SPECIALISTS INC, Employer
An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.
The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission makes the following:
Quality Communication Specialists, Inc. ("QCS") is a Wisconsin corporation which is engaged in business as a low voltage wiring contractor. QCS was incorporated in 1996.
While QCS does a small amount of work for private builders and individuals, wiring homes for telephone cables and speakers, 95% or more of its business is done with one company, Time Warner Cable ("TW"), a cable television provider. QCS provides "tap audit" services for TW, which consists of connecting, disconnecting, servicing and checking the connections between cable television lines and individual cable television subscribers' homes.
QCS enters into arrangements with individuals to perform the tap audit services which it contracts with TW to provide. These individuals are paid by QCS for performing those tap audit services. The issue for decision in this case is whether 5 such individuals who performed tap audit services for QCS in a number of calendar quarters in 1997 through 1999, were properly determined by the Department of Workforce Development ("department") to have been employees of QCS within the meaning of Wis. Stat. § 108.02(12), for purposes of determining QCS' liability for unemployment compensation taxes. (1)
The Unemployment Insurance Act provides that any individual who performs services for pay for an employing unit is an "employee" within the meaning of the Act, unless the employing unit establishes that certain conditions were met. Wis. Stat. § 108.02(12)(a),(b). It is not disputed, and the commission finds and concludes, that the individuals whose status is at issue here all performed services for QCS for pay within the meaning of § 108.02(12)(a).
Wis. Stat. § 108.02(12)(a) creates a presumption that a person who provides services for pay is an employee, and it requires the person paying them for those services to bear the burden of proving that they are not employees. See, Dane Co. Hockey Officials (LIRC, Feb. 22, 2000), Kevin J. Ford (LIRC, May 28, 1998). The burden of proof thus rests on QCS to establish that the conditions necessary to finding the tap auditors to be independent contractors are met. (2)
For the time periods material herein, one of the conditions applied by the Unemployment Insurance Act is that the individuals either held or had applied for a federal employer identification number or had filed a business or self-employment tax return based on the services they performed. Wis. Stat. § 108.02(12)(b)1. It is not disputed that this condition was met as to all of the persons involved here.
The other condition, is that the individuals satisfy at least 6 of the following 8 tests:
a. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.
b. The individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and method of performing the services.
c. The individual incurs the main expenses related to the services that he or she performs under contract.
d. The individual is responsible for the satisfactory completion of the services that he or she contracts to perform and is liable for a failure to satisfactorily complete the services.
e. The individual receives compensation for services performed under a contract on a commission or per-job or competitive-bid basis and not on any other basis.
f. The individual may realize a profit or suffer a loss under contracts to perform services.
g. The individual has recurring business liabilities or obligations.
h. The success or failure of the individual's business depends on the relationship of business receipts to expenditures.
Wis. Stat. § 108.02(12)(b)2. The specific issues for decision in this case are
whether these 8 tests are met as to the 5 individuals in question. These issues are
discussed in order below.
a. The individual maintains a separate business with his or her own office, equipment, materials and other facilities --
This test looks at the question of whether the person "maintains a separate business", with his or her own office, equipment, materials and other facilities. The commission considers that all of the parts of this test must be considered in determining whether it is met.
Separate business - This part of the this test looks at the question of whether the person "maintains a separate business", the term "separate" clearly being intended to focus on the question of whether the activity they engage in is genuinely separate from the activity of the putative employer, and the term "business" clearly being intended to focus on the question of whether the manner of engaging in the activity is characteristic of the way a business operates as distinct from the patterns typical of an employment relationship. It is critical under this test whether the person involved has a separate business apart from the appellant's business. See, St. Clair v. Rylan & Co. Inc (LIRC, June 7, 2000).
Benjamin Carpenter had not previously performed similar services for anyone. Carpenter was looking for work, and QCS' owner, Michael Korene, told him about this opportunity to work for Time Warner. He told him about the business, connected him with the people he needed to get in touch with, told him where he could get the necessary tools, and showed him how to do the job. Carpenter did the work for only a short time. He did not have a business name. While he was performing these services, he did not perform any similar services for anyone else. He performed the services for only a short time. Afterwards, he did not perform similar services for anyone.
Scott Geboy had not performed such services before he did so for QCS. Korene showed him what to do. While working for QCS, Geboy did not perform similar services for anyone else, and he did not perform similar services for QCS after he stopped working for it. All of the work he did came from Time Warner, and QCS was the only company Geboy dealt with. He did the work for only 11 months. He did not do any advertising, and he did not have a bank account for his "business".
