Employee v. Independent Contractor: Pitfalls of Misclassification (Part 1)

Hey everyone!  I hope you like this picture I took today at the "Reiterstadion" in Hannover, Germany. The yellow building (pictured) is a barn within the Hannover city limits that was built at the turn of the century for the Germany cavalry. Now it's a boarding and training stable surrounded by indoor and outdoor arenas plus a small cross-country course.

For today we have a guest post by employment law specialist Russell Cawyer, publisher of Texas Employment Law Update.  Enjoy! 

"Owning and operating a horse operation requires a lot labor. Owners use a variety of types of personal services. Improperly classifying these workers as independent contractors instead of employees can have a variety of adverse consequences. Potential liability that can result from misclassification include:

1)  Potential tax exposure from federal and state taxing authorities (i.e., unemployment tax, FICA, FUTA);

2)  Exclusion from certain insurance policies depending on the kind of coverage provided;

3)  Claims that misclassified contractors should be entitled to participate in employer benefit plans covering employees (e.g., stock option plans, health and benefit plans);

4)  Claims that misclassified contractors are entitled to overtime compensation.

Moreover, the likelihood of a misclassification mistake being discovered has increased as state workforce divisions, the U.S. Department of Labor and IRS are now coordinating their resources to catch employers that have misclassified workers. In Part 2 of this post I’ll outline the test that is used by Texas courts in determining whether a workers is an independent contractor or an employee."

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Performance Horse Breeders Win in Tax Court

Guten Tag aus Hannover, Germany, dear Equine Law Blog readers!

For the first time since the Equine Law Blog's inception in early 2008, we are broadcasting "live" from a location outside the United States!  Speaking of the United States, this update is to let you know about the good news found in the U.S. Tax Court decision Blackwell v. Commissioner, decided on August 8, 2011. 

Minnesota performance horse breeders Mark and Patti Blackwell of Fresh Horses Farm stood up to our dear Uncle Sam and they prevailed in a hobby loss case! 

See this related post for more details on why this win is significant.

Why the Blackwells won, in a nutshell [according to the opinion]:

--They developed a "rather comprehensive" written business plan;

 --They prepared to start up the breeding and training activity by taking educational courses and consulting experts;

 --They were not "absentee, aloof, or recreational" horse owners;

 --They made adjustments, as necessary, in their business plan and activities in an effort to make a profit;

--They maintained reasonably good books & records of income and expenses related to their horse activity.

My take aways:  Keep good business records and a written business plan; do as much as you can yourself so that you're not "absentee" or "aloof"; do research and consult experts as to how you might make a profit int he horse business and change things up if you find that the business plan is not working out.

About the picture Before I head to the great horse shows at Luhmühlen and Augsburg, I am staying a couple of days with my former host parents from my days as a Rotary Youth Exchange student (Eberhard and Renate Nickel).  Eberhard Nickel [pictured, on the way to the courthouse this morning] is a German attorney who specializes in construction law and public finance law.  The lawyers in Germany still wear robes to court [but I'm told they never wore wigs].

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Equine Law Blog to Broadcast Live from Germany

Auf Wiedersehen und bis bald! 

As you are reading this post, I'm probably at DFW airport getting ready to board a 10 hour Lufthansa flight bound for Deutschland. 

That means that--Lord willing and the creek don't rise--the Equine Law Blog will be broadcasting live from Germany during the weeks of August 22 and August 29!  

While in Germany, I plan on spending some time at the Luhmühlen Horse Trials (i.e. HSBC European Eventing Championships) as well as the Americana Horse Show in Augsburg. 

If any of you dear readers of the Equine Law Blog will be in the Hannover or Augsburg area in the next two weeks, give me a heads up because I would love to get together! 

While we're on the topic of international horse events, this page from Nedpoint Quarter Horses in Pauls Valley, Oklahoma has some great info on the import/export of horses between Europe and this area of the world.

Have a great Thursday, a great weekend, and I'll look forward to updating you on interesting equine law topics from the temperate climes [read highs in the mid 70's] of beautiful Germany.  

 

     Mary King, Luhmühlen 2010, Fence 27a, "boat at the quay"

Caveat Emptor: $123k Horse Trailer Purchase Goes Very, Very Wrong

Thinking about borrowing over $123,000 to buy a living quarters horse trailer? The case of John Michael Blake and Keith Blake v. GE Money Bank is an illustration of all the reasons you should do due diligence before you drop that kind of cash on a horse trailer.

