## Facts

- Dr. Armand DeFelice operated a dental practice registered with state agencies as a sole proprietorship.
- His daughters, Dr. Loretta DeFelice (joined 1990) and Dr. Louise DeFelice (joined 2004), practiced in the office under written “association agreements.”
- The agreements stated the association was for practicing dentistry on DeFelice’s patients and expressly provided that the doctors “are not partners.”
- The practice billed patients under DeFelice’s name; payments were deposited into his account.
- DeFelice provided the facilities and equipment and paid rent and operating expenses.
- The daughters were paid a percentage of the fees they generated (initially 35%, later 40%).
- After an audit for 2010–2012 found no unemployment insurance tax payments, the Department assessed approximately $1,896.37 in back taxes, penalties, and interest.
- DeFelice challenged the assessment, asserting the practice had become a partnership with his daughters based on shared control, co-ownership of equipment, and their participation in the building ownership entity.
- An ALJ found no partnership existed and concluded the daughters were in DeFelice’s employment; the Commissioner and superior court affirmed.

## Issues

1. Whether substantial evidence supported the Commissioner’s finding that no partnership existed between DeFelice and his daughters despite DeFelice’s later characterization of the relationship.
2. Whether, absent a partnership, the daughters were employees for purposes of the Employment Security Act, making DeFelice liable for unemployment taxes, penalties, and interest.

## Decision

- The Court of Appeals affirmed the superior court judgment upholding the Commissioner’s decision.
- The court held substantial evidence supported the finding that the practice remained a sole proprietorship and that the daughters were employees rather than partners.
- The court upheld the unemployment tax assessment, including penalties and interest.

## Legal Principles

- On judicial review, courts review the Commissioner’s decision; factual findings adopted by the Commissioner are upheld if supported by substantial evidence sufficient to persuade a fair-minded person of the truth of the finding.
- Whether a partnership exists is a fact-intensive inquiry guided by indicia such as the parties’ expressed intent, control, and sharing of profits and losses.
- Express contractual terms disclaiming partnership, continued operation and registration as a sole proprietorship, centralized billing and control of receipts, and lack of shared losses may support an agency finding that workers are employees rather than partners.
- A reviewing court does not reweigh evidence or substitute competing inferences when substantial evidence supports the agency’s determination.

## Conclusion

The court affirmed the agency determination that the dentist’s daughters worked as employees under the Employment Security Act, not as partners, and that the dentist therefore owed assessed unemployment insurance taxes, penalties, and interest.


DeFelice v. Emp. Sec. Dep't, 187 Wash. App. 779, 351 P.3d 197 (Wash. Ct. App. 2015)