Opinion
No. 32998-1-II.
Filed: April 25, 2006.
Appeal from Superior Court of Grays Harbor County. Docket No: 03-2-01412-1. Judgment or order under review. Date filed: 01/13/2005. Judge signing: Hon. David E. Foscue.
Counsel for Appellant(s), Aaron Kazuo Owada, Law Offices of Aaron Owada and AMS Consu, 4405 7th Ave SE Ste 205, Lacey, WA 98503-1055.
Counsel for Respondent(s), Michael King Hall, Office of the Atty General, 900 4th Ave Ste 2000, Seattle, WA 98164-1076.
UNPUBLISHED OPINION
LK Smith Construction, Inc. (LK Smith) appeals the Department of Labor and Industries'(Department) jurisdiction to issue three citations for jobsite violations of the Washington Industrial Safety and Health Act (WISHA). LK Smith asserts that it was not an `employer' as defined in WISHA, RCW 49.17.020(4), and therefore not subject to the Department's jurisdiction. The Board of Industrial Insurance Appeals (BIIA) upheld the Department's determination that LK Smith was an employer under the statute. LK Smith appealed the BIIA's decision to Grays Harbor County Superior Court which affirmed. Holding that (1) LK Smith had no corporate or legal authorization for its claimed number of directors/shareholders or for the shares it purportedly issued to them; and (2) the facts do not support its claim that it had no employees, we affirm the BIIA's determination of LK Smith's employer status and the Department's jurisdiction.
FACTS A. Procedural History
The Department issued three citations to LK Smith following three inspections of LK Smith jobsites in September and December 2001. LK Smith appealed the citations to the BIIA, arguing that it was not an `employer' as that term is defined in WISHA, and that it was therefore not subject to the Department's citations issued in September and December 2001. RCW 49.17.020(4). The BIIA consolidated the three appeals and affirmed all the citations in a Proposed Decision Order (PDO) dated June 27, 2003, concluding that LK Smith was an `employer' within the meaning of RCW 49.17.020(4). The PDO became the BIIA's final decision on the matter when it denied LK Smith's petition for review on August 29, 2003. See RCW 51.52.106; WAC 263-12-145(4).
The Department determined that the inspections revealed several violations of WISHA regulations. LK Smith does not contest the validity of the substantive violations.
LK Smith subsequently appealed the BIIA's decision to Grays Harbor County Superior Court which affirmed the BIIA's decision. LK Smith timely appealed the trial court's decision.
B. LK Smith 1. Corporate Structure
LK Smith is a corporation engaged primarily in roofing. It filed its articles of incorporation (articles) with the Washington Secretary of State on July 5, 1995. The articles vested management of LK Smith in a board of directors, with the number of directors and their powers and duties to be prescribed by the bylaws of the corporation. But there is no evidence that LK Smith ever adopted bylaws. The articles also established that `the initial board of Directors shall consist of two directors who shall serve as directors until the first annual meeting of shareholders or until their successors are elected and qualify.' Exhibit 22. Those two directors were Linda K. Smith and her husband Ken P. Smith. The articles authorized the issuance of 300 shares with no par value.
Par value is `[t]he value of an instrument or security as shown on its face; esp., the arbitrary dollar amount assigned to a stock share by the corporate charter.' Black's Law Dictionary 1155 (8th ed. 2004). While LK Smith's articles indicate a par value of $100, the corporation's accountant testified that this par value was incorrect and should be no par. In the articles themselves, the $100 figure has been deleted by hand and replaced with `no' in front of `par value.' Exhibit 22.
LK Smith's accountant, Michael Huff, first testified that as of June 30, 2001, LK Smith still had only two shareholders and two officers, Linda and Ken P. Smith. But Huff then corrected himself, stating that as of June 30, 2001, LK Smith had seven shareholders who were also directors.