John Michael and Keith Blake borrowed $123,173.16 from GE Money Bank to buy a horse trailer from a dealer called Southwestern Conversions. According to court filings, the dealer prepared a lien and application for title, but never actually applied for the title or license plate on the trailer.  John Michael and Keith allege they found out their title had not been properly secured, and advised GE Money Bank of this fact.  According to the Blakes, GE Money Bank said they were working out those issues with the dealer and not to worry.

About nine months later, the Blakes decided to sell the trailer through Southwestern Conversions, the same dealer they had bought the trailer from (and the same one who seemed to have botched the title application...). The trailer sold for $60,000 (a considerable loss, so it seems), but Southwetern Conversions apparently kept the $60,000 it received for the Blakes' trailer, then filed for bankruptcy. 

Today there are some ads for trailers for sale on HorseClicks.com from Southwestern Conversions, but all of them say "Status: Unavailable".  I did find a good customer review of Southwestern Coversions from 2008 online.

The Blakes never got title to the trailer and it was now gone and they still owed payments on it to GE Money Bank.  And they had been making all their payments on time before they sold the trailer.  What a mess.  The Blakes sued GE Money Bank after the bank failed to credit their loan for the $60,000, alleging that the bank didn’t properly assist them in securing title. 

Without doing a lot of research, I can't report the current status of this case.  I can say that it was pending in the Western District of Texas (federal court in Texas) under Cause No. AS-10-CV-860-XR, but my review of the docket on PACER indicates that United States District Judge Xavier Rodriguez ordered the case remanded to the 38th District Court of Medina County, Texas on June 27, 2011. 

Hat tip to Krysia Nelson at Equine Law & Business Letter for noticing this case first.

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Bleg: ABA Best 100 Law Blogs Seeks Nominations

A shameless bleg: but I will be brief.

The ABA Journal is compiling its annual list of the 100 best law blogs (i.e. “Blawgs”) and is seeking nominations for 2011.  Inclusion on the list is prestigious and is something that most prolific law bloggers (myself included) hope to achieve. 

If you like the Equine Law Blog, and if you have the inclination, please nominate this blog for the Blawg 100 list.  You can access the on-line ABA Journal nomination form to nominate the Equine Law Blog here.

The deadline for nominations is September 9, 2011. 

Thanks for reading the Equine Law Blog and pardon the bleg!

 

DOT Says it Will Not Adopt Regulation Requiring CDL for Farmers & Ranchers

Over the past few weeks, many agriculture associations have expressed concern that the US Department of Transportation (DOT) had proposed a regulation that would require farmers and ranchers to get a commercial driver's license (CDL) in order to, for example, drive tractors on public roads or haul livestock on public roads with a truck/trailer combo exceeding 26,000 pounds.

Ohio Agricultural Law Blog and Brownfield Ag News reported earlier this week that the stories concerning the pending DOT regulation were just “rumors” and that the DOT never proposed a law requiring farmers and ranchers to get a CDL. 

I researched this issue breifely and so far have not been able to locate a copy of any proposed DOT rule on the agricultural CDL topic.  If you have a copy, please let me know.   Regardless of whether or not a rule was actually proposed or pending, my research indicates that the DOT clearly did ask for public comment on the subject of whether current CDL agricultural exemptions existing under state law were appropriate. 

The DOT's request for public comment, Docket No. FMCSA-2011-0146, can be found here.    

According to several stories, the public had until the extended deadline of  August 1, 2011 to submit comments to the DOT on this issue. According to DOT, the agency received about 1,700 comments from the agricultural community and members of Congress. 

According to this DOT press release from August 10, 2011:

No regulations will be proposed for any new safety requirements or changes to the rules governing the transport of agricultural products, farm machinery, or farm supplies to or from a farm.”

Regardless of whether the proposed CDL regulation was just a rumor, this news is certainly a relief for Texas farmers and ranchers as well as horse owners who pull large horse or stock trailers.

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Time to Get New Warning Signs: Equine Activity Act Amended in 2011

As of June 17, 2011, the Texas Equine Activity Limitation of Liability Act was amended to include most common farm and livestock animals. The new Act will now be called the “Texas Farm Animal Limitation of Liability Act.”

In short, the immunities related to damages arising from horse activities found in Chapter 87 of the Texas Civil Practice & Remedies Code [formerly referred to as the “Texas Equine Activity Limitation of Liability Act”] now apply to all “farm animals”. A “farm animal” includes: an equine animal, a bovine animal, a sheep or goat, a pig or hog, a ratite [which, in case you have never heard of a “ratite”, includes an ostrich, rhea or emu], and a chicken or other fowl. 

