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FILED: February 29, 2012 IN THE COURT OF APPEALS OF THE STATE OF OREGON AVANTI PRESS, INC., Petitioner, v. EMPLOYMENT DEPARTMENT TAX SECTION, Respondent. Office of Administrative Hearings T71158 A147000

Argued and submitted on October 20, 2011. Dennis S. Reese argued the cause for petitioner. With him on the briefs was Garrett Hemann Robertson P.C. Michael A. Casper, Assistant Attorney General, argued the cause for respondent. With him on the brief were John R. Kroger, Attorney General, and Mary H. Williams, Solicitor. Before Schuman, Presiding Judge, and Wollheim, Judge, and Nakamoto, Judge. NAKAMOTO, J. Reversed and remanded.

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NAKAMOTO, J. Petitioner Avanti Press, Inc., seeks review of a final order of an administrative law judge (ALJ) that affirmed the Employment Department's notice of tax assessment issued to Avanti. The ALJ determined that Avanti, a greeting card company, had employed a sales representative, Andrea Waiau, and that Avanti's compensation to Waiau was therefore subject to unemployment tax, which Avanti had not paid. In its petition for review of that order, Avanti contends, as it did before the ALJ, that Waiau was an independent contractor, not an employee, and that her compensation therefore was not subject to unemployment tax. We reverse and remand. I. FACTS We describe the facts consistently with the ALJ's findings, which are not challenged on judicial review. McDowell v. Employment Dept., 348 Or 605, 608, 236 P3d 722 (2010) (where agency's findings are not challenged, those are the facts for purposes of judicial review). We begin with Waiau's contract with Avanti. Waiau was an employee of One Coast, a company that represented various businesses, including Avanti. In early 2009, One Coast dissolved. Thereafter, Waiau, who had nearly 30 years of experience as a product sales representative (primarily in the greeting card and gift industries), entered into a written agreement with Avanti to sell the company's greeting cards, journals, and calendars. That "Services Agreement," as summarized by the ALJ, provided: "A. Waiau would be Avanti's exclusive sales representative for retail outlets in southwestern Oregon. Certain retail outlets in the territory would be considered 'Avanti Customers' for which Avanti would pay
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Waiau no commission on any sales to those outlets. If Waiau made no sales to other outlets for three months or more, Avanti had the discretion to designate those outlets as Avanti Customers. Avanti reserved to itself all sales to consumers and the right to sell within Waiau's territory through 'other methods or ways.' "B. Waiau would personally visit Avanti customers at their retail outlets at least once every 12 weeks. Waiau would solicit orders in accordance with the Services Agreement and Avanti's 'policies, catalogs, supplements, and price information furnished to [Waiau] by Avanti from time to time.' Avanti could furnish Waiau order forms, price lists, catalogs, and other promotional materials for her use. "C. Waiau had no authority to accept any order or bind Avanti to any sales. Avanti could 'for any reason or for no reason * * * accept or reject any order or modify any accepted order [and] compromise or adjust the price of its products.' Waiau had no authority to accept orders or receive payments on Avanti's behalf or to make any representations that were inconsistent with the Services Agreement and Avanti's written materials. "D. Avanti reserved the right 'with or without prior notice to [Waiau] to establish and change prices, products, ways, methods, or terms of payment or shipment, and any other conditions or terms of sale * * *.' "E. Avanti would pay Waiau a percentage of the product invoice price less cash discounts, taxes, shipping, insurance, and other deductions. For sales made within Waiau's territory but shipped outside her territory, Avanti would divide the sales commission between Waiau and the sales representative in whose territory the sale was shipped. Avanti would resolve any disputes regarding this division and its decision would be binding on all parties. "F. Avanti would pay Waiau's commissions regardless of whether Avanti collected the sales price on orders she obtained. But if Avanti's overall collections were 'in its sole judgment, particularly slow,' Avanti could extend the time to pay Waiau until 'after Avanti receives payment from its customer.' Avanti also had the right to charge Waiau for customer deductions, returned products, and Avanti settlements with late-paying customers. "G. Waiau had the authority to hire, fire, and train her own sales associates. Waiau would pay all employee taxes and all her own expenses.
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"H. The agreement would automatically renew for one-year terms, unless earlier terminated by 30 days written notice from either party. Upon termination, Waiau would return to Avanti 'all materials pertaining to Avanti' and discontinue use of its trademarks, tradename, and other identifying materials. "I. Avanti would not be liable to Waiau for any delay in shipment, failure to deliver, 'or any nonperformance of [the Services] Agreement directly or indirectly resulting from or contributed to' by anything beyond Avanti's reasonable control." (Record citations omitted.) Because Waiau had previously represented Avanti for years at One Coast, she was already familiar with the company's products. Therefore, Avanti conducted only a half-hour telephone training session with Waiau, and then another half-hour follow-up with her regarding management of special accounts. The company provided Waiau with a manual in connection with her training, as well as promotional materials for Waiau to use at her discretion. Product prices and sales targets were set by Avanti, and the company informed Waiau of the monthly, quarterly, or yearly sales goals for her territory. An Avanti area manager supervised Waiau's territory and kept track of her sales results; Waiau communicated monthly with the sales manager by fax regarding her orders. During the relevant time, Waiau maintained a home office with a desk, chair, fax machine, scanner, printer, telephone, computer, travel case, and sample bags. She used the office equipment almost exclusively for business and deducted home office expenses on her personal income tax return. She also used her personal vehicle for business travel. Avanti did not reimburse Waiau for postage, travel, meals, or lodging

