ALJDEC

01F-M1205-ROC · Registrar of Contractors · 2001-11-15

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 30, 2001 and October 30, 2001 APPEARANCES: James De Paoli on his own behalf; John Elardo, Esq. on behalf of Crescent Commercial Builders, Inc. ADMINISTRATIVE LAW JUDGE: Lewis D. Kowal _____________________________________________________________________ FINDINGS OF FACT 1. This matter involves a dispute as to whether James De Paoli (Complainant) was an employee or independent contractor of Crescent Commercial Builders, Inc. (Respondent) from June 1, 2000 through December 31, 2000, and whether Respondent owes Complainant back wages and monies that were withheld from his paychecks. 2. Respondent is licensed as a commercial contractor with the Registrar of Contractors and has been since November 1998. 3. Curtis Russell, Darrell Joel (Mr. Joel), and David Trevor Russell (Mr. Russell) and the Complainant created Environmental Remediation and Consulting, Inc. (ERC). Complainant was ERC’s president until his resignation on March 16, 2001.

4. Curtis Russell, as a favor to Complainant’s father, helped form ERC intending its operation to be run by Complainant, who had a masters degree in toxicology. 5. ERC became a licensed contractor with the Registrar of Contractors in October 10, 2000. Complainant was ERC’s qualifying party until March 29, 2001. 6. The weight of the testimonial evidence presented by Mr. Joel, Respondent’s president, and Mr. Russell, a principal owner and current president of ERC and an officer of Respondent, established that Respondent does not have and has never had any employees. As a general contractor, Respondent enters into contractual relationships with subcontractors who perform work on Respondent’s commercial construction projects. 7. Complainant relies on the testimony of F. George Drewry (Mr. Drewry), his certified public accountant, in support of the contention that Complainant was an employee of Respondent during the time period in question, June 1, 2000 through December 31, 2000. However, Mr. Drewry testified that his knowledge as to the business activities Complainant had with Respondent is solely derived from Complainant. 8. In support of Complainant’s assertion that Respondent owes him back salary and money withheld for taxes, Complainant refers to a March 8, 2001 meeting he and Mr. Drewry had with Curtis Russell, Mr. Russell, Mr. Joel, and Respondent’s accountant. 9. Both Mr. Drewry and Complainant testified that at the conclusion of the March 8, 2001 meeting, it was understood that money withheld from Complainant for taxes would be repaid to Complainant. However, there was conflicting evidence presented by Respondent as to what transpired at the March 8, 2001 meeting. Assuming arguendo that Complainant’s recitation of what transpired at the meeting is more credible than Respondent’s, it was never clarified as to which entity would be providing such payment. Because the individuals present at the meeting could act on behalf of ERC as well as the Respondent, it is unclear as to which entity was assuming payment responsibility. Consequently, the representations made at the March 8, 2001 hearing cannot bind Respondent nor are they illuminating as to the nature of the relationship of the parties. 10. Complainant testified that during the relevant time period he worked under the direction of Curtis Russell, that he obtained tools from Respondent, and that he was paid by Respondent. 11. Mr. Russell and Mr. Joel testified that there were discussions with Complainant prior to the formation of ERC wherein it was mentioned that there would be two different entities, the Respondent and ERC, and that Complainant would not be performing any work for Respondent. 12. Respondent issued Complainant a 1099 form reflecting monetary compensation Respondent made to Complainant for the year 2000. Subsequently, Complainant requested that Respondent provide him with a W2 form. Respondent has not complied with that request. 13. Although Complainant testified Respondent provided him with a Nextel telephone, and a car the weight of the evidence of record established that those items were provided to Complainant in conjunction with loans Respondent made to ERC to help jump-start ERC until it could generate sufficient funds to meet is operational costs. 14. Through the testimony of Mr. Russell, Mr. Joel and the cross- examination of Complainant, it was established that during the relevant time period Complainant did not perform any duties at Respondent’s projects for Respondent. 15. The weight of the evidence of record established that Complainant did not work under the direction and control of Respondent and that most, if not all of Complainant’s duties and activities performed during the relevant time was for ERC or for Respondent’s subcontractors. 16. The corporate documents of Respondent and ERC that were admitted into evidence (Exhibit 9 ) show that Respondent adopted resolutions to loan money to ERC for payment of Complainant’s salary. That evidence corroborates the testimony of Mr. Joel and Mr. Russell that during the relevant time period, Complainant was not an employee of Respondent and that Complainant performed work for ERC. 17. Although the above-mentioned corporate documents (Exhibit 9) indicates that Respondent would loan ERC money for Complainant’s salary, in fact, Respondent issued checks directly to Complainant from June 1, 2000 through December 12, 2000. 