Zak v. Workforce Services

2019 UT App 43
THE UTAH COURT OF APPEALS
PANY Z AK,
Petitioner,
v.
DEPARTMENT OF WORKFORCE S ERVICES AND
WORKFORCE A PPEALS B OARD,
Respondents.
Opinion
No. 20171040-CA
Filed March 28, 2019
Original Proceeding in this Court
Pany Zak, Petitioner Pro Se
Nathan R. White, Attorney for Respondents
JUDGE M ICHELE M. C HRISTIANSEN F ORSTER authored this Opinion,
in which J UDGES D AVID N. M ORTENSEN and DIANA H AGEN
concurred.
CHRISTIANSEN FORSTER, Judge:
¶1 	While many hands make light work, they may also accrue
liability 	for 	contributions 	to 	the 	state’s 	unemployment
compensation 	fund. 	The 	Department 	of 	Workforce 	Services
(Department) determined that Pany Zak’s day spa workers were
employees 	and 	not 	independent 	contractors. 	Because 	the
workers were employees, the Department concluded that their
wages were subject to state unemployment compensation fund
contributions 	and 	the 	Workforce 	Appeals 	Board 	(Board)
affirmed. Zak petitions for judicial review. We decline to disturb
the Board’s decision.
¶2 	Zak operated a by-appointment-only day spa business
out of her home and offered a variety of spa-related services to
customers. While Zak provided most of the services herself, she

Zak v. Workforce Services
20171040-CA 	2 	2019 UT App 43
hired other workers and contacted them when more hands were
needed. When Zak contacted the workers with an opportunity to
perform services in her spa, the workers were free to reject the
offer. But if the workers accepted, Zak expected them to render
their services at her place of business and she would pay the
workers a percentage of the sale or a commission.
¶3 	Under this arrangement, the customers belonged to Zak
and the workers were directed not to hand out their own
business cards to the customers. Zak set the price of services, set
the 	rate 	or 	amount 	of 	commissions 	to 	workers, 	collected
payment 	from 	customers, 	and 	paid 	the 	workers. 	When
customers called the day spa, Zak or her boyfriend who lived
with her answered the call and scheduled the appointment. If a
customer failed to show up for an appointment with a worker or
was dissatisfied with the services provided by a worker, Zak did
not pay that worker.
¶4 	When providing a service, workers paid no “booth” fees
and otherwise did not rent space in Zak’s day spa. Rather, Zak
provided a room and massage table to the workers at no cost,
and made available, at a cost to the workers, some spa-related
products. If a customer paid by credit card, Zak charged the
workers a credit card processing fee.
¶5 	Zak 	generally 	found 	workers 	by 	placing 	classified
advertisements and soliciting resumes. She then had the workers
sign an agreement in which they agreed to be “classified as
Contract Labor.” The agreement further stated that Zak’s day
spa “is not considered [the worker’s] employer and will not be
held responsible for any tax payments” related to the workers’
employment. Zak issued the workers a 1099-MISC1 form but did
1. A 1099-MISC, or miscellaneous income form, is an Internal
Revenue Service tax form that reports, among other things,
(continued…)

Zak v. Workforce Services
20171040-CA 	3 	2019 UT App 43
not know what types of tax forms the workers filed with the
Internal Revenue Service. Zak offered the workers no instruction
or training on how to perform services and did not ask them to
show her their own business licenses. Indeed, Zak allowed the
workers to provide services in their own unique styles.
¶6 	In 	2016, 	the 	Department 	commenced 	an 	audit 	to
determine 	whether 	Zak’s 	workers 	should 	be 	classified 	as
independent 	contractors 	or 	as 	Zak’s 	employees. 	After 	an
investigation, the auditor determined that Zak’s workers were
employees and, consequently, that the workers’ wages were
subject to state unemployment compensation fund contributions.
Zak appealed the audit to the Department. Considering Zak’s
appeal, 	a 	hearing 	officer 	within 	the 	Department 	reviewed
documents from the original investigation and consulted with
Zak. The hearing officer weighed the circumstances surrounding
Zak’s relationship with the day spa workers against several
factors 	used 	to 	aid 	in 	the 	determination 	of 	a 	worker’s
independent contractor status. The officer affirmed the auditor’s
determination that Zak’s spa workers were employees and not
independent contractors.
¶7 	Zak 	appealed 	the 	Department’s 	decision 	to 	an
administrative 	law 	judge 	(the 	ALJ). 	The 	ALJ 	affirmed 	the
Department’s decision, determining that Zak was an employer
and that Zak’s day spa workers were employees. As a result, the
ALJ 	determined 	that 	Zak’s 	business 	was 	subject 	to
unemployment contributions. The ALJ observed that Zak had
the burden to establish that the workers were “independently
(…continued)
earnings paid to an independent contractor or a person who is
self-employed but has performed work for another. See About
Form 1099-MISC, Miscellaneous Income, IRS, https://www.irs.gov/f
orms-pubs/about-form-1099-misc [https://perma.cc/TY2T-4437].

