Opinion
11-1-1957
WOODS IRRIGATION COMPANY, a corporation, Plaintiff and Respondent, v. The DEPARTMENT OF EMPLOYMENT of the State of California, and Harry W. Stewart, as Director of the Department of Employment of the State of California, Defendants and Appellants. * Civ. 9157.
Edmund G. Brown, Atty. Gen., Irving H. Perluss, Asst. Atty. Gen., and William L. Shaw, Deputy Atty. Gen., for appellants. Jones, Lane, Weaver & Daley, Stockton, for respondent.
WOODS IRRIGATION COMPANY, a corporation, Plaintiff and Respondent,
v.
The DEPARTMENT OF EMPLOYMENT of the State of California, and Harry W. Stewart, as Director of the Department of Employment of the State of California, Defendants and Appellants. *
Nov. 1, 1957.
Hearing Granted Dec. 30, 1957.
Edmund G. Brown, Atty. Gen., Irving H. Perluss, Asst. Atty. Gen., and William L. Shaw, Deputy Atty. Gen., for appellants.
Jones, Lane, Weaver & Daley, Stockton, for respondent.
VAN DYKE, Presiding Justice.
This action was brought by the respondent, Woods Irrigation Company, a corporation, to recover funds paid under protest to the Director of Employment of the State of California, responsive to assessments made by the director against the respondent. The funds were collected for the period January 1, 1946, through June 30, 1951. During that period the respondent filed no tax returns and paid no taxes to the department. After payment under protest respondent corporation exhausted its administrative remedies for recovery and then brought this action, in which judgment went in its favor, and the department appeals.
Respondent is a California corporation, non-profit in charter and organized primarily for the purpose of furnishing irrigation water to lands owned by its farmer shareholders. Its articles additionally authorize it to furnish irrigation water to the public. With respect to its shareholders it has performed, under governing contracts, the services of furnishing irrigation water to and of draining shareholder lands. It has never exercised its right to perform services for non-shareholders. It has for purposes of irrigation constructed and maintained electrically-operated pumping plants for pumping water into canals constructed and maintained by it throughout the shareholder lands; and likewise has constructed, maintained and operated drainage canals and pumps, through the operation of which it has drained shareholder lands. Its employees maintain and operate all its facilities, including the cleaning, servicing and operating of its distributing canals and its canals for the collection and disposition of drainage waters. It owns no land of its own. All of its facilities are constructed upon land owned by its shareholder members, from whom it has received grants of easements in perpetuity for the construction, maintenance and operation of its facilities. Its employees are paid by it and all of their services in the maintenance and operation of its facilities are confined to the area within its easements, except as their services in maintenance and repair may carry them into areas outside both the farms it serves and its easements. Its services are described as follows: The corporation pumps water from the Middle River of the San Joaquin River adjacent to the lands of its shareholders which is distributed to those lands through canals and control gates. Other canals and control gates and pumps are used for drainage of the land. At the request of an individual farmer shareholder the corporation's ditch tenders release water through the distribution canals for use by the farmers for irrigation purposes. Likewise, wherever necessary, seepage and other excess ground waters are drained into feeder or lateral ditches and into respondent's canals from whence it is pumped into a stream known as Burns cutoff and returned to the San Joaquin River. The physical labor involved is the repair, servicing and general maintenance of the appellant's facilities by employees of the corporation who maintain and operate the pumps and clean the ditches, ditch the banks, cut willows bordering the ditches and do such like general maintenance work. Each farmer digs his own irrigation furrows and when a farmer wishes water he notifies the superintendent of the land division within which his land is located, who, in trun, causes the release from the central ditches of a sheet of water which flows by the farmer's land. The farmer takes whatever water he needs by controlling the flow of water from the central ditches into his irrigation furrows. The flow of water from the corporation's gates on the river, however, is controlled by the corporation which directs the flow into lateral canals which pass inland. There is some supply of subirrigation water from the corporation's main canals and from its lateral and sublateral canals. In the performance of services it is not necessary for the employees of the corporation to go on, and they do not go on, the farm lands outside the area of the easements.
The governing statute has always excluded 'agricultural labor' from liability for contributions to unemployment compensation. Unemp.Ins.Code, sec. 625, formerly sec. 7(a) of the Unemp.Ins.Act, Stats.1935, page 1226. The administrative agency created by the act, under its power to adopt rules and regulations, promulgated a rule defining the term 'agricultural labor' as including services performed on a farm in connection with the cultivation of the soil and the raising of crops, including the irrigation of the land. Substantially the same provisions were applicable during the tax period here involved. In 1951 the rule so promulgated and as amended was made the subject of statute and was later codified as Section 626 of the Unemployment Insurance Code. It is contended by respondent and denied by appellants that the labor performed here was agricultural labor within the meaning of the broad exemption of 'agricultural labor' and further that the administrative rule embraces the labor here performed within its definition of agricultural labor. We will discuss this second contention first.
