Court reporter found to be Independent Contractor by California Appeals Board and EDD Audit

Without sounding too dramatic, if I were a newspaper here is what the big headline would read: “Existential threat to court reporting industry averted!” What follows is my year-long journey through an unemployment benefits dispute and audit by the Economic Development Department (EDD)of California.

In a nutshell:

  • Long term court reporter gets too many complaints so I stop using her services.
  • Court reporter files for unemployment and receives benefits.
  • I dispute the benefits and win at Level One appeal.
  • Court reporter and the EDD themselves dispute my win at Level One and we go to Level Two appeal.
  • Meanwhile the EDD audits three years of my tax records.
  • I win at Level Two.
  • After six months of being under audit, EDD finds nothing and determines all my court reporters to be independent contractors.

Recently here in California the Unemployment Insurance Board during both Level One and Level Two appeals found a court reporter to be an independent contractor and not an employee and thus denied unemployment benefits. The claim inspired the EDD to audit my business. After six months they made a determination that all of my reporters are, indeed, independent and self-employed contractors.

This is good news for all my California firm owner friends. Actually, come to think of it… this is good news for firm owners nationwide.

And here is how everything went down...

Some Background Information - In the Beginning
Around June of 2014 I got a complaint about a reporter from a client. The complaint was that the reporter was unprofessional and rude. The kicker was that when the transcript arrived it had “holes” in it. In other words, the attorney specifically recalls asking certain questions and saying certain things that were subsequently not in the final transcript. I investigated the matter internally and found that there was a larger pattern of misconduct by this reporter. She had been banned from at least three other law firms and had a pattern of mistake-ridden and tardy transcripts. At that time I chose to not utilize this reporter’s services any longer.

I heard through the grapevine that the reporter may try to seek unemployment benefits. (I’ll graciously forget to mention in the record here the part where she boasted that this action on her part would likely trigger a full blown audit and be the source of a major headache for me. Which it did and which it was.) So she did. Sure enough, within a few weeks the reporter filed a claim for unemployment benefits with the Economic Development Department (EDD), as it is called here in California. Around the end of July, 2014 I received a “Notice of Unemployment Insurance Claim ” from the EDD. I responded quickly and thoroughly including this redacted letter:

“The reporter was an independent contractor not an employee. As is the norm in the court reporting industry, the reporter was paid on a job-by-job basis and got issued a 1099 each tax year. She is her own business with her own clients and business expenses. The reporter was not exclusive to me in any way.”

I also included information about a tax court case where a court reporter was found to be an independent contractor not an employee:

March 7, 1996
T.C. Memo. 1996-107
Electronic Citation: 96 TNT 48-13
Microfiche Number: Doc 96-7067
(8 pages)
Docket Tax Ct. Dkt. no 18712-94
Section 61 - Gross Income Defined
Judge: David Larod
John Prior Green, pro se
Bruce G. Warner, for respondent

About a month later in August, 2014 I received a call from an EDD employee working from their Sacramento office. He interviewed me during this phone conversation. He had received my response to the claim and had a few more questions. I answered his questions and then he stated right there on the spot that he found there to be no employer/employee issue; that the reporter was not eligible for benefits; that nothing had been paid into the tax system; that there were no earnings showing; that the reporter can’t show wages in the base period; and that the claim was not valid. Within a few days I received a short but sweet letter from the EDD employee which basically went like:

“Dear Todd,
No determination or ruling will be issued because this claim is invalid.
Love,
-EDD
PS. XOXOXO”

Ok, I added the frilly stuff for fun. But the letter was clear: the claim was invalid. I.N.V.A.L.ID. I was thrilled. End of story; right?

Hardly.

“You may have to fight a battle more than once to win it.”
-Margaret Thatcher

 

A Second Bite at the Apple
A few days later to my surprise I received a phone call from a different EDD employee -- this individual worked out of their San Bernardino office this time -- asking me similar questions as the first guy. I was confused. I thought this thing was over? Nope. The court reporter apparently had filed a second claim. I had no idea that such a tactic was possible but, indeed, it is possible.

The second EDD employee asked me a litany of questions regarding the nature of my relationship with the reporter. What kind of controls did I have over her; did she have the ability to not take assignments; was she potentially a competitor of mine; how much did she get paid, etc, etc. I answered everything truthfully and clearly. I soon realized very quickly that sometimes the right hand does not know what the left hand is doing. She had no knowledge of the first claim this reporter had made that just days previously was struck down. And she certainly had never seen my response letter or any of my evidence. So I faxed everything to her immediately.

