                                                                                                                FILED
                                                                                                      COURT OF APPEALS
                                                                                                         DIVISION I
                                                                                                     2DI5M IR   0 M1    35
                                                                                                     sT„
                                                                                                                        ray

    IN THE COURT OF APPEALS OF THE STATE OF WASHIN

                                                  DIVISION II

 B &R SALES, INC.,                                                                No. 45765 -2 -II


                                      Appellant,


        v.

                                                                             PUBLISHED OPINION
 WASHINGTON STATE DEPARTMENT OF
 LABOR & INDUSTRIES,


                                      Respondent.



       MAXA, J. —        B &R Sales, Inc. appeals the superior court' s order affirming the decision of

the Board of Industrial Insurance Appeals (Board) that B &R was required to pay industrial

insurance   premiums     for the independent      contractors   B & R hired to install floor coverings for its


customers. The Board' s decision was based on a finding that the contractors were " workers"

performing personal labor under RCW 51. 08. 180. B &R argues that the contractors did not

qualify as " workers" because they could not perform the contracted work without the use of -

expensive specialized tools and customized vans, and therefore the essence of their contracts was


not personal labor. B &R also argues that the contractors were excluded from mandatory

workers' compensation coverage under RCW 51. 12. 020.


       We .hold that the contractors were " workers" under RCW 51. 08. 180 because the primary

object of   their   contracts was   their   personal   labor despite their   use of expensive specialized   tools
45765 -2 -II



and equipment.      We further hold that B & R waived its RCW 51. 12. 020 argument because it did


not make that argument to the Board. Therefore, we affirm the Board and the superior court.1

                                                    FACTS


Premium Assessment


          B &R is a business that sells and installs floor coverings. In 2008, B &R contracted with


17 independent contractors to install materials sold to its clients. Fourteen of the contractors


were sole proprietors, and the remaining three were a partnership, a corporation, and a limited

liability   company. B & R also employs an installer that does the same job as the contractor


installers.


          The floor covering installation process requires the physical labor, skill, and expertise of

a professional installer. And B &R' s independent contractors were contractually required to

provide the tools they needed for installations. Some of the contractors' tools were specialized,

unique to the installation trade, and available only from specialty stores serving professional

installers. These tools included large vinyl rollers, power stretchers for carpet, and a specialized


saw with a diamond blade for cutting ceramic tile. The contractors'- other tools included saws,

trimmers, files, and nail guns. The aggregate value of each contractor' s tools ranged from


    7, 000 to $ 20, 000. In addition, the contractors were required under the contract to supply a




1
    The Board   ruled, and   the   superior court affirmed,   that two   of   the   contractors —Michael   Schultz
and    Charles Soule —did
                        not qualify as workers under the former RCW 51. 08. 180 ( 1991) but did
qualify as workers under the version of RCW 51. 08. 180 effective June 12, 2008. DLI did not
file a cross appeal on this ruling. Therefore, we affirm the Board' s ruling on these two
contractors.
45765 -2 -II



customized van capable of transporting and storing their supplies and equipment as well as the

materials to be installed..


         Each B & R contractor had the right under the contractor agreement to hire additional


employees to perform the installation work. However, no evidence was presented that any of the

contractors hired additional employees.


         In 2009, the Department            of   Labor   and   Industries ( DLI)   performed an audit on   B &R and


discovered that B &R had not paid industrial insurance premiums for any of its contract installers

in 2008. DLI determined that each of the contract installers was a " worker" under RCW


51. 08. 180. An auditor assessed industrial insurance premiums, interest, and penalties against


B &R in the     amount of $87, 752. 23.          After B &R requested reconsideration, DLI reaffirmed its


order in May 2011.

Appeal to the Board ofIndustrial Insurance Appeals

         B &R appealed DLI' s assessment. An industrial insurance appeals judge reversed DLI' s


order. Both B &R and DLI petitioned for review to the Board. The Board issued a decision and

made a   finding      of   fact that the   essence of    the   agreements   between B & R and the 17 contractors


was the contractors' personal labor. The Board concluded that two installers, Michael Schultz


and Charles Soule, were not B &R' s workers before June 12, 2008 ( the effective date of an

amendment       to RCW 51. 08. 180), but          were   B & R'   s workers after that date.2




2 Because the Board determined that DLI' s assessment notice and order was partially incorrect,
it   remanded   the   case   to DLI to     recalculate    B & R' s industrial insurance premiums, interest, and
penalties.


