Network Design Eng'g, Inc. v. Director

NETWORK DESIGN ENGINEERING, INC. v. DIRECTOR,
Employment Security Department

E 95-48                                            ___ S.W.2d ___

                  Court of Appeals of Arkansas
                           Division I
                 Opinion delivered March 6, 1996


1.   Unemployment compensation -- payment of unemployment insurance
     taxes -- proof required to qualify for exemption as
     independent contractors. -- In order to obtain the independent
     contractor exemption contained in Ark. Code Ann.  11-10-
     210(e) (Supp. 1993), it is necessary that the employer prove
     each of subsections (e)(1) through (3); therefore, if there is
     sufficient evidence to support finding that any one of the
     three requirements is not met, the case must be affirmed.

2.   Unemployment compensation -- review of Board of Review's
     decision -- when decision will be affirmed. -- In reviewing a
     decision of the Board of Review, the appellate court views the
     evidence in the light most favorable to the Board's findings,
     giving them the benefit of every legitimate inference that can
     be drawn from the testimony and will affirm the Board's
     decision if its findings are supported by substantial
     evidence. 

3.   Unemployment compensation -- substantial evidence supported
     Board's finding that the inspector's were not free from
     appellant's control and direction -- Board's decision
     affirmed. -- Where the record included evidence of the
     inspector's assignments, rate of wages, number of overtime
     hours, limited discretion, and appellant's ability to
     terminate the inspectors for failure to maintain personal
     habits and conform to appellant's rules and regulations
     policy, the appellate court concluded that there was
     substantial evidence to support the Board's finding that the
     inspectors were not free from appellant's control and
     direction; the Board of Review's decision finding that
     appellant's relationship to inspectors constituted covered
     employment subject to the payment of unemployment insurance
     taxes under Ark. Code Ann.  11-10-210(e) (Supp. 1993), based
     on the finding that the inspectors were not independent
     contractors, but employees of appellant, was affirmed.  
     

     Appeal from the Arkansas Board of Review; affirmed.
     Friday, Eldredge & Clark, by:  Michael S. Moore, for
appellant.
     Allan Pruitt, for appellee.

     Judith Rogers, Judge.*ADVREPCA4*                           DIVISION I




                                       E 95-48
                                        
                                                     March 6, 1996     



NETWORK DESIGN ENGINEERING, INC.     AN APPEAL FROM THE ARKANSAS     
                 APPELLANT           BOARD OF REVIEW                 
                                     NO. 94-BR-1 EC                   
V.
                                                                
DIRECTOR, EMPLOYMENT SECURITY
DEPARTMENT                   
                 APPELLEE
                                     AFFIRMED




                         Judith Rogers, Judge.




     This is an appeal from the Board of Review's decision finding
that appellant's relationship to inspectors constituted covered
employment subject to the payment of unemployment insurance taxes
under Ark. Code Ann.  11-10-210(e) (Supp. 1993), based on the
finding that the inspectors were not independent contractors, but
employees of appellant.  On appeal, appellant argues that the
Board's decision is arbitrary, capricious, unreasonable and not
supported by substantial evidence.  We disagree and affirm.
     It is undisputed that Finley Engineering Company contracted
with the Federated States of Micronesia Telephone Company (FSM) to
design and supervise the installation of cable in the Federated
States.  Finley then subcontracted to appellant, an engineering
company involved in the communications industry, the function of
supervising the installation portion of the prime contract. 
Appellant maintained offices at FSM and hired twenty to twenty-five
inspectors.  The inspectors were engaged pursuant to a form
contract which was required by FSM's government.  The inspectors
were to insure that the installation was accomplished according to
specifications contained in the prime contract.  
     On appeal, appellant argues that the inspectors were exempt as
independent contractors within the meaning of Ark. Code Ann.  11-
10-210(e) (Supp. 1993), which provides:
          Services performed by an individual for wages
          shall be deemed to be employment subject to
          this chapter irrespective of whether the
          common-law relationship of master and servant
          exists, unless and until it is shown to the
          satisfaction of the Director that:

            (1)  Such individual has been and will
          continue to be free from control and direction
          in connection with the performance of such
          service, both under his contract for the
          performance of service and in fact; and

            (2)  Such service is performed either out-
          side the usual course of the business for
          which the service is performed or is performed
          outside of all the places of business of the
          enterprise for which the service is performed;
          and

            (3)  Such individual is customarily engaged
          in an independently established trade, occupa-
          tion, profession, or business of the same
          nature as that involved in the service per-
          formed.


     In order to obtain the exemption contained in  11-10-210(e),
it is necessary that the employer prove each of subsections (e)(1)
through (3).  Stepherson v. Director, 49 Ark. App. 53, 895 S.W.2d 950 (1995).  Therefore, if there is sufficient evidence to support 

a finding that any one of the three requirements is not met, the case
must be affirmed.  Id.  In reviewing a decision of the Board of
Review, this court views the evidence in the light most favorable to
the Board's findings, giving them the benefit of every legitimate
inference that can be drawn from the testimony and will affirm the
Board's decision if its findings are supported by substantial
evidence.  American Transportation Corp. v. Director, 39 Ark. App.
104, 840 S.W.2d 198 (1992).
     Appellant first argues that the Board's finding that the
inspectors were not free from appellant's direction and control is not
supported by substantial evidence.  We disagree.
     Charles W. Miller, president of appellant's corporation,
testified that appellant and the inspectors entered into a contract
which was required by the government of the Federated States.  The
contract in this case reveals that all language used referred to
appellant as "employer" and the inspectors as "employees".  The
contract also reveals that the inspectors were to be paid by the hour,
that appellant would pay the inspectors $50.00 per day for board and
lodging, and that appellant reserved the right to terminate the
relationship by giving a 30-day written notice.  The contract also
revealed that appellant essentially controlled the number of overtime
hours worked by the inspectors.  The contract specifically provided
that appellant had the right to terminate the inspectors for failure
to maintain good personal habits as well as failure to conform to
appellant's rules and regulations policy.  Mr. Miller testified that
appellant had the right to terminate a contract with an inspector if
he or she did not perform his or her duties.  Another section of the
contract indicates that the inspectors will be employed "... for the
employer and no other person or company for wage ... " without prior
written consent by the Federated States.
     Mr. Miller testified further that appellant assigned the
inspectors to each crew that was to be supervised.  He also stated
that the inspectors were not supervised on the job, and that they had
authority to make changes "so long as it was not a major change in
design."  Mr. Miller added that on the first day he was the only
individual available and that he worked as an inspector on that day. 
He also concluded that if an inspector had not been available on a
particular day, he would have supervised the crew as an inspector on
a temporary basis.  
     From our review of the record, including the evidence of the
inspector's assignments, rate of wages, number of overtime hours,
limited discretion, and appellant's ability to terminate the inspec-
tors for failure to maintain personal habits and conform to
appellant's rules and regulations policy, we conclude that there is
substantial evidence to support the Board's finding that the inspec-
tors were not free from appellant's control and direction.  Because we
find that the Board's finding that appellant failed to satisfy the
first prong of the test under  11-10-210(e) is supported by substan-
tial evidence, we need not discuss the Board's findings on the
remaining two prongs.
     Affirmed.
     Pittman and Cooper, JJ., agree.