Robert Dixon had a separate landscaping business, but the relevant question here is whether the very different services he performed for QCS were performed as part of a separate business involved in providing that kind of service. While Dixon asserted that he did other cable work, going to individual homeowners and asking them if they wanted him to put cable inside, his testimony provided no detail sufficient to allow a finding as to whether the extent of such other work was at all significant compared to the amount of work he did for QCS, or when he began doing such other work in relation to when he began working for QCS. While Dixon stated that he used to do this type of work for other people, his testimony on that point was also not sufficiently detailed to allow a finding as to when he did so, how much of such work he did, and whether he did so as an independent contractor or as an employee. Dixon also indicated that he did not perform cable-related services for any companies other than QCS.
Nathan and Kevin Kallas did not testify, and thus the only evidence in the record concerning the nature of their activities is second-hand. According to Korene, however, they began doing the work because they were friends of Carpenter, neither had performed these kinds of services before doing so for QCS, and neither performed such services for any other contractor of Time Warner or any competitor of QCS. While Korene testified that they performed satellite dish installation services, no foundation was laid to establish that the testimony rested on Korene's personal knowledge (as opposed to what he had been told); in any event, his testimony on that point was not sufficiently detailed to allow a finding as to whether they did so as independent contractors or as employees.
All of the tap auditors were required to display signs on their vehicles that identified them as working under contract from TW.
Considering all of foregoing, the commission finds and concludes that the evidence in the record does not meet QCS' burden of proving that the persons whose status is at issue maintained "separate businesses" within the meaning of § 108.02(12)(b)(2)a.
His or her own office, equipment, materials, and other facilities -- It is a well-accepted principle of statutory construction that meaning should be given to every word, clause and sentence in a statute, and that a construction which would make part of a statute superfluous should be avoided wherever possible. Kollasch v. Adamany, 104 Wis. 2d 552, 563, 313 N.W.2d 47 (1981). This principle should be applied to the interpretation and application of § 108.02(12)(b)(2)a. Thus, meaning must be given to the parts of this test that look to whether the individual maintains a separate business with his or her own office, equipment, materials, and other facilities.
The legislature could have drafted this provision to state,
The individual maintains a separate business, attributes of which may include his or her own office, equipment, materials or other facilities
but it did not do so. Instead, it chose to ask whether the individual maintains a separate business with certain attributes, and it listed those attributes in the conjunctive ("office, equipment, materials and other facilities"). If an individual does not have his own office, it is simply not possible to say that he maintains a separate business "with his own office", without doing violence to the literal language of the statute. Similarly, if the equipment an individual uses in his "business" is not his own, or if he does not provide his own materials for use in his "business", it is simply not possible to say that he maintains a separate business "with his own equipment" and "with his own materials".
It could be argued that it is inappropriate to take this test literally, as requiring that an independent contractor actually have, inter alia, their own office, materials, equipment, etc., because it is the nature of some activities that an office (or materials, or equipment) is not necessary. The commission does not agree with this view. (3) For one thing, as just noted, the statute is plain and unambiguous in stating that the test is whether the person has a "separate business with his or her own office, equipment, materials and other facilities". More important, this argument overlooks the fact that the legislature clearly anticipated that there would possibly be some independent contractors that would not meet some of the tests. To the extent that flexibility is necessary to take into account that some independent contractors may not have an office, materials, equipment, etc., that flexibility is already provided by the structure of the statute, which allows a finding of an independent contractor even if only 6 of the 8 tests are met.
With these considerations in mind, the commission turns to the application of this standard to the facts of this case.
The commission agrees with the finding of the ALJ, that Carpenter, Geboy, Nathan Kallas, and Kevin Kallas did not satisfy the requirement of having their own office. While Carpenter and Geboy both spoke of having home offices, they both lived in the homes of their parents and were apparently just using the facilities available in the family home. Thus, Carpenter, who acknowledged that he paid his parents no rent, worked at the family computer desk in his parents' home. Geboy did his paperwork in his bedroom in his parents' home. Neither Carpenter or Geboy claimed a home office tax deduction. The commission considers their situations to be far removed from what the legislature contemplated when the requirement that an independent contractor have "his own office" was enacted. As to Nathan and Kevin Kallas, there was simply no competent evidence that could be relied on to find that this test was met. While Korene testified that the two rented a cottage behind their parents' home and used part of it as an office and that they purchased a fax machine and had a copier, he also indicated that he was never at their office, and that he did not discuss this with them. It thus appears that his testimony on this point was hearsay; certainly, there was nothing in the record establishing a foundation for his testimony about their supposed office and equipment.