                                                                  3
45765 -2 -II



Appeal to Superior Court


        B &R appealed the Board' s decision and order to the superior court. After reviewing the

record before the Board and the parties' pleadings, the superior court issued findings of fact,


conclusions of law, and a judgment affirming the Board' s decision and order.

        B &R appeals.


                                                      ANALYSIS


A.      STANDARD OF REVIEW


        1.       Superior Court Review


        B &R argues that the superior court erred by applying the substantial evidence standard to

the Board'   s   findings   of   fact. B & R   relies on RCW 51. 52. 115, which provides that the hearing of

industrial insurance appeals in the superior court shall be de novo. We hold that the superior


court used the correct standard of review.


        Washington' s Industrial Insurance Act (IIA), Title 51 RCW, includes general judicial


review provisions that apply to workers' compensation claims. Arriaga' v. Dep' t ofLabor &

Indus., 183 Wn.      App.    817, 822, 335 P. 3d 977 ( 2014).     RCW 51. 52. 115 provides that the hearing

in the superior court shall be de novo, but based only on the evidence offered before the Board.

However, the IIA also contains a specific provision for judicial review of DLI' s assessment


decisions. RCW 51. 48. 131, which is entitled " Notice of assessment for default in payments by

employer —Appeal"           provides:


        Further appeals taken from a final decision of the board under this section are
        governed by the provisions relating to judicial review of administrative decisions
        contained in RCW 34. 05. 510 through 34. 05. 598.




                                                            4
45765 -2 -II




The referenced statutory provisions are in the Administrative Procedures Act (APA),

chapter 34. 05 RCW.


           Based on RCW 51. 48. 131, Washington courts consistently have held that the

APA governs judicial review of the Board' s decisions regarding assessment of industrial

insurance     premiums.              E.g., Xenith       Grp., Inc.    v.   Dep' t of Labor &   Indus.,   167 Wn. App..

389, 393, 269 P. 3d 414 ( 2012) ( premium                       assessments based on a finding of "worker"

status);   Probst       v.       Dep' t of Labor &       Indus.,     155 Wn. App. 908, 918, 230 P. 3d 271 ( 2010);

Dep' t of Labor &                Indus.   v.   Mitchell Bros. Truck Line, Inc.,         113 Wn. App. 700, 704, 54
                             3
P. 3d 711 ( 2002).                Accordingly, we hold that the APA, not RCW 51. 52. 115, determines

the superior court' s standard of review in an appeal of DLI' s assessments.


           Under the APA, the superior court applies a substantial evidence standard in


reviewing an agency' s findings of fact. RCW 34.05. 570( 3)( e) provides that the superior

court can grant relief               from      an   agency   order   if "[t]he   order is not supported by evidence

that is substantial when viewed in light of the whole record before the court."

Accordingly, we hold that the superior court properly applied a substantial evidence

standard in reviewing the Board' s findings of fact.




3
    B &R   cites   to Ruse   v. Department of Labor & Industries, 138 Wn.2d 1, 977 P. 2d 570 ( 1999)

and   Allison      v.   Department of Labor & Industries, 66 Wn.2d 263, 266, 401 P. 2d 982 ( 1965) for

the proposition that a trial court must apply a de' novo standard for all appeals from a final board
decision. The courts in Ruse and Allison both analyzed the standard of review arising from
RCW 51. 52. 115 in the context of cases involving workers' compensation benefits. Ruse, 138
Wn.2d at 6 -7; Allison, 66 Wn.2d at 267 -68. Neither case addressed a trial court' s standard of
review for premium and penalty assessment cases.
                                                                            5
45765 -2 -II



           2.     Appellate Review


           As noted above, the APA governs judicial review of the Board' s decision in an


industrial insurance      assessment case.        RCW 51. 48. 131; Xenith    Grp., 167 Wn. App. at

393. On appeal from the superior court, we sit in the same position as the superior court


and review the agency' s order based on the administrative record rather than the superior

court' s   decision. Xenith    Grp.,    167 Wn.    App. at   393.   An employer challenging the

validity of the agency action assessing industrial insurance premiums bears the burden of

showing that the       premiums were assessed         incorrectly. RCW     34. 05. 570( 1)(   a);   Jamison v.


