ROBERT J MANTEI V MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT SYS
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STATE OF MICHIGAN
COURT OF APPEALS
ROBERT J. MANTEI,
FOR PUBLICATION
April 1, 2003
9:00 a.m.
Petitioner-Appellant,
No. 228589
Bay Circuit Court
LC No. 00-003047-AA
v
MICHIGAN PUBLIC SCHOOL EMPLOYEES
RETIREMENT SYSTEM and MICHIGAN
PUBLIC SCHOOL EMPLOYEES RETIREMENT
BOARD,
Respondents-Appellees.
Updated Copy
May 23, 2003
Before: O'Connell, P.J., and Griffin and Markey, JJ.
GRIFFIN, J.
In this appeal, we address an issue of first impression: whether a retired public-school
principal acting as an administrator in a public elementary school pursuant to a contractual
arrangement with a private-sector personnel-services company that furnishes qualified
administrators and other needed personnel to Michigan schools "becomes employed by a
reporting unit," i.e., the school district he serves, for purposes of § 61 of The Public School
Employees Retirement Act of 1979 (retirement act), MCL 38.1361. If the retirant is deemed an
employee of the school district, the retirant is subject to the retirement act's provision in § 61
limiting earnings and reducing the retirement allowance.
Petitioner Robert J. Mantei, the retirant in question, appeals by leave granted from an
order of the circuit court affirming respondents Michigan Public School Employees Retirement
System (MPSERS) and Michigan Public School Employees Retirement Board's (the retirement
board) decision that petitioner was subject to the earnings limitation of § 61 of the retirement act,
because he was "employed by a reporting unit" within the meaning of the retirement act.
Pursuant to the court's order, petitioner was required to reimburse the MPSERS for that portion
of his pension benefits that exceeded the statutory earnings limitation. We reverse and hold that
under the economic-reality test, petitioner was not "employed by a reporting unit" for purposes
of § 61 of the retirement act.
I
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The following facts, as recited by the circuit court, are not in dispute:
Petitioner had been employed with the Essexville-Hampton Public
Schools since August 25, 1967. During said employment, petitioner was
promoted to the position of Principal of Hughes Elementary School effective July
1, 1994. Petitioner continued [as] the Principal of Hughes Elementary School
until July 1, 1997—i.e., the effective date of his retirement.
It should be noted that at the time of his promotion to the position of
Principal of Hughes Elementary School, and in response to certain incentives
offered to employees if notification of retirement was provided at least three (3)
years in advance, petitioner informed former Superintendent Bob Winters in 1994
that he would be retiring in 1997. At that time, there were no discussions between
petitioner and Superintendent Winters regarding any options for petitioner to
continue providing services to the school district through any contracted-for
service arrangement. Indeed, petitioner had not even considered such an option at
that time.
However, in the winter of 1995 or the spring of 1996, petitioner attended a
conference where he learned that some retired principals were being employed by
private organizations to provide serves [sic] as principals in public schools.
In any event, within one week after retiring as Principal of Hughes
Elementary School, petitioner returned to the school district as Principal of
Hughes Elementary School under an employment contract with Thumb
Educational Services, Inc. [hereinafter "Thumb"]. Apparently, prior to retiring
from the school district, petitioner had discussions with Thumb, a Michigan
corporation that places administrators and supervisory personnel in Michigan
schools. The substance of those discussions related to petitioner's continued
employment as a Principal . . . . At that same time, said school district was having
discussions with Thumb regarding an experienced administrator to take
petitioner's place as Principal of Hughes Elementary School.
. . . petitioner was hired by Thumb and the school district contracted with
Thumb for an experienced administrator to become Principal of Hughes
Elementary School. As a result, within one week of his retirement from the
school district, petitioner once again returned to Hughes Elementary School in the
capacity of Principal.
From the 1997-98 school year to present, petitioner has been the Principal
of Hughes Elementary School under an at-will employment contract with Thumb.
