                                                 No.   89-72

                    I N THE SUPREME COURT O F T H E S T A T E O F MONTANA

                                                    1989



S T A T E COMPENSATION INSURANCE FUND,

                      Appellant,
          -vs-

SKY COUNTRY, I N C . ,

                      Respondent.


                                                                                                0   5     r0
A P P E A L FROM:     The Workers' Compensation Court,                        The ~onorabg i w t h y
                                                                                          T
                      R e a r d o n , Judge p r e s i d i n g .

COUNSEL O F RECORD:

          For A p p e l l a n t :

                      C h a r l e s Adams,     State Comp.          I n s . Fund, H e l e n a ,
                      Montana

          For R e s p o n d e n t :

                      John P. A t k i n s ; B r y a n      & Atkins,        Bozeman,       Montana

          For A m i c u s C u r i a e :

                      Hon. M a r c R a c i c o t , A t t o r n e y G e n e r a l , H e l e n a , M o n t a n a
                      C l a y R. S m i t h , S o l i c i t o r , H e l e n a , M o n t a n a



                                                    S u b m i t t e d on B r i e f s :   Aug.     31, 1 9 8 9
                                                        Decided:          O c t o b e r 17, 1989

Filed:
Justice John Conway Harrison delivered the Opinion of the
Court.

      This appeal results from a lengthy administrative
process which culminated in the Workers' Compensation Court.
Respondent Sky Country, Inc., a Bozeman trucking firm,
contested a finding by the Audit Bureau of the Department of
Labor and Industry concluding that several of its drivers
classified as "independent contractors" were actually
"employees" for Workers' Compensation insurance purposes.
Further administrative proceedings affirmed the Audit
findings, and Sky Country sought judicial relief in the
Workers' Compensation Court. The Workers' Compensation Court
held that Sky Country had been denied due process of law
because the Division of Workers' Compensation was the real
party in interest as well as the prosecutor and adjudicator
in    the   administrative    process    and    reversed    the
administrator's decision.     From that decision, the State
Compensation Insurance Fund appeals.
      Sky Country is insured by the State Compensation Fund
under Plan No. 3 of the Workers' Compensation Act, as
prescribed in S 39-71-2301, et s q , MCA.
                                    e.             Following a
February 1986 audit, the Department of Labor and Industry
concluded that, for purposes of reporting for workers'
compensation and unemployment insurance, certain individuals
were employees rather than independent contractors. Because
the workers were reclassified as employees, it was determined
that Sky Country owed an additional $2,907.59 for premium
underpayment for its workers' compensation insurance from
July 1, 1984 through June 30, 1985.
      In   September   1986,    Sky   Country    requested   an
administrative review of the audit determination.          Upon
review, which     included   an   informal    conference, the
administrator of the Division of Workers' Compensation agreed
with the audit finding that the individuals were employees
rather than independent contractors.
      Sky Country next initiated contested case proceedings
under the Montana Administrative Procedure Act, found at
Title 2, Chapter 4, Part 6, MCA. In May 1987, an evidentiary
hearing was held before Steven Shapiro, a hearing examiner
and chief legal counsel for the Workers' Compensation
Division.    Shapiro's findings were also adverse to Sky
Country.   The administrator of the Division of Workers'
Compensation issued the Division's Final Order which adopted
the hearing examiner's proposed decision.
      Sky Country then sought relief in the Workers'
Compensation Court, filing a Petition for Appeal in
September, 1988. Of the various grounds for reversal, Sky
Country's assertion that it was denied due process because
the Workers' Compensation Administrator's decision was
"tainted   by    the    pecuniary  interest   the   [Workers1
Compensation] Division has in the outcome" persuaded the
Workers' Compensation Court. The Workers' Compensation Court
reversed, holding that Sky Country had been denied due
process of law in violation of Article 11, Section 17, Mont.
Const. (1972) "because the Division of Workers' Compensation
is the real party in interest...    as well as the prosecutor
and adjudicator [ . I "    The Workers' Compensation Court
explicitly noted that there was no evidence that either the
hearing examiner or the Workers' Compensation Administrator
exhibited "any improper, arbitrary conduct in the hearing and
decision-making process."
      The issues presented by the parties to this action
focus on whether Article 11, Section 17 of the Montana
Constitution barred the Division of Workers' Compensation
from assuming jurisdiction of the underlying dispute
concerning the employment status of the individuals working
for Sky Country. Through an amicus curiae brief, the Montana
Attorney General proffers a second, and we think more
compelling, issue: Does 5 39-71-415, MCA, require that the
administrative proceeding be transferred from the Division of
Workers' Compensation to the Appeals Bureau of the Department
of Labor and Industry as of July 1, 1987, thereby denying the
Workers' Compensation Court jurisdiction to determine the
appeal from such proceeding?
      Although the controversy over the status of Sky
Country's workers arose before the effective date of
$ 39-71-415, MCA, the statute nonetheless applies to this
dispute. Section 39-71-415, MCA, which became effective on
July 1, 1987, provides a procedure for resolving disputes
regarding    independent    contractor  status.       Section
39-71-415 (I), MCA, states:

           (1) If an individual, employer, or
           insurer has a dispute as to whether an
           individual is an independent contractor
           or an employee as defined in this
                         -
           chapter, any party may petition a
           department of labor and industry appeals
           referee for resolution of the dispute in
           accordance with 39-51-1109 and may appeal
           from a decision of the appeals referee in
           the   same manner     as prescribed    in
           39-51-2403 and 39-51-2404.
      The legislative intent is to create a single
administrative procedure for settling disputes over the
status of workers as employees or independent contractors for
both unemployment compensation and workers' compensation
purposes.   February 17, 1987, Minutes of Senate Labor and
Employment Relations Committee at 1-4; March 13, 1987,
Minutes of House Business and Labor Committee at 2-3. Sky
Country's quarrel with the audit finding that its workers
were employees for insurance purposes fits squarely within
the intent of 5 39-71-415, MCA.
      Section 1-2-109, MCA, provides that "[nlo law contained
in any of the statutes of Montana is retroactive unless
expressly so declared."    New legislation, such as in this
case, which affects only procedural matters and does not
relate to substantive rights of the parties does not fall
within the ambit of § 1-2-109, MCA. Weiss v. State (1986),
219 Mont. 447, 449, 712 P.2d 1315, 1316.
      The status of a worker as to whether he is an
independent contractor or an employee implicates more than
just collection of workers' compensation premiums.    It also
involves the rights of the State to collect unemployment
compensation contributions and has other State and Federal
implications. Accordingly, a procedure before the Department
of Labor was established by the legislature for a more
comprehensive examination of the status of such workers. We
conclude this is the appropriate procedure to follow.
      We now remand and direct the controversy be resolved in
accordance with the provisions of S 39-71-415, MCA.      This
matter is remanded to the Workers' Compensation Court which
shall vacate its order and dismiss the appeal. The Division
of Workers' Compensation shall then vacate its final order
and transfer the matter to the Department of Labor and
Industry for disposition, in accordance with 55 39-71-415 and
39-51-1109, MCA, consistent with this opinion.
W e concur:      A

  ief Justice'




Justices
