EMPIRE STAR MINES CO v. CALIFORNIA EMPLOYMENT COMMISSION (1945)

The respondent corporation, under protest, paid certain unemployment insurance taxes, and thereafter sought to recover the same in accordance with the provisions of the Unemployment Insurance Act, Act 8780d, St.1935, p. 1226, as amended. From the judgment of the trial court in favor of plaintiff the Commission has appealed.

Since 1930 plaintiff has operated a group of mines in Nevada County known as the Empire North Star group. One mine in this group, known as the North Star Mine, contains approximately 150 miles of underground workings. Narrow veins of rock in said workings were reputed to contain good ore, but were so distant from the only available shaft, the company determined that mining these veins on the usual basis would be impractical commercially. To alleviate this condition respondent decided that experienced miners could work these veins at a profit by mining them carefully and by exercising a great deal more care in picking out the waste in mining and handling the ore than was customary in its ordinary operations.

Early in 1930 a leasing system of these portions of the mine was instituted. The method adopted was to issue a lease to a single individual, the latter in turn taking in associates on a wage or profit sharing basis.

The terms of the so-called leases were substantially uniform except as to the description of the area leased. Under the provisions of the agreements the miner lessees, hereinafter referred to as leaser, was given the exclusive right to mine the area described in the lease for a period of six months. He was to furnish all necessary labor, to perform all work in a good minerlike manner, installing timber where necessary, and maintaining the workings in a safe condition. The leaser was required to carry adequate compensation insurance for himself and all workmen associated in his operations, with an insurance carrier satisfactory to respondent, in an amount sufficient to fully cover all compensation insurance hazards. The so-called leaser, upon written request from respondent's superintendent, was required to discharge any employee designated by respondent as objectionable. Also he was required to use suitable precautions to prevent any theft of ore by any one, whether connected with the leaser's operations or not. The agreement further provided that the so-called leaser could not employ more than eleven workmen without the consent of respondent. In one of the agreements the number of workmen was limited to eight. The respondent was to furnish all tools and equipment except explosives and fuse, which the leaser was to purchase from respondent at cost. Respondent agreed to hoist and transport the ore produced and to place at the so-called leaser's disposal sufficient milling facilities to crush and treat the ore mined by him and his associates. The respondent further agreed to retort amalgam, to melt bullion and to market it. The respondent at all times had the right of access to the leased area and to inspect the work in both the underground and milling operations. It had the right to regulate the tramming, storage and hoisting of the ore and the treatment of it in the mill. Respondent at its option could cause the ore produced and delivered by the so-called leaser to be milled in some other mill, to be selected and designated by it. It also had the right and privilege to perform development and exploration work within the area of the mine described in the lease.

For his labor the leaser was to receive fifty per cent of the gross returns after respondent had disposed of the ore. The agreement was not assignable without the consent of respondent.

Respondent had the right to terminate the agreement prior to the expiration of the six months' period upon the happening of any of the following:

(1) If the operations under the agreement were not financially profitable to it;

(2) If the mine was wholly or partially destroyed;

(3) If it decided to suspend all operations;

(4) If it discovered that substantial amounts of ore were being stolen or not accounted for, and

(5) If the so-called leaser failed to perform his part of the agreement.

In addition to the written agreement executed in 1930, written agreements were also entered into and executed in 1935. When the six months' term of the agreements expired, they were extended or renewed for successive six months' periods on the same terms until January 1939, when new written agreements containing substantially the same provisions were executed. Some of the leases and renewals were oral.

Respondent stored and shipped the buillion bars for each group separately and accounted separately to designated representatives of each group for fifty per cent of the mint returns upon the ore mined and milled by each group, together with fifty per cent of the computed gross recovery from concentrates. All tailings were to belong to respondent and not to the leaser.

Respondent did not control or participate, directly or indirectly, in the apportionment among the members of any given group of the ore return payments made to the representative of the group.

Although the record before us is not entirely clear concerning the inception of the present controversy it was apparently the outgrowth of certain difficulties which arose between the company and the associates of one Dutton, a leaser. It appears that the company proposed to Dutton that he and his associates cease working under the lease and perform certain development work for the company as its employees, on a per foot basis of pay. Some of the men acquiesced and others refused. Those who refused contended that they were discharged by the company, which contention it denied. After a hearing before the Commission, unemployment benefits were granted to said miners. At approximately the same time unemployment insurance taxes were assessed against the company by the Commission in accordance with the provisions of the act.