Zak v. Workforce Services
20171040-CA 	4 	2019 UT App 43
established 	in 	their 	own 	trade, 	occupation, 	profession, 	or
business providing similar services as those provided to [Zak] at
the same time the services were provided to [Zak].” See Aura Spa
& Boutique v. Department of Workforce Services, 2017 UT App 152,
¶ 8, 402 P.3d 813; see also Utah Code Ann. § 35A-4-204(3)
(LexisNexis Supp. 2018). Zak’s evidence in support of this factor
consisted of her own testimony that the workers told her they
had their own places of business and business licenses. In
addition, Zak offered two resumes from workers she had hired
that 	indicated 	those 	workers 	were 	self-employed. 	The 	ALJ
determined 	that 	this 	evidence 	was 	hearsay 	and 	thus 	was
“insufficient to establish a finding of fact that [the workers] had
their 	own 	businesses, 	had 	other 	clients, 	or 	had 	business
licenses.”
¶8 	Zak then appealed the ALJ’s decision to the Board. The
Board adopted in full the factual 	findings of the ALJ 	and
affirmed the ALJ’s reasoning and conclusions of law. Zak seeks
review of that decision in this court. Zak primarily argues that
the Board erred when it concluded that the day spa workers
were 	employees 	and 	not 	independent 	contractors 	with
independently established businesses.2
2. We note that Zak asserts that the Board misinterpreted the
language of Utah Administrative Code R944-204-303(1)(b) when
it 	considered 	that 	provision’s 	enumerated 	factors 	used 	to
determine 	whether 	a 	worker 	is 	an 	independent 	contractor.
However, 	Zak 	fails 	to 	“explain, 	with 	reasoned 	analysis
supported by citations to legal authority and the record,” why
she should prevail on this argument on judicial review. See Utah
R. App. P. 24(a)(8). She also suggests that the Board’s decision is
not supported by substantial evidence. In our review of the
Board’s decision, the Board affirmatively cited substantial and
undisputed 	evidence 	supporting 	its 	weighing 	of 	all 	seven
(continued…)

Zak v. Workforce Services
20171040-CA 	5 	2019 UT App 43
¶9 	The Employment Security Act generally makes “[s]ervices
performed by an individual for wages or under any contract
of hire” subject to contributions to the state unemployment
compensation fund. Utah Code Ann. § 35A-4-204(3). Zak does
not dispute that her relationship with the spa workers included
payment of wages under a contract for hire. Consequently,
the services of the workers are subject to the Employment
Security 	Act 	“unless 	it 	is 	shown 	to 	the 	satisfaction 	of 	the
[Unemployment 	Insurance 	Division] 	that” 	an 	exception 	for
independent contractors applies. See id.; see also Evolocity, Inc. v.
Department of Workforce Services, 2015 UT App 61, ¶ 9, 347 P.3d
406 	(observing 	that 	“Utah 	law 	presumes 	that 	a 	paid 	or
contracted worker is an employee unless the putative employer
can demonstrate that the worker (1) is independently established
in work of the same nature and (2) has been free from control or
direction over the means of performing the work” (quotation
simplified)). Accordingly, Zak bears the burden to rebut the
presumption that the workers were employees. See Aura, 2017
UT App 152, ¶ 8.
¶10 	“The determination whether a [worker] is an independent
contractor involves a fact-sensitive inquiry into the unique facts
of a particular employment relationship.” Evolocity, 2015 UT
App 61, ¶ 6. We accordingly grant deference to the Board “in its
weighing of the relevant factors to arrive at its ultimate decision”
and 	“we 	will 	disturb 	that 	decision 	only 	if 	it 	is 	clearly
erroneous or falls outside the scope of the afforded deference.”
Id.
(…continued)
factors. 	Because 	neither 	of 	these 	arguments 	is 	adequately
briefed, we do not consider them further. See State v. Thomas, 961
P.2d 299, 304 (Utah 1998) (“It is well established that a reviewing
court 	will 	not 	address 	arguments 	that 	are 	not 	adequately
briefed.”).

Zak v. Workforce Services
20171040-CA 	6 	2019 UT App 43
¶11 	The 	Board 	considered 	seven 	factors 	to 	aid 	in 	its
determination that the workers were independent contractors.
See Utah Admin. Code R944-204-303(1)(b). These factors
require the reviewing entity to examine whether
the worker has a separate place of business; has
substantially invested in his or her own equipment;
has independent clients; can realize a profit or loss;
advertises his or her own services; has obtained the
required and customary professional licenses; and
maintains records that validate business expenses.
Aura, 2017 UT App 152, ¶ 8. The Board considered the evidence
presented and, importantly, the lack of evidence supporting the
conclusion that any of the workers were independent contractors
under each of the seven factors.
¶12 	Zak separately addresses each factor in her briefing but
does not challenge any of the record evidence. Instead, she asks
us to consider the same evidence presented in the administrative
proceedings and reach a different conclusion—that the workers
were more like independent contractors. However, “[w]e do not
reweigh the evidence or substitute our decision for that of the
Department but instead will uphold its determinations if they
are supported by the record evidence.” Evolocity, 2015 UT App
61, ¶ 6. Affirming the Department’s decision, the Board adopted
in full its factual determinations. Because Zak does not confront
the record evidence supporting the Board’s decision, we decline
to address the majority of Zak’s challenges.
¶13 	With regard to the first factor—the worker’s separate
place 	of 	business—Zak 	argues 	that 	the 	Board 	improperly
ignored some of her evidence when it labeled that evidence
hearsay. In other words, she contends that the Board refused to
consider 	legally 	competent 	evidence, 	an 	argument 	that
implicates the residuum rule. See Aura, 2017 UT App 152, ¶ 11.
“The residuum rule requires that an administrative board’s