QCS argues that the statute does not require that individuals incur expense connected with their office, so that it should not matter if the office they use is provided to them free by relatives. This argument ignores the fact that the statute does require, that the individual have their own office, equipment, materials, etc. If an adult's "office" is a room in their parent's home, for which they pay no rent, it simply cannot be said to be their own "office". It is their parents'.
While Dixon testified that he had a home office, his testimony established that this was the same as the office for his landscaping business. Dixon owned and operated this landscaping business before he performed services for QCS and continued to do so after he had stopped performing services for QCS. Under these circumstances, the evidence is at best unclear on the question of whether Dixon could be said to have "his own office" for a separate business involved in tap audit work.
Apart from the question of whether the persons involved here had their own offices, it is clear that they did not use their own materials in the course of providing their services to QCS. Use of materials was an integral part of the work they did, involving tags for the lines, seals, cable ends that connected the raw cable to the tap, and terminators. However, all of the individuals whose status was at issue here relied exclusively on materials which were provided to them, at no cost, by QCS, which obtained them from TW. They were in fact required to use those materials, and only those materials.
Considering all of the foregoing, the commission finds and concludes that the evidence in the record does not meet QCS' burden of proving that the persons whose status is at issue maintained separate businesses with their own offices, equipment, materials and other facilities, within the meaning of § 108.02(12)(b)(2)a.
Therefore, QCS has not established that the persons whose status is at issue
satisfied the test stated in § 108.02(12)(b)(2)a.
b. The individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and method of performing the services --
This test has two conceptually distinct components. For it to be satisfied, it must
be established both that the individual operates under contracts to perform
specific services for specific amounts of money, and that the individual operates
under contracts under which they control the means and method of performing
Operates under contracts to perform specific services for specific amounts of money - Giving meaning to the legislature's presumably intentional choice of the use of the plural form, "contracts", in this statute, and taking into account the policy and purpose behind the statute, the commission has held that this test requires a showing of multiple contracts.
The existence of multiple contracts tends to show that an individual is not dependent upon a single, continuing relationship subject to conditions dictated by a putative employer. The threshold requirement of multiple contracts can be satisfied, in the view of the commission, either by multiple serial contracts or multiple contemporaneous contracts. Multiple contracts that an individual enters into with multiple business entities are most indicative of that individual's economic independence from a particular putative employer. However, multiple serial or contemporaneous contracts with a particular putative employer may satisfy the criterion if the contracts are shown to have been negotiated "at arm's length." In genuine independent contractor relationships, negotiation will typically result in terms that will vary over time and will vary depending on the specific services covered by a contract.
T & D Coils, Inc. (LIRC, Dec. 15, 1999). The test is therefore not met in cases in which the individual provides services for only one entity, and does not negotiate and re-negotiate rates with that entity, but simply accepts what is given as the going rate for the services in question, and provides those services in the course of a continuing relationship the terms of which do not vary over time. Dane Co. Hockey Officials (LIRC, February 22, 2000).
In this case, the tap auditors provided services only to QCS. Furthermore, there were not "multiple serial contracts negotiated at arm's length" with QCS, in the sense contemplated by T & D Coils. According to Korene, all of the tap auditors were under "a verbal contract", and that testimony is consistent with the testimony of the tap auditors, which contains nothing to suggest that the terms of their relationship with Korene were ever changed. In fact, there is nothing that suggests that any negotiation about the terms of the relationship ever occurred at all, much less that there were periodic renegotiations as a result of which it could be considered that new contractual arrangements were entered into.
The administrative law judge in this case found that there were "periodic contracts for specific work". The commission disagrees. The only conceivable basis for this finding is the evidence that the contractors picked up "routes" from Time Warner about once a week. However, the mere fact that there are work assignments given out on a regular basis does not amount to multiple serial contracts; see, Prince Cable, Inc. (LIRC, February 23, 2001). In this case, the tap auditors simply picked up route assignments from TW on a regular basis. This certainly could not be considered to constitute the negotiation and entry into of a new contract with QCS. It appears that the route assignments consisted simply of a list of addresses where the tap auditors would perform services on the same terms that they had originally agreed to when they commenced their relationship with QCS. Their situation thus was much like that of the persons at issue in Dane Co. Hockey Officials.