LK Smith's testimony was that share ownership was: Linda Smith, 51 percent; Ken P. Smith, 24 percent; Kennith G. Smith, five percent; Paul Smith five percent; Ed Dugard, five percent; Jason Fultz, five percent; and Steve Sund, five percent. Notably, LK Smith incorporators, Linda and Ken P. Smith owned 75 percent of the stock. But Linda Smith testified that no one other than herself and Ken P. Smith owned stock in LK Smith prior to September 1, 2001.
According to Huff, by September 1, 2001, there were nine directors. On September 1, 2001, LK Smith claimed that it added two directors and restructured itself by issuing shares to all directors, who were also officers.
In November 2001, a `majority of officers' of LK Smith agreed to terminate Jim Lowdermilk, a director/owner/officer. Exhibit 25. No explanation was offered about why Lowdermilk was not allocated shares on September 1, 2001.
Ken P. Smith and Linda Smith received 4,200 shares and 12,300 shares respectively.
Each of the others received 1500 shares, or 5 percent, of LK Smith stock. Linda Smith's 12,300 shares gave her the controlling majority vote. LK Smith paid industrial insurance premiums for the first fiscal quarter ending March 31, 2001. It paid only $31.76 in industrial insurance premiums for the second fiscal quarter ending June 30, 2001, and paid no premiums for either the third or fourth fiscal quarters, ending September 30 and December 31, 2001 respectively, because corporations may elect not to pay industrial insurance for corporate directors and officers.
The minutes of the September 1, 2001 meeting state:
Ken P. made motion to have stock be available to all members, at $1.00 per share, at 5 percent maximum, 1500 shares each. Ken G. seconded. No interest charged, and no interest paid on stock when/if selling back. When resigning from the company, stock will be sold back at face value of $1.00 per share to either Ken P. or Linda K. Smith. All voted yes. Exhibit 24.
None of the LK Smith director/owner/officers who received 1500 shares has completely paid for the stock issued on September 1, 2001. Six had paid between $200 and $400 at the time of the BIIA's hearings on October 7, 2002 and November 1, 2002.
2. LK Smith's Business Operations
Those testifying on behalf of LK Smith testified that they work when they want and take days off without notice or permission for recreational activities like fishing or hunting.
LK Smith's witnesses, for the most part, were those claiming to be simultaneously directors, officers, and owners of the business: James Emery, Robert Bernard, Steve Sund, Jason Fultz, Ken. G. Smith, Paul Smith, Ken P. Smith, Ed Dugard, Linda Smith, and Eugene Schmidt.
For example, James Emery testified that any director/officer/owner can take off as much time as he wishes without permission. Similarly, Robert Bernard explained that it was not necessary to notify other owners of LK Smith that he would not be attending work on a given day:
Q: Okay. What happens if you're unable to report to work, if you're sick or something?
A: No biggy.
Q: What do you do?
A: Sometimes I call in. Sometimes I don't.
Q: And what happens if you just don't turn up, and they're expecting you?
A: The job goes on. Everybody — Everybody — You know, some days you got to have off. Like today, I would rather be working. It's probably the only nice day of the week, and here we are, sitting in here.
Q: Yeah. Well, if it was a nice day like today, and you feel like going fishing, can you just do that rather than go to work?
A: Well, yeah. We had a guy earlier today, took part of the day off to go fishing.
Admin. Record Trans. (Oct. 7, 2002) (ART) at 175.
They indicated that there are no disciplinary ramifications for missing work, but they lose pay for missed time.
Some of LK Smith's witnesses also testified that they each had authority to engage and, in fact, did engage in a wide variety of business activities on behalf of LK Smith, including ordering supplies and making estimates/bids. In contrast, other testimony by some of these same witnesses and others indicates that day-to-day decisions (e.g., who works on what jobsite, how many workers should be assigned to one jobsite as opposed to another, what and how much materials are needed, etc.) required either consensus or majority vote of the board of directors at frequent informal meetings, often in the morning.