Pursuant to said contract, petitioner is compensated solely by Thumb and does not
receive any monetary compensation, reimbursements or benefits from the school
district. However, in his capacity as Principal of Hughes Elementary School,
petitioner oversees the day-to-day operations of the school just as he did before
retiring. Indeed, petitioner sits in the same office and has the same job
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responsibilities as before his retirement. Furthermore, petitioner is subject to the
policies, rules and procedures of the school district in the performance of his
duties as Principal of Hughes Elementary School.
After petitioner retired from the school district and while he held the
position of Principal of Hughes Elementary School under his employment
contract with Thumb, the school district was contacted by staff personnel from
[defendant] the Michigan Public School Employees Retirement System
[hereinafter "MPSERS"] regarding petitioner's employment status. The school
district informed MPSERS that petitioner was working as the Principal of Hughes
Elementary School under contract with Thumb.
Upon receipt of this information and after a review of MPSERS records
showing that petitioner was a retiree working in the exact same capacity as he had
prior to his retirement, MPSERS made a determination that petitioner was acting
as an employee of the school district. This determination was based upon a 20point control test contained in the Operations Manual produced by MPSERS and
given to all school districts in the state. It is the same test used by the Internal
Revenue Service [IRS] to make determinations as to whether individuals are
employees or independent contractors.
Based upon the determination that petitioner was acting as an employee of
the school district, Retiree Services Analyst Ben McIntire sent a letter to
petitioner dated December 7, 1998 which stated, in relevant part, as follows:
"All retirees who return to public school employment are subject to postretirement earnings limitations. . . .
"Your earnings [limit] in 1997 was $10,718.50. Your actual wages, as
reported by the school system(s) you were employed by, were $30,816.00. You
have exceeded your statutory limit by $20,097.50. Your pension in 1997 was
$15,750.48. You must return to the Michigan Public School Employees
Retirement System (MPSERS) the portion of your pension (up to the entire
pension) that exceeded your limit: $15,750.48."
* * *
This same scenario applied in 1998 and 1999 as petitioner had exceeded
the earnings limitation for those years also.
Petitioner did not return to MPSERS the pension monies he had received;
rather, he requested an administrative hearing [before the Michigan Public School
Employees' Retirement Board].
At the administrative hearing, petitioner maintained that the statutory limitation on
earnings did not apply to him because he did not return to the school district as an employee. On
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September 14, 1999, the hearing referee issued her Proposal for Decision (PFD), recommending
that petitioner's appeal be denied. Specifically, the PFD stated, in pertinent part:
Respondent utilizes a 20-point control test used by the Internal Revenue
Service (Revenue Ruling 87-41) for determining the true nature of an
employment relationship. . . .
* * *
. . . the 20-point test is instructive, and is applied in the following analysis.
Because Petitioner has served as principal for many years prior to his
retirement, he requires very little direction and can be trusted to carry out his
functions proficiently. Indeed, it was because of a concern about continuity in the
face of several retirements that the system engaged the services of Thumb and
Petitioner. Nevertheless, he is required to follow school policies and procedures.
The position of school principal is integral to and merged into the functioning of
the school system. In other words, Petitioner's position is under the direction and
control of the school superintendent and school board.
Petitioner's work hours are largely controlled by the official school year;
i.e., work hours are set by the school system/employer. As a practical matter,
Petitioner devotes his full time to the activities of school principal. Moreover, the
employer provides him with an office, furniture, telephone and administrative
support services, all on the employer's premises. Essentially, the only differences
between Petitioner's current position and his former one are that he does not
undergo a regular performance review, and he is not required to report each time
he leaves the school building.
I concluded that, under the IRS 20-point test, Petitioner is an employee of
the Essexville-Hampton Public Schools, and is therefore subject to the earnings
limitations of the Act.
Petitioner filed exceptions to the PFD; however, following further review, respondent
retirement board adopted the hearing referee's PFD in its entirety and, on November 29, 1999,
issued an order denying petitioner's appeal. Petitioner appealed by right to the circuit court,
which affirmed the retirement board's order. The court, relying on Brouwer v Michigan Pub
School Employee Retirement Sys, unpublished opinion per curiam of the Court of Appeals issued
5/28/92 (Docket No. 131224),1 in which this Court tacitly approved the use the IRS 20-point
control test to determine the employment status of a retirant working for a school district, held
that the retirement board did not err in its application of the 20-point control test to the present
circumstances, and that the board's decision was supported by competent, material, and
1
Unpublished opinions of this Court are not precedentially binding under the rule of stare
decisis. MCR 7.215(C)(1).