Dep 't   of Labor &     Indus., 65 Wn. App. 125, 133, 827 P. 2d 1085 ( 1992).

           RCW 34. 05. 570( 3) sets out nine grounds for invalidating an administrative order.

Two    grounds are applicable        here: (   1) the agency' s order is not supported by substantial

evidence,       RCW 34. 05. 570( 3)(   e),   and ( 2) the agency erroneously interpreted or applied

the law. RCW 34. 05. 570( 3)( d).            We review the Board' s findings of fact under a


substantial evidence standard, which addresses whether the record contains evidence



sufficient to persuade a fair -minded, rational person of the finding' s truth. Xenith Grp.,

167 Wn. App. at 393. We review the Board' s legal conclusions de novo, but give

 substantial weight to the agency' s interpretation when the subject area falls within the

agency'    s area of expertise."     Mitchell Bros.,    113 Wn. App. at 704.

B. "        WORKERS" UNDER RCW 51. 08. 180


           B & R argues that the independent contractors were not " workers" under RCW 51. 08. 180,


which    defines "   worker" as: "     every person in this state who is engaged in the employment of or

who is working under an independent contract, the essence ofwhich is his or her personal labor


                                                             6
45765 -2 -II



for   an employer...." (            Emphasis added.) 4 B &R claims that the essence of the contractors'

contracts was not personal labor because the contractors could not perform the contracted work


without the use of expensive specialized tools and customized vans. We disagree.

            1.      Standard of Review


           The two other divisions of our court have applied different standards of review regarding

the determination of "worker" status under RCW 51. 08. 180. In Dana' s Housekeeping v.

Department of Labor & Industries, Division One                           of   this court stated that "[ w]hether the essence


of   the   work     is   personal   labor is   a   factual determination."         76 Wn. App. 600, 608, 886 P. 2d 1147

    1995). In Silliman v. Argus Services, Inc., Division Three of this court stated that whether


services constitute " personal labor" within the meaning of RCW 51. 08. 180 is a mixed question

of   law   and     fact: "[ w]hat services Argus provided is a question of fact; whether these services


constitute ` personal         labor'   within      the meaning     of    the   statute   is   a question of   law."    105 Wn. App.

232, 236, 19 P. 3d 428 ( 2001).                The court in Silliman did not mention Dana 's Housekeeping.

           This division has          not   squarely   addressed     this issue.'        We now apply the mixed question of

law and fact standard as articulated in Silliman. The nature of the contracts, what services the




4
    Former RCW 51. 08. 180( 1) ( 1991), which was in effect until June 11, 2008 and therefore
applied for part of the 2008 audit year at issue here, contained a nearly identical definition.

    The court in Dana' s Housekeeping cited to our decision in Jamison, 65 Wn. App. 125, to
support      its   standard of review statement.               Dana' s   Housekeeping, 76          Wn.   App.   at    608.   In
Jamison we stated without citation or analysis that the Board' s factual findings would be upheld
unless they were clearly erroneous, and seemed to treat the Board' s conclusion that the
contractors were " workers" as a factual finding. 65 Wn. App. at 131. We also touched on the
issue in Peter M Black Real Estate Co.                    v.   Department of Labor &              Industries, 70 Wn. App. 482,
487, 854 P. 2d 46 ( 1993).             But neither case expressly states whether the " worker" determination
is a question of fact or a question of law.

                                                                     7
45765 -2 -II




independent contractors provided, and other related issues are questions of fact that we review

for substantial evidence. But whether based on these facts the contractors are " workers"


involves the interpretation       of RCW    51. 08. 180.   Statutory interpretation is a question of law that

we review de novo. Jametsky v. Olsen, 179 Wn.2d 756, 761, 317 P. 3d 1003 ( 2014).