For the foregoing reasons, the commission finds and concludes that the tap auditors in this case did not operate under contracts to perform specific services for specific amounts of money within the meaning of this test.
Control of means and methods -- In addition to the foregoing, the evidence in the record is inconsistent with a conclusion that the tap auditors controlled the means and methods of providing services A significant degree of outside control was asserted over the means and methods by which these tap auditors performed their services. They were required to carry certain insurance (specifying both type and coverage amount); they were required to carry and use special hand-held computers for keeping records of the work and also to follow other procedures for record-keeping; they were required to carry pagers so that they could be contacted to be sent out on repair calls; they were required to observe certain hours, not working on Sundays or after 5:00 P.M. in certain areas; they were required to use only certain parts and materials; they were required to carry photo identification badges and to place signs on their vehicles identifying them as Time-Warner contractors; they were required to attend certain meetings, and they were trained in and required to comply with standards of "workmanship" set by someone else. These facts all weigh against a finding that the tap auditors controlled the means and methods of providing their services. See, e.g., Prince Cable, Inc. (LIRC, February 23, 2001) (requirement that person wear a uniform or badge and display a sign on their vehicle identifying them with the company for which they are performing services, cuts against a finding that the individual controlled the means and methods of performing the services), Care & Comfort Assoc. (LIRC, April 30, 1999) (power to schedule work times, and to require persons providing services to undergo an orientation process, are indicia that the person providing services does not control means and methods).
The fact that certain requirements as to means and methods of providing services originated with TW rather than QCS, is not relevant. The test does not ask whether the putative employer controls the means and method of performing the service; it asks whether the individual whose status is at issue controls the means and method of performing the service. If they do not, it does not matter who does.
For the foregoing reasons, the commission finds and concludes that the tap auditors are subject to so many outside requirements about how they do what they do, that it cannot be said that they control the means and method of performing the service within the meaning of the applicable test.
Therefore, QCS has not established that the persons whose status is at issue
satisfied the test stated in § 108.02(12)(b)(2)b.
c. The individual incurs the main expenses related to the services that he or she performs under contract --
Applying this test requires a determination of what services are performed under the contract, what expenses are related to the performance of those services, which of those expenses are borne by the person whose status is at issue, and whether those expenses constitute the main expenses. Lozon Remodeling (LIRC, September 24, 1999).
What services are performed under the contract -- The services performed under the contract here include working on cable connections: creating such connections, removing them, and checking on the status of and servicing existing connections. Another service performed by the tap auditors, is the recording of data about the connections. This service is necessary not only to determine what connections have been worked on so that appropriate payment can be determined, but also to facilitate follow-up quality control checking and correction of errors. The commission therefore finds that this is service performed under the contract.
What expenses are related to the performance of those services -- The expenses that are related to the services described above necessarily include the regular "overhead" expenses such as insurance and costs of the vehicle necessary to get the large equipment (ladder) to work sites. (4) There is also expense involved with the equipment. The necessary equipment includes hand tools and a ladder. In addition, the hand-held computer used to record data about the connections is also a piece of equipment necessary to the services performed under the contract.
Besides the costs of recurring "overhead" expenses such as insurance and of equipment, the materials used by the tap auditors undoubtedly have a cost. This presents the question, of whether the expense of these materials should be considered an expense that is "related to the services performed under the contract". The commission has held, in Prince Cable (LIRC, February 23, 2001), that materials such as cable boxes and wire are an expense related to the service of cable television installation and connection. It is also significant that another one of the 8 tests for independent contractor status, § 108.02(12)(b)2.a., treats having one's own "materials" as an indicator of independent contractor status. The commission concludes that the expense for the materials used by the tap auditors in this case is an expense related to the service they perform within the meaning of § 108.02(12)(b)2.c.
Which expenses are incurred by the person whose status is at issue - The tap auditors incur the expense connected with regular "overhead" expenses such as insurance and costs of the vehicle necessary to get the large equipment (ladder) to work sites. They also incur the expense connected with the ladder and hand tools. However, they do not incur the equipment expense of the hand-held computer, and they do not incur the expense of the materials which are used.
