The issue of independent contractor versus employer has been litigated in South Dakota. There is a presumption that the worker was an employee and it is the employer’s burden to establish the worker is an independent contractor. The Department of Labor and the South Dakota Supreme Court have provided a set of factors to consider when determining whether a worker is an independent contractor or an employee.

The following factors have been used by the Department of Labor as considerations when determining whether a worker is an independent contractor or employee:

1. The extent of control which, by the agreement, the master may exercise over the details of the work;

1. One must look at whether the employer has the ability to hire, fire, and lay off the worker. It is also important how much control the master has over the workers’ functions.

2. Whether the one employee is engaged in a distinct occupation or business.

1. Here it is important to see whether the worker operated a separate business or under a separate trade name. It is also important whether the worker worked solely for this master, on a full time basis.

3. The kind of occupation with reference to, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.

4. The skill required for that particular occupation.

5. Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;

1. Here, “when the employer furnishes valuable equipment, the relationship is almost invariably that of employment.” SeeLarson on Worker’s Compensation §44.43(a).

6. The length of time for which the person is employed.

7. The method of payment, whether by the job or by the hour.

8. Whether the work is part of the regular business of the employer.

9. Whether the parties believe they are creating the relationship of master and servant.

The South Dakota Supreme Court has essentially adopted these factors although it has grouped certain factors into a two-part test. InEgemo v. Flores, 470 NW2d 817 (SD 1991) the employer argued the servant was an independent contractor. The court noted there was an important distinction as an independent contractor is not covered by workers’ compensation. The court stated there is a two factor test: (1) whether the individual has been and will continue to be free from control or direction over the performance of the services, both under contract or service and fact, and (2) whether the individual is customarily engaged in an independently established trade, occupation, profession or business.

In evaluating the “right of control test” the important considerations include direct evidence of the right of control, the method of payment, furnishing major items of equipment, and the right to terminate the employment relationship at will and without liability. In Egemo, the court noted the employer did not exercise control or supervision over the method or manner in which the servant completed his task. Furthermore, the master did not direct the hours of work, breaks, or even the days off. The court also noted the servant did not withhold any amounts for income tax, social security, or unemployment insurance. The employer also filed a Form 1099 as a non-employee compensation form. The court noted the servant was required to supply all of his own tools, and his own maintenance and transportation to the work sites. Furthermore, the employment relationship could not be terminated without liability.

The significant considerations in the test of “independently established trade” are that:

The requirement that the employee’s occupation be independently established and that he be customarily engaged and it calls for an enterprise created and existing separate and apart from the relationship with the particular employer; an enterprise that will survive the determination of that relationship. The individual must have a proprietary interest in the enterprise to the extent that he can operate without hindrance from any other individual.

However, it is not skill alone which determines whether an individual is established in a trade or business, but whether that individual by reason of such skill engages himself in an economic enterprise such that he bears the risk of his own unemployment. Whether or not he is unemployed is solely a function of market forces and a demand for skills, not the response of his master to similar economic realities.

The South Dakota legislature has also addressed this issue and stated the difference between an employer and an independent contractor in SDCL 61-1-11. That statute states “service performed by an individual for wages is employment subject to this title unless and until it is shown to the satisfaction of the Department of Labor that: (1) the individual has and will continue to be free from control or direction over the performance of the service, both under his contract of service and in fact; and (2) the individual is customarily engaged in an independently established trade, occupation, profession, or business. The South Dakota legislature defined employee in SDCL 62-1-3 for the purposes of worker’s compensation. The definition is roughly the same as that set forth above.

Part four of the five-part test states that an employee must file a claim with his employer requesting the benefits in order to be entitled to the same. The South Dakota Supreme Court, in Chiolis v. Lage Dev. Co., 512 N.W.2d 158, 161-162 (S.D. 1994), stated:

“Even recognizing that the primary purpose of rehabilitation benefits is to restore the injured employee to substantial and gainful employment, the worker may not unilaterally decide what training he or she may want to pursue and proceed to do so at the employer’s expense. To approve such an independent approach to rehabilitation training by a claimant would result in untold administrative and economic chaos and a total breakdown of the legislatively intended benefits to the injured worker of rehabilitation training. While such self-improvement is highly laudable, particularly in view of the claimant’s independent quest for it, unaided by the employer or carrier, it is outside the range of benefits provided by South Dakota law. To approve a procedure which allows an injured employee to select a rehabilitation program before petitioning Department or reaching an agreement with the employer would be putting the cart before the horse.”