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substantial evidence on the whole record. On June 27, 2000, the circuit court issued its opinion
and order affirming the decision of the retirement board that pursuant to § 61 of the retirement
act, petitioner was "employed by a reporting unit," the Essexville-Hampton School District, and
therefore subject to the earnings limitation of § 61 with regard to compensation received by
petitioner for providing administrative services to the school district. Thereafter, this Court
granted petitioner's application for leave to appeal.
II
On direct review of an agency decision, a trial court must determine whether the
administrative action was authorized by law and whether the agency decision was supported by
competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28;
MCL 24.306(1); Boyd v Civil Service Comm, 220 Mich App 226, 232; 559 NW2d 342 (1996).
Substantial evidence is any evidence that reasonable minds would accept as adequate to support
the decision; it is more than a mere scintilla of evidence but may be less than a preponderance of
the evidence. Michigan Ed Ass'n Political Action Comm (MEAPAC) v Secretary of State, 241
Mich App 432, 444; 616 NW2d 234 (2000). This Court's review of the circuit court's decision
is, in turn, limited to a determination "whether the lower court applied correct legal principles
and whether it misapprehended or grossly misapplied the substantial evidence test to the agency's
factual findings." Boyd, supra at 234. This standard of review is indistinguishable from the
"clearly erroneous" standard of review. Id. "[A] finding is clearly erroneous when, on review of
the whole record, this Court is left with the definite and firm conviction that a mistake has been
made." Id. at 235. See also MEAPAC, supra at 444; Nat'l Bank of Detroit v Dep't of Social
Services, 240 Mich App 348, 354; 614 NW2d 655 (2000).
Statutory interpretation is a question of law we review de novo. Haworth, Inc v Wickes
Mfg Co, 210 Mich App 222, 227; 532 NW2d 903 (1995). When construing a statute, the
primary goal is to ascertain and give effect to the intent of the Legislature. Robertson v
DaimlerChrysler Corp, 465 Mich 732, 748; 641 NW2d 567 (2002). The first criterion in
determining intent is the specific language of the statute. Id. The Legislature is presumed to
have intended the meaning it has plainly expressed, and if the expressed language is clear, then
judicial construction is neither required nor permitted, and the statute must be enforced as
written. Id. When parsing a statute, this Court presumes that every word is used for a purpose.
Pohutski v Allen Park, 465 Mich 675, 683; 641 NW2d 219 (2002). It is important to ensure that
words in a statute are not ignored, treated as surplusage, or rendered nugatory. Robertson, supra
at 748. Unless defined in the statute, every word or phrase of a statute will be ascribed its plain
and ordinary meaning. Id.
III
Section 61 of the retirement act, MCL 38.1361, limits a retirant's retirement allowance
when the retirant "becomes employed by a reporting unit" and earns specified wages:
(1) Except as otherwise provided in this section, if a retirant is receiving a
retirement allowance other than a disability allowance payable under this act . . .
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on account of either age or years of personal service performed, or both, and
becomes employed by a reporting unit, the following shall take place:
* * *
(b) The retirant's retirement allowance shall be reduced by the lesser of the
amount that the earnings in a calendar year exceed the amount permitted without
a reduction of benefits under the social security act, chapter 531, 49 Stat. 620, or
1/3 of the retirant's final average compensation. For purposes of computing
allowable earnings under this subdivision, the final average compensation shall be
increased by 5% for each full year of retirement.
(2) The retirement system may offset retirement benefits payable under
this act against amounts owed to the retirement system by a retirant or retirement
allowance beneficiary. [Emphasis added.]
As a preliminary matter, we note there is no dispute that the Essexville-Hampton Public
Schools constitute a "reporting unit"2 for purposes of this legislation and that petitioner's
postretirement benefits collected, wages earned, and attendant limitations are as calculated and
set forth by the hearing referee and recited by the circuit court. Moreover, as it was presumed
and not at issue below, we assume without deciding that the school district has the statutory
authority to contract with a private sector corporate entity to provide administrative services such
as those provided by petitioner through Thumb. See, generally, MCL 380.11a(3)(d) and (4);
MCL 380.1229(2).