The ALJ concluded that the "negative pregnant" of the language of this test is that the putative employer, rather than the person whose services are at issue, incurs the expenses referred to. From this he reasoned that even though the tap auditors did not incur the expense of the materials used, the putative employer also did not incur that expense (since that the materials were provided by TW), and therefore the condition was met. The commission does not agree with the ALJ's theory. The "negative pregnant" is a legal concept which is concerned with the interpretations of denials in pleadings, see, e.g., All Electric Service v. Matousek, 46 Wis. 2d 194, 174 N.W.2d 511(1970), and occasionally with jury verdicts, see, e.g., Miller v. Kujak, 4 Wis. 2d 80, 90 N.W.2d 137 (1958). (5) It has no utility, and should not be resorted to, in the interpretation of statutes. The statute in this case is clear and precise in inquiring simply into whether or not the person whose status is at issue incurs the main expenses related to the services performed. If that person does not incur the main expenses, the inquiry is at an end.
Do the tap auditors incur the "main" expense - The commission considers that the question of whether individuals incur the "main" expenses related to the services they perform, contemplates quantification of the expenses. The primary meaning of the adjective "main" is "most important" or "principal". If a person incurs only half or less than half of the expenses related to their activity in providing some service, it is very difficult to see how it could be said that they incur the "main" expenses related to their activity in providing that service. Thus, a determination is required as to whether the individuals in question incur a majority of the expenses related to the services they perform.
One issue presented by this part of the criterion, is how the expense of equipment should be quantified.
The provisions of § 108.02(12)(b)2. being applied in this case are intended to be used to determine whether a person is acting as an independent business. An activity engaged in as a business will presumably have bookkeeping records, if for no other reason than that some type of financial records are an absolute necessity for preparation of tax returns. In § 108.02(12)(b)2., the legislature used terms such as "expenses", "profit", "loss", "receipts", "expenditures", which have meaning in conventional business bookkeeping practice. In view of this, it is reasonable to assume that the legislature intended that conventional business bookkeeping approaches would be adopted to interpreting and applying the statutory standards.
In conventional business bookkeeping, income is measured against expenses to determine operating profit or loss. In the case of both income and expenses, the conventional approach is to look at income and expenses over fixed periods of time - typically, monthly, or annually - to make this determination. Expenses which are by their nature periodic are easily incorporated into such a system. However, a one-time, non-periodic cost, such as the purchase cost for a piece of capital equipment, is not normally accounted for by being treated as an "expense" in the month or year in which the purchase is made. Rather, it is converted into a periodic depreciation expense, by dividing the purchase cost by the anticipated useful life of the asset. For example, if the useful life of a ladder is 3 years (with no resale value at the end of that time), and the purchase price of the ladder is $600, its "expense" is properly considered to be its regular depreciation expense over that period, of about $17 per month. Thus reduced to a periodic expense, it can be accounted for in the books of a business and factored into a determination such as monthly or annual income-vs.-expenses, etc.
In this case, the evidence in the record about the purchase cost of the equipment used in performing the services is somewhat indefinite. Carpenter said the "dollar value" of his tools and ladder was "between $500 and $1,000". Geboy said he spent "around $1,000" for tools and equipment. Dixon testified that he had "about $3,000" worth of equipment, but his testimony left open the possibility that some of what he was referring to was equipment used in his landscaping business. Korene testified that the cost of the ladder necessary for the work was "about $300" and that the necessary tools cost "about $400-$500". Considering the foregoing, the commission believes that the record is insufficient to establish anything with respect to equipment expense to the quantum of proof necessary to meet the burden of proof, and that the most that can be said is that the purchase cost of the ladder and tools necessary to perform the tap audit work involved in this case was possibly somewhere in the neighborhood of $1,000. The hand-held computer which the tap auditors were required to use - the expense of which they of course did not incur - was worth "about $1,800", according to Korene.
While there is some information about the cost of the equipment which is used in the services at issue in this case, there is no information about the useful life of that equipment, and thus there is no basis on which to determine a depreciation expense for that equipment that would allow it to be compared with and considered together with the other types of expenses here (for example, insurance), which are periodic.
Another expense issue involves insurance. The tap auditors had an expense to maintain Workers Compensation insurance, liability insurance, and insurance on the vehicles they used to get to worksites. The evidence in the record about the expense for such things as insurance is also somewhat indefinite. Neither Carpenter or Geboy provided any information on the cost of their insurance, so as to them there is a total lack of evidence as to the amount of their insurance expense. Dixon's only testimony affixing a dollar amount to his insurance expense was that he "carr[ied] a $2000 liability policy"; however, it is not clear if that describes the coverage amount, or its (premium) cost. Korene testified that premiums for Workers Compensation insurance varied from about $550 to $850 per year (equivalent to about $45-70 per month). With respect to liability and vehicle insurance, he testified that he "heard" that some of the tap auditors paid about $250 per month for that coverage. Even overlooking the incompetence of this testimony as to what he "heard", Korene's testimony about the $250 per month figure is problematic in that it does not separate out liability insurance and vehicle insurance, and there are questions about whether all of the vehicle- connected expense could be deemed to be "related to" the services at issue when what is involved is the personal vehicles of the people involved which they had before they began performing these services and after they ceased doing so. (6) Considering the foregoing, the commission believes that the record is insufficient to establish anything with respect to insurance expense to the quantum of proof necessary to meet the burden of proof, and that the most that can be said is that it probably did not exceed $300 per month.
