Where a state law requires engineers to designate a full-time person or “manager” as being in “responsible charge” of engineering activities, the state agency responsible for administering the statute found an engineer in violation because it used a used an independent contractor instead of an employee to perform that role.  This was reversed by the court which held that an “independent contractor” can be the “manager” of the employee’s personnel.  “In today’s world, it is not at all uncommon for a manager to be an independent contractor rather than a W-2 employee.”  TWISM Enterprises, LLC v. State Board of Registration for Professional Engineers and Surveyors, 2022 WL 17981, (Ohio Supreme Ct., 2022).

TWISM, a small start-up firm, applied to the Board for a certificate of authorization. TWISM’s application designated James Cooper as its manager. Cooper attested that he is a full-time engineer “in responsible charge for and in charge of the professional engineering * * * activities and decisions of the firm.” Cooper represented that he provides engineering services to TWISM on a per-project basis and that he provides all of TWISM’s engineering services. TWISM’s operating agreement lists Cooper as a “manager” “vested with the management” authority “to oversee the day to day operations of the engineering department.” For tax purposes, the firm reports his income to the IRS as an independent contractor on a form 1099, rather than withholding and reporting his income as an employee under a W-2 tax form.

In denying TWISM’s application, the Board stated that the firm “failed to designate one or more full-time partners, managers, members, officers, or directors as being responsible for and in charge of professional engineering activities and decisions for the firm.” In the Board’s view, a manager had to be a “W-2” employee rather than a “form-1099” independent contractor.

Two problems with the application were identified by the Board. First, Cooper did not work “full time” for TWISM.  It pointed to Ohio Adm. Code 4733-39-02(B)’s definition of “full-time,” which requires more than 30 hours of work weekly or “working substantially all the engineering or surveying hours for” the firm. According to the court, “The Board … never explained why Cooper, who indisputably performed “all the engineering hours” of TWISM, failed to meet this definition.”

Second, the Board found that TWISM did not satisfy the requirement that it have a full time “manager.” The Board said that it was necessary that the holder of the certificate of authorization have control over the professional engineer’s activity and “[t]hat control is ensured by an employer/employee relationship.” Thus, the Board adopted a hardline rule that R.C. 4733.16(D) requires formal W-2 employment; and a business may not designate an independent contractor as professional engineer.

The court stated:

“In the administrative proceedings and lower courts, the Board maintained that Cooper cannot work “full-time” as an independent contractor—only an employee can satisfy R.C. 4733.16(D)’s full-time requirement. Now, the Board argues that Cooper, in his independent-contractor capacity, cannot possibly be “responsible for and in responsible charge of” TWISM’s engineering services. Both arguments rely on the legal status of an independent contractor.

The Board’s own regulations define “full time” as including someone who works all the engineering hours of the firm, and there is no dispute that Cooper meets this requirement. And there is nothing in the term “manager” that requires someone to be a W-2 employee instead of an independent contractor. In common parlance, a manager is simply “one that manages” or “a person that conducts, directs, or supervises something.” Webster’s Third New International Dictionary 1372 (2002) … In today’s world, it is not at all uncommon for a manager to be an independent contractor rather than a W-2 employee.

In the court proceedings the Board argued that “independent contractors may be managers, but they cannot be managers who are in responsible charge of and responsible for the hiring entity’s work.” TWISM’s operating agreement provides that Cooper, as manager, is “responsible for and in responsible charge of the professional engineering activities and decisions for TWISM Enterprise, LLC.”

The Board contends that it is legally impossible for Cooper to satisfy those conditions. “Responsible for” and “in responsible charge of,” the Board says, are terms of art with distinct, technical meanings in the engineering profession. Their specialized meanings, adds the Board, involve a degree of “liability,” “supervision[,] and control” that only an employee, never an independent contractor, could possess.”

As further explained by the court:

The Board contends that Cooper cannot be in responsible charge as an independent contractor because TWISM lacks the ability to control the mode and manner of his work. But that misses the point. The applicable language in R.C. 4733.16(D) requires the registered engineer to be in responsible charge of the engineering activities of the firm; it says nothing about the firm’s control over the manager. Quite simply, the Board’s concern for TWISM’s control over Cooper is unconnected to the text of R.C. 4733.16(D).

The Court found that the Board was presenting policy arguments that it tried to dress up as statutory ones. The critical point, found the court was that “these are arguments why an independent contractor should not be allowed to be a firm’s manager, not arguments about whether R.C. 4733.16(D) allows a firm to hire an independent contractor as manager. They are arguments about what the Board would like the statute to say, not about what it does say. And for this reason, they are best addressed to the General Assembly.

In conclusion the court stated, “If the General Assembly meant to require an employment relationship, it easily could have done so.”  It held that the firm satisfied the legal requirements and is therefore entitled to a certificate of authorization to provide professional engineering services.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 25, No. 4 (May 2023).

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