Labor Commission, Administration

Rule R600-3

Definitions Applicable to Construction Licensees

Notice of Proposed Rule

(New Rule)

DAR File No.: 35093
Filed: 07/22/2011 08:59:28 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

Pursuant to the rulemaking authority granted to the Labor Commission by S.B. 35 (2011 General Session), the purpose of this rule is to define certain terms used within S.B. 35 and to establish a procedure by which an unincorporated entity licensed to perform construction by the Division of Professional Licensing (DOPL) can challenge the presumption created by S.B. 35 that such an entity is an employer for purposes of Utah laws dealing with payment of wages, employment discrimination, and occupational safety and health.

Summary of the rule or change:

The proposed rule defines the following terms: a) "active manager"; b) "directly holds at least an 8% ownership interest"; c) "indirectly holds at least an 8% ownership interest"; and d) "subject to supervision or control in the performance of work." The proposed rule also identifies two methods by which an unincorporated entity may challenge the presumption created by S.B. 35 that the entity is an employer for purposes of payment of wages, employment discrimination, and occupational safety and health: 1) by requesting a declaratory determination from the Commission; or 2) as part of an existing adjudicatory proceeding.

State statutory or constitutional authorization for this rule:

• Subsection 34-28-2(2)
• Subsection 34A-6-103(2)
• Subsection 34A-5-102(2)

Anticipated cost or savings to:

the state budget:

By defining terms and clarifying procedures, the proposed rule should facilitate the Labor Commission's ability to resolve disputes regarding an unincorporated entity's status as an employer. However, in view of the fact that such disputes are relatively infrequent, the Commission does not anticipate appreciable costs or savings to the state budget as a result of the proposed rule.

local governments:

The definitions and procedures of the proposed rule have no application to local government and will not result in any costs or savings to local government budgets.

small businesses:

Pursuant to S.B. 35, unincorporated entities licensed to perform construction by DOPL are presumed to be employers of all their workers and staff. The proposed rule defines terms and establishes procedures to simplify the manner by which such entities can challenge that presumption. While the proposed rule should tend to make the above-described process simpler and therefore, less expensive to participants, such proceedings are relatively infrequent. Consequently, the Commission does not anticipate that the proposed rule will result in any appreciable cost or savings to the affected small businesses.

persons other than small businesses, businesses, or local governmental entities:

Individual workers who are presumed under S.B. 35 to be employees of unincorporated entities may also be affected by the proposed rule's definitions and procedures. The proposed rule defines terms and establishes procedures to simplify the manner by which such entities can challenge that presumption. While the proposed rule should tend to make the above-described process simpler and therefore less expensive to all participants, including workers, such proceedings are relatively infrequent. Consequently, the Commission does not anticipate that the proposed rule will result in any appreciable cost or savings to other persons affected by the proposed rule.

Compliance costs for affected persons:

The proposed rule's definitions and procedures do not impose any compliance costs on affected persons.

Comments by the department head on the fiscal impact the rule may have on businesses:

The proposed rule deals with the relatively infrequent situation in which an unincorporated entity licensed by DOPL to perform construction seeks to rebut the presumption created by S.B. 35 that the unincorporated entity is an employer. The proposed rule's definitions and procedures should render these proceedings simpler and more efficient for all the participants and for the Commission. Consequently, the Commission does not anticipate that the proposed rule will have any negative fiscal impact on businesses.

Sherrie Hayashi, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Labor Commission
Administration
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

• Alan Hennebold at the above address, by phone at 801-530-6937, by FAX at 801-530-6390, or by Internet E-mail at ahennebold@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

09/14/2011

This rule may become effective on:

09/21/2011

Authorized by:

Sherrie Hayashi, Commissioner

R600. Labor Commission, Administration.

R600-3. Definitions Applicable to Construction Licensees.

R600-3-1. Authority and Scope.

A. The Commission enacts this rule pursuant to authority granted by 34-28-2(2), 34A-5-102(2) and 34A-6-103(2).

B. This rule defines terms and establishes procedures by which an unincorporated entity that is a construction licensee may rebut its status as an employer for purposes of Title 34, Chapter 28, Payment of Wages; Title 34A, Chapter 5, Utah Antidiscrimination Act, and Title 34A, Chapter 6, Utah Occupational Safety and Health Act.

 

R600-3-2. Definitions.

A. An "active manager" is one who directs or causes the direction of the management and policies of the unincorporated entity, whether through the ownership of voting shares, by contract, or otherwise. Status as an active manager requires a documented history of voting on, approving, or otherwise deciding a substantial matter involving the business of the unincorporated entity, including without limitation:

1. Authorizing a member or any other person to do any act on behalf of the company that is not in the ordinary course of the company's business or business of the kind carried on by the company;

2. Making a distribution to members;

3. Resolving a dispute connected with the company's business;

4. Making a substantial change in the business purpose of the unincorporated entity;

5. Authorizing the unincorporated entity to acquire or merge with another entity; or

6. Authorizing a sale, lease, exchange or other disposition of a substantial asset of the unincorporated entity, other than in the usual and regular course of the business.

B. "Directly holds at least an 8% ownership interest" means that the individual owns in his or her individual capacity at least 8% of the stock, capital, or equity of the unincorporated entity, or is entitled to at least 8% of the unincorporated entity's profits. C. "Indirectly holds at least an 8% ownership interest" means that the individual's total aggregate ownership interest from all sources, including a corporation, partnership, estate, trust or some other form of beneficial interest, totals at least 8% of the unincorporated entity's stock, capital, equity, or profits.

1. For example, if an individual owns 50% of company A which in turns owns 20% of the subject unincorporated entity, then the individual holds a 10% indirect ownership interest in the unincorporated entity.

D. "Subject to supervision or control in the performance of work" means that:

1. The unincorporated entity has the right to control what the worker does and how he or she does it, regardless of whether the unincorporated entity actually exercises that authority; or

2. The unincorporated entity has the right to control the business aspects of the work, such as:

a. How the worker is paid;

b. Whether expenses are reimbursed;

c. Who is responsible to provide tools and supplies;

d. Who arranges for administrative support, advertising, and similar functions.

 

R600-3-3. Procedures to Challenge Presumption that Unincorporated Entity is the Employer.

A. Declaratory Actions. An interested party may request a determination regarding an unincorporated entity's status as an employer by filing a petition for declaratory order in accordance with Rule R600-1.

B. In Connection with Other Adjudicative Proceedings.

1. In proceedings to adjudicate a claim of unpaid wages, employment discrimination, or violation of occupational safety and health standards, an unincorporated entity may submit evidence that rebuts the presumption that the unincorporated entity is an employer,

2. Notwithstanding the burden of proof required to prove the underlying claim, the unincorporated entity may only rebut the presumption that it is the employer by clear and convincing evidence.

 

KEY: labor commission, unincorporated entity, construction licensees

Date of Enactment or Last Substantive Amendment: 2011

Authorizing, and Implemented or Interpreted Law: 34A-1-104