Relevant to the present appeal is that portion of § 61 that places limits on a retirant's
retirement allowance when the retirant "becomes employed by a reporting unit" and earns
specified wages. Specifically, the central question is whether petitioner was "employed by a
reporting unit," the Essexville-Hampton Public Schools, or employed by Thumb, a private-sector
personnel-services corporation supplying administrators and staff to the Essexville-Hampton
Public Schools pursuant to a contract between the school district and Thumb. Using the IRS 20point control test to determine petitioner's employment status, the hearing referee, the retirement
board, and the circuit court all concluded that despite his at-will employment contract with
Thumb, the school district actually employed petitioner. Consequently, petitioner was ordered to
reimburse the MPSERS for monies obtained in excess of the earnings limitations of § 61.
Petitioner's primary claim on appeal is that he is not subject to the § 61 earnings
limitation because he is employed by Thumb, not the school district. Petitioner maintains that
the retirement board and the circuit court should not have utilized the IRS 20-point control test3
to determine that he was "employed by a reporting unit." Petitioner contends that this test is
2
"'[R]eporting unit' means a public school district . . . having employees on its payroll who are
members of this retirement system. The reporting unit shall be the employer for purposes of this
act." MCL 38.1307(3).
3
This test is also known as the "20 factor test."
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designed to determine one's status as either an employee or independent contractor. Because
petitioner has never characterized himself as an independent contractor, but rather as an
employee of Thumb, he argues that it is inappropriate to apply the test under the circumstances.
Petitioner further asserts that in the absence of a statutory definition of the word "employed" as
that word is used in § 61, the retirement board and the circuit court should have given
"employed" its plain and ordinary meaning rather than resorting to the IRS 20-point control test.
Petitioner argues that he is an employee of Thumb in any ordinary sense of the word: his contract
is with Thumb, his W-2 wage reports come from Thumb, his compensation is from Thumb, he
receives no benefits from the school district, and his tenure rights ended on retirement. This
evidence purportedly establishes that the school district did not employ him. In addition,
petitioner argues that the circuit court improperly relied on this Court's unpublished decision in
Brouwer, supra, because it is without precedential value and is factually distinguishable.
On the other hand, respondents, while acknowledging that petitioner entered into an atwill employment contract with Thumb, nonetheless argue that petitioner was a de facto employee
of the school district for purposes of § 61 of the retirement act. Respondents maintain that "[t]he
fact that Mantei went through a placement agency for school administrators and teachers to
return to his old job, rather than contracting directly with the School District, is . . . a distinction
without a difference." Respondents contend that for all intents and purposes, and on the basis of
the amount of control the school district exercised over his work, petitioner is "employed by a
reporting unit" within the meaning of the statute.
To the extent petitioner argues that absent a statutory definition we should assign the
phrase "employed by a reporting unit" its plain and ordinary meaning, petitioner's argument is
overly simplistic. As this Court has repeatedly recognized when interpreting the terms
"employ," "employer," or "employee" in different statutory and factual contexts, the existence of
an employment relationship is typically determined by examining a number of factors.
Consequently, depending on the circumstances, our governmental agencies and courts have
developed different tests to ascertain the true nature of an employment relationship. In the
instant case, as admitted into evidence below, the written criteria respondent MPSERS used to
determine an employment relationship acknowledge that there are various tests for such
determinations, but that "MPSERS generally relies upon the Common Law Control Test and the
IRS' 20 Factor Test' . . . ." With regard to the latter test, the written criteria explain that
[i]n deciding whether an individual is an employee, and therefore subject to
withholdings for income tax, FICA (Federal Insurance Contribution Act) and
FUTA (Federal Unemployment Tax Act) contributions, the IRS applies a 20
factor test. These factors largely revolve around the amount of control an entity
has over the work of the alleged independent contractor. The greater the degree
of control the reporting unit has the right to assert, the more likely the IRS is to
classify the worker as an employee.