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expenses. Waiau set her own work schedule and decided how frequently to visit customers. Her commissions were based entirely on her sales, and not on the number of hours that she worked. Between March 16, 2009 and September 15, 2009--the period for which the Employment Department assessed unemployment taxes--Waiau did not represent any businesses other than Avanti and received all of her income from Avanti. She had not registered a business name, she did not carry liability insurance or performance bonds, and she did not advertise or market her services as a product sales representative. During that period, she passed out business cards that stated, "Andrea Waiau, Avanti Greeting Cards." The Services Agreement, however, did not prohibit Waiau from representing other manufactures as well. Beginning sometime after November 12, 2009, Waiau also became a sales representative for two other manufacturers, Borealis Press and Wellspring Gift.1 Her business cards subsequently reflected that she represented all three companies. Sometime along the way, Waiau sought unemployment insurance benefits. The Employment Department investigated her claim because she reported no wages from Avanti during 2009. After completing its investigation, the department determined that Waiau was, in fact, an employee of Avanti, thereby making Avanti "an employer subject

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On November 12, 2009, Waiau was interviewed by a compliance specialist for the Employment Department. It was sometime after that date that Waiau began representing Borealis Press and Wellspring Gift.
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to the Oregon Employment Department Law."2 The department assessed Avanti an employment tax of $540.26 based on wages that Avanti had paid to Waiau. See ORS 657.505(2) (Oregon employers must pay unemployment insurance taxes into the Unemployment Compensation Trust Fund "on all wages paid for services"). II. THE ALJ'S FINAL ORDER Avanti requested a hearing on the tax assessment notice, and the matter was referred to the Office of Administrative Hearings, which assigned an ALJ to preside over the hearing. At the hearing, Avanti did not dispute that Waiau had performed services for remuneration from Avanti. The issue, rather, was whether Waiau was an independent contractor rather than an employee. See ORS 657.040(1) ("Services performed by an individual for remuneration are deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the Director of the Employment Department that the individual is an independent contractor, as that term is defined in ORS 670.600." (Emphasis added.)). For purposes of ORS Chapter 657 (unemployment insurance), "independent contractor" means a person "who provides services for remuneration and who, in the provision of the services":

