Routine Affirmance of ALJ Economic-Realities Findings: Substantial Evidence, No “Third-Guessing,” and No Sua Sponte Redesign of the Test

Introduction

In Christine Nicole Falconite v. Shed Wise, LLC (Ky. Feb. 19, 2026) (not to be published), the Supreme Court of Kentucky affirmed the Court of Appeals, which had affirmed the Workers’ Compensation Board’s affirmance of an Administrative Law Judge (“ALJ”) order dismissing Christine Nicole Falconite’s workers’ compensation claim. The dismissal turned on a threshold status issue: whether Falconite was an employee of Shed Wise, LLC or an independent contractor.

Shed Wise manufactured and sold portable buildings. Falconite performed sales, clerical, and marketing work (including website and social media activity). She was severely injured when struck by a vehicle while photographing a shed near the roadway in front of the business. Because Shed Wise lacked workers’ compensation coverage, the Uninsured Employers’ Fund (“UEF”) was joined. The claim was bifurcated to decide employment status first, and the ALJ—applying Kentucky’s six-factor “economic realities” test—found Falconite to be an independent contractor.

The key appellate issues were not the merits of the injury, but (1) the degree of deference owed to the ALJ’s factfinding under the economic-realities framework and (2) whether the record evidence compelled a contrary finding.

Summary of the Opinion

The Supreme Court affirmed, holding that Falconite’s arguments largely asked the Court to reweigh conflicting evidence—something Kentucky’s workers’ compensation appellate structure does not permit where the ALJ’s findings are supported by substantial evidence. The Court reiterated:

  • The injured worker bears the burden of proof before the ALJ.
  • The ALJ is the statutory factfinder with sole discretion over credibility and evidentiary weight.
  • On appeal, a claimant who lost before the ALJ must show the evidence compels a contrary result.
  • The Supreme Court will not “third guess” the Board and Court of Appeals where no novel legal issue is presented.

The Court also declined the Court of Appeals’ suggestion that it “should consider modifying or clarifying the economic realities test,” emphasizing that the parties did not challenge Oufafa and that Kentucky courts do not issue advisory opinions.

Analysis

Precedents Cited

1) The economic-realities test and its migration into workers’ compensation

  • Oufafa v. Taxi, LLC, 664 S.W.3d 592 (Ky. 2023): The controlling doctrinal source for applying the economic-realities test in the workers’ compensation context. The ALJ expressly applied Oufafa’s six-factor analysis; the Supreme Court treated that as the correct legal framework and focused solely on whether substantial evidence supported the ALJ’s application.
  • Mouanda v. Jani-King Int'l, 653 S.W.3d 65 (Ky. 2022): The case in which Kentucky adopted the federal economic-realities test (there, in Kentucky Wage and Hour Act litigation). The Falconite opinion uses Mouanda to trace the test’s origin and to underscore that the factors are established in Kentucky law.
  • Keller v. Miri Microsystems, LLC, 781 F.3d 799 (6th Cir. 2015): Quoted (via Mouanda) for the canonical articulation of the six factors. Its influence is structural: it supplies the factor list that Kentucky has incorporated.

2) Burden of proof, ALJ factfinding supremacy, and “compelling evidence”

  • Gaines Gentry Thoroughbreds/Fayette Farms v. Mandujano, 366 S.W.3d 456 (Ky. 2012) and Roark v. Alva Coal Corp., 371 S.W.2d 856 (Ky. 1963): Cited for the proposition that the injured worker bears the burden and risk of non-persuasion before the ALJ on every element. This frames Falconite’s appellate disadvantage: having lost below, she had to show compulsion, not mere support.
  • Paramount Foods, Inc. v. Burkhardt, 695 S.W.2d 418 (Ky. 1985): Reinforces that the ALJ determines the quality, character, and substance of evidence and draws reasonable inferences.
  • Lexington Fayette Urban Cnty. Gov't v. Gosper, 671 S.W.3d 184 (Ky. 2023) and Bowerman v. Black Equip. Co., 297 S.W.3d 858 (Ky. App. 2009): Cited for the ALJ’s discretion “to decide whom and what to believe,” including the ability to accept or reject portions of testimony. This forecloses appellate attacks that simply prefer a different interpretation of conflicting proof.
  • Whitaker v. Rowland, 998 S.W.2d 479 (Ky. 1999) and Special Fund v. Francis, 708 S.W.2d 641 (Ky. 1986): Provide the core “substantial evidence” and “compelling evidence” standards. The Court uses Francis repeatedly to emphasize that appellate reversal requires proof the ALJ’s conclusion is so unreasonable it is erroneous as a matter of law.
  • Wilkerson v. Kimball Int'l, Inc., 585 S.W.3d 231 (Ky. 2019): Applied to explain that when the party with the burden loses before the ALJ, reversal requires showing the evidence compelled the opposite result.
  • Plumley v. Kroger, Inc., 557 S.W.3d 905 (Ky. 2018): Cited for the appellate court’s limited prerogative: ensuring the ALJ’s decision is not contrary to the evidence, not re-deciding the case.
  • Ira A. Watson Dep't. Store v. Hamilton, 34 S.W.3d 48 (Ky. 2000) and McCloud v. Beth-Elkhorn Corp., Ky., 514 S.W.2d 46 (1974): Used to reject Falconite’s reliance on “contrary evidence” arguments. Even if the record could support a different conclusion, that is not enough.