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The IRS uses these factors4 to establish the employment status of independent contractors
who claim to be self-employed individuals and not employees of the organization or business
where they are performing work. The degree of importance accorded each factor varies
depending on the occupation and the factual context in which the services are performed. In
essence, the test to be applied is the "control test," with the twenty factors serving as guides in
determining whether an individual is an independent contractor or employee for taxation
purposes.
However, we agree with petitioner that in the context of construing § 61 of the retirement
act, the IRS 20-point control test does not provide the appropriate means of determining whether
petitioner was "employed by a reporting unit." As noted above, the IRS ordinarily uses the 20point control test to determine whether an individual is an employee or a self-employed
independent contractor for purposes of determining income-tax filing and withholding
requirements. Such circumstances are inapposite to the present situation where income-tax
withholding considerations are not the paramount concern, and petitioner has never assumed the
posture of a self-employed independent contractor. In other words, he has not contracted directly
with the school district to provide his administrative services. See, generally, Kamalnath v
Mercy Memorial Hosp Corp, 194 Mich App 543, 553; 487 NW2d 499 (1992). Instead,
petitioner contracted with a corporate intermediary, Thumb, through which his services were
provided to the school district.
Moreover, the written criteria used by respondent MPSERS indicates the element of
control is the focal point of the IRS 20-point control test. However, this Court has eschewed the
common-law "control test," of which the IRS 20-point control test is a variation, in cases that do
not involve issues of respondeat superior and vicarious liability of an employer for the tortious
acts of an employee. As this Court explained in Chilingirian v Fraser, 194 Mich App 65, 69;
486 NW2d 347 (1992), remanded 442 Mich 874 (1993), on remand 200 Mich App 198 (1993):
The "control test" has been limited to those situations where respondeat
superior has been alleged and the vicarious liability of a master is involved.
Nichol v Billot, 406 Mich 284, 297; 279 NW2d 761 (1979); Parham v Preferred
Risk Mutual Ins Co, 124 Mich App 618, 624; 335 NW2d 106 (1983). . . .
Because vicarious liability of a master is not alleged herein, we find the control
test to be inappropriate. Nichol, p 297. The test to be employed is one of
"economic reality." Goodchild [v Erickson, 375 Mich 289, 293; 134 NW2d 191
(1965)].
4
The twenty factors are: (1) actual instruction or direction of wage earner, (2) training, (3)
integration of services, (4) services to be rendered personally, (5) hiring and supervision of
assistants, (6) duration of relationship, (7) hours of work, (8) full-time work; (9) place of work;
(10) order of services, (11) submission of reports, (12) manner of payment, (13) payment of
business expenses, (14) furnishing tools and materials, (15) investment in facilities, (16) profit or
loss possibility, (17) working for a number of people, (18) availability of services to the public,
(19) right to discharge, and (20) right to quit at any time.
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See also Kidder v Miller-Davis Co, 455 Mich 25, 31-40; 564 NW2d 872 (1997); Norris v
State Farm Fire & Casualty Co, 229 Mich App 231; 581 NW2d 746 (1998); Hoffman v JDM
Assoc, Inc, 213 Mich App 466, 468-469; 540 NW2d 689 (1995); Nichol, supra at 297.
The economic-reality test considers four basic factors: (1) control of a worker's duties, (2)
payment of wages, (3) right to hire, fire, and discipline, and (4) performance of the duties as an
integral part of the employer's business toward the accomplishment of a common goal. Clark v
United Technologies Automotive, Inc, 459 Mich 681, 688; 594 NW2d 447 (1999); Chilingirian,
supra at 69; Parham v Preferred Risk Mut Ins Co, 124 Mich App 618, 624; 335 NW2d 106
(1983). This test considers the totality of the circumstances surrounding the work performed.
Chilingirian, supra at 69. No single factor is controlling and, indeed, the list of factors is
nonexclusive and other factors may be considered as each individual case requires. Clark, supra
at 689. Thus, the element of control, "although abandoned as an exclusive criterion upon which
the relationship can be determined, is a factor to be considered along with payment of wages,
maintenance of discipline and the right to engage or discharge employees." McKissic v Bodine,
42 Mich App 203, 208; 201 NW2d 333 (1972). Weight should be given to those factors that
most favorably effectuate the objectives of the statute in question. Id. at 209.