Ken G. Smith testified that bidding/estimating a job was a decision made by vote of the board of directors and that no single director/officer could estimate/bid a job on his own. Paul Smith contradicted not only Ken G. Smith's testimony, but the other director/officer/owners' testimony. Paul Smith explained that while any officer could estimate/bid on a job, `we all kind of voted on my dad to be the main one to do it.' Admin. Record Trans (Nov. 1, 2002) (ART) at 93. Similarly, Linda Smith testified that Ken P. Smith for the most part estimates/bids on jobs and that she typically signs them. Finally, Ken P. Smith acknowledged that he prepares most estimates. Ken P. Smith, Ken G. Smith, and Paul Smith testified that any officer may sign contracts on behalf of LK Smith. But Linda Smith testified that Ken P. Smith usually binds LK Smith to contracts. Linda Smith also testified that LK Smith has no formal contracts and that LK Smith's estimates become contracts when accepted.
Linda and Ken P. Smith also testified that they typically keep track of all of LK Smith's documents, contracts, and paperwork.
None of the 14 unsigned estimates in the record list a specific officer on LK Smith's signature line in the acceptance section, perhaps indicating that any officer can sign the contract. But Linda Smith also testified that the contracts LK Smith enters into are usually drawn up by the entity requesting a proposal and that Ken P. Smith usually signs those contracts. Further, all officer-signed documents in evidence are signed by either Linda or Ken P. Smith. Similarly, Ken G. Smith testified that `it's my father that's been signing them, because people like older people instead of younger.' ART at 81. Finally, Eugene Schmidt testified that Ken P. Smith signs contracts as chief executive officer and treasurer of the corporation.
3. LK Smith's Payment Structure
LK Smith's testimony was that it implemented a profit sharing system by simple majority vote. Each officer received a weekly `draw' on the company's profits in addition to a year end bonus that split any remaining profits. ART at 99.
Several witnesses testified that they kept track of their hours and turned them into either Linda or Ken P. Smith every week. But Ed Dugard testified that he did not keep track of his hours, that hours are not kept, and that the profit from each job is split equally.
Most of LK Smith's witnesses, including Ken P. Smith, testified that the weekly `draws' on LK Smith's profits were based on a rate of $15 per hour, an amount reached by a simple majority vote of the board of directors. Some testified that their compensation varied in proportion to hours worked, while others indicated that it varied based on profit. For example, Ed Dugard testified that profits are split equally regardless of how many hours are worked, and Steve Sund testified that the draw director/owner/officers receive weekly is equal and decided upon collectively, but that it fluctuates with how much profit there is in a given week. Pay stubs, however, indicate that different people had different pay rates after September 1, 2001, and that Linda and Ken P. Smith were paid at the highest rates. Further, Linda Smith testified that the members of LK Smith's board of directors received different pay rates based on what they were earning at the time they became board members and how much experience each member had in the roofing business. Finally, LK Smith's accountant, Michael Huff, testified that he had no documentation showing LK Smith's profit distribution for 2001.
Q: If someone worked 40 hours in a week, and someone else only works 20, do they both get the same amount?
A: Yes.
ART (Oct 7, 2002) at 211.
ANALYSIS I. Standard of Review: Substantial Evidence
Findings of the BIIA, if supported by substantial evidence when considering the record as a whole, are conclusive. RCW 49.17.150(1). Thus, we review the BIIA's findings of fact to determine whether they are supported by substantial evidence and whether those findings support the conclusions of law. Martinez Melgoza Assoc., Inc. v. Dep't of Labor Indus., 125 Wn. App. 843, 847-48, 106 P.3d 776, review denied, 155 Wn.2d 1015 (2005); Inland Foundry Co., Inc. v. Dep't of Labor Indus., 106 Wn. App. 333, 340, 24 P.3d 424 (2001). Substantial evidence exists when there is a sufficient quantity of evidence to persuade a fair-minded, rational person that a finding is true. State v. Hill, 123 Wn.2d 641, 644, 870 P.2d 313 (1994). Moreover, because we defer to the BIIA's factual findings in its area of expertise, we will not reverse the findings unless they are clearly erroneous. Cobra Roofing Serv. v. Dep't of Labor Indus., 122 Wn. App. 402, 411, 97 P.3d 17 (2004).
