ICA Addresses Standard of Review for Appeal of ESARO Case

On February 22, 2019, the Hawaii Intermediate Court of Appeals (ICA) addressed the standard of review for appeal of an unemployment decision on independent contractor status made by Hawaii’s Employment Security Appeals Referees' Office (ESARO). In the case of Spar Marketing Services, Inc, v. State of Hawai‘i, Department of Labor and Industrial Relations, ESARO, the agency held that Spar had misclassified its independent contractors by failing to meet all three parts of the ABC independent contractor test, which are: (a) Control of direction; (b)Services performed; and (c) Independent business. and reaffirmed ESARO’s interpretation of state laws and regulations, which make it extremely difficult to use independent contractors in the State of Hawaii. 

What does this mean for employers? Employers must remember that they have the burden of proof to establish that an individual is an independent contractor under the existing three-part test. If an ESARO decision is appealed, the Circuit Court will not re-weigh evidence presented in the administrative hearing. The court will give deference to the ESARO’s opinion in evaluating if there is “substantial evidence” in the record to reasonably support its decision. Therefore, the Employer must take care to be thorough in presenting all of the available evidence at the agency level. For more details, read the ES&A whitepaper by ES&A Director Trisha Gibo and ES&A legal intern James O'Rourke.