Another expense issue involves materials. As with insurance expense, the record is also indefinite with respect to the amount of expense attributable to materials. These materials consisted of tags for the lines, seals, cable ends that connected the raw cable to the tap, and terminators. There is no evidence in the record as to what the cost of these items was. However, there is evidence which allows an inference as to the quantity of materials that might typically be used. The "per-unit" price paid to tap auditors was $4 per active tap and $2 per inactive tap. Korene testified that Benjamin Carpenter, who did less work than the others, earned on the average about $200 per week. That suggests that he did between 50 and 100 units per week - or 200 to 400 units per month. The other tap auditors, who according to Korene worked 8 to 10 hours per day "and made quite a bit of money", obviously did significantly more units per month than Carpenter. Even if the cost of the materials used was something minimal such as 50 cents per unit, it is obvious that given the number of units they worked on, the expenses for materials used by a tap auditor could amount to several hundred dollars per month.
QCS argues that it does not know how the department claims to know the cost and the quantity of parts used, in order to determine if it is the main cost. This argument relies on an improper shifting of the burden of proof applicable to this proceeding. As noted above, where (as here) the evidence shows that persons performed services for pay, the burden of proof is on the entity for whom they perform those services and by whom they are paid to establish that they are not employees. This means that the department does not bear the burden of proving that the individuals do not incur the main expenses related to the services they perform; rather, QCS bears the burden of proving that the individuals do incur the main expenses related to the services they perform. In this case, it is quite clear that there are some expenses (including materials, and the expense connected with the hand-held computer) which are related to the services performed and which are not incurred by the tap auditors. It is also clear from the evidence that these expenses are not de minimis. If the evidence is insufficient to allow a finding to be made as to the amount of those expenses, or insufficient to allow a finding to be made as to the proper quantification of other expenses (such as some equipment) which are incurred by the tap auditors, with the result that it is not possible to find that they incurred the main expenses, then the consequences fall on the party who bears the burden of proof: QCS.
Considering all of the foregoing, the commission finds and concludes that the evidence in the record does not meet QCS' burden of proving that the persons whose status is at issue incurred the main expenses related to the services they performed, within the meaning of § 108.02(12)(b)(2)c. As far as equipment expense is concerned, QCS offered inadequate evidence to determine what the cost of the equipment was, and what the useful life of the equipment was, and thus of what the monthly expense equivalent of the equipment was; in addition, given that the equipment which was not provided by the tap auditors (the hand-held computer) was apparently of greater value than the equipment that was provided by them (ladder, tools), it seems likely that the tap auditors did not incur the main part of equipment expense related to their services. With respect to other expenses, QCS offered inadequate evidence to determine what the expenses for insurance were and what the expenses for materials were; in addition, given that the material expense which was not incurred by the tap auditors was apparently greater in value than the insurance expenses which were incurred by them, it seems likely that the tap auditors did not incur the main part of those expenses either.
Therefore, QCS has not established that the persons whose status is at issue satisfied the test stated in § 108.02(12)(b)(2)c.
d. The individual is responsible for the satisfactory completion of the services that he or she contracts to perform and is liable for a failure to satisfactorily complete the services --
In its brief, the department concedes that QCS met its burden of proof to establish that this condition was satisfied. This concession was based on the department's characterization of the evidence as being that, in cases in which it was determined that an individual had done unsatisfactory work, it was understood that the individual would have to take corrective action for no additional compensation.
The commission agrees that QCS met its burden of proof to establish that this condition was satisfied, but it has a somewhat different view than the department of the reasons that this is so.