II. Evidence of Employer Status A. LK Smith's Articles of Incorporation
On September 1, 2001, LK Smith apparently attempted to expand its board of directors and issued shares in order to create a business without employees. But the record demonstrates that it did not properly expand its board of directors or properly issue new shares under the plain language of chapters 23B.06 and .08 RCW, the controlling statutes for Washington corporations.
Where a statute uses plain language and defines essential terms, the statute is not ambiguous. McFreeze Corp. v. Dep't of Revenue, 102 Wn. App. 196, 199 n. 1, 200, 6 P.3d 1187 (2000). Moreover, if the statutory language is clear, we do not look beyond that language or consider legislative history, but glean the legislative intent through the language of the statute itself. Burton v. Lehman, 153 Wn.2d 416, 422, 103 P.3d 1230 (2005); C.J. C. v. Corp. of the Catholic Bishop, 138 Wn.2d 699, 708, 985 P.2d 262 (1999). When a statute is plain and unambiguous, we must apply the statute as written. Enter. Leasing, Inc. v. City of Tacoma, Fin. Dep't, 139 Wn.2d 546, 552, 988 P.2d 961 (1999).
RCW 23B.08.010 and .030(1) expressly state that all corporate authority and management power is vested in a corporation's board of directors and that the board of directors must consist of one or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws. LK Smith's articles name only Linda and Ken P. Smith as directors. And while LK Smith's articles also state that the number, qualifications, terms of office, and manner of election shall be prescribed by the bylaws of the corporation, there is no evidence that LK Smith has ever adopted bylaws. Therefore, LK Smith has never had more than two directors, Linda and Ken P. Smith, and all corporate authority and power of LK Smith is vested in them.
Similarly, RCW 23B.06.010(1) and .030(1) expressly state that a corporation's articles of incorporation must prescribe the number of shares the corporation is authorized to issue and that the corporation may validly issue only that number of shares. LK Smith's articles of incorporation authorize the issuance of 300 shares. Even though LK Smith offered evidence that it purported to issue 28,500 shares, 28,200 of these shares were invalidly issued and not authorized under its articles.
Exhibit 42 is ten stock certificates totaling 28,000 shares. But this is inconsistent with LK Smith's testimony. See, e.g., footnote 3 in this opinion.
Because LK Smith had no bylaws authorizing more than two directors or more than 300 shares in accord with RCW 23B.08.010 and .030(1) and RCW 23B.06.010(1) and .030(1), we hold that LK Smith was an employer in September and December 2001 under WISHA and was therefore subject to the Department's jurisdiction over worksite safety and health regulations and that the BIIA did not err. RCW 49.17.020(4).
B. The Record Showing LK Smith's Employer Status
Furthermore, even when we consider the evidence that LK Smith offered to show that it had no employees, we hold that factually LK Smith was an employer under WISHA.
WISHA requires that all employers furnish a workplace free of recognized hazards and authorizes the Department to cite any employer that fails to do so. RCW 49.17.060; Martinez Melgoza, 125 Wn. App. at 848. Any entity that engages in a business and employs one or more employees is an employer for WISHA purposes. RCW 49.17.020(4); Martinez Melgoza, 125 Wn. App. at 848.
The BIIA has explained that the statutory definitions of `employer' and `employee' are broad, essentially tautological, and shed little light on whether an entity is an `employer' for purposes of WISHA. In re Framers, Inc., Nos. 01 W0465 02 W0366, LEXIS 235 at *8, Bd. of Indus. Ins. Appeals (Wash. Aug. 8, 2003); see also In re Skills Resource Training Center, No. 95 W253, LEXIS 113 at Decision, 14, Bd. of Indus. Ins. Appeals (Wash. Aug. 5, 1997).