During this same period the respondent likewise had become involved under the provisions of the Federal Social Security Act, 42 U.S.C.A. § 301 et seq., which difficulties culminated in an action being instituted by the company in the Southern District of the United States District Court for the Northern District of California, to recover the taxes it had paid under protest. The judgment of the District Court, which was in favor of the company, was sustained by the Circuit Court. Anglim v. Empire Star Mines Co., 9 Cir., 129 F.2d 914.

The present action was instituted by the company under Section 45.10 of the Act, St.1939, p. 2058, to recover the taxes paid under protest in accordance with a demand of the Commission.

The pertinent portions of said section are as follows:

‘* * * after payment of any such contribution under protest, duly verified and setting forth the grounds of objection to the legality of such contribution, the employer paying such contribution may bring an action against the Unemployment Reserves Commission in any court of competent jurisdiction in the county seat of the county wherein the employer maintains his principal place of business for the recovery of contributions so paid under protest.’

At the hearing of the present controversy it was stipulated by counsel that the transcript in the Federal case be considered as a part of the record in the instant case and binding upon the parties hereto.

The extensive findings of the trial court herein substantially followed the statement of the facts as previously set forth. In addition, the court found that as a matter of practice the leasers were at all time entirely independent from any supervision, direction or control of plaintiff in the method, manner and details of leasers' operations in the leased premises; that although the lease gave certain rights to the company, plaintiff had no right of control over the operations.

From such findings the court concluded that the leasers were independent contractors and not employees of plaintiff. In accordance therewith judgment was entered, ordering defendant to repay to plaintiff the taxes previously levied and paid by it under protest.

The contentions of appellant herein may be summarized as follows:

(1) That the act is ‘social legislation’ as distinguished from a ‘taxing statute,’ and must be liberally construed to the end that its purpose may be accomplished;

(2) That the lease in controversy is, under California law, merely a contract of employment;

(3) That under the common law rule respondent was the master and the leasers were the servants;

(4) That the right of control of respondent over the leasers was a right of complete control;

(5) That the case of Anglim v. Empire Star Mines, 9 Cir., 129 F.2d 914, involving the same parties in a similar controversy in the Federal courts, which is relied upon by respondent, is in conflict with cases in this state and recent Federal cases;

(6) That this court is not bound to accept the common law definition of master and servant as a measure of the relationship of the parties to the lease but must search for and apply a definition which will accomplish the purpose for which the legislature enacted such act;

(7) That the Commission having considered all of the facts in this case and having found that a relationship of employer and employee existed between respondent and the leaser in a proceeding in which respondent was a party, the question cannot be raised again in this case by respondent.

By virtue of the similarity between appellant's first and sixth contentions we have considered them together, and by reason of the conclusion we have reached herein in regard to the same it becomes unnecessary to discuss the remaining issues.

In answer to appellant's first attack upon the judgment, respondent argues that as the act contains certain taxing provisions, every doubt as to its application must be resolved in its favor and against the Commission. The most recent expression upon this question by our Supreme Court is found in California Employment Comm. v. Butte County, etc., Ass'n, 25 Cal.2d 624, 154 P.2d 892, 894, wherein it is stated:

‘The tax feature as to the reciprocal contributions of employers and their employees is but an incident, not the essence of the state unemployment insurance law, which in turn is integrated with the operation of comparable federal legislation. Gillum v. Johnson, 7 Cal.2d 744, 62 P.2d 1037, 63 P.2d 810, 108 A.L.R. 595. Such legislation is remedial in character, subject to a liberal construction to effectuate its purpose and to coincide with its reflection of public policy. Los Angeles County v. Frisbie, 19 Cal.2d 634, 122 P.2d 526; California Employment Comm. v. Black-Foxe Military Inst., 43 Cal.App.2d Supp. 868, 110 P.2d 729. In the latter case the broad coverage intent of the act here involved is recognized in the following language at page 872 of 43 Cal.App.2d Supp., at page 732 of 110 P.2d: ‘The income tax law is purely a revenue measure, and upon the rule of strict construction applied to such laws, its scope may well be restrained to such matters as are clearly covered by it. Here we have a statute which, while it requires a ‘contribution’ that in itself may possibly be regarded as a tax, has a much broader object than the mere raising of revenue. It sets up a scheme for ameliorating the hardships of unemployment, and undertakes, in conjunction with the United States Government, to pay unemployment benefits to those who, without fault of their own, are out of work, to impose the financial burden of doing this upon both employers and employees, and to measure both burden and benefits by the amount of compensation paid to employees when they are working. * * * In view of the purpose of these provisions they should not be whittled down by narrow construction, nor should exceptions not clearly justified by their language be engrafted upon them by judicial interpretation.' (Italics ours.)'