“Sometimes life hits you in the head with a brick. Don't lose faith.”
-Steve Jobs


After a few weeks of not hearing back anything from the EDD -- this is early September, 2014 by now -- I called the second EDD employee. I spoke with her briefly about whether or not a ruling had been made on the employee vs. independent contractor issue. She said yes. And her ruling was that the reporter should have been on payroll during her tenure with me. I felt like I got smacked in the head. I disputed her decision and tried to field more information about her rationale but she said it was now out of her hands and that I would receive notice of this determination from the EDD at some point. I asked how long that would take and -- very typical for government agencies -- she gave me a helpful and definitive “I don’t know. Pretty soon.”

“He who represents himself has a fool for a client”
-Abraham Lincoln


This Means War

Once I realized that the EDD was determined to find this reporter to be a misclassified employee rather than what she was -- an independent, self-employed contractor -- I knew I needed professional help. And I don’t mean a shrink. I already had corporate counsel. Now and then things arise where I need a letter drafted for this or that issue. I’ve also got a litigator who represents me in court trying to get me paid. But I did not have anyone expert in tax matters or with dealing with the EDD specifically. So I consulted the oracle, aka Google. I found around a dozen attorneys and called each one. I personally was able to speak to about half the candidates and I narrowed it down ultimately to one firm. I retained Golding and Golding in Newport Beach, California. I found Sean Golding to not only be brilliant but warm and personal. We clicked. I felt he “got it” -- that he understood what a court reporter was; understood the nature of how a court reporting agency works; and most importantly of all, understood that the EDD was making a mistake.

One of the first things that Sean and I did was to look over everything that I had already submitted on my own to the EDD. That is where many times his clients have shot themselves in the foot by lobbing something dumb into the mix and making an already dire situation even worse. So I nervously showed him all of my correspondence and relayed to the best of my ability the verbal communications between me and the two EDD employees. After some discussion, Sean told me I had not been too dumb and actually had done pretty well on my own. I was glad that I hadn’t inadvertently made his job any harder than it already was. Phewww!

Still, there was a big mountain to climb. I had heard that California and the EDD are very employee-centric; that they are just crazy in love with employees. With employers, not so much. They want to classify everyone and their mother as an employee for one reason and one reason only: more collectable taxes. And an employer is guilty (of misclassifying workers as independent contractors) until proven innocent. Again, it’s a big mountain to climb.

I knew about the IRS’ 20 Factors test (https://www.mdc.edu/hr/Operations/AFS/IRSFactorTest.pdf) . I knew about the EDD’s own DE 38 test (http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf). I knew about NCRA’s provided information regarding this issue (http://www.ncra.org/Government/content.cfm?ItemNumber=9437) But Sean and I went through all of the specific factors regarding this court reporter and it all boiled down to one single factor: control.

Control Freaks Beware!
(Nothing about the following is meant to be legal advice. I’m not an attorney so consult one if you find yourself in a similar predicament.) Basically, what I learned from Sean was that control is the single biggest issue regarding whether or not someone is an employee or independent contractor. Paying someone via 1099 is not; having an independent contractor’s agreement is not; both sides agreeing on this or that is not. Control. How much “control” do I as the agency owner exert over the reporters? That is the crux of the matter.

The Thing about Written Independent Contractor Agreements
I hate to put it so contradictorily but having a written contract in place with an independent court reporter is kind of a waste of time BUT not having one is kinda dumb. (Reminder that I’m not an attorney. Take all this with a grain of salt and consult your own attorney.) They are a waste of time in the sense that you cannot contract your way around labor code. It’s all about what you do -- not about what you say you’re going to do. The EDD was going to look at the nature of my working relationship with this reporter in the day-to-day operations of running my agency. The gravity of that far outweighed any written agreement we may or may not have signed at one point. Still, I think it’s kind of dumb to not have a written agreement simply because it points to the intent about the nature of the relationship. It’s nice to be able to whip out a piece of paper and say:

“Here... here is the smoking gun of written evidence that I have with this self-employed, independent subcontractor performing court reporting services for me (as well as my competitors) who accepts assignments at will, who holds himself/herself out to the community as their own business entity, who provides their own equipment and training, who operates under the same risk and reward free market system that I do, Your Honor.”

In case you’re wondering, though, with this particular reporter I did not have a written agreement. Our agreement was oral. Which, it turns out, was just fine.

Christmas in September
Around the middle of September, 2014 I received a Notice of Wages Used for Unemployment Insurance (UI) Claim” which said the EDD considered 100% of the commissions I had paid her as if they were employee wages. Thus she would receive $450.00 per week whether she was naughty or nice. I couldn’t believe it. Is this the law? That an independent contractor who did not pay one red cent into the employment tax base may still withdraw unemployment benefits was unbelievable to me. Apparently Christmas came early for one reporter last year.