LK Smith argues that it was not an `employer' as defined under WISHA at the time of the Department's inspections in September and December 2001. RCW 49.17.020(4). More specifically, LK Smith argues that after it reorganized itself on September 1, 2001, it was not an `employer' under the `economic realities test' the BIIA outlined in In re Skills Resource Training Center, No. 95 W253, LEXIS 113 at Decision 15-16, Bd. of Indus. Ins. Appeals (Wash. Aug. 5, 1997). Thus, LK Smith contends that it is not subject to WISHA requirements and regulations.
LK Smith advanced this same argument before the BIIA in 2000 when it appealed citations issued for WISHA violations. The BIIA rejected LK Smith's argument after applying four of the seven factors of the `economic realities test.' Framers, LEXIS 235 at **10-11.
In In re Framers, Inc., Nos. 01 W0465 02 W0366, LEXIS 235 at *11, Bd. of Indus. Ins. Appeals (Wash. Aug. 8, 2003), the BIIA determined that only the `control' factor of the `economic realities test' was relevant when there is a sole alleged WISHA `employer' on a particular jobsite. This factor focuses on whether the alleged employer had the power to control those working on the jobsite. Framers, LEXIS 235 at **10-12.
This is opposed to the rule that applies when there are multiple employers working simultaneously on a jobsite. When there is a joint employer jobsite, the BIIA suggests that all seven factors of the `economic realities test' apply. See Framers, LEXIS 235 at **11-12.
In Framers, the Department cited Framers for several WISHA violations based on two Department site inspections. LEXIS 235 at *2. Framers appealed the citations to the BIIA, arguing that the workers on the jobsites were corporate officers, shareholders, and directors, and were therefore exempt from coverage under WISHA's health and safety rules. Framers, LEXIS 235 at **1, 5. While there was some evidence indicating that Framers employees wielded at least some management power, the BIIA determined that the corporation's president, secretary, and treasurer maintained primary control of the company after its incorporation in 1998. Framers, LEXIS 235 at **13-15.
For instance, all shareholders were also directors, but hiring and job decisions were made by all shareholders. Further, those with supervisory positions rotated the foreman's job. Framers, LEXIS 235 at **5-7.
For example, the president owned 55 percent of the corporation's stock, signed the vast majority of the corporation's contracts and checks, and received a salary as opposed to an hourly wage. Framers, LEXIS 235 at **13-14.
Similarly, LK Smith offered evidence that its owners/directors/officers had some management power. For example, testimony that LK Smith's officers kept track of their own hours, could miss work when they wished, could order materials, estimate jobs, sign contracts, and that day-to-day decisions were made either by consensus or majority vote, if believed, could indicate management power. But there was substantial evidence that all hours were submitted to either Linda or Ken P. Smith, that Ken P. Smith signed the corporation's contracts and estimated jobs, that Linda and Ken P. Smith were paid at a much higher rate than other workers despite LK Smith's alleged profit sharing plan, that all documents and paperwork were kept by Linda and Ken P. Smith, and that Ken P. Smith usually dealt with LK Smith's accountant. Further, Linda and Ken P. Smith owned a 75 percent controlling interest in LK Smith's stock.
Linda Smith testified that she worked for LK Smith between 10 and 20 hours per week on average. But several pay stubs indicate that Linda Smith received the same pay as Ken P. Smith, who appears to have generally worked 40 hours per week.
The conflicting testimony among those who supposedly control the corporation and the retention of a substantial controlling number of shares by Linda and Ken P. Smith, plus the evidence that Ken P. Smith signs the contracts, does most of the bidding, and communicates with the corporation's accountant, demonstrates substantial evidence supporting the BIIA's decision that Linda and Ken P. Smith did not surrender primary control of LK Smith on September 1, 2001, and therefore the corporation was an employer at all times relevant to this case.
We affirm.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
ARMSTRONG, J. and QUINN-BRINTNALL, C.J., concur.