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Home & Community Services of Hawai'i, Inc. v. Department of Labor and Industrial Relations

Intermediate Court of Appeals of Hawaii

January 28, 2016

HOME & COMMUNITY SERVICES OF HAWAI'I, INC., a Hawai'i corporation, PREFERRED HOME & COMMUNITY BASED SERVICES, INC., a Hawai'i corporation, and ALOHA HABILITATION SERVICES, INC., a Hawai'i corporation, Petitioners/Appellants/Appellants,
v.
DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS, Respondents/Appellees/Appellees

APPEAL FROM THE LABOR AND INDUSTRIAL RELATIONS APPEALS BOARD (CASE NO. AB-2008-521) (WC 08-01)

On the briefs: Kenneth M. Nakasone Thao T. Tran Nicholas R. Monlux (Kobayashi Sugita & Goda) for Petitioners/Appellants/Appellants.

Frances E.H. Lum J. Gerard Lam Deputy Attorneys General for Respondent/Appellee/Appellee.

FOLEY, PRESIDING J. AND FUJISE, J., WITH REIFURTH, J. CONCURRING SEPARATELY

OPINION

FOLEY, J.

Petitioners/Appellants/Appellants Home & Community Services of Hawaii, Inc., Preferred Home & Community Based Services, Inc., and Aloha Habilitation Services, Inc. (collectively. Service Providers) appeal from the Decision and Order (D&O) issued by the Labor and Industrial Relations Appeals Board (LIRAB) on November 7, 2014.

On appeal. Service Providers contend the LIRAB erred in affirming the Declaratory Ruling that Service Providers' subcontractors were not excluded from the definition of "employment" under the statutory exemption found in Hawaii Revised Statutes (HRS) § 386-1 (Supp. 2003).[1]

I. BACKGROUND

The Department of Human Services (DHS), a State agency that receives and manages Medicaid funding to provide home and community-based services to disabled adults under the Social Security Act, 42 C.F.R. Part 441 Subpart G, contracted with Service Providers to provide Medicaid Waiver attendant and in-home day care services to qualified disabled individuals.[2] The DHS's contracts allowed Service Providers to hire subcontractors to provide the direct services to disabled individuals. Under the DHS contracts, Service Providers received payments directly from DHS, and Service Providers were responsible for paying the subcontractors.

Between 2004 and 200 6, Service Providers obtained workers' compensation insurance from Intervenor/Appellee/Appellee Hawaii Employers' Mutual Insurance Company, Inc. (HEMIC) for their employees, but did not obtain insurance coverage for their subcontractors. On February 17, 2005, then-Director of Respondent/Appellee/Appellee Department of Labor and Industrial Relations (DLIR) Nelson B. Befitel issued a declaratory ruling in In re Manawa Lea Health Services, Inc. (the Manawa Lea Decision), concluding that an entity similar to Service Providers, which had also used subcontractors to provide Medicaid Waiver services, did not fall within the domestic exemption under the then-existing HRS § 386-1. Following the Manawa Lea Decision, HEMIC sought unpaid workers' compensation insurance premiums from Service Providers for their subcontractors for the period of time between 2004 and 2006.

On May 13, 2008, Service Providers petitioned DLIR for a declaratory ruling establishing:

1. In the years 2004, 2005 and 2006, [Service Providers'] subcontractors who perform Medicaid Waiver Services ("Subcontractors") were independent contractors and not employees of [Service Providers] in the performance of those services; and
2. That in the years 2004, 2006 [sic] and 2006, the Subcontractors who performed Medicaid Waiver Services were excluded from "employment" under the then existing "domestic" exemption of [HRS] § 386-1 when they performed those services.

The Director of DLIR, Darwin L.D. Ching (Director), issued his Declaratory Ruling on October 22, 2008 (Director's Declaratory Ruling) on the issue of "whether individuals who were subcontracted by [Service Providers] to perform Medicaid Waiver services in 2004, 2005, and 2006 were excluded from 'employment' under [HRS] ...


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