           2.    Essence of Independent Contracts


           Our Supreme Court adopted a test for whether a contract' s essence is personal labor in


White   v.   Department of Labor & Industries, 48 Wn.2d 470, 474, 294 P. 2d 650 ( 1956). The court


held that a contract' s essence is not personal labor if the contract was intended to cover an

independent contractor


             a) who must of necessity own or supply machinery or equipment ( as distinguished
           from the usual hand tools) to perform the contract ... , or ( b) who obviously could
           not perform   the   contract without assistance ... ,
                                                             or ( c) who of necessity or choice
           employs others to do all or part of the work he has contracted to perform.


Id. at 474. In analyzing these factors, we consider the contract, the work to be done, the

situation of the parties, and other attendant circumstances. Dana' s Housekeeping, 76

Wn. App. at 608. We focus on the realities of the situation rather than the technical

requirements of the test. Id.


           The issue here is the applicability of part ( a) of the White test. B &R argues for a strict

interpretation of the language in White. According to B &R, part (a) of the White test applies

here because the independent         contractors were required     to supply specialized equipment —not


just the   usual   hand tools —to perform the contract. We disagree, and we hold that a contractor


falls within the RCW 51. 08. 180 definition of "worker" if the primary object of the contract is to




                                                           8
45765 -2 -II




procure the contractor' s personal services rather than to procure the contractor' s specialized


equipment.




        Our interpretation of RCW 51. 08. 180 and part (a) of the White test is based on the


language of the statute, relevant case law, and the guiding policies of Washington' s industrial

insurance statute. Our analysis begins with the language of RCW 51. 08. 180, which states that


whether or not a contractor is a " worker" depends on the " essence" of the contract. This


language necessarily focuses our analysis on the primary object of the contract. A contractor is

not a " worker" if the contracting party' s primary object is to secure the use of specialized

equipment and the contractor is merely the operator of that equipment. But if the contracting

party' s primary object is to obtain the personal labor of a skilled contractor, the contractor is a

 worker" under RCW 51. 08. 180 even if the contractor must use specialized equipment in the


course of his or her performance of the personal labor.


        The facts of White are consistent with this interpretation. In White, the claimant and her


husband   owned     a " donkey   engine" — a specialized machine used   in   logging   operations —and




contracted with a timber mill to use the donkey engine to gather and stack felled timber. 48

Wn.2d at 475. The evidence established that the couple was retained to do the work because

they owned a donkey engine, and that they could not have performed the contract without the

donkey engine. Id. As a result, in White the primary object of the contract clearly was to secure

the use of the donkey engine, while the couple' s personal labor was a secondary object of the

contract —     to ensure the successful operation of the donkey engine. Under those circumstances

the couple' s personal labor was not the essence of the contract.




                                                     9
45765 -2 -II




            We adopted and applied this interpretation of RCW 51. 08. 180 in Lloyd' s of Yakima Floor

Center    v.   Department of Labor & Industries, 33 Wn.         App.    745, 662 P. 2d 391 ( 1982). That case


also involved floor covering installers, although their tools did not satisfy part (a) of the White

test because the trial court had made an unchallenged finding that they were classified as hand

tools. Lloyd' s, 33 Wn. App. at 750. The installers also were required to furnish a truck to

transport floor covering materials, but we held that such a truck was not the type of necessary

machinery       or equipment referred   to in White. Lloyd' s, 33 Wn.         App.   at   750 -51.    In addressing

this issue, we stated that part (a) of the White test was " concerned with those arrangements where


the machinery      and not   the labor is the primary    object of    the   agreement."     Lloyd' s, 33 Wn. App.

at 751. 6

            We followed Lloyd' s and focused on the primary object of the independent contract in

Jamison, 65 Wn. App. at 126. In Jamison, the issue was whether independent contractors hired

to fall and buck timber were " workers" under RCW 51. 08. 180. Id. One of the contractors

testified that he often used a " Cat tractor" to perform some of the work under his contract. Id. at

131.    We rejected the argument that use of the tractor meant that the contractor was not a


    worker" under part (a) of the White test, stating that the evidence supported the finding that the




6
    B &R attempts to distinguish Lloyd' s because the contractors here were required to guarantee
work,    indemnify    B &R,   and provide   insurance   above   the   required     bond. While B & R       correctly
notes    that the three carpet   layers in Lloyd' s   were not required      to   indemnify   their   employer,   B &R
does    not explain   why this is   significant under   the White test. Moreover, B & R does not explain

or cite to precedent that would require us to hold that the contract' s primary object was more
than personal labor based on these facts. As a result, we are unpersuaded by this attempt to
distinguish Lloyd' s.