Zak v. Workforce Services
20171040-CA 	7 	2019 UT App 43
findings of fact be supported by a residuum of legal evidence
competent in a court of law even if the board has received and
considered 	evidence 	of 	a 	lesser 	quality.” 	Id. 	(quotation
simplified). Here the Board declined to base its findings of fact
on hearsay evidence alone.
¶14 	“‘Hearsay’ is a statement, other than one made by the
declarant while testifying at the trial or hearing, offered in
evidence to prove the truth of the matter asserted.” InnoSys, Inc.
v. Department of Workforce Services, 2011 UT App 169, ¶ 9, 257
P.3d 489 (quoting Utah R. Evid. 801(c)). “While hearsay is clearly
admissible in administrative proceedings, the ensuing findings
of 	fact 	may 	not 	rely 	exclusively 	on 	inadmissible 	hearsay
evidence.” Aura, 2017 UT App 152, ¶ 11 (quotation simplified).
¶15 	Zak testified that the workers told her in conversations
that they had their own business licenses and places of business.
She further testified that some of the workers had other jobs
performing spa treatments and she submitted two resumes from
workers identifying themselves as “self-employed” and showing
that they maintained other employment. None of the workers
testified at the administrative hearing and Zak offered no other
evidence of the workers’ separate businesses. Zak’s testimony
about what the workers told her and the workers’ resumes are
hearsay. It constituted statements of others made while not
testifying and the statements were offered by Zak to prove the
truth of those statements. Zak offered this evidence to establish
that 	the 	workers 	had 	their 	own 	business 	licenses 	and
independent places of business. Because Zak did not assert that
an 	exception 	applied 	to 	this 	hearsay 	evidence, 	the 	Board
correctly concluded that this evidence was hearsay.3
3. 	Hearsay 	may 	be 	“legally 	competent 	evidence, 	given 	the
multitude of exceptions to the presumptive bar on the admission
(continued…)

Zak v. Workforce Services
20171040-CA 	8 	2019 UT App 43
¶16 	The Board considered Zak’s testimony as well as the
resumes. 	The 	ALJ 	observed 	that 	Zak 	“provided 	hearsay
evidence the workers had their own places of business[,] . . . had
other clients[, and] . . . had business licenses.” Likewise, the
Board observed that the only evidence supporting the workers
maintaining a separate place of business “is hearsay in the form
of the workers’ resumes and their alleged statements to [Zak].”
Because this evidence was hearsay not subject to an exception,
standing alone and without corroboration, it was not competent
evidence sufficient to support a factual finding contrary to the
facts found by the ALJ. The ALJ and the Board thus properly
concluded that Zak’s testimony and the two resumes could not
support a finding that the workers had business licenses or their
own places of business. See id.
¶17 	Zak has not demonstrated that the Board clearly erred in
its conclusion that the workers were employees of her day spa.
Nor has she established that the Board exceeded the scope of its
(…continued)
of hearsay.” Aura Spa & Boutique v. Department of Workforce
Services, 2017 UT App 152, ¶ 12, 402 P.3d 813. Zak asserts only
that the public records exception should apply. See Utah R. Evid.
803(8) (excepting from the general hearsay bar, “[a] record or
statement of a public office” so long as certain conditions are
met). She fails, however, to direct us to the portion of the record
where this argument was presented either to the ALJ or the
Board 	for 	resolution. 	Consequently, 	this 	argument 	is 	not
preserved. Zak does not argue that any exception to preservation
applies under the circumstances and we therefore decline to
address this argument further. See State v. Johnson, 2017 UT 76,
¶ 27, 	416 	P.3d 	443 	(explaining 	that, 	when 	an 	issue 	is 	not
preserved, 	“the 	party 	must 	argue 	that 	an 	exception 	to
preservation applies” in order for the appellate court to address
that issue).

Zak v. Workforce Services
20171040-CA 	9 	2019 UT App 43
afforded deference in determining the facts and weighing them
in 	reaching 	its 	conclusion. 	“Further, 	because 	independent
contractor 	status 	requires 	a 	showing 	of 	both 	independent
establishment and freedom from direct control, the lack of the
former obviates the need to discuss the latter.” Id. ¶ 15; see also
Utah Code Ann. § 35A-4-204(3)(a)–(b) (LexisNexis Supp. 2018).
For these reasons, we decline to disturb the Board’s decision.