The one ray of false hope was that the form also notified me about my right to “Request a Ruling.” Sean wrote, in my opinion, a brilliant ruling request wherein he cited all of the salient factors about why this reporter should not be classified as an employee but as an independent contractor. Exhibit A -- literally the very first exhibit -- was a screenshot from this reporter’s own Facebook page where she calls herself a “self-employed court reporter.”

Our ruling request went on to describe the nature of the court reporting industry in general -- that 90% of court reporters are independent contractors unless they work at a courthouse. And then we listed 16 DE 38 factors in my favor. Here are some of them:

  • I exercised no control over the work outcome. (Merely where and when to appear at a deposition.)
  • I have no employees who perform the same type of work.
  • I furnish no training, tools, equipment or supplies.
  • Reporter was free to perform the work as she would like in accordance with her own training.
  • Reporter purchased all her own equipment.
  • Reporter paid for all of her own training.
  • Reporter made her own business decisions.
  • Reporter hired her own staff members (scopists and proofreaders).
  • And on and on…

Our second argument was that in the reporter’s own notice of unemployment claim, she admitted to receiving complaints from me about her work performance. And even if -- for the sake of argument -- the EDD still finds her to be an employee and not an independent contractor -- she’s absolutely not but just assuming arguendo -- she still should not receive benefits because she was discharged for a “pattern of unprofessional behavior and misconduct.” Being discharged for misconduct has this sort of nullifying effect on a person’s ability to receive a check from the government, as it rightly should have.

When we sent the request for ruling off to the EDD, I was pretty sure that they would welcome the clarification and get right to work correcting the mistake.

Optimists are usually inexperienced.”
- Wayne Gerard Trotman, Veterans of the Psychic Wars


My Fear of Mushrooms

Let me pause briefly. I hate mushrooms. My whole life those squishy, slimy little suckers have grossed me out. But you know what I hate even more? I hate little problems mushrooming into bigger problems. The little problem of a disgruntled court reporter filing for and receiving unemployment benefits is one thing. The “hit” to my reserve account at the EDD notwithstanding, it’s a relatively minor problem. But in my mind this thing could mushroom cloud into something much larger and far reaching. My nightmare scenario goes something like this:

A California court reporter seeks unemployment benefits. EDD considers court reporter an employee. Court reporter receives $$$. EDD seeks to consider all court reporters as employees. EDD receives $$$ from all court reporting agencies in California. IRS hears about EDD receiving big $$$ from California agencies who misclassified court reporters as independent contractors. IRS seeks to do the same nationwide and receives $$$ from all agencies everywhere forevermore.

We don't want the smoking gun to be a mushroom cloud.”
-Condoleezza Rice


It’s no exaggeration to say that I have lost sleep over this mushroom cloud nightmare. Not only for myself and my business but also my firm owner friends throughout all of the United States. I believed this EDD matter was an existential threat to the whole court reporting industry. The last thing I set out to do when I started my agency was to get embroiled in some tax and labor fight. One thing that set my mind at ease, however, was the notion that if the court reporters taking jobs from my agency were not, indeed, independent contractors… then there is no such thing as an independent contractor. In my opinion, there is no clearer example of a true contractor/independent contractor relationship out there.

The EDD Did Not See Things My Way
I learned that “requesting a ruling” from the EDD after they have awarded benefits to a claimant is a long shot. By mid October 2014 the EDD wrote a “Notice of Determination/Ruling.” Predictably, they did not see things my way. But their response was surprising:

You discharged the claimant for not performing the work to your satisfaction. After considering the available information, the department finds the reasons for discharge do not meet the definition of misconduct connected with the case. Your reserve account will be subject to charges.

They did not bother to address any of the control factors we cited. (Non-control factors, to be more accurate.) Their response avoided those facts and went straight to a secondary issue of whether or not she was discharged for misconduct. I don’t know if being banned from clients’ offices is sufficient reason to discharge someone from the EDD but in my world, it most definitely is. Most heartbreaking, though, was that I personally doubted they even read Sean’s great letter.

Their letter concluded with you have the right to file an appeal... and provided instructions thereto. Heck yeah, I was appealing. But first I had to marshal some support from the troops: the good people over at the Deposition Reporters Association.

The Deposition Reporters Association (DRA)
The DRA is a wonderful association dedicated to the advocacy of deposition reporters. I am proud to have been a board member for three years. So I called one my good friends, past DRA president Toni Pulone who herself owns an excellent reporting firm in San Jose. Toni was extremely supportive to me about this matter and said she would enlist the help of DRA’s attorney, Ed Howard. Additionally, DRA has a “War Chest” of monies reserved for protecting the interests of reporters in California. We talked about possibly using war chest money to help defray my legal costs. But that wasn’t my concern just yet. I needed to get ready for the appeal hearing...