And, as this court stated in the recent case of California Employment Stabilization Comm. v. Lewis, 68 Cal.App.2d 552, 157 P.2d 38, statutes such as our Unemployment Insurance Act are remedial statutes and were enacted, not as revenue raising measures, but as part of a national plan to assist in the stabilization of employment conditions and to ameliorate conditions of unemploment. See also California Employment Comm. v. Los Angeles Down Town Shopping News Corp., 24 Cal.2d 421, 150 P.2d 186. That such is now the well established rule likewise is evidenced by the recent cases of Grace v. Margruder, App.D.C., 148 F.2d 679; Carroll v. Social Security Board, 7 Cir., 128 F.2d 876; United States v. Vogue, Inc., 4 Cir., 145 F.2d 609, and cases cited therein.

Section I of the act provides that ‘as a guide to the interpretation and application of this act the public policy of this state is declared as follows:’ The remaining portion of that section consists of a lengthy statement relative to the ill effects of unemployment and its ramifications which is well epitomized in the Butte County case, supra.

Only two other sections of the act are pertinent to this controversy, Section 6.5, St.1937, p. 2056, which reads in part as follows: “Employment,' subject to the other provisions of this act, means service * * * performed for wages or under any contract of hire, written or oral, express or implied * * *'; and Section 9, which defines ‘employer’ and ‘employment unit.’

Pursuant to and in consonance with such expressed declaration of the social policy of this state the legislature enacted further provisions into the act providing for the imposition of compulsory contributions upon employers and employees to establish a fund from which benefits could be paid to employees who found themselves unemployed through no fault of their own.

The essence of appellant's contention is to urge the adoption of a more functional concept of employer-employee relationship in view of the purpose of the provisions contained in said act.

Respondent's answer to appellant's argument is to the effect that for the court to follow the contentions of appellant in this regard, particularly in view of the so-called lease between the parties, would be to make the law rather than apply it, and that any conclusion other than that of the trial court would amount to an impairment of contract under Article I, Section 10 of the Constitution of the United States.

In view of the recent decisions of the courts of this state, the rule is now well established that the ‘Legislature did not intend to incorporate in this measure the common law concept of master and servant or the definitions of ‘employment’, ‘service’, ‘employee’ and ‘wages' as contained in the Labor Code * * * and the Workmen's Compensation Act * * * is evidenced by the fact that the statute itself contains definitions of the works ‘employment’ and ‘employer,’ * * *. When the meaning to be given to particular terms is prescribed by the legislature in enacting a statute, that meaning is binding upon the courts. In re Monrovia Evening Post, 199 Cal. 263, 270, 248 P. 1017; Rideaux v. Torgrimson, 12 Cal.2d 633, 637, 86 P.2d 826. We must not, therefore, use the words defined in the statute according to their rigid, precise or dictionary meanings, but rather as defined by the act itself, which evidences a legislative intent to give the words a broad and liberal description to the end that the far-reaching and evil effects of excessive unemployment may be eradicated. The broad language of the definitions contained in the statute leaves no doubt that the application of the act is to be broadly determined rather than by any narrow, technical, or even previously established legal definitions or descriptions.' B. P. Schulberg Productions v. California Emp. Comm., 66 Cal.App.2d 831, 834, 193 P.2d 404, 406.

In other words, our courts have in their interpretation of the act considered the broad social aspect of the statute in regard to the employer-employee relationship rather than the narrower traditional concepts which, under this and similar remedial legislation, have proved to be inadequate to permit a full realization of the intent of the legislature.

Additional support for this conclusion is found in the recent case of National Labor Relations Board v. Hearst Publications, 322 U.S. 111, 64 S.Ct, 851, 857, 88 L.Ed. 1170. The question therein presented concerned the application of the National Labor Relations Act, 29 U.S.C.A. § 151 et seq., to the employee status of newsboys. In passing upon that issue the court said that Congress in the enactment of the statute ‘had in mind a wider field than the narrow technical legal relation of ‘master and servant,’ as the common law had worked this out in all its variations, and at the same time a narrower one than the entire area of rendering service to others.' And, that the term ‘employee’ must be understood with reference to the ‘purpose of the Act and the facts involved in the economic relationship.’ A like expression is found in the earlier case of Lehigh Valley Coal Co. v. Yensavage, 2 Cir., 218 F. 547, 552, wherein a situation not wholly unlike the present was at issue. There the injured party sought compensation from a coal mining company, although at the time of the accident he was employed by another miner, who was in the employ of the defendant company. The company contended that the injured party was not in its employ and therefore it could not be held liable. In passing upon the question so raised the court stated that it followed as a necessary conclusion from such argument that the company therefore was ‘not in the business of coal mining at all, in so far as it uses such miners, but is only engaged in letting out the contracts to independent contractors, to whom they owe as little duty as to those firms which set up the pumps in their mines. Thus what is confessedly only a means of speeding up the miners and their helpers becomes conveniently an incidental means of stripping from them the protection of the statute.’ The court then concluded that the uses of the word ‘employed’ ‘must be understood with reference to the purpose of the act, and where all the conditions of the relation require protection, protection ought to be given. It is absured to class such a miner as an independent contractor in the only sense in which that phrase is here relevant. He has no capital, no financial responsibility. He is himself as dependent upon the conditions of his employment as the company fixes them as are his helpers. By him alone is carried on the company's only business; he is their ‘hand,’ if any one is. Because of the method of his pay one should not class him as though he came to do an adjunctive work, not the business of the company, something whose conduct and management they had not undertaken.'