Consistent with these authorities, we conclude in the instant case, where respondeat
superior liability is not at issue, that the economic-reality test is the appropriate legal tool with
which to assess whether petitioner was "employed by a reporting unit" under § 61 of the
retirement act. The circuit court therefore failed to apply correct legal principles and erred in
utilizing the IRS 20-point control test to determine petitioner's employment status.5 Boyd, supra
at 234.
III
Next, applying the economic-reality test to the facts at hand, we conclude that plaintiff
was not "employed by a reporting unit" within the meaning of § 61. Conversely, plaintiff 's
status as Thumb's employee cannot reasonably be disputed under the circumstances.6
5
We find the facts of the instant case to be distinguishable from those of Brouwer, supra.
Further, to the extent the Brouwer Court opined that the 20-point control test was similar to the
economic-reality test and was the appropriate measure of the employment relationship therein for
purposes of § 61 of the retirement act, we disagree with that decision and choose not to follow it.
MCR 7.215(I)(1), MCR 7.215(C)(1).
6
Plaintiff has attached to his brief on appeal letters from the Internal Revenue Service dated June
29, 2000, two days after the circuit court issued its ruling in this case, stating that for purposes of
federal taxation plaintiff was an employee of Thumb. However, we must disregard these letters
as part of the evidence of record. The IRS determination obviously post-dates the administrative
and trial court proceedings; thus, it was not a part of the record below, and plaintiff never
properly moved to enlarge the record in this Court. See MCR 7.216(A). In any event, the IRS
determination relates to federal tax filing and withholding requirements, an issue apart from
plaintiff 's subjection to the earnings limitation of § 61 of the retirement act.
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First, examining the element of control under the economic-reality test, the following
facts are pertinent to our consideration of this factor. In June 1997, Thumb and the EssexvilleHampton Public Schools entered into a written contract whereby Thumb would provide the
school district with a qualified individual, petitioner, to fill the position of principal of Hughes
Elementary School. As consideration for the services and personnel Thumb provided, the school
district agreed to pay Thumb a set sum. The contract could be terminated at any time with or
without cause. It specified that "[t]he Agent provided by T.E.S. to the District shall comply with
all established rules and regulations governing personnel within the District," and, in the event of
any alleged breach of the agreement by the provided personnel, the district would promptly
notify Thumb. Thumb, in turn, would take any necessary disciplinary action and advise the
school district of such action. Petitioner's at-will contract with Thumb similarly provided that he
would "comply with all published and applicable work rules and regulations of the District."
Further, as noted by the hearing referee, petitioner's job responsibilities as principal of Hughes
Elementary School were the same before and after his retirement. Petitioner spent most of his
days at the school, interacting with parents and staff, communicating directly with the
superintendent regarding day-to-day concerns, evaluating other school employees, and providing
administrative reports to the school district. Moreover, the school district provided petitioner
with an office, furniture, telephone, and support services, all on the school district's premises.
However, school superintendent Mark Gaubatz testified at the administrative hearing that
he did not supervise or evaluate petitioner as he had when petitioner was an administrator
employed by the school district before his retirement. Superintendent Gaubatz also testified that
petitioner did not have an ongoing personnel file when providing services through Thumb, as he
did when the school district directly employed him. There were no formal performance
evaluations. Petitioner was not required to report to the school administration when leaving the
building. Further, Gaubatz indicated that while he had the authority to discipline administrators
the school district employed for any professional misconduct and performance deficiencies, any
discipline of petitioner while providing services through Thumb was a responsibility of Mr. John
Moore, the president of the company. Superintendent Gaubatz emphatically stated: "No, I do not
supervise Mr. Mantei."