Level 1 Appeal Hearing
December 15, 2014
The first level appeal was before an Administrative Law Judge. And it’s not really held in a courtroom, per se, but rather an office building with small conference rooms set up for hearings. The judges are usually former attorneys which I felt was an advantage since attorneys are more inclined to know and understand the role court reporters play in the legal process. True to form, my judge in this hearing knew exactly what a court reporter was and -- even more importantly -- how deposition reporters worked.

Despite the casual surroundings and the professionalism of the Administrative Law Judge, truth be told, I was nervous for this hearing. I’m not good at conflict. I became a court reporter because I don't like being the one in the room talking. I prefer to be more of a fly-on-the-wall.

The judge started off by asking me various questions about the nature of my business. How did we operate? What services did we perform? Who were our clients. Then he moved on to more specific questions about this particular reporter. How did she come to take assignments for my company? How long did she do depositions for me? Did she have her own equipment. How was she given assignments? Did she ever refuse assignments? Again, the crux of the questioning was about how much control I exerted (or did not exert) over her.

Additionally, we supplied tons of evidence to support our side that this reporter was a) an independent contractor and not an employee; and b) discharged for misconduct. A partial list of evidence included:

  • List of client complaints.
  • List of clients who banned this reporter.
  • Facebook page screenshot showing the reporter put herself out to the world as self-employed.
  • Proof she had her own employees (she had a scopist and proofreader).
  • Proof she had her own clients.
  • Proof she took assignments from other agencies.

After my turn, the judge turned his attention to the reporter. She did not come represented by counsel and so she did her best to make her own case. She basically recited the same things she had alleged in her original claim: that she was treated like an employee and should be considered one in the eyes of the EDD.

During all of the exchanges, The judge maintained an excellent poker face so there was no way to tell which way he was leaning. After perhaps two hours, the hearing was done. Sean and I left the hearing and conferred outside in the parking lot. I felt pretty good about how things had gone. Sean was more cautiously optimistic.

My First Win
I expected the results to take a few weeks but the judge wasted no time in making his ruling. In summary he wrote: “The department determination is reversed. The claimant is not considered an employee.” He crafted it and mailed it to us the same day. Here is a redacted portion of his decision:

“Findings of Fact: The claimant was paid as a 1099 contractor. The claimant was offered job assignments by the employer that she was given discretion to accept or reject. If the claimant chose to reject an assignment, she could continue to receive other assignments from the employer. On more than one occasion, the claimant did, in fact, reject assignments from the employer because she was still finishing other assignments. The claimant was also free to accept work from any other source, for the same type of work, without the employer’s permission.


The only directions the claimant was given for a job was where and when she needed to show for an assignment. After the scheduled deposition or hearing to which the claimant was assigned concluded, the claimant would prepare a transcript of the deposition or hearing. The transcript could be completed on the claimant’s own time, in her own location and manner with only an expected deadline set by the employer.


The claimant supplied her own equipment, which she brought to each job, that she paid for and maintained herself. The claimant also had a professional license that she maintained herself, with no monitoring or funding by the employer.

 

The employer was simply a matching service for court reporters and did not employ any in-house court reporters. Each assignment was paid on a job-by-job basis.


Accordingly, the claimant is not considered an employee of the employer and the payments made by the employer to the claimant are not considered wages.”

In addition to the primary factor of the right to control the manner and means by which the work was completed, the judge also included some secondary reasons for his decision:

  • The extent of control which may be exercised over the details of the work;
  • Whether or not the one performing services is engaged in a distinct occupation or business;
  • Whether the work is usually done under the direction of an employer or by a specialist without supervision;
  • The skill required in the particular occupation;
  • Who supplies the instrumentalities, tools and place of work for the one performing services;
  • The length of time for which the services are to be performed;
  • The method of payment, whether by time or by the job.

I was elated at the win but I knew we were not out of the woods yet because at the very back of the judge’s decision was a little sentence that said, “If you disagree with the unfavorable CUIAB Administrative Law Judge’s decision, you must file your Board Appeal within 20 calendar days…”

Two Against One - Level 2 Appeal Hearing
True to form and not surprisingly, the court reporter filed a 42-page document as her second level appeal. I wasn’t worried because she offered no new evidence or case law, only reiterated her opinions from earlier. Also I doubted that the second level judges would entertain 42 pages of partially handwritten/partially typed notes.

What was most shocking, however, was when Sean called me a few days later and told me, “Man, you must have really pissed somebody off at the EDD.” I gulped and said, “What do you mean?” He said, “The EDD themselves filed their own second level appeal along with a 10-page legal argument. I’ve never seen something like this before.”

