BRUCE PETER, Employee/Appellant, v. VOLT INFO. SCIENCES and HARTFORD SPEC. RISK SERVS, Employer-Insurer.

WORKERS= COMPENSATION COURT OF APPEALS

MAY 26, 2004

HEADNOTES

WAGES - ALLOWANCES; STATUTES CONSTRUED - MINN. STAT. ' 176.011, SUBD. 3.  Where the compensation judge properly concluded that the employee=s equipment rental agreement with the employer was not Apart of the wage contract,@ as would be required under Minn. Stat. ' 176.011, subd. 3, for its proceeds to be included in the employee=s weekly wage, the compensation judge=s decision to exclude from the employee=s weekly wage the amount paid weekly to the employee pursuant to his separate equipment rental agreement with the employer was affirmed.

Affirmed.

Determined by: Pederson, J., Johnson, C. J., and Stofferahn, J.

Compensation: Judge Gary P. Mesna

Attorneys: Brian A. Thompson, Katz, Manka, Teplinsky, Due & Sobol, Minneapolis, MN, for the Appellant.  John H. Guthmann, Hansen, Dordell, Bradt, Odlaug & Bradt, St. Paul, MN, for the Respondents.

OPINION

WILLIAM R. PEDERSON, Judge

The employee appeals from the compensation judge's decision to exclude from his weekly wage a $10.00 per hour rental fee paid to the employee by the employer for the employee=s use of his own vehicle and tools in his employment.  We affirm.

BACKGROUND

On June 3, 2000, Bruce Peter sustained an admitted work-related injury to his cervical spine and left shoulder in the course of his employment as a telephone repair technician, or Asplicer,@ with Volt Information Sciences, for whom he had worked for fewer than six weeks.  Mr. Peter [the employee] was fifty years old at the time and was subject to an employment contract under which he was paid $14.00 an hour for his work and, under a separate rental agreement, $10.00 an hour for use of his own truck and tools.  Under terms of the latter agreement, Volt Information Sciences [the employer] had reserved the right to Achange this arrangement and cease to pay you for your truck and tools and provide you with Volt equipment and vehicles [a]t any time, in its absolute discretion.@  The agreement had further provided that A[a]mounts paid to you for the use of your truck and tools will be treated as rental income to you for tax purposes and will be reported on a Form 1099 after the end of the year.@  On the date of his work injury, the employee had been paid $2,780.00 in truck and tool rental payments.  The employer and its insurer acknowledged liability for the June 3, 2000, injury and commenced payment of benefits.

By February 21, 2002, about twenty-one months after the employee=s work injury, the employer and its insurer had evidently paid the employee a total of $48,376.25 in wage replacement benefits, based on an average hourly wage of $24.00.  On that date, the insurer informed the employee that his average weekly wage had been miscalculated, to the extent that it included the $10.00-an-hour tool and truck rental payment, and that, as permitted under Minn. Stat. ' 176.179, it would be withholding 20% of any future workers= compensation benefits until such time as it had recouped a total of $13,155.66 that it contended had been overpaid to the employee as a result of the miscalculation.  The employee subsequently, on May 13, 2002, filed a claim petition alleging an underpayment of wage loss benefits for various benefits periods, apparently based on the employer=s position regarding the alleged overpayment.

The matter came on for hearing on September 18, 2003.  The sole issue at hearing was whether income that the employee had received for rental of his truck and tools was includable in his weekly wage.  Evidence submitted at hearing included a transcript of the September 17, 2003, telephonic deposition of Trey Beahm, the employer=s divisional comptroller since 1979.  Mr. Beahm testified that the employer is in the business of providing support services or contract labor to major telephone providers known as Aoperating companies.@  He explained that, because the work of the employer is seasonal and contracts with operating companies are variable, the requisite size of the employer=s work force fluctuates.  He testified that splicers, such as the employee in this case, need to travel from site to site and must have a truck and tools to perform their work.  Mr. Beahm testified that it is not cost effective for an employer to maintain a fleet of vehicles that may not be used for long blocks of time and that it is therefore customary in the industry for a splicer to be offered both a salary and a rental contract associated with the use of his own equipment.  According to Mr. Beahm, the truck and tool rental rate paid by the employer was determined by the employer by amortizing the likely expense to the employer over the course of the job at issue, the employer then passing on that rate in turn to its customer.  Mr. Beahm testified that the employee was not required to provide the employer with any documentation or accounting of the actual expenses that he paid in purchasing and maintaining his own tools and truck and that the employee was paid his $10.00 an hour rental fee without any reference to such expenses.  Mr. Beahm acknowledged that, if the employee managed to keep his expenses lower than predicted, the employee might have the value of extra cash.  He testified further that employees who had no truck and/or tools, and who were therefore provided with equipment by the employer, were paid only the $14.00-an-hour wage.  Mr. Beahm testified that the truck and tool rental fee was characterized as a Alease expense@ in the employer=s financial statements.  It was his understanding that, under existing tax laws, the only portion of the rental fee that would be taxable as income to the employee would be the net value of the fee, after subtraction of related truck and tool expenses.

