanson v. City of Snohomish, 121 Wn.2d 552, 561, 852 P.2d 295 (1993).
In White, the issue was whether the OPD was vicariously liable for employment
discrimination, and the court issued a three-page summary judgment order
determining that it was not. Here the issue is whether Dolan and the class he
represents are PERS eligible. The cases are not comparable. Moreover, collateral
estoppel requires identical parties or privity with the original parties. Id. Ted White
was fired from NDA in 1994, and the class includes persons who have worked for
one of the four defender organizations between 2003 and 2009. Thus he is not, as
the county asserts, a “member of the class,” and there is no privity. Br. of Pet’r at
60. We reject the county’s collateral estoppel argument.
b. Equitable Estoppel
The county asserts that because the organizations filed nonprofit corporate
forms with the IRS, and because the employees participated in certain benefits
programs available only to private employees, and organized in labor unions with
23
Dolan (Kevin) v. King County, No. 82842-3
representatives certified by the National Labor Relations Board, Dolan is equitably
estopped from claiming PERS benefits. Equitable estoppel requires (1) an
admission, act, or statement inconsistent with a later claim; (2) another party's
reasonable reliance on the admission, act, or statement; and (3) injury to the other
party that would result if the first party is allowed to contradict or repudiate the
earlier admission, act, or statement. Lybbert v. Grant County, 141 Wn.2d 29, 35, 1
P.3d 1124 (2000) (quoting Bd. of Regents v. City of Seattle, 108 Wn.2d 545, 551,
741 P.2d 11 (1987)). Perhaps because King County required the defender
organizations to give the appearance of being private, the county is arguing the
employees cannot now claim to be public employees. But it is difficult to
understand how the county relied on their private status, or what else the employees
should have done. Moreover, accepting the county’s argument would elevate form
over substance. That is clearly contrary to the scheme laid out by the legislature and
DRS. See RCW 41.40.010(12); WAC 415-02-110. The county’s equitable
estoppel argument is not convincing, and we reject it as well.21
CONCLUSION
We affirm the trial court’s determination that employees of the agencies are
also county employees for the purposes of PERS. We hold that King County has
such a right of control over the defender organizations that they are arms and
agencies of the county. We remand to the trial court for further proceedings
21
The dissent makes a similar argument, claiming that the organizations can “realize the benefits
of being both a private employer and an agency of the County.” Dissent at 9. We make no such
holding. There may well be collateral consequences for the public defender organizations
resulting from their status as arms and agencies of the State. But those consequences are not now
before us.
24
Dolan (Kevin) v. King County, No. 82842-3
consistent with this opinion.
25
Dolan (Kevin) v. King County, No. 82842-3
AUTHOR:
Justice Tom Chambers
WE CONCUR:
Justice Mary E. Fairhurst
J. Robert Leach, Justice Pro Tem.
Richard B. Sanders, Justice Pro
Tem.
Justice Susan Owens
26
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