So now it was going to be the reporter plus the EDD fighting against me at the second level appeal. This was getting frustrating as well as troubling. I’m not one prone to conspiracies but a little part of me couldn’t help but feel there was some personal vendetta out to get me at the EDD. I had no basis to think that, but that’s how it felt at first. And worse, there was nothing to do except wait. I hate not being proactive in things like this but Sean told me “at this time we cannot file any opposition or objection since the Board has not yet identified whether they will consider it.”

Meanwhile, Back at the Audit
February 11, 2015
I’ve never been audited before so all of this experience was new and kinda frightening for me. There was a pre-audit questionnaire that requested that I make available records for the period of 10/1/2011 to 9/30/2014. Just a couple things. No biggie. Here’s the list:

1. MINIMUM REQUIRED RECORDS
Sections 1085 and 1092 of the CUIC require all employing units to make business records available to the EDD during normal business hours. These records include:

  • Check Registers, Check Stubs, Canceled Checks, and Bank Statements
  • General Ledger and General Journal
  • Annual Financial Statements (Income & Expense statements, Balance Sheet, etc.)
  • Cash Payments Records (pay-out slips and vouchers)
  • Ownership Verification
  • City Business License
  • Board of Equalization Sales Tax License
  • Any license required to operate your business, such as a liquor license, California State contractor's license, etc.
  • Written Agreements (for example, Partnership Agreement or Articles of Incorporation)
  • Federals State income Tax Returns
  • Form 1099 Series, Federal information Returns and Worksheets

    2. ADDITIONAL RECORDS REQUIRED FOR VERIFICATION OF ACKNOWLEDGED PAYROLL

  • Payroll records such as Payroll Journal, Individual Earnings Records, Payroll Summaries, etc.
  • Federal Employment Tax Reports | Form W-2, Wage and Tax Statement Form W-4, Employee's Withholding Allowance Certificate Form 941, Employer's Quarterly Federal Tax Return Form 940, Employer's Annual Federal Unemployment Tax Return
  • State Employment Tax Reports | DE 9, Quarterly Contribution Return and Report of Wages DE 9C, Quarterly Contribution Return and Report of Wages (Continuation) DE 9ADJ, Quarterly Contribution and Wage Adjustment Form DE 6, Quarterly Wage and Withholding Report DE 7, Annual Reconciliation Statement DE 678, Tax and Wage Adjustment Form DE 4, Employee's Withholding Allowance Certificate

I don’t know how most people behave during an audit, but it was Sean’s advice to fork over everything they asked for without hesitation and be as compliant as possible. So I did. I pride myself on being pretty organized when it comes to all my business records, but to be honest the list above was quite daunting. Fortunately, I’ve retained the same accounting and CPA firm since I started the business. They have been absolutely phenomenal in keeping all of my returns in order not to mention all of the payroll reports and a hundred other minute but ever-so-important details that go into running a business in California. I use a gentleman by the name of Tejas Mehta who has kept me in compliance with both the State and Federal governments since the beginning. So I worked closely with Tejas during the ramp-up to the audit. My office and I spent days printing everything out and making cover sheets with titles. Then I scanned everything into PDF format and copied them into nicely organized folders onto a USB thumb drive to give to the auditor.

All total the above items tallied up to be over 2,000 pages of documents.

My dream team consisted of my attorney, Sean Golding, my CPA, Tejas Mehta and myself.

Left to right: Sean Golding, Esq., Todd Olivas, CSR, Tejas Mehta, CPA

The EDD auditor arrived right on time and the four of us proceeded to the conference room. The auditor was a young, whip-smart guy. He was no nonsense but seemed fair and reasonable at the same time. He said he appreciated that I was so organized for producing all the documents for him. Then he got right to work taking a sample year and entering numbers into his laptop. Quietly, he would enter data in and we would stare at him. Then he would reach for another pile of documents, enter those in. Minutes would go by. Silence. Number crunching. Ten minutes. 15 minutes.. Then he might look up for us to clarify a question or two. “What’s this? Where’s the detail report for that?” We would answer him and occasionally Tejas and I would have to run back to my desk to print out more fine-tuned reports and documents that he requested. Then it would be silence and more data-entry. More minutes passing. More clarification questions. More data entry.

To be honest, it was an uncomfortable morning for me. Even though I knew I had nothing to hide, when the microscope inspects everything you’ve ever done for the past three years, you start to second guess yourself. It’s like a stress test. You know you’ve done everything the right way -- in as much as you know how to -- but until the test is over, you feel the discomfort of the hot seat.

Midway through the morning, the auditor looked up and revealed his findings about my payroll. Everything matched to zero. In his own words he said something like, “I rarely see that.” There was one minor discrepancy that I had over-withheld $3.15 from one employee but that was likely due to an error on the EDD’s own side. No matter the reason my CPA, attorney and I let out a sigh of relief on the payroll issue.

