The circuit court correctly determined that a job training center incorrectly classified a welding instructor as an independent contractor instead of an employee and thus owed payroll taxes on the amount the center paid the instructor.
The Career Development Center is operated by the United Steelworkers of America. The CDC provides educational and vocational development to union members. The CDC negotiated a four-month contract with Walker to teach a welding class.
When Walker concluded the teaching assignment, he filed for unemployment benefits with the Virginia Employment Commission. He listed CDC as his most recent employer. The VEC investigated and found that CDC did not report Walker’s wages to the VEC. CDC had classified Walker as an independent contractor.
The matter was assigned to a “Field Tax Representative,” who determined that Walker was CDC’s employee, and that CDC was liable for unpaid payroll taxes. CDC requested a hearing with the VEC.
The VEC issued an order containing its determination that Walker was CDC’s employee.
“The order detailed VEC’s findings of fact on each of the twenty factors comprising the twenty-factor test from IRS Revenue Ruling 87-41. … Specifically, VEC found that fourteen of the twenty factors weighed in favor of an employee status, while four of the factors weighed in favor of an independent contractor status, and two of the factors were inconclusive.”
CDC appealed to the circuit court, which affirmed the CDC’s ruling.
“In assessing those twenty factors, VEC found that Factor 3 ‘weigh[ed] heavily in favor of employment’ because Walker’s services and the services of other instructors were critical to CDC’s ability ‘to meet its goal of offering courses designed to enhance the basic skills and personal development of its members’ – and because ‘[t]he short duration and wide variety of the classes strengthens the importance of having instructors.’
“VEC further found that the agreement between Walker and CDC barred any assignment of the contract without the prior written consent of the other party, which similarly weighed in favor of employee status, given that Walker and other instructors were required to render their services personally.
“In addition, VEC found no evidence in the record to suggest that Walker had the authority to alter his hours of work or to choose the times of his classes – and, in fact, the agreement specifically tasked CDC with scheduling classes – which meant that Factor 7 pointed toward employee status rather than independent contractor status.
“Factor 13 also favored employee status rather than independent contractor status because CDC paid Walker’s business and travel expenses by paying him $160 to design the course plus $40 ‘to defray his travel expenses for each day he taught[.]’
“VEC found that CDC ‘had the right to terminate the Agreement with 7 days’ notice for instructor misconduct, substandard performance or low enrollment,’ and ‘[a]side from the loss of continued compensation, the claimant and the other instructors would not incur any liability for cancelling their contracts with [CDC] with 30 days’ written notice.’
“This interpretation was supported by the plain language of the agreement between CDC and Walker, which specifically provided that it could ‘be canceled by either party upon thirty (30) days written notice for any reason or for no reason’ and that both parties would ‘hold harmless each other for any direct or indirect damages or costs incurred’ as a result of such termination.”
Independent contractor factors
“VEC concluded that some of the factors weighed in favor of independent contractor status. For instance, CDC did not instruct or train Walker (given that CDC had no knowledge of welding or how to teach welding), and Walker was therefore responsible for training himself to be prepared to teach his students.
“Consequently, Factors 1 and 2 weighed ‘heavily in favor of independent contractor status.’ In addition, Factor 8 and Factor 11 favored independent contractor status because Walker did not work full-time and did not have to submit any oral or written reports to CDC.”
“[T]he circuit court did not err in upholding VEC’s decision that Walker was an employee of CDC and not an independent contractor. Whether a particular worker is an employee or an independent contractor is a heavily fact-dependent question.
“In this case, that question was statutorily required to be answered by an application of the twenty factors set forth in IRS Revenue Ruling 87-41.
“VEC made factual findings on each of the twenty factors and found that the overwhelming majority of those factors weighed in favor of employee status while only four of the factors weighed in favor of independent contractor status and only two of the factors were inconclusive.
“VEC’s factual findings on the twenty-factor test are indeed based on evidence in the record, and there is no allegation of fraud in this case. Those factual findings are therefore conclusive in this appeal according to the plain language of Code § 60.2-500(C).”
Career Development Center v. Virginia Employment Comm’n, Record No. 0420-21-2, Dec. 14, 2021. CAV (Beales) from Richmond City Circuit Court (Marchant). James H. Shoemaker Jr. for appellant. Joshua E. Laws for appellee. VLW 021-7-180, 10 pp. Unpublished.