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Harris County Appraisal District v. Texas Workforce Commission

Supreme Court of Texas

May 12, 2017

Harris County Appraisal District, Petitioner,
Texas Workforce Commission, Respondent

          Argued March 23, 2017

         On Petition for Review from the Court of Appeals for the Fourteenth District of Texas

          Justice Guzman did not participate in the decision.

          Phil Johnson Justice

         In this case we consider whether several members of the Harris County Appraisal Review Board are, or were, employed by the Harris County Appraisal District under provisions of the Texas Unemployment Compensation Act such that when their terms of service ended or their workload was reduced, they became eligible for unemployment compensation benefits. The Texas Workforce Commission determined that they were. The district court disagreed and set the Commission's decisions aside. The court of appeals reversed.

         We affirm the judgment of the court of appeals.

          I. Background

         The Harris County Appraisal District (HCAD) is statutorily tasked with appraising property in Harris County for purposes of calculating ad valorem property taxes. Tex. Tax Code § 6.01(b). Taxpayers may contest HCAD's valuation decisions before the Harris County Appraisal Review Board, which is an administrative entity with statutory authority to modify property appraisal valuations. Id. § 41.01(a). Applicants for Board positions submit their applications through HCAD, and members of the Board are appointed to two-year terms by the local administrative law judge. Id. § 6.41(d-1), (e). The Board members are paid by the hour for the time they work, and the amount they work is determined by how many valuation decisions are contested. Id. § 6.42(c). Members may serve a maximum of three consecutive terms. Id. § 6.412(e).

         Several members of the Board served the maximum of three terms and then filed for unemployment compensation with the Texas Workforce Commission (TWC), alleging that they were last employed by HCAD. Several other members who were still serving on the Board, but whose hours had been reduced to the point that they were working only sporadically, also filed for benefits and indicated that HCAD was their employer. A total of fifteen persons[1] (collectively, claimants) filed claims. The TWC determined that each of the claims was valid and the claimants were entitled to compensation.

         HCAD appealed to the TWC appeal tribunal, claiming that there was not and never had been an employment relationship between the claimants and HCAD under the Texas Unemployment Compensation Act's (TUCA) definition of employment. The appeal tribunal upheld the TWC's determinations.

         HCAD then filed suits in the district court challenging the administrative determinations. The court consolidated the suits, and the parties filed competing motions for summary judgment. The TWC urged that HCAD was the claimants' last employer under section 201.041 of the Texas Labor Code and it correctly decided the claimants qualified for unemployment compensation. HCAD urged two grounds in its motion. First, it argued that the claimants fell within an exception in TUCA for members of the judiciary. Second, it argued that the Texas Tax Code does not permit appraisal districts to exercise control or direction over appraisal review boards, thus the claimants were not its employees.

         The district court denied the TWC's motion, granted HCAD's, and set aside the TWC's decisions awarding compensation. The TWC appealed.

         The court of appeals reversed and reinstated the TWC's determinations. 488 S.W.3d 843, 846 (Tex. App.-Houston [14th Dist.] 2016). The court first determined that because HCAD paid the claimants for their services, a presumption of employment arose under the Labor Code. Id. at 849 (citing Tex. Lab. Code § 201.041). It then determined that Board members were not subject to the members of the judiciary exemption in the Labor Code because the context of that statute indicates that the exemption should only reach members of the judiciary proper-i.e., judges-and not persons such as the claimants who engage in quasi-judicial functions. Id. at 850-51.

         The court also considered HCAD's argument that the Tax Code both prohibits it from exercising any control over the Board and prevents HCAD employees from serving on the Board. Id. at 853-55. The court held that the Tax Code provisions were relevant, but not conclusive, and that the employment analysis is a factual one entailing a twenty-factor test derived from the common law and adopted by the TWC. Id. at 853. The crux of this common law test is whether the claimants are subject to the control and direction of HCAD. Id. at 855. The court concluded that substantial evidence supported the TWC's determinations under the proper deferential standard of review as to several of the factors. Id. at 854.

         In this Court, HCAD reprises the arguments it made in the court of appeals. It first argues that the court of appeals erred by concluding that the claimants do not meet the Labor Code's definition of "members of the judiciary." See Tex. Lab. Code § 201.063(a). HCAD asserts that because Board members perform judicial functions, they substantively function as members of the judiciary. Additionally, HCAD argues that public policy supports this finding because Board members are expected to be neutral judges of property values. HCAD also argues that the court of appeals misinterpreted the relevant Tax Code provisions because the Legislature clearly forbids Board members from being employees of HCAD. Additionally, HCAD asserts that the TWC arbitrarily and unreasonably disregarded its own regulations in deciding that HCAD has a right to control Board members. Last, HCAD argues that the court of appeals misapplied the twenty-factor test for employment set out by the TWC's regulation because neither evidence nor a presumption reasonably supports the TWC's determinations that Board members are employees of HCAD.

         In response, the TWC argues that the court of appeals was correct in affirming the TWC's determinations because substantial evidence supports the TWC's decisions. It maintains that Board members do not qualify as members of the judiciary and thus are not excepted from entitlement to unemployment compensation. Furthermore, the TWC argues the Tax Code provisions HCAD cites do not override, or even contradict, TUCA's own definition of "employment."