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The Employment Department Law applies to "employers," which are defined in terms of "employing units." ORS 657.025. "Employing unit," in turn, includes a company that "has or had in its employ one or more individuals performing services for it within this state." ORS 657.020(1)(a). Consequently, Waiau's status as an "employee" determines whether Avanti is an employer subject to Oregon's unemployment insurance laws.
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"(a) Is free from direction and control over the means and manner of providing the services, subject only to the right of the person for whom the services are provided to specify the desired results; "(b) * * * [I]s customarily engaged in an independently established business; "(c) Is licensed under ORS chapter 671 or 701 if the person provides services for which a license is required under ORS chapter 671 or 701; and "(d) Is responsible for obtaining other licenses or certificates necessary to provide the services." ORS 670.600(2). The statutory criteria are conjunctive; a person is not considered an "independent contractor" unless each is met. Under ORS 657.683(4), the employer challenging an assessment has the burden to establish the relevant criteria. The ALJ determined that, under the facts recounted above, Avanti had not demonstrated that Waiau was an independent contractor within the meaning of that statute. The ALJ concluded that, although Waiau was "customarily engaged in an independently established business" for purposes of paragraph 2(b), she was not "free from direction and control over the means and manner of providing the services," as required by paragraph 2(a), the only other relevant criterion Avanti needed to establish. The ALJ reasoned as follows: "Although Waiau used her personal vehicle and her own office equipment in contacting customers, Avanti directed and controlled the other means by which Waiau performed her services. Avanti provides its 'trademarks and trade[]name and other identifying materials,' and required that Waiau discontinue using them when the Services Agreement terminated. The agreement required Waiau to solicit orders according to Avanti's policies, catalogs, supplements, and price information and stated that Avanti would furnish order forms, price lists, catalogs, and other promotional materials for her use. Avanti also sent Waiau a manual in connection with her training.
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"* * * * * "Under the Services Agreement, Avanti had the right to control the prices, products, ways, methods, terms of payment or shipment, and 'any other conditions or terms of sale.' Avanti reserved the right to change any of these things without notice to Waiau. It could 'for any reason or for no reason' accept or reject any order or cancel or modify any accepted order and compromise or adjust the price of its products. "Even the payment of Waiau's commissions was subject to Avanti's control. The Services Agreement provided that if Avanti's overall collections were 'in its sole judgment, particularly slow,' Avanti could wait to pay her until after Avanti received payment from its customer. Avanti also had the right to charge Waiau for unspecified customer deductions, returned products, and Avanti settlements with late-paying customers. Further, Avanti could resolve any disputes regarding the division of her commissions on products delivered out of her territory, and Avanti's decision would be binding on Waiau." III. ANALYSIS On judicial review, Avanti argues that the ALJ misinterpreted the "direction and control" requirement of ORS 670.600(2)(a) and misapplied the applicable administrative rule, OAR 471-031-0181(3)(a), which interprets ORS 670.600(2)(a). That rule provides: "(3) Direction and Control Test. "(a) ORS 670.600 states that an 'independent contractor' must be 'free from direction and control over the means and manner' of providing services to others. The agencies that have adopted this rule will use the following definitions in their interpretation and application of the 'direction and control' test: "(A) 'Means' are resources used or needed in performing services. To be free from direction and control over the means of providing services an independent contractor must determine which resources to use in order to perform the work, and how to use those resources. Depending upon the nature of the business, examples of the 'means' used in performing services

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include such things as tools or equipment, labor, devices, plans, materials, licenses, property, work location, and assets, among other things. "(B) 'Manner' is the method by which services are performed. To be free from direction and control over the manner of providing services an independent contractor must determine how to perform the work. Depending upon the nature of the business, examples of the 'manner' by which services are performed include such things as work schedules, and work processes and procedures, among other things. "(C) 'Free from direction and control' means that the independent contractor is free from the right of another person to control the means or manner by which the independent contractor provides services. If the person for whom services are provided has the right to control the means or manner of providing the services, it does not matter whether that person actually exercises the right of control." OAR 471-031-0181(3)(a) (emphases added). According to Avanti, the ALJ failed to take into account the nature of the business involved and the services performed, and, consequently, established an impossibly high threshold by which no sales representative could ever qualify as an independent contractor. The department, in response, defends the ALJ's reasoning and submits that "[t]here is nothing absurd about the conclusion that a person who promotes an employer's products, at prices and terms dictated by the employer, in a territory dictated by an employer, subject to the employer's right to change the product prices, products available, the available methods of payment, available methods of shipment, and 'any other condition or terms of sale' is an employee." The department contends that Waiau was not free from Avanti's "direction and control over the means and manner" of providing services, as those terms are used in the statute and in the rule. We review the ALJ's interpretation of the independent contractor definition

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in ORS 670.600(2)(a) and the related terms in OAR 471-031-0181(3)(a) for errors of law. ORS 657.684 ("Judicial review of decisions under ORS 657.683 shall be as provided for review of orders in contested cases in ORS chapter 183 * * *."); ORS 183.482(8)(a); accord Baker v. Cameron, 240 Or 354, 359, 401 P2d 691 (1965) ("[T]his court has a consistent line of precedents holding that if the facts are not disputed, the question of whether one is an 'employee' or the contractor of another is a question of law."). Because the parties' dispute centers around the application of the "direction and control" requirement, we begin by reviewing the development of the statutory requirement. A. Derivation of the "direction and control" statutory requirement from the

"right to control" test Since their inception in the 1930s, Oregon's unemployment compensation laws have, in one form or another, included something analogous to the current "independent contractor" exception.3 Although parts were added over the years, those laws included the following language until 1987: "Services performed by an individual for remuneration are deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the assistant director that:

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See Or Laws 1937, ch 398,

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