Still, we were only half way through this. There was still the matter of this court reporter claiming to be an employee. The reason it mattered so much to the auditor, of course, is not so much about that individual court reporter’s story but about a much larger issue. Is she just the tip of the iceberg? Are there more court reporters that the EDD needs to investigate, reassess and collect taxes on? And while the dispute about her receiving benefits still lingered in the appeals process, in order to do that he said he required to conduct interviews with five other court reporters who I had used during the test year of 2013.

At the conclusion of the audit, the auditor gave no indication of which way he was leaning on the court reporter classification issue. And his best guess as to the length of time to make his determination was approximately 30 days. We handed over the contact information for the five names he wanted. And as we shook hands and parted ways that day, no one would have guessed that it would actually take another six months before this thing whole thing would be over.

My Second Win
February 20, 2015
Just days after the EDD audit, we got a letter from the California Unemployment Insurance Appeals Board with my second win. The way the second level of appeals goes is two judges independently reassess the evidence that has already been entered into the record. They listen to the audio of the hearing, read the first administrative law judge’s decision and come to a decision about whether or not they agree. No new evidence is usually admitted. If both judges come to the same conclusion, then whichever way they agree upon is the way the appeal goes. If they disagree, then a third judge is called in to assess the case and play the role of tie breaker. In my appeal, only two judges were required to decide that:

“In this case, the evidence supports the conclusion that the claimant was an independent contractor for Olivas & Associates. The claimant was not an employee and Olivas & Associates was not a temporary services employer or a leasing employer under provisions of code section 606.5.”


“The Employment Development Department has submitted additional evidence. This information should have been presented at the hearing. The parties have due process right to review and rebut any evidence considered by the administrative law judge. We have not considered the additional evidence in our deliberations because it would violate due process to consider it at this time and there is no compelling reason set forth why the additional information or evidence could not have been submitted at the hearing. (Precedent Decision P-B-144.)”

This second win at the appeals level was a huge relief for me. The court reporter and the EDD had exhausted their administrative rights. And it felt very good to have the legal backing of now three independent judges who saw things my way. Which, between you and I, were things that I had been saying along -- that this court reporter was not an employee but rather a self-employed, independent contractor.

Still, there was a third bite at the apple possible for the court reporter and the EDD. At the back of the ruling there was some instructions about “further appeal rights.”

“The Appeals Board does not process petitions for court review. You must file such petitions directly with the Superior Court not later than six (6) months after the date of the decision of the Appeals Board.”

Basically claimants (as well as the EDD) who are recipients of adverse decisions can seek a writ of mandate in Superior court which would effectively be a judge striking down all that the administrative law and appeals board judges had done. This would elevate this matter to a whole new level. And -- lucky me -- I only had to wait six (6) months -- another half of a year of my life -- to see if they would go there. Judging by my calendar, August 20, 2015 was the deadline for either one or both of those parties to file a for a writ of mandate.

But for now at least, we had the win at the second level of appeals which is what the auditor was waiting for in order to finalize his audit. So we forwarded the decision over to him the same day and he guestimated closing the audit mid March, 2015. The keyword being “guestimated.”

No News is No News
The mid March target came and went. By late March 2015, Sean inquired with the auditor and didn’t hear back. I jotted down some notes regarding our attempts at communication:

  • March 2015 - end of March, Sean inquiries with auditor. Nothing.
  • April 2015 - no news.
  • May 2015 - no news.
  • June 13, 2015 - Sean follows up… no response.
  • July 7, 2015 - Auditor finally surfaces. Says he needs three (3) more contractors in order to wrap up the audit. We provide him the three he requests. More waiting.
  • July 13, 2015 - EDD auditor writes short email stating that he is going to find court reporters to be independent contractors not employees!

After a long year of dealing with this issue, the end of it came about in kind of an anticlimactic way. An email from the auditor to Sean stating succinctly, “Court reporters not found to be employees. I will contact Mr. Olivas to provide him with some further details.” A slightly longer letter from the auditor arrived a few days later stating:

AUDIT RESULTS
“The audit covered the period April 1, 2012, to March 31, 2015, and resulted in the following findings: No differences were disclosed based on the audit tests performed.”