We have concluded that the services do not fall within the rule because the labor was not performed on a farm as the rule requires. Although the respondent does not own in fee simple the land on which it performs its services, nevertheless the estate which it has in those lands is sufficient to segregate them from the farms which the corporation serves, in so far as necessary or convenient to the construction, maintenance and operation of respondent's facilities, for which purposes the easements were granted. Respondent's control of the lands within the easement boundaries for those purposes is exclusive. The easements constitute definite estates in the land. If the corporation owned the land within the easement areas in fee simple the performance of services thereon would not be more effectively segregated from the lands of the farmer shareholders. Since it is without dispute that the employees of the respondent do not perform services outside the easement areas we conclude that the services are not performed on a farm within the meaning of that term as used in the administrative rule.
It is also contended by respondent that the administrative definition of agricultural labor which we have been applying is not all inclusive but is merely illustrative of labor which is agricultural; that it was not intended in the defining rule to include all agricultural labor as that term is used in the basic statute (now Unemp.Ins.Code, sec. 625) which excludes 'agricultural labor' from 'employment'. Pointing out that the activities of respondent's employees are performed in connection with the growing of the crops themselves and with the preparation of the soil for such growth by drainage, respondent calls attention to the essentiality of irrigation and drainage to the growing of any crops at all and asserts that the labor performed in irrigating and draining the farm land in order that crops may be produced thereon is as much 'agricultural labor' as is the planting and cultivation of the land. Respondent cities Irvine Company v. California Employment Commission, 27 Cal.2d 570, 165 P.2d 908, as the only California case involving facts somewhat analogous to those in issue here. Remarkable as it may be, it appears that no California case has been decided by our appellate courts which directly disposes of the issues in this case. Turning to other states, respondent cites Big Wood Canal Company v. Unemployment Compensation Div. of Ind. Acc. Board, 61 Idaho 247, 100 P.2d 49, 50. There the claimant for a refund was a canal company organized and operated as a mutual nonprofit corporation. Its only function was to maintain and operate a system for distribution of water for domestic and irrigation purposes to its members who were assessed pro rata for the expense of such service. The Idaho Supreme Court held that the canal company employees were performing 'agricultural labor' and hence were within the statutory exemption of that state. Said the court: '* * * Irrigating the land is as much 'agricultural labor' as is the plowing, grading, and cultivating the land * * * In the arid regions of the west, water is the vitalizing element of agriculture. The waters delivered the Big Wood Canal Co. were impounded solely for agricultural purposes and the whole volume so impounded and delivered was appurtenant to the farms, I.C.A., Section 41-1725, cultivated by the farmers who owned the land and hold the water certificates. 'The, fact that the reservoirs or impounding works are many miles distant from the farms to which the water belongs and is delivered through intervening canals, renders the labor necessary for its storage and delivery no less 'agricultural labor'. * * * The fact, that the Big Wood Canal Co. employs and pays the men who tend and maintain the reservoirs and canals, and measure and deliver the water to the farmers, renders them no less laborers in the interest and field of agriculture, since the entire maintenance and operating expense is charged up to and prorated among the various farms and tracts of land to which the water is delivered as an appurtenance. * * * The Big Wood Canal Co. is not a profit-making corporation; it is merely a medium or instrumentality created to represent the farmers owning water rights from the reservoirs and is doing for them what each one cannot do alone for himself.'
Continuing, respondent argues that the services in the case at bar are concerned only with drainage (soil preparation), with the furnishing of irrigation water to farm lands, and with necessary maintenance and servicing of the means by which such drainage is accomplished and such water is furnished; that these services are furnished to shareholders (member-farmers) in connection with the actual growing of produce to the end that the output of the memberfarmers' agricultural produce will be increased; and that it is all work which is necessary and directly
connected with the growing of agricultural crops and, therefore, is excluded 'agricultural labor'. Citing Irvine Company v. California Employment Commission, supra, and Fraenkel v. Bank of America National Trust & Savings Ass'n, 40 Cal.2d 845, 256 P.2d 569.
Despite the persuasive reasoning of the Idaho Supreme Court and of respondent in its brief, we do not think that the services rendered by respondent can be here classified as agricultural labor. We think it apparent, as we have said, that they are not included within the definition of such labor specifically made in the governing rule as being labor performed on a farm in connection with the growing or crops. Neither do we think that these services were intended to be included in the broad basic statutory exclusion contained in the statutory definition of employment as excluding 'agricultural labor'. These services are no more agricultural labor than are the services of employees of corporations engaged generally and commercially in the sale and distribution on water or of power to pump water even though it may be said that crops could not be grown on the farms without the water or power so furnished. The same can be said of drainage. Respondent's shareholders have elected to create respondent as a private corporation devoting its energies to the irrigating and drainage of their lands and thereby have disassociated themselves from the corporation and its activities. There is no warrant for disregarding the corporate entity which those shareholder farmers have thus elected to create and from which they have contracted to receive services. Respondent corporation is a distinct and separate legal entity capable of contracting, as it has contracted, with its shareholder members, capable of contracting also, although it has not yet so contracted, with members of the general public. In carrying on its activities it subjects itself to liabilities which may be cast upon it by law from the consequences of which it shields its shareholder patrons. The mere fact that it is organized as a non-profit corporation does not make it any the less a separate legal entity with its own rights, properties and liabilities. The labor of its employees is not agricultural labor.
The judgment appealed from is reversed, with instructions to the trial court to enter judgment in favor of the appellants.
PEEK and SCHOTTKY, JJ., concur. * Opinion vacated 323 P.2d 758.