Also submitted at hearing was a transcript of the September 10, 2003, deposition of  CPA and tax accounting specialist Joseph Hayden, who testified for the employee.  Mr. Hayden testified in part that he had no way of disputing the contention of the employer that the IRS had always approved of the employer=s tool and truck rental arrangement with its employees, and he agreed that the IRS would never have permitted that arrangement if it had been in any way improper from a tax standpoint.  Mr. Hayden agreed with Mr. Beahm that, assuming that the arrangement was proper under existing tax laws, the only portion of the rental fee that would be taxable as income to the employee would be the net value of the fee, after subtraction of related truck and tool expenses.

The employee himself also testified at hearing, in part that he was never asked for an accounting of actual truck and tool expenses that he had incurred and that he was never provided with a rationale for the rate of the allowance being set at $10.00 an hour.  He testified also that he stood to add about $27,000.00 a year to his income as a result of the allowance, that he spent his allowance payments on entertainment, monthly housing payments, and other incidental expenses, and that he would never have taken the job with the employer had the allowance not been part of the package.  Also submitted into evidence at the hearing was the employee=s income tax return for the year 2000, on which the employee had reported his rental income from the employer and offsetting expenses.

By findings and order filed October 16, 2003, the compensation judge concluded in part that the employee=s truck and tools rental agreement, while part of the employee=s overall employment agreement, was not part of the employee=s Awage contract.@  The judge concluded also that, even if the rental fee was included in the wage contract, the employee=s truck and tool expenses for the 5.6 weeks that the employee worked for the employer prior to his injury exceeded the $2,780.00 that he was paid by the employer for truck and tool rental, rendering the net value of the rental fee to the employee zero or less.  On those findings the compensation judge excluded the employee=s rental income from the employee=s weekly wage.  The employee appeals.

STANDARD OF REVIEW

A[A] decision which rests upon the application of a statute or rule to essentially undisputed facts generally involves a question of law which [the Workers= Compensation Court of Appeals] may consider de novo.@  Krovchuk v. Koch Refinery, 48 W.C.D. 607, 608 (W.C.C.A. 1993).

DECISION

Minn. Stat. ' 176.011, subd. 3, provides in part, AWhere board or allowances other than tips and gratuities are made to an employee in addition to wages as a part of the wage contract they are deemed a part of earnings and computed at their value to the employee.@  Minn. Stat. ' 176.011, subd. 3 (emphasis added).  In his memorandum, the compensation judge explained as follows:

In this case, the allowances paid to the employee for truck and tool expenses were not part of the wage contract.  While the rental agreement was no doubt part of the overall employment agreement between the employee and the employer, it was carefully made a separate contract and not part of the wage contract.  There were legitimate business reasons for the separate rental agreement and it was not part of a scheme to avoid taxes or workers= compensation premiums.  If the employer had to furnish the tools and equipment, it would have cost them more than $10.00 per hour and the employee would have been paid only $14.00 per hour.

The employee contends that the judge=s finding that the rental agreement was not part of the wage contract resulted in an unfair approximation of the employee=s lost earning power.  He argues that the judge=s attention to the employee=s Aactual expenses@ and to the employer=s Alegitimate business reason@ for the separate rental agreement ignores the clear language of Minn. Stat. ' 176.011, subd. 3, and attempts to apply an erroneously narrow interpretation of it.  We are not persuaded.