The Court in Chilois denied retraining benefits, in part, due to the claimant’s unilateral decision to enter into a rehabilitation program.

The Department addressed a similar factual scenario in Shellie Holvig v. Rent-a-Center and Specialty Risk Services, HF No. 130, 2004/05, when the claimant therein moved to Phoenix and began her retraining program without alerting her employer and insurer of the same. The Department held that the acts of the claimant deprived her employer and insurer or a reasonable opportunity to evaluate her vocational situation properly and demonstrate the necessity of element four of the retraining test. Id. at 6. The Department also noted that the claimant had decided long before the denial to assume financial responsibility for her bachelor’s degree, and that there was no evidence that employer and insurer therein led the claimant to believe she would receive benefits for the program and she took no actions to her detriment based on any actions of the employer and insurer. Id.

All seemed pretty clear on this issue until Koval v. City of Aberdeen and SDML Workers’ Compensation Fund, HF No. 142, 2014/15. In Koval, the claimant had completed his claimed retraining program before petitioning or otherwise requesting retraining benefits from the Employer/Provider. On a motion for summary judgment, the Department stated:

“However, there is nothing in SDCL 62-4-5.1 or the five part test established by the Supreme Court which dictates when such a claim must be made. It is merely required that a claim be made. That such a claim could later be denied is merely a risk the Claimant makes by not getting preapproval. “A claimant may enroll in a rehabilitation program without the consent of employer, but he does so at his own risk; that is, rehabilitation benefits will not be guaranteed for a particular program simply because the program is one the claimant wishes to pursue.” Kurtenbach v. Frito-Lay, 1997 S.D. 66, ¶ 23, 563 N.W. 2d 869, 875. “It is [claimant’s] right to seek a college education, but [employer] cannot be compelled to pay for such a program if it is not necessary.” Chiolis v. Large Dev. Co., 512 N.W.2d 158, 161 (S.D. 1994) (emphasis added) (quoting Cozine v. Midwest Coast Transport Inc., 454 N.W.2d 548, 554 (S.D. 1990)).

Pursuing a rehabilitation program without first filing a claim and receiving approval does not guarantee the receipt of benefits. However, not seeking preapproval does not preclude the application of the rest of the test to establish if claimant is entitled to the rehabilitation benefits. Therefore, since Claimant’s claim satisfactorily fulfills step four of the test, and Claimant and Employer disagree on his fulfillment of the rest of the five-part test requirements, issues of material fact remain regarding Claimant’s petition for retraining benefits.”

The Koval decision was settled before hearing and consequently there have been no appeals from this curious decision that clearly allows a claimant, contrary to Chiolis, to “…put the cart before the horse”.

Beginning July 1, 2017, there will be a new statutory maximum and minimum workers’ compensation rate along with other rate and reimbursement changes. If you want to receive our Rate Sheets and Summary of Workers’ Compensation Law in SD, please contact Cheri Fodness at cafodness@boycelaw.com.

Summer is upon us and the 4th of July is just around the corner. Almost as exciting as fireworks is the third prong of the five-part rehabilitation test for South Dakota workers’ compensation claims. As Laura mentioned in last week’s blog post, I have the honor of discussing the third prong and what it means to you in evaluating your work comp claim. The third prong of the five-part test provides: The program of rehabilitation must be a reasonable means of restoring the employee to employment.

When determining whether a rehabilitation program is reasonable, the South Dakota Supreme Court has declared that the Claimant bears the burden of establishing the reasonableness of the program. Chiolis v. Lage Development Co., 512 N.W.2d 158, 161 (SD 1994). In considering an appropriate rehabilitation program, the Department “must not lose sight of the fact the employer has a stake in the case” and “the employer is required to ‘underwrite’ the expenses of rehabilitation.” Id. An injured worker cannot insist upon a college education if other suitable employment opportunities exist that do not require college training. Id. at 160, (quoting Barkdull v. Homestake Mining Co., 411 N.W.2d 408, 410 (S.D. 1987).

When reviewing requests for rehabilitation, the parties must look at the claimant’s underlying career and wages to determine the reasonableness of the requested/suggested rehabilitation program. For instance, it is probably unreasonable for a forty-five year old, over-the-road truck driver (who has been driving truck since he was 18), with a high school education, to get a four-year accounting degree when a two-year vocational program for bookkeeping would provide sufficient income to restore him to employment. As with the other prongs of the rehabilitation test, use of a vocational expert to address the third prong is a valuable tool to help determine whether the rehabilitation program is a reasonable means of restoring the employee to employment. The vocational expert will be able to analyze the job market, identify the average income for a variety of positions, and provide invaluable insight to evaluate the claim properly.