                                                          10
45765 -2 -II




contractor' s labor and not the tractor was the primary object of the agreement. Jamison, 65 Wn.

App. at 131. 7

        Our interpretation is further supported by the legislative mandate that industrial insurance

statutes " shall be liberally construed for the purpose of reducing to a minimum the suffering and

economic    loss arising from injuries   and /or   death occurring in the   course of    employment."   RCW


51. 12. 010. To accomplish this legislative directive, our guiding principle in interpreting

industrial insurance provisions is to further the purpose of providing compensation to all persons

injured in their employment, with all doubts resolved in favor of the worker. Michaels v. CH2M

Hill, Inc., 171 Wn.2d 587, 598, 257 P. 3d 532 ( 2011). This means that we must liberally construe


RCW 51. 08. 180 and resolve any doubt in favor of finding that an independent contractor is a

 worker."



        Here, unlike in Lloyd' s, the evidence showed that the contractors needed more than " hand


tools" to perform their contracts. The contractors testified that they were required to use large

and expensive specialized equipment worth in the aggregate between $ 7, 000 and $ 20, 000.


        However, the evidence also was clear that the contractors' skilled, personal labor and not


the equipment was the primary object of the contracts. B &R did not enter into the contracts to

secure the use of specialized equipment like large vinyl rollers, power stretchers for carpet,


specialized saws with a diamond blade for cutting ceramic tile, or similar equipment. Instead, a

B &R   representative   testified that the business   relied on   the contractor' s   knowledge —i.e., their




7 Division One of this court used similar language in interpreting RCW 51. 08. 180, stating that a
contractor is a " worker" when the contractor' s " personal efforts constitute the main element in
accomplishing the   objects of   the   employment."
                                                        Dana' s Housekeeping, 76 Wn. App. at 607.

                                                       11
45765 -2 -II



learned   skills and experience —to     install several different types of floor coverings. In addition,


the work the contractors performed was very labor intensive requiring the skillful installation —

by hand —of various types of flooring materials. The tools were merely ancillary to the

contractors' performance of their skilled, personal labor.


          B &R also argues that part (a) of the White test applies because the contractor testified


that they needed customized vans, modified to carry long rolls of carpet and the necessary tools,

in order to do installations. We rejected a similar argument in Lloyd's, 33 Wn. App. at 750 -51.

As with the specialized equipment, securing the use of the contractors' vans clearly was not the

primary object of the independent contracts.

          Finally,   B &R   asserted at oral argument that the flooring contractors were providing

 professional services,"       and that as a matter of law professional services do not constitute


personal   labor   under    RCW 51. 08. 180. However, B & R      has not cited any authority for this

proposition, and nothing in RCW 51. 08. 180 or in the applicable case law suggests that a

contractor is not a " worker" if the personal labor he or she contracted to provide involves


 professional" skills. Accordingly, we reject B &R' s argument.

          We follow Lloyd' s and interpret RCW 51. 08. 180 as providing that an independent

contractor will be classified as a " worker" unless the primary object of the contract is the

specialized equipment.        Here, the primary   object of   the independent   contracts —the   essence of


those   contracts —was      the contractors' skilled, personal labor and not their specialized equipment.




                                                       12
45765 -2 -II




Therefore, we hold that B &R' s contractors constitute " workers" under RCW 51. 08. 180. 8

C.        EXCLUSION OF CERTAIN INDIVIDUALS


           RCW 51. 12. 020 excludes from mandatory IIA coverage sole proprietors, partners,

certain corporate officers, and certain managing members of LLCs (limited liability company).

RCW 51. 12. 020( 5), ( 8), ( 13).      B & R argues that because all of the independent contractors here


fall within one of these categories, they cannot qualify as " workers ".under the IIA. However,

B &R waived its RCW 51. 12. 020 argument because it failed to present that argument to the

Board.