Thus, petitioner essentially exercised his independent professional judgment on a daily
basis without direct supervision. The fact that petitioner was contractually bound to follow the
rules and regulations of the school district and implement district policies does not lead to the
inevitable conclusion that the school district had the right to control his work. Our conclusion in
this regard is bolstered by another decision of this Court, albeit in a different context. In Rambus
v Wayne Co General Hosp, 193 Mich App 268; 483 NW2d 455 (1992), aff 'd on rehearing, 197
Mich App 480 (1992), this Court determined that a doctor could not assert the protections of
governmental immunity because the doctor was an employee of a private corporate entity,
University Medical Affiliates, P.C., and not an employee of Wayne County General Hospital, a
government institution. In reaching the conclusion that the doctor was not an employee of the
hospital, this Court noted:
The hospital did not have the right to exercise control or direct the
methods by which the UMA [University Medical Affiliates, P.C.] physicians
performed their work and functions, except that the physicians generally agreed to
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comply with the policies, rules, and regulations of the hospital. Dr. Liss asserts
that because he agreed pursuant to the contract to fulfill certain obligations to the
hospital and because he was bound by the hospital's rules and regulations, he
should be considered an employee of both UMA and the hospital. Although we
agree with Dr. Liss that the physicians were obligated pursuant to the contract to
perform certain duties and act within hospital guidelines, the fact remains that the
hospital did not have any right to control the method or manner by which the
physicians performed their work or fulfilled their obligations. In addition, no rule
or regulation has been provided that would enable the hospital to dictate the
method of work utilized by a physician. Dr. Liss was not the hospital's employee.
[Id. at 271.]
This rationale applies to the instant case. Although petitioner was obligated to follow the
school district's rules and regulations, he nonetheless retained autonomy regarding the method
and manner by which he fulfilled his obligations, thus undermining respondent's argument that
the school district exercised control over petitioner and therefore "employed" him. Petitioner's
job responsibilities certainly suggest that he was an agent of the school district with regard to
business matters; however, whether petitioner could be considered the district's agent is not
dispositive of the issue whether he was employed by the school district. See Saums v Parfet, 270
Mich 165, 171-172; 258 NW 235 (1935); Lincoln v Fairfield-Nobel Co, 76 Mich App 514, 519;
257 NW2d 148 (1977).
In any event, even if we assume arguendo that the school district had some control over
petitioner through its contract with Thumb, the ability to control is only one factor to consider
under the economic-reality test, and the totality of the circumstances indicate that petitioner was
not "employed by a reporting unit."
It is significant to note that from the standpoint of compensation, petitioner's financial
relationship with the Essexville-Hampton Public Schools changed significantly on his retirement.
Thus, Thumb was not merely a conduit through which petitioner and the school district
maintained a financial status quo. The record indicates Thumb paid all compensation for
petitioner's services as principal of Hughes Elementary School while he was under contract with
them, which is reflected in his W-2 wage and tax statements for 1997 and 1998. Petitioner,
under his last preretirement contract of employment as an administrator assigned to Hughes
Elementary School, was paid a salary of $62,733, $2,000 for longevity service, and other fringe
benefits. He received only $20,441 in gross compensation from Thumb as reflected on his 1997
W-2 wage form, and $26,559 gross compensation as noted on his 1998 W-2 wage form. Unlike
his preretirement status, petitioner received no compensation, benefits, or other amenities in any
form, including reimbursement of mileage or conference expenses, from the school district.
With regard to the third factor of the economic-reality test, the right to hire, fire, and
discipline, the evidence showed that petitioner was directly accountable to John Moore, and that
Thumb handled all disciplinary issues. Obviously, the school district could indirectly request
that Thumb discipline or remove an unsatisfactory worker. However, it is undisputed that
petitioner had an at-will contract of employment with Thumb. Such an arrangement is
significantly different from the employment relationship of an administrator under an individual
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contract of employment with a public-school district under the Revised School Code, MCL
380.1229(2) and (3), by which statutory, nonrenewal procedures are required to terminate the
services of an administrator other than the superintendent. Public-school administrators, if
excluded from acquiring tenure in the administrative position, acquire tenure as classroom
teachers and have the right to be retained in a position as a classroom teacher on nonrenewal of
their administrative contracts of employment. This tenure right is specified in Article III, § 1(6)
of the Michigan teacher tenure act, MCL 38.91(6). See Dodge v Saginaw Bd of Ed, 384 Mich
346; 183 NW2d 793 (1971); Goodwin v Kalamazoo Bd of Ed, 82 Mich App 559; 267 NW2d 142
(1978). This statutory job security ceased when petitioner retired from the Essexville-Hampton
Public Schools after thirty years of service.