As the commission has noted, the obligation to do re-work on pieces of work that have not been done satisfactorily, without additional pay, if one wants to be paid for having done that piece of work, is a characteristic that is shared by acknowledged employees working on a piece-work basis. See, T-N-T Express LLC (LIRC, February 22, 2000). Generally, a piece-work employee is "obliged" to do re- work for no additional compensation in the sense that he must do so if he wants to be paid for the piece; if he is content to take his pay for his satisfactorily-produced pieces and go home, though, he is free to do so. See, T & D Coils (LIRC, December 15, 1999). What is not shared by employees on a piece work basis, is a true "responsibility for the satisfactory completion of the services that he or she contracts to perform". True responsibility for satisfactory completion of the services means that the person does not have the option to not complete or correct incorrectly done work and to instead settle for not being paid for that piece of work. Instead, the person is expected to do the rework.
"Liab[ility] for a failure to satisfactorily complete the services" can be understood as meaning that the consequences provided by the contract for the failure to do such re-work to "put things right" are greater than merely not being paid for the work not put right. This might be evidenced by such things as a liquidated damages clause, or a contract provision allowing the other party to contract with someone else to do (or re-do) work not satisfactorily completed and to recover the costs of the third party's services from the original contractor even if the costs are higher than the original contractor agreed to.
In this case, the evidence tends to establish not merely an obligation to correct unsatisfactory work in order to be paid for it, but an expectation that unsatisfactory work will be repaired -- whether or not the tap auditor might, if allowed to do so, simply be inclined to let that piece of work go and simply not be paid for it. Thus, the tap auditor is "responsible for the satisfactory completion of the services that he or she contracts to perform". The evidence also shows an actual penalty scheme, in which "back charges" of $25 or $50 can be made if poor workmanship requires that certain work be re-done. These back charges appear to be significantly greater than the $2 to $4 per unit price paid to the tap auditors. Thus, there is "liab[ility] for a failure to satisfactorily complete the services" .
Therefore, QCS has established that the persons whose status is at issue satisfied the test stated in § 108.02(12)(b)(2)d.
e. The individual receives compensation for services performed under a contract on a commission or per-job or competitive-bid basis and not on any other basis --
The tap auditors were paid according to the number of "taps" they worked on. They were paid at a fixed rate of $4 per tap for active taps, and $2 per tap for inactive taps. Korene acknowledged that the tap auditors were paid "per unit".
The commission disagrees with the ALJ's view that the tap auditors were paid "on a commission basis, that is, a piecework basis". The tap auditors were clearly not paid on a "commission" basis. A "commission" pay basis is one in which a person is paid a certain percentage of a price which someone else agrees to pay for a good or service. Perhaps if the method of payment here had been that the tap auditors were paid a percentage of the price which Time-Warner charged cable subscribers to come and set up a connection, it would be accurate to say that they were working on a commission basis - but they were not paid on any such basis. It is also clear that the tap auditors were not paid on a "competitive bid" basis, there having been no competitive bidding for the price for any element of the operation, whether it be considered the price to work on a particular "tap", the price for a route assignment, or the overall terms of the arrangement. The only significant question, therefore, is whether the tap auditors were paid on a "per-job" basis.
QCS argues that the department was in error to characterize the pay system here as involving "piecework". According to QCS, "piecework" involves the production or processing of multiple similar items, and it argues that this is not the same as the work done by its tap auditors, who did not produce or process any items but who were paid by individual codes for individual tasks established by contract. The commission does not agree with this argument. The work the tap auditors did was precisely the processing of multiple similar items. The items were the cable taps they worked on; the processing was the creation or removal or modification of connections and the marking of the connections and recording of data about them. The substantial similarity of each individual task is attested to by the standardized rate of pay "per unit". This is closely equivalent to a typical "piecework" situation.
More to the point, though, given that the pay system here was not "commission" or "competitive bid", the remaining question is not whether the pay system here was or was not "piecework"; it is whether the pay system was "per job". The commission believes that it was not. By referring to a "per job" payment basis, the legislature clearly had in mind a situation in which an independent businessperson enters into a contract to do an entire job of some kind for which a price is then set, the price presumably having been arrived at by the parties' negotiation taking into account the particulars of the job contracted for. In this case, the tap auditors are simply doing one task, over and over again, and being paid according to the number of times they do it. The price per task does not change, and no separate contract is entered into for each task.
Therefore, QCS has not established that the persons whose status is at issue
satisfied the test stated in § 108.02(12)(b)(2)e.
f. The individual may realize a profit or suffer a loss under contracts to perform services --
One of the difficulties in discerning the meaning of this test, is the ambiguity created by the use of the phrase "may realize a profit or suffer a loss" (emphasis added). It could be argued that this test is met where an individual may realize a profit, even where there is no realistic possibility that the individual could suffer a loss - since the statute asks whether the individual "may realize a profit or suffer a loss". (7) On the other hand, it could be argued that this test must be read as asking whether both profit and loss are possibilities.