Stay tuned for further discussion of a rehabilitation claim in South Dakota in next week’s blog post, and the riveting discussion by Mike about the fourth prong of the five-part test. As always, feel free to contact us if you have any questions.

The South Dakota Department of Labor and Regulation will begin posting appellate decisions from the Circuit Court on its website. This is something the South Dakota Workers’ Compensation Committee has been working toward for some time. Currently you can access all Department of Labor decisions, but unless we are involved in the case or the decision was appealed to the SD Supreme Court, we often did not know the outcome of the appeal, or even if a Department decision was appealed in the first place.  Fortunately, this new feature will change that.

Boyce Law will continue to monitor all Department decisions and provide case law updates on this blog. We will also report any relevant appellate decisions from the Circuit Court. The appellate decisions can be accessed at http://dlr.sd.gov/workers_compensation/decisions_appeals.aspx.  You can navigate to that page by clicking “Case Decisions” from the home page and using the “Workers’ Compensation Appeals Decision” link found on the “Case Decisions” page.

An often neglected aspect of a South Dakota permanent total disability claim is there requirement for a reasonable but unsuccessful job search effort on the part of the claimant. This is required unless the claimant is deemed “obviously unemployable” by showing that a job search would be futile, as provided in SDCL 62-4-53. Further, expert testimony is required pursuant to SDCL 62-4-53, providing, “An employee shallintroduce evidence of a reasonable, good faith work search effort unless the medical or vocational findings show such efforts would be futile. Seldom is a claimant obviously unemployable, therefore, as part of the claimant’s proof of permanent total disability there must be a showing of a reasonable but unsuccessful job search effort. What constitutes a reasonable job search? It is not something that can be defined by a bright line rule and will vary by the circumstances. It is not just based on the number of job applications or contacts made, but the number is certainly relevant to the determination.

Did the claimant only start looking in the months before hearing? Has significant time passed between the date of release to work and the job search efforts made? Is the claimant only applying to be able to satisfy the unemployment benefit of requiring two contacts a week? What types of jobs are they applying for? Submitting applications for jobs outside of their abilities and/or restrictions should hardly constitute a reasonable search sufficient to satisfy the requirement. Is the claimant registered with job service or South Dakota Vocational Rehabilitation? How is the claimant presenting in the job application or job interview? Sabotaging the application and interview process by their statements and/or presentation does not constitute a reasonable effort to return to work.

Do not neglect this important legal requirement when evaluating a claim for permanent total disability.

As we discussed in last week’s blog post, a claimant must satisfy five elements before becoming eligible to receive rehabilitation benefits. The first element is that a claimant is required to show they are unable to return to their usual and customary line of employment. In other words, the claimant must prove that they are unable to return to the type of work they were doing at the time of, or before, the work injury. For example, if the claimant previously worked as a truck driver, they must show that, because of the work injury and its accompanying restrictions, they will be unable to return to work as a truck driver. Often times, this element is satisfied when there is a claimant that has spent their entire life working in manual labor with job duties that require lifting and repetitive motion, and now they have permanent restrictions limiting them from doing ever again.

Often, this first element does not receive much attention or discussion because it is so closely tied to the premise underlying a claimant’s need for rehabilitation or retraining benefits. In fact, by the time retraining benefits are being disputed, the parties have likely already agreed whether or not the claimant can perform his usual and customary line of employment. Nonetheless, if there is some dispute regarding whether a claimant can return to their previous line of work, the claimant will need to show that the restrictions limit them from performing the previous work, often times through the testimony of a vocational expert. Please note that although this element is often undisputed and therefore not thoroughly discussed, insurers and self-insurers should remain vigilant to ensure that claimant’s satisfy this element before becoming eligible for retraining benefits.  It is important to remember that simply because a claimant states that they cannot return to their usual and customary line of employment, those statements alone are not sufficient to satisfy the first element of a claim for retraining benefits.

Look out for our upcoming blog posts over the following weeks for more detailed explanations of the remaining elements for proving entitlement to rehabilitation benefits. Of course, if you have any questions about a claimant’s eligibility for retraining benefits, we’re only a phone call away.

The South Dakota Claim for Retraining Benefits