18. Complainant contends that that pursuant of a verbal agreement, Complainant was to receive a salary of $2,000.00 per month. Although, the Complainant testified as to his belief that he would be working for Respondent, the weight of the evidence of record established the belief not to be reasonable under the circumstances. 19. The terms of the verbal agreement as to Complainant’s employment terms including duration of employment, benefits, manner, method, and timing of compensation payment were not sufficiently established during the hearing. Because it is determined that Complainant was not an employee of the Respondent, any obligation on the part of Respondent to pay Complainant’s salary is derived form Complainant being a third party beneficiary to Respondent’s agreement with ERC to loan ERC money to pay Complainant’s salary. However, for enforcement of that obligation, the existence and terms of the contract between Complainant and ERC must be established. 20. It is determined that Complainant presented credible evidence that Complainant was to perform work and receive compensation from ERC in the amount of $2,000.00 from June 1, 2000 through September 2000. This is supported by the undisputed testimony that Complainant received $790.34 bi- weekly payments from June 1, 2000 through September 2000. However, the essential terms of the contract between ERC and Complainant were not presented with sufficient specificity, particularly as to the duration of employment, to enable the Administrative Law Judge to ascertain the amount of compensation Complainant was to receive from ERC after September 2000. Consequently, after September 2000, the Administrative Law Judge is unable to ascertain the amount that Respondent was obligated to loan ERC for payment of Complainant’s salary. 21. Complainant testified that Respondent withheld the sum of $209.66 from Complainant’s pay check from June 1, 200 through September 2000. Respondent did not rebut or refute Complainant’s testimony and there was no explanation provided during the hearing for such withholding. 22. In October 2000, Complainant received a check from Respondent in the amount of $800.00 rather than $790.34 Complainant testified that he thought the difference in the amount of the check reflected some Internal Revenue Rule change or some bookkeeping adjustment. However, according to Complainant, up until October 2000, he had been receiving payment checks from Respondent bi-weekly. Starting in October 2000, through December 12, 2000, Complainant received a monthly payment check in the amount of $800.00. 23. Although Complainant appears to claim that Respondent withheld $200.00 per month during October, November and December 2000, which should either be paid to the appropriate governmental tax agencies or returned to him, Complainant failed to present any credible evidence or valid legal basis showing his entitlement to such monies. 24. Complainant testified that in January 2001, Curtis Russell told him that Respondent would no longer provide monetary compensation to him and that he would be paid by ERC. 25. Because there is no dispute that from June 1, 2000 through September 2000, Complainant was to receive a salary of $2,000.00 per month, it is determined that at least as to that time period, Respondent had an obligation to loan ERC $2,000.00 per month to be applied towards Complainant’s salary. Consequently, because Respondent paid Complainant directly during that time period, Respondent had an obligation to provide Complainant the sum of $2,000.00 per month from June 1, 2000 through September 2000. 26. It is determined that as a result of failing to pay the full amount of the salary owed to Complainant from June 1, 2000 through September, 2000, that Complainant has been injured. CONCLUSIONS OF LAW 1. The weight of the evidence of record established that Respondent has violated the provisions of A.R.S. §§32-1154(A)(7). 2. The evidence of record failed to establish by a preponderance of the evidence that Respondent violated the provisions of A.R.S. §32-1154(A)(5) or (A)(11). RECOMMENDED ORDER Based on the above, it is recommended that Respondent’s Class B-01 license shall be suspended on the effective date of the Order entered in this matter until the Registrar of Contractors receives written proof that Respondent has paid or tendered the sum of $1677.28 ($209.66 x 8 bi-weekly payments) to Complainant and has issued to Complainant an amended 1099 form to reflect the additional amount paid to Complainant pursuant to the Order entered in this matter. It is further recommended that if on or before the effective date of the Order entered in this matter Respondent complies with the above, then the above-mentioned license suspension shall not take place and Case Number M01-1205 shall be closed. Done this day, November 15, 2001.

______________________________________ Lewis D. Kowal Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2001, to:

Registrar of Contractors Michael P. Goldwater ATTN: Joyce Armijo 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________ -----------------------

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826