         II. Standard of Review

         A trial court reviews the TWC's decision regarding unemployment benefits by trial de novo to determine whether substantial evidence supports the TWC's ruling. Tex. Lab. Code § 212.202(a); Collingsworth Gen. Hosp. v. Hunnicutt, 988 S.W.2d 706, 708 (Tex. 1998). Trial de novo of a TWC ruling "requires the court to determine whether there is substantial evidence to support the ruling of the agency, but the reviewing court must look to the evidence presented in trial and not the record created by the agency." Mercer v. Ross, 701 S.W.2d 830, 831 (Tex. 1986). The TWC's unemployment compensation decisions enjoy a presumption of validity, and the party seeking to set aside such a decision has the burden of showing that the decision is not supported by substantial evidence-that is, it is not supported by more than a scintilla of evidence. City of Dallas v. Stewart, 361 S.W.3d 562, 566 (Tex. 2012). A trial court may not set aside a TWC decision merely because it would have reached a different conclusion; rather, the court may do so only "if it finds that the [TWC's] decision was made without regard to the law or the facts and therefore was unreasonable, arbitrary, or capricious." Collingsworth Gen. Hosp., 988 S.W.2d at 708. This methodology was purposefully designed by the Legislature so that agency decisions are afforded "significant deference, " and a court is not allowed "to substitute its judgment for that of the agency." See Stewart, 361 S.W.3d at 566 (quoting R.R. Comm'n v. Torch Operating Co., 912 S.W.2d 790, 792 (Tex. 1995)). On appeal from summary judgment affirming the TWC's decision, we conduct a de novo review of the summary judgment evidence to determine whether, as a matter of law, substantial evidence supports the TWC's decision. See Mercer, 701 S.W.2d at 831.

         In statutory construction matters, our review is de novo, although "an agency's interpretation of a statute it is charged with enforcing is entitled to 'serious consideration.'" R.R. Comm'n v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011). Under this serious consideration inquiry, we generally uphold an agency's interpretation of a statute, "so long as the construction is reasonable and does not conflict with the statute's plain language." Id. at 625.

         III. Analysis

         A. The Unemployment Compensation Act

         TUCA grants certain benefits to individuals who become either totally or partially unemployed. Tex. Lab. Code §§ 207.002-.003. Benefits are determined based on wages a claimant received as an employee. Id. Therefore, the key focus under TUCA is whether a claimant can establish that he or she was in an employment relationship with an employer. TUCA defines "employment" as

a service . . . performed by an individual for wages or under an express or implied contract of hire, unless it is shown to the satisfaction of the commission that the individual's performance of the service has been and will continue to be free from control or direction under the contract and in fact.

Id. § 201.041. A presumption of employment arises upon a showing that an individual is paid for performing services. See id. This presumption is rebutted only if the alleged employer carries its burden of showing that the individual's service is "free from control or direction under the contract and in fact." See id.

         The TWC has adopted a regulation setting out guiding principles to assist with the employment determination. 40 Tex. Admin. Code § 821.5. The regulation incorporates the common law test: "a worker is an employee if the purchaser of that worker's service has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done." Id. Control does not have to "actually be exercised; rather, if the service recipient has the right to control, employment may be shown." Id. The regulation then sets out twenty factors as guidance for determining whether a worker qualifies as an employee for purposes of unemployment benefits. Id. Not all of the twenty factors will necessarily apply in every inquiry. Id. The weight assigned to a specific factor will vary depending on the facts of each case. Id.

         B. "Control"

         HCAD argues that the TWC arbitrarily and unreasonably disregarded its own regulation and asserts that the TWC's position-that HCAD need not control the decisions themselves, but only the means by which decisions were issued-ignores the regulation's plain language. HCAD further argues that Board members are part of an independent decision-making body, and HCAD has no right or ability to control their decisions. Thus, at the outset, we must determine the meaning of "control" in the context of TUCA, and whether the TWC arbitrarily and unreasonably ignored its own regulation.

         If an agency does not follow the clear, unambiguous language of its own regulation in making a decision, the agency's action is arbitrary and capricious and will be reversed. Tex. Indus. Energy Consumers v. CenterPoint Energy Hous. Elec., LLC, 324 S.W.3d 95, 104 (Tex. 2010). Under the TWC's regulation:

a worker is an employee if the purchaser of that worker's service has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done. Control need not actually be exercised; rather, if the service recipient has the right to control, employment may be shown.

40 Tex. Admin. Code § 821.5.

         Both section 201.041 of the Labor Code and the TWC's regulation require that a worker's performance be controlled, or subject to control, in order for a worker to qualify as an employee. See id.; Tex. Lab. Code § 201.041. While HCAD does not, and cannot, control the content or result of any decision the Board makes, controlling the outcome of a worker's decisions is not the test. See Tex. Tax Code § 42.02 (providing that if an appraisal district disagrees with a decision by the appraisal review board, its recourse is to appeal the decision to the district court). Rather, the test the TWC adopted looks at twenty different factors to determine whether, on balance, the purchaser of the worker's service "has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done." 40 Tex. Admin. Code § 821.5.

         Indeed, this Court has expressly recognized that control of the content of a worker's decision is not a necessary element in establishing employment status. In Murk v. Scheele, we determined whether a physician was an employee of a hospital for purposes of the Texas Tort Claims Act. 120 S.W.3d 865, 866 (Tex. 2003). Although the definition of "employee" in the Tort Claims Act does not track the language of TUCA exactly, the wording of the control element is very similar. Under the Tort Claims Act, "'Employee' means a person, . . . who is in the paid service of a governmental unit, but does not include . . . a person who performs tasks the details of which the governmental unit does not have the legal right to control." See id. (emphasis added) (quoting Tex. Civ. Prac. & Rem. Code ยง 101.001(2)). After determining that the physician was in the paid service of the governmental unit, we concluded that he was an ...

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