The 82nd Texas Legislature [regular session] adopted amendments to the former Texas Equine Limitation of Liability Act through Senate Bill 479, the text of which can be found here. While most statutory amendments and new laws from the 2011 legislative session will not be effective until September 1, 2011, the amendments to the Act became effective “immediately” upon the requisite 2/3 vote in the Texas House on June 17, 2011.

The amended statute only applies to causes of action that accrue on or after June 17, 2011. 

Notable amendments to the Act include:

  • “Farm Animal Activities” now include rodeos, “events” in general, and “handling, loading, or unloading” a farm animal;
  • Providers of veterinarian and farrier services are now included in the definition of “Farm Animal Professional” ; and
  • The Chapter 87 warning sign language that is now required to be posted by “Farm Animal Professionals” is as follows:

WARNING: UNDER TEXAS LAW (CHAPTER 87, CIVIL PRACTICE & REMEDIES CODE) A FARM ANIMAL PROFESSIONAL IS NOT LIABLE FOR AN INJURY TO OR THE DEATH OF A PARTICIPANT IN FARM ANIMAL ACTIVITIES RESULTING FROM THE INHERENT RISKS OF FARM ANIMAL ACTIVITIES.

“Farm Animal Professionals” should post new warning signs containing the updated version of the Act’s warning language. See the link above to the newly-adopted language for the warning sign language and provide same to whomever you have make new signs for your property. It will probably be a while before signs containing the updated warning language will be mass-produced and sold at places like Tractor Supply Co., feed stores, et cetera.

Related Post: Victory for Texas Horse Industry in Texas Supreme Court

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Federal Judge Denies Claims for Lost Profits on Gelded Race Horse

The Honorable Kenneth M. Hoyt, district judge for the Southern District of Texas, rejected claims for lost profits brought by Jim Simpson, Ken Ridenour, and Mel Karr arising from injuries allegedly sustained by “Jess for th Memories” [sic], an AQHA race horse they co-owed.

Like many race horses, Jess received maintenance joint and suspensory injections. After receiving a couple of rounds of injections in his hind and fore limbs in 2009, Jess broke his maiden as a 3-year-old at Sam Houston Race Park.   Here is the story on Jess's win.  About a month after Jess broke his maiden, Dr. Tom Hays at Elgin Veterinary Clinic observed problems in Jess’s stifles and could not rehabilitate him. Jess was no longer able to race. Judging from the pleadings in the case, Jess was gelded at some point after he won his race at Sam Houston.

Jess’s owners sued Louisiana-based Baronne Veterinary Clinic, Inc. They alleged that Dr. Ed Baronne was negligent and failed to meet the standard of care when he performed joint injections on Jess, allegedly resulting in “debilitating joint infections.” Baronne filed a motion for summary judgment in the case.

In his Memorandum Opinion and Order on Baronne’s motion, Judge Hoyt allowed the plaintiffs’ negligence claim to move forward, but dismissed the plaintiffs’ gross negligence and lost potential profits claims, stating,

Texas law does not allow an injured animal’s owner to recover the animal’s lost potential profits…Rather, a plaintiff’s recovery is limited to the difference in the animal’s market value immediately before and after any injury alleged to have been caused by the defendant.

* * *

The plaintiffs seek to recover speculative lost profits for a gelded race horse, and that horse’s potential profits are far too uncertain to be recoverableHorse racing is considered gambling for a reason."

[Emphasis added, citations omitted]. 

The case settled shortly after Judge Hoyt’s opinion was issued, resulting in its agreed dismissal on April 1, 2011. 

Case info: Simpson et al v Baronne Veterinary Clinic, Inc., No. 10-CV-03032, filed Dec. 21, 2009 in the U.S. District Court for the Southern District of Texas.

Hat tip to Krysia Nelson at Equine Law & Business Letter for noticing this case first.

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Coming Soon: The Equine Law Blog Gets a Makeover

The Equine Law Blog has had the same look since February 2008, and three-and-a-half years later it’s time for a change. On Monday morning (August 8), the Equine Law Blog will reveal its sleeker, more beautiful self. Nothing too dramatic, but hopefully the new look will be a bit easier on your eyes.

Tags:

Texas Attorney General Opinion on Lone Star Sale a Little Late

This entry was updated and revised on August 9, 2011. 

On December 10 2010, Rolando B. Pablos, Chair of the Texas Racing Commission (TRC) sent a written request for an opinion to Attorney General Greg Abbott on whether or not the Texas residency requirements found in the Texas Racing Act concerning race track licenses in Texas were unconstitutional. 