“No differences” means no taxes due, no court reporters misclassified, no more audit! I’m not sure how I imagined I’d feel when I finally could hold that piece of paper in my hands stating it was all done. I felt relieved. I felt tired. I had literally lost much sleep over this. It put me in bad moods and I let it ruin many otherwise happy moments. Still, I felt grateful that the system had worked; that my court reporting industry was spared some tectonic plate shift of operating practices. I felt blessed that I had found Sean and that Tejas my CPA had been so on top of the payroll withholdings all those years. What I didn’t feel was that the EDD was “out to get me,” like I had briefly toyed with early on. Truth be told, I didn’t even feel angry at the court reporter who set the first domino in motion either. There’s a good chance that she will have to pay back all the monies she received from the EDD in benefits. But that’s none of my business. I wish her no harm. Hopefully, she can learn from this and become a better reporter because of it. (At some other agency, of course.)

I don’t know for sure why the audit took five months. The auditor who we worked with was very fair and professional. My best guess would be that his higher-ups or perhaps the legal department at the EDD didn’t want to give up its right to file the writ of mandate. So as they surveyed that strategy for awhile, my audit (and auditor) languished. All the while I sat on pins and needles. But that’s something I’ll never know about. So I’m not going to lose any more sleep over it! ;)

Last Chance
August 20, 2015 passed without incident. That was the last chance for the court reporter or the EDD to file a writ of mandate. Nothing was filed, putting an end to the entire matter. I could now get back to running my court reporting business and writing this ridiculously long blog post.

Lessons Learned

  • After all was said and done it was determined that all along I had correctly classified court reporters as independent contractors. Lesson learned: Even when you are doing the right things, sometimes you still need to prove it.
  • The entire experience took over a year. Lesson learned: Big problems can take a long time to resolve. You’ve got to treat it like a marathon, not a sprint. And you’ve got to stay positive and know that someday there will be an end to it. Keeping hope alive that things will turn out okay is vitally important so you don't make dumb decisions out of frustration along the way.
  • The EDD is just doing its job. Lesson learned: They are people too and don’t have any personal bias against my company or anyone else.
  • There is a form that I needed to have been filing that I wasn’t. It’s called Form DE542. Lesson learned: I need to file DE542s for every contractor I use.
  • I relied heavily on my team during this experience. Lesson learned: Having excellent counsel in legal and financial areas is not just recommended but imperative.

My Advice to Court Reporting Agencies
Again, I’m not an attorney much less some hero of the court reporting agency world. Still, I did just have a valuable experience for us all. Here is what I would advise any of my fellow agencies:

  • Don’t control anything about the reporters you use except when and where to go to perform the deposition service.
  • Don’t buy any equipment for your reporters.
  • Don’t pay for any training or CEUs.
  • Don’t pay for business cards.
  • Don’t provide space for them to work at your office.
  • Don’t call them “staff reporters.” That term could be misconstrued as treating them like employees.
  • Don’t have some reporters who are employees and some who are contractors.
  • Don’t offer health or any other kind of employment benefits.
  • Don’t require reporters to only take jobs from your agency.
  • Don’t require reporters to attend meetings or stick to a schedule that you dictate.
  • Encourage reporters to incorporate or at least get a DBA.
  • Encourage reporters to work for multiple agencies not just yours.
  • Encourage reporters to have their own clients (not yours, of course).
  • Encourage reporters to hire scopists and proofreaders (This helps not only expedite transcript turn-around times but also shows they have their own employees.)
  • Do have a written contract spelling out all the above.


“Consider it pure joy, my brothers and sisters, whenever you face trials of many kinds,
because you know that the testing of your faith produces perseverance.”

- James 1: 2-3




Wednesday, August 26, 2015

Author
Todd Olivas

Todd Olivas is a court reporter and entrepreneur.
He founded TO&A in 2003.

  Comment by Kathy Kelty | Wednesday, August 26, 2015
It seems to me this reporter was being intentionally vindictive. Is there any reason we can`t disclose names of people who help us with depos, to warn others?
  Comment by Todd Olivas | Wednesday, August 26, 2015
Hi, Kathy. I don`t think there`s any legal reason why I couldn`t disclose the court reporter`s name but I`m just choosing not to for a few reasons.

1. I seriously doubt that this particular reporter will ever try to get unemployment benefits from a court reporting agency again. For that matter, I`m sure the EDD would highly scrutinize anything she were to submit. Thus, any future agency she were to accept assignments from is probably safe in that regard.

2. Since the level of her misconduct -- client complaints about her unprofessional attitude and dropped words -- never escalated to an actual formal complaint with the Certified Reporters Board (CRB) -- thus producing a formal (and public) reprimand, I don`t think it`s right to out her on that issue either.

3. Prior to this mess, to my knowledge she had worked successfully and professionally in the court reporting community at large without incident. I suspect that she could get back to that person and contribute to this profession in a meaningful way again. In short, I believe everyone deserves a second chance.

