Michigan Court of Appeals Expands the Factors that Courts Should Consider When Applying the Economic Reality Test in No-Fault Cases

Michigan Court of Appeals Expands the Factors that Courts Should Consider When Applying the Economic Reality Test in No-Fault Cases

09/14/2020

In Duckworth v Cherokee Ins Co, ___ Mich App ___ ;___ NW2d ___ (2020) (Docket No. 347865), the Court of Appeals analyzed whether James Duckworth was an employee or independent contractor of Speed Express, LLC, to resolve a priority dispute between Speed Express’s no-fault insurer and Duckworth’s personal no-fault insurer. The Court held that trial courts should consider the factors under Adanalic v Harco Nat Ins Co, 309 Mich App 173; 870 NW2d 731 (2015), and McKissic v Bodine, 42 Mich App 203; 201 NW2d 333 (1972), when applying the economic reality test in no-fault cases.

Background on Duckworth

Duckworth and Speed Express entered into a contract, under which Duckworth agreed to haul and deliver goods on Speed Express’s behalf. Subsequently, Duckworth was involved in an accident while driving Speed Express’s tractor truck. He sustained serious injuries.

Duckworth initially sued Cherokee Insurance Company, Speed Express’s insurer, for no-fault benefits under MCL 500.3114(3). Cherokee denied Duckworth’s claim and moved for summary disposition on the ground that Duckworth was an independent contractor of Speed Express, not an employee, for purposes of MCL 500.3114(3). Accordingly, Cherokee argued that Progressive Insurance Company, Duckworth’s personal no-fault insurer, was first in priority to pay no-fault benefits pursuant to MCL 500.3114(1). Applying the economic reality test, the trial court agreed that Duckworth didn’t qualify as Speed Express’s employee and granted summary disposition in favor of Cherokee.

Progressive appealed the trial court’s priority determination.

The Court of Appeals’ Ruling

The Court first addressed the parties’ dispute regarding the factors that make up the economic reality test. Cherokee argued that the test is limited to the four factors originally set forth in Parham v Preffered Risk Mut Ins Co, 124 Mich App 618; 335 NW2d 106 (1983), and Adanalic, 309 Mich App 173. Progressive, on the other hand, argued that the test should include the expanded factors adopted in McKissic, 42 Mich App 203, considering that the Michigan Supreme Court used the expanded factors in subsequent cases.

The Court of Appeals held that courts should consider the McKissic factors and the Adanalic factors to determine if a claimant is an employee or independent contractor for purposes of the no-fault act. In reaching this conclusion, it noted (1) the substantial overlap between the tests; (2) the special applicability of the McKissic factors; (3) the Court of Appeals’ consistent recognition that the Parham/Adanalic factors are not exhaustive; and (4) the Supreme Court’s application of both tests.

The Court of Appeals then applied each of the factors to Duckworth’s relationship with Speed Express. It started by analyzing the four Adanalic factors, noting that they overlap with the first, second, and seventh McKissic factors. The Court concluded that most, but not all, of these factors weighed in favor of finding that Duckworth was Speed Express’s employee. Next, the Court considered the third, fourth, and fifth McKissic factors. It reasoned that these factors also weighed in favor of finding that Duckworth was an employee. Thus, the Court held that Cherokee was first in priority to pay no-fault benefits to Duckworth under MCL 500.3114(3) because an employee-employer relationship existed between Duckworth and Speed Express.

A concurring opinion agreed that Duckworth qualified as Speed Express’s employee under the four-factor Adanalic test. However, the concurring judge would have stopped the analysis there—without considering the McKissic factors—because McKissic is a nonbinding case involving a worker’s compensation claim. He criticized the majority’s adoption and application of the McKissic factors in a case where they were not outcome determinative, and the Adanalic factors were sufficient.

What Does Duckworth Mean for the Employee-Versus-Independent-Contractor Analysis Under the No-Fault Act?

Under Duckworth, courts should consider the McKissic and the Adanalic factors in determining whether a claimant is an employee or an independent contractor under the no-fault act. In the majority’s view, “the McKissic factors are particularly applicable when the nature of the relationship is at issue[.]” Duckworth, slip op at 5.

 


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