Finally, while we conclude that the work petitioner performed was part of a common
objective integral to the business of the school district, Clark, supra at 688, our analysis of the
totality of the circumstances would be incomplete without reference to the contracting parties'
own characterization of the employment relationship, as set forth in their written agreement. The
contract between Thumb and the school district stated:
The parties hereto agree that T.E.S. [Thumb] shall be an independent
contractor in the performance of this Agreement and shall not act as Agent or
representative of the District.
It is further understood and agreed that the individual provided to the
District by T.E.S. shall be and remain an employee of T.E.S. during the term of
this Agreement. The agent provided to the district by T.E.S. shall not be
considered to be an employee of the District for any purpose.
T.E.S. shall pay all salaries, wages, benefits, payroll and other taxes to or
on account of such employee arising out of or resulting from services performed
pursuant to this Agreement. The District shall not be liable for the payment of
any such salaries, wages, benefits, payroll or other taxes to or on account of any
such employee.
Certainly, the parties' designation of roles and responsibilities may be motivated by their
own self-interests and thus should not be regarded as dispositive in and of itself; nonetheless, the
employment agreement is yet another relevant factor to be considered in examining the totality
of the circumstances. Kidder, supra at 46; McKissic, supra. In this instance, it is clear that the
school district and Thumb intended that petitioner "shall not be considered an employee of the
District for any purpose." This language demonstrates a legitimate intent to mirror the economic
reality of the situation—the economic reality that cost savings induced the school district to use
intermediaries such as Thumb. Superintendent Gaubatz testified that the decision to contract
with Thumb was the result of several factors, in particular the school district's financial
difficulties and lack of continuity due to three principals leaving the system at the same time.
The intended employment arrangement provided a method of remedying a persistent labor
shortage and provided flexibility to fill vacancies in administrative positions in a manner
favorable to the financially strapped school district.
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In summary, we hold that application of the economic-reality test to the facts in this case
compels the conclusion that petitioner was not employed by the school district, and therefore was
not "employed by a reporting unit" within the meaning of § 61 of the retirement act. When the
record before the retirement board in this matter is reviewed as a whole, it is evident that the
circuit court "grossly misapplied the substantial evidence test to the agency's factual findings,"
Boyd, supra at 234, and clearly erred in its determination that petitioner was employed by the
Essexville-Hampton Public Schools after his retirement because he provided administrative
services to the school district pursuant to an at-will contractual arrangement with Thumb. On the
contrary, the evidence of record clearly indicates that under the applicable economic-reality test,
petitioner has been an employee of Thumb since August 1, 1997, following his retirement. As
an employee of Thumb, petitioner was not "employed by a reporting unit" of respondent
MPSERS and was not subject to the earnings limitation of § 61 of the act. Consequently, he was
entitled to all of the retirement benefits paid to him during the period in question, without
deduction.
V
Given our resolution of this issue and our conclusion that the trial court erred as a matter
of law in applying the IRS 20-point control test to the present circumstances, we need not
address petitioner's remaining issues challenging the use and constitutionality of the IRS 20point control test. Appellate courts should avoid deciding constitutional issues where the case
may be decided on other grounds. People v Riley, 465 Mich 442, 447; 636 NW2d 514 (2001);
Rinaldi v Livonia, 69 Mich App 58, 69; 244 NW2d 609 (1976) ("We will not undertake a
constitutional analysis when we can avoid it.").
Finally, petitioner contends that he is entitled to costs and fees pursuant to MCL
24.323(1) and MCL 600.2421d because respondent MPSERS's attempt to apply the § 61
earnings limitation to him constituted a frivolous position. Petitioner's argument is without
merit. The decisions of the retirement board and circuit court make it readily apparent that
respondent's position was not frivolous. See Widdoes v Detroit Pub Schools, 218 Mich App 282,
290; 553 NW2d 688 (1996).
Reversed.
/s/ Richard Allen Griffin
/s/ Peter D. O'Connell
/s/ Jane E. Markey
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