The sale referenced in the request letter was undoubtedly the October 2009 winning bid of $47.8 million on Lone Star Park by Global Gaming LSP, LLC (i.e. the Chickasaw Nation of Ardmore, Oklahoma), which was approved by a Delaware bankruptcy court in October 2009. It was taking the TRC forever to approve the Chickasaws' purchase of Lone Star, and people were getting nervous.  For reasons unknown to me, TRC waited over 1 year after the bankruptcy court's approval of the winning bid to inquire of the Attorney General questions regarding the constitutionality of the Racing Act's residency requirements.

In his request letter, Mr. Pablos implored the Attorney General’s office to provide an opinion before February 15, 2011, which was the date of the next Meeting of the TRC. Presumably tired of waiting on the Attorney General, the TRC went ahead and approved the sale of Lone Star to the Chickasaw Nation at its meeting on May 13, 2011.  The TRC determined that Global Gaming met the Texas Racing Act's residency requirements, regardless of whether those requirements are constitutional or not. 

The Attorney General Opinion was just released this Monday on August 1, 2011. A copy can be found here, but it sheds no light on whether the Racing Act's residency requirements are constitutional.  Basically, the Attorney General stated that he could not provide an opinion because doing so would involve answering questions of fact, which the AG cannot do.

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Note:  I would like to thank the Texas Racing Commission for reading the republication of this entry in Horseback Magazine's online publication and pointing out some items that may warrant clarification.  I would like to clarify that the Attorney General is a statewide elected official and is not appointed by the Governor.  The TRC commissioners are appointed by the Governor with the advice and consent of the Senate, but are responsible for their own decisisions and exercise independent judgment in addressing the issues that come before the Commission. 

Nothing in the blog entry that went live on August 4, 2011 was intended to imply that there is any question as to the legality of the sale of Lone Star Park to Global Gaming or the TRC's approval of Global Gaming's license.  

NCHA Litigation Update: NCHA Wins Again

On July 28, 2011, the Fort Worth Court of Appeals affirmed the entire judgment in favor of the National Cutting Horse Association in the Paula Gaughan lawsuit. A copy of the Gaughan opinion can be found here. [Note: Westlaw has labeled this case, in error, as a Waco Court of Appeals case. The opinion was issued by the Fort Worth Court of Appeals].

Gaughan Recap: The Gaughan case stemmed from Paula Gaughan’s written requests to NCHA to inspect certain financial data found in the books and records of the NCHA. Gaughan sought the records to make sure the NCHA was “not guilty of waste or mismanagement in its financial affairs and in the administration of the NCHA’s business.” The NCHA produced 89,214 pages of documents to Gaughan under a protective order, but designated 36,556 of those pages as confidential. Gaughan wanted to share all of the documents with other NCHA members, which was one of the points of contention in the case.

A fellow by the name of Dean Sanders was also originally a plaintiff in the case, but he later dropped out. In November 2009, the 67th District Court in Fort Worth granted a motion for summary judgment in favor of the NCHA and ordered Gaughan and Sanders [even though he had dropped out of the case] to pay NCHA’s attorneys’ fees in the amount of $75,000 [NCHA had asked for $84,243].

Both Gaughan and the NCHA have issued public statements about the July 28, 2011 appellate opinion affirming the judgment, and they can be found here.

The Gaughan appellate decision comes on the heels of Lainie Whitmire’s May 13, 2011 appeal of the trial court’s surprising judgment in her case against the NCHA.

Whitmire Recap: In January 2011, the Whitmire case was tried to a jury in the 236th District Court of Tarrant County (Judge Tom Lowe, presiding). The jury found that NCHA officials “falsely imprisoned” Lainie Whitmire during the 2004 NCHA Futurity. According to Whitmire, they had taken her to a room at the Will Rogers Coliseum and allegedly not allowed her to leave while questioning her about her amateur status. The jury also determined that the NCHA breached an oral agreement with Whitmire leading her to believe her suspended NCHA membership and Amateur or Non-Pro status would be restored. The jury awarded no monetary damages on the false imprisonment claim, but it awarded Whitmire $70,000 in mental anguish damages against the NCHA on the claim related to the oral agreement.

In a turn of events that was shocking to many who were following the Whitmire case, the final judgment signed by Judge Lowe on April 15, 2011 overturned the jury verdict and ordered the Whitmires to pay the NCHA $347,000 in attorneys’ fees and court costs. The parties had spent four years and more than $1.6 million in attorneys’ fees and court costs in the Whitmire matter.

Whitmire appealed the case to the Fort Worth Court of Appeals on May 13, 2011. The parties have until August 15 to submit briefs to the court. For more information, see this article in the Quarter Horse News.

Stay tuned for more developments on the Whitmire appeal as they unfold. 

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