Likewise, in the present case, what is an admitted attempt by respondent, through the agency of a lease, to prevent the ‘highgrading’ of ore, also becomes ‘conveniently an incidental means of stripping’ from the leasers the protection of the Unemployment Insurance Act. Again, as in the last cited case, the leasers had neither capital nor financial responsibility, and as appears from the transcript they were dependent upon respondent for a continuity of their work.

Dutton, who had an oral lease, testified that from time to time while his lease was in operation he and the minors with him had done development work for the company; that in August 1938, the company, through its superintendent, had requested him to do some further work for it; that when he asked the men to do said work, some refused, and that he thereupon told them there was no reason for them to continue working on the lease. (These were the individuals who were granted unemployment benefits.) On cross-examination he admitted that at a previous hearing he had testified he told the men that unless they cooperated with the company and did the work it requested them to do it would terminate their lease.

Dutton's realistic appraisement of the situation in regard to possibility of termination of the lease by the company for failure to accede to its request is well illustrated by the summarized provisions for termination previously set forth herein, and which, for all practical purposes, was tantamount to control.

The record also discloses evidence that the work so contemplated by the company would have completely disrupted the leasers' mining activities; a situation entirely incompatible with the argument advanced by respondent that the leasers had exclusive possession of the leased portion of the mine.

As further evidence of the employer-employee relationship the record discloses that some of the miners who worked on leases alternately worked for respondent at daily wages and had been in its employ for years.

In accordance with the previous expressions of the courts of this state we must conclude the legislature did not intend that the common law tests should be controlling without regard to the broad purposes of the act. However, because of the many and varied forms of service relationships now existing under our complex economy, the difficult problem is the determination of what the legislature intended to include within ‘the intermediate region between what is clearly and unequivocally ‘employment,’ by any appropriate test, and what is as clearly entrepreneurial enterprise and not employment.' National Labor Relations Board v. Hearst Publications, supra.

In the present case it seriously cannot be contended that the work performed by the so-called leasers was work usually performed by an individual in the exercise of a special calling, and who could not be discharged before the work was finished without contractual liability in the absence of some breach on his part. To the contrary it must be admitted that the nature of the work being done was more than an indispensable part of the company's business; it was in fact the sole and only business of respondent—the mining and milling of ore. Nor can it seriously be contended that by reason of the provisions in the lease the miners were not dependent upon the company.

Under such circumstances it is readily apparent that if respondent's position be sound, i.e. that the written agreement between the company and the leasers takes this case out of the statute, the effect of a remedial statute upon the basic employee group of an entire industry would be made to depend upon the expertness of the draftsmanship of agreements. And though it may or may not have been an endeavor to set up the appearance of independent contracts while retaining to the employer all of the basic attributes of the employer relationship, the purposes which the legislature has stated were the basis for the enactment of the statute then have been as effectively by-passed as though no statute at all existed,—a result entirely inconsistent with the broad terms and purposes of the statute. Unless the so-called independent contractor definitely is engaged in an independent calling, the mere pen and paper subtraction of the right of control of the means and methods of his operations should not be countenanced as a method of taking the relationship out of the employer-employee classification, and therefore out of the statute.

Respondent, however, urges that as the leasing system was instituted prior to the enactment of the Unemployment Insurance Act the leases in question cannot be considered as an attempted evasion of the act. Whether the leases were or were not attempted evasions of that or any other act is of no consequence, for, if under the plan the status of employer and employee as contemplated by the act still continued, and we conclude that it did, ‘the reason for adopting the written contract plan is not material.’ Pacific Lbr. Co. v. Industrial Acc. Comm., 22 Cal.2d 410, 422, 139 P.2d 892, 898.

The judgment is reversed.

PEEK, Justice.

ADAMS, P. J., and THOMPSON, J., concur.