  Comment by Karen L Buchanan | Thursday, August 27, 2015
Todd, it`s nice to finally put a face to your name, as I`ve done networked jobs for you in the past. I don`t normally read an entire blog (especially not long ones), but yours was so interesting and well written! As a deposition reporter, of course it would be lovely for me to have the benefits of being an employee...however, the ability to have that all-important CONTROL over my life outweighs those bennies, at least to me. Congrats on your win!
  Comment by Anne | Thursday, August 27, 2015
Wow, Todd! Had no idea you were going through such a nightmare. You`ve done a tremendous service to CR firms AND reporters with this article. Good advice to firms as well. I work with several that could learn from your ordeal.
  Comment by Todd Olivas | Thursday, August 27, 2015
@Karen - Thanks for reading my crazy long blog. I appreciate that you took the time to read it. I agree with you too. That having the career control outweighs some of the employee benefits. And having been in business as long as I have, I think I`m ruined as an employee forever. Ha ha.

@Anne - I had no idea the nightmare was going to last so long. And I`m glad it`s over. Still, thanks for the compliment on what this experience can mean for this industry. I do hope others can be helped in the future because of what I went through and learned.

  Comment by Jackie Verkler | Thursday, August 27, 2015
Todd, saw your blog come up on a court reporting site who mentioned something about the reporter. And I thought to myself, Hey, he was my teacher in school!! Doubt you remember me. Was a LONG time ago. Anyways, read your whole blog, unreal that this happened. I have always wished somehow I could figure out a way to do this job without being an IC, however, I have always known I`m an IC and never an employee of any agency I worked with. Just crazy! Hope all is well. I`ve called your agency quite a few times to see if I could somehow work with you all. Maybe some time soon! Take care and congratulations on the win!! ☺️
  Comment by Ana Fatima Costa | Thursday, August 27, 2015
Todd ~

Thank you for sharing this information. As Karen wrote above, I don`t usually read long blogs, but yours is so interesting, compelling and well written, that I just had to read it. This situation is an affirmation of what I told one of student interns who recently got certified: don`t put all your eggs in one basket.

You are a kind and forgiving person to be able to say, after a year-long battle, that you believe that reporter deserves a second chance. I would not be that forgiving, not when her behavior impacted multiple clients, and no doubt your staff and bottom line as well.

Have you considered writing fiction? I have read some of your other blog posts and enjoyed them as well; the content is always relevant. Your writing style is quite engaging!


  Comment by Pam katros | Saturday, August 29, 2015
Wonder if this would help us. I was an official in placer county. We all were let go and the court contracted with a deposition firm. Some went to work for the firm but calpers has called us common law employees and retired annuitants. Also other reporters working for that firm are restricted in hours or the court had to pay retiree benefits. One of our reporters appealed this but because the court agreed to abide by calpers time restrictions, she had no standing. She submitted papers to irs which went no where as they said well someone should be taking taxes out if we are employees.
  Comment by Lori Lowery | Saturday, August 29, 2015
Wow! Congrats!
GIG...
Luke 12:2
Nothing is covered up that will not be revealed, or hidden that will not be known.

  Comment by Sally A Scharfe | Saturday, August 29, 2015
Very educational. The only thing I do on your don`t-do list is supply cards since I want the reporter to give out my cards.


  Comment by Constance Lee | Saturday, July 09, 2016
Todd - thank you for your blog. I appreciate the details. I`m a small agency owner who vascilates between wanting subcontractors or employees. It`s a control issue. Ha ha
  Comment by Z.P | Wednesday, August 24, 2016
Todd, If you think that your fight was a nightmare listen to mine.
I have an agency that provides support that is payments and promotions for a number of Adult Phone Talk Operators.
Sometime around 1991 the same issue of employee v indep.contractor arose and ended up to an EDD administrator judge, who wrote a lengthy decision why those people could not be considered employees. Nevertheless, EDD after an exhaustive investigation filed a criminal action of 10 felony counts against the company and me personally. I found the claim so ridiculous that I did not even hire an attorney. For someone to commit a crime you have to prove, in the majority of the cases, that there was intent to violate the law. How could I had violated the law when the ALJ had already opined that I was correct. I know that what Lincoln had said but I was angry and wanted to defend myself. For 6 months studied the law (before Google) and I was able to write motions and respond to them.
On your issue that they are just doing their jobs, I disagree. So much the DA in San Francisco and well as the Auditor there were so biased and lied to the Court that the Court on my motions threw the case out. Now moving on, the EDD performed a new audit under the same business and under a new name and found again that the Operators are employees and assessed many thousands of dollars as penalty. I appealed and I am awaiting for the ALJ notice of hearing for about 15 months now. There are a number of other intricate stories in between but this blog response has taken too long already. DA and EDD auditors need victories for their carriers so they do a lot of things against the law to achieve them. I am in the middle of one. I write anonymously because the case is going on...


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