          As   noted above, under      RCW 51. 48. 131 the          provisions of       the APA —and specifically



RCW 34. 05. 510 through 34. 05. 598 — govern industrial insurance assessment appeals. Under


RCW 34. 05. 554( 1),        issues that were not raised before the Board cannot be raised on appeal. 9

Our Supreme Court has          recognized      that "[   t] his rule is more than simply a technical rule of

appellate procedure; instead, it serves an important policy purpose in protecting the integrity of

administrative      decisionmaking [ sic]." King County v. Wash. State Boundary Review Bd. for

King County,        122 Wn.2d648, 668, 860 P. 2d 1024 ( 1993).                 The court recognized a number of




8B & R    argues   that for the   contractor   that   was a corporation ( Double          T   Flooring,   Inc.)   and

the   contractor    that   was an   LLC ( LT Carpet Works, LLC), the worker was the entity and
could only act through their officers, members, or agents. B &R therefore argues that
those entities could not and did not perform the contracts without assistance under parts
    b) and ( c) of the White test. However, as with the RCW 51. 12. 020 argument discussed
above,    B & R did not make this argument before the Board. As noted above, under RCW
34. 05. 554( 1) issues that were not raised before the agency cannot be raised on appeal.
Therefore,     we   do   not address   B & R' s argument that the corporate and LLC contractors
cannot be " workers" under the White test.

9
    RCW 34. 05. 554 does list four       exceptions       to this   rule,   but B & R   does not argue that any one of
the exceptions applies here.

                                                               13
45765 -2 -II




other purposes for the rule: discouraging the flouting of administrative processes, protecting

agency autonomy, aiding judicial review, and promoting judicial economy. Id. at 669.

          Here, B & R      did not argue that RCW 51. 12. 020 exempted its contractors from being

covered under the IIA at any time before the Board. It did not raise this issue or even reference

RCW 51. 12. 020 in its petition for review, statement of issues, prehearing brief, or reply brief.

And as a result, the Board did not rule on the legal merits of this argument or determine whether


any of the independent contractors were or were not exempt under RCW 51. 12. 020. Instead,

B &R first made this argument in its opening brief to the superior court. Accordingly, RCW

34. 05. 554 precludes us from addressing this argument on appeal. Kitsap Alliance ofProp.

Owners v. Cent. Puget Sound Growth Mgmt. Hr' gs Bd., 160 Wn. App. 250, 272, 255 P. 3d 696

2011).


          B &R argues that it did present the RCW 51. 12. 020 argument to the Board because the


Board' s Decision and Order contained section headings regarding " legal entities as [ w] orkers."

Appellant'     s   Reply   Br.   at   8. However, these sections addressed whether corporations and LLCs


could constitute workers, not whether corporate officers and LLC members were excluded from


mandatory IIA coverage under RCW 51. 12. 020. Further, there must be more than a hint or a

slight reference to an issue in the agency record to permit our review. King County, 122 Wn.2d

at 670.


          B &R cites to Maynard Investment Co., Inc. v. McCann, 77 Wn.2d 616, 621 -622, 465

P. 2d 657 ( 1970), for its        argument    that   we should still consider   this   argument   despite B & R' s


failure to raise it before the Board. The court in Maynard Investment stated that " the courts have

frequently recognized that error may be considered for the first time on appeal where the matter

                                                              14
45765 -2 -II




in   question affects   the   public   interest." 77 Wn.2d at 622. And there, because the issue


considered was contrary to the statute and against the policy of the State of Washington, our

Supreme Court permitted appellate review of the issue. Id. at 623.


          Maynard Investment is distinguishable because it does not address the review of an


agency decision under RCW 34. 05. 554. Our Supreme Court in King County expressly rejected a

an argument similar      to B & R' s    and distinguished Maynard Investment, holding that it was

required to apply RCW 34. 05. 554. King County, 122 Wn.2d at 670. As a result, the court

refused to consider an argument not raised before the agency even though it raised " issues of

serious public   importance." Id. at 668.


          We follow     King County      and   hold that B & R cannot make its RCW 51. 12. 020 argument on


appeal because it did not raise the argument before the Board. Therefore, we do not address this


argument.




          We affirm the Board and the superior court.




 We concur:




      HANSON, C.




 LtE,




                                                          15