Quoting the supreme court in Knotz v. Viking Carpet, 361 N.W.2d 872, 37 W.C.D. 452 (Minn. 1985), and citing its reasoning in Sawczuk v. Special School Dist. No. 1, 312 N.W.2d 435, 34 W.C.D. 282 (Minn. 1981), the employee argues that Athe object of wage determination is to >arrive at a fair approximation of [the employee=s] probable future earning power which has been impaired or destroyed because of the injury.=@  Knotz v. Viking Carpet, 361 N.W.2d 872, 874, 37 W.C.D. 452, 455 (Minn. 1985), quoting Sawczuk v. Special School Dist. No. 1, 312 N.W.2d 435, 437-38, 34 W.C.D. 282, 287 (Minn. 1981), citing Johnson v. D.B. Rosenblatt, Inc., 265 Minn. 427, 430, 122 N.W.2d 31, 33, 22 W.C.D. 468, 472 (1963).  The employee contends that he counted on his rental agreement with the employer as a source of additional income, that he had expected to make an additional $27,000.00 over the course of a year as a result of it, and that it was therefore implicitly Apart of the wage contract.@  We would note initially that neither Knotz nor Sawczuk involved a rental agreement or any other arguable Aallowance@ and that neither, therefore, has much relevance to our construction of the statute here at issue.  The employee argues that he would not have taken his job with the employer had it not been for the rental agreement.  However, we are not persuaded that the rental agreement was part of the wage contract with this particular employer, given the evidence of record that most all competing employers in the employee=s field offered nearly identical rental agreements.  Nor is the employee=s argument persuasive that it is Aunreasonable to assume that an individual would accept $14.00 per hour where his co-employees are earning $2[4].00 per hour for exactly the same work,@ in that there was express testimony from the employer=s comptroller that some employees of the employer were without tools and truck to rent and therefore were working for only $14.00 and hour.  Nor is there any evidence that any employees, for this or any other competitive employer, were Aearning $2[4].00 per hour for exactly the same work.@

Any benefit that the employee stood to realize as a result of his rental agreement with the employer was purely speculative and would predictably occur only over the long term, not over the term of very short employment, which was always a possibility.  That the employee might stand to gain or to lose over time as a result of the agreement is a function not of his labor but of his capital investment.  The employee has argued that the compensation judge erred in considering that A[t]here were legitimate business reasons for the separate rental agreement.@  He argues that the judge=s reasoning is contrary to the lead of the supreme court in Larson v. Cleansoils, Inc., where the value of the housing benefit at issue was acknowledged to be in the employer=s best interests but nevertheless construed as part of the employee=s wage.  See Larson v. Cleansoils, Inc., 541 N.W.2d 591, 54 W.C.D. 25 (Minn. 1996).  The employee=s argument appears, however, to miss the thrust of the judge=s comment.  The judge=s observation appears to be designed not to disprove the employee=s entitlement to inclusion of the rental income in his wage but to rebut the allegation that the rental arrangement in this case was only a pretext to avoid paying the rental money as wagesBthat is, to demonstrate that the agreement was, in the judge=s words, Anot part of a scheme to avoid taxes or workers= compensation premiums.@  And this conclusion is supported in the testimony of Mr. Beahm, to the effect that the employer=s work is seasonal and that it is therefore more cost effective from the employer=s perspective to rent vehicles from the employees who will be using them, rather than to maintain a fleet of vehicles that might not be used for long blocks of time.  Nor do we find, as the employee has also argued from Larson, that the compensation judge=s interpretation of Minn. Stat. ' 176.011, subd. 3, was unduly Anarrow.@  The employer and employee=s rental agreement in the instant case, pertaining as it did to clearly capital investment, was something quite different in its very nature from the Aallowances for board and lodging made in consideration for work,@ Larson, 541 N.W.2d at 592, 54 W.C.D. at 26 (emphasis added), that were at issue in Larson and related cases cited by the employee.

In the end, we believe that the compensation judge in this case correctly concluded that the equipment rental agreement was not Apart of the wage contract.@  Minn. Stat. ' 176.011, subd. 3.  Therefore we affirm the compensation judge=s decision to exclude from the employee=s weekly wage the amount paid weekly to the employee pursuant to his separate equipment rental agreement with the employer.^[1]