3) The three-tier review structure and limits on Supreme Court intervention

  • W. Baptist Hosp. v. Kelly, 827 S.W.2d 685 (Ky. 1992): Supplies the classic description of the Board’s and Court of Appeals’ roles and the “gross injustice/flagrant error” lens applied by the Court of Appeals. It also grounds the Supreme Court’s self-restraint: review is aimed at novel statutory construction, reconsideration of precedent, or constitutional questions.
  • Laboratory Corp of America v. Smith, 701 S.W.3d 228 (Ky. 2024): Quoted to support “routine affirmance” where the Board and Court of Appeals already provided adequate review and their view of the evidence was not implausible.

4) No advisory opinions; no sua sponte issue injection

  • Dunn v. Solomon Found., 723 S.W.3d 711 (Ky. 2025), Philpot v. Patton, 837 S.W.2d 491 (Ky. 1992), and Kulkarni v. Horlander, 701 S.W.3d 181 (Ky. 2024): Cited to reject the invitation to modify or clarify the economic-realities test where the parties did not raise that issue. The Court stressed Kentucky courts do not provide advisory opinions “unless there is an actual case in controversy.”

Legal Reasoning

The Court’s reasoning is primarily institutional and procedural rather than a fresh application of the six factors to Falconite’s day-to-day work. It proceeds in four steps:

  1. Identify the governing test and accept its application. The ALJ performed the “required six step analysis from Oufafa.” Because no party challenged the test’s validity, the Supreme Court treated the doctrinal question as settled.
  2. Apply the proper standard of appellate review. Under KRS 342.285 the ALJ is the factfinder; the Board corrects error; the Court of Appeals corrects the Board only for misconstrued law or “flagrant” evidentiary error producing “gross injustice”; the Supreme Court does not “third guess” on the same record absent an appropriate reason.
  3. Reject reweighing of evidence. Falconite’s argument centered on conflicting evidence (including her view of economic dependence and indicia of employment). The Court held that pointing to evidence that could support a different result does not establish compulsion.
  4. Conclude substantial evidence supports the ALJ, therefore affirm. The Court found the ALJ’s conclusion was supported by “substantial evidence,” was not “clearly erroneous,” and was not “completely unreasonable.” That ended the inquiry.

A notable doctrinal move is what the Court did not do: it refused to refine the economic-realities test on its own initiative. The decision thus reinforces party-presentation norms and the prohibition on advisory opinions.

Impact

  • Reinforced deference in economic-realities disputes. Even though the economic-realities test can be fact-intensive and debatable, this case signals that appellate courts will rarely disturb an ALJ’s classification where the ALJ identifies supporting evidence under the Oufafa factors.
  • Sharper guidance on how to lose—and win—on appeal. Claimants who lost before the ALJ must build an argument around compulsion (no reasonable factfinder could agree with the ALJ), not around “weighed differently” narratives.
  • Limits on Supreme Court engagement absent a properly framed legal issue. The Court’s refusal to “sua sponte inject issues” suggests that broader clarification of Oufafa will likely come only when litigants squarely raise (and preserve) a doctrinal challenge, not through appellate hints.
  • Practical effect for uninsured-employer cases. Because UEF exposure depends on a covered “employee,” status litigation remains a central gatekeeping battleground—yet the outcome will often be locked in by the ALJ record.
  • Nonpublication caveat. Under RAP 40(D), this opinion is not binding precedent, though it may be cited for consideration (post-2003 unpublished decisions) when no published opinion adequately addresses the issue. Its practical influence is therefore persuasive and procedural rather than formally precedential.

Complex Concepts Simplified

  • Economic realities test (six factors): A multi-factor way to decide whether someone is really operating as an independent business (contractor) or is economically dependent like an employee. The factors are: permanency; skill; worker investment; profit/loss opportunity; right to control; and whether the work is integral to the business. No single factor is automatically decisive; the ALJ weighs them together.
  • Substantial evidence: Enough reliable evidence that a reasonable person could accept it as supporting the ALJ’s finding—even if other evidence points the other way.
  • Compelling evidence / clearly erroneous (in this context): The losing party must show the evidence for the opposite result is so overwhelming that no reasonable ALJ could have decided as this ALJ did.
  • Three-tier review (ALJ → Board → Court of Appeals → Supreme Court): The Board corrects legal error; the Court of Appeals corrects the Board only for serious legal misreads or flagrantly wrong evidence assessment; the Supreme Court typically intervenes for novel statutory questions, precedent reconsideration, or constitutional issues.
  • No advisory opinions / party presentation: Courts decide only the disputes the parties actually raise in a live controversy; they generally won’t redesign legal tests on their own when nobody asked.

Conclusion

Falconite v. Shed Wise, LLC is less a new statement about the economic-realities factors than a firm restatement of Kentucky’s workers’ compensation appellate discipline: when an ALJ applies Oufafa v. Taxi, LLC, resolves conflicts in proof, and grounds the result in substantial evidence, appellate courts will not reweigh the record. The opinion also underscores that Kentucky’s Supreme Court will not sua sponte “clarify” the economic-realities test absent a properly presented controversy, consistent with its prohibition on advisory opinions.