The commission believes that the former construction is not reasonable. If this test was met whenever a person had the possibility of realizing a profit even if they had no realistic possibility of suffering a loss, and if the test was also met whenever a person had the possibility of suffering a loss even if they had no realistic possibility of realizing a profit, then the only time the test would not be met, would be in the essentially unimaginable case of an endeavor in which it was impossible to ever do anything but exactly break even. Under such a construction, the test would in effect become one which was always met - and it would thus be rendered superfluous. A statute should be construed so as to not render any part of it superfluous, if such construction can be avoided. State v. McCrossen, 129 Wis. 2d 277, 298, 385 N.W.2d 161 (1986), cert. denied, 479 U.S. 841 (1986); Kollasch v. Adamany, supra.
The latter construction - that this test asks whether a business faces both an actual possibility of making a profit, and an actual possibility of suffering a loss - is more reasonable. Interpreted in this way, it describes the situation which is faced by real business endeavors.
Another difficulty in determining the meaning of this test, is in distinguishing its intended meaning from that of test h. ("The success or failure of the individual's business depends on the relationship of business receipts to expenditures"). This difficulty arises because "profit" and "loss" are in large part defined by "the relationship of business receipts to expenditures", and by most standards, the success or failure of a business is measured precisely by whether it makes a profit or generates a loss.
Notwithstanding the fact that sub. f and sub. h seem to be addressed to the same characteristics of a business, the structure of the statute absolutely requires the commission to give them an interpretation which allows them to have different meanings.
The commission concludes that the most reasonable way to distinguish between sub. f. and sub. h. is to interpret the former as looking at the potential for profit or loss arising under particular individual contracts which a person enters into in the course of their business, while interpreting the latter as looking at the overall course of the person's business, which presumably involves a number of different contracts with different parties, or at least a number of separately-negotiated sequential contracts with a single party (see, discussion of sub. b., supra at p. 7). The language of sub. f. asks whether the individual may realize a profit or suffer a loss under contracts to perform services. It is important, in the construction of statutes, to give meaning to every word, clause and sentence in the statute. Kollasch v. Adamany, supra. The commission believes, that the use of the phrase "under contracts to perform services" in sub. f. implies that the potential for profit and the potential for loss need to be evaluated by looking at the specific contracts the individual enters into. In other words, this test does not look at the question of whether, in the long run, income received through the person's business will exceed expenses (or vice-versa). Rather, it looks at the question of whether under particular contracts the person enters into, there can be a profit (if the income received under that contract exceeds the expenses incurred in performing the contract), and also whether there can be a loss under that contract (if the income received under that contract fails to cover the expenses incurred in performing the contract).
It is clear from the record in this matter that it would be possible for the tap auditors to receive more in pay for their services that they are required to spend on the various types of expenses they incur in performing their services. However, even assuming for the sake of discussion that this would constitute "realiz[ing] a profit ... under contracts to perform services", (8) there is still the question of whether it would be possible for the tap auditors to "suffer a loss under contracts to perform services". The commission does not believe that it would, in the sense that is intended by this test.
In Dane Co. Hockey Officials (LIRC, February 22, 2000), the commission said:
[T]here is virtually no activity involving providing service for someone or something, that does not require incurring some kind of outright expense. That can be just as true in the case of an acknowledged employe, who may incur expenses such as work clothes, buying and maintaining a car to be able to get to work, etc. If a person who has incurred such expenses then makes the choice not to do work which is available to them, they may well end up "out-of-pocket", but that does not necessarily constitute a "loss" such as is contemplated in the case of a business. In a real business, genuine risk of loss frequently accompanies contracts to provide particular services not because the person makes a choice not to do anything at all, but because of the unpredictability inherent in the business enterprise. The businessperson who develops a bid to do a particular job for a particular sum, must anticipate variations in prices of supplies, in the availability of time and conditions allowing fulfillment of the contract, and other matters. If they are skilled, they may correctly anticipate these things and fix a price which will generate a profit for them when, at the end of the job, the columns are all tallied. If they are not so skilled, or if unforeseen events occur that prevent the fulfillment of the contract under the conditions they anticipate, then they may suffer a genuine business loss . . .
Looking at the record which was before it in Dane County Hockey Officials, the commission said, "The situation here does not appear to be significantly different from a situation in which a person who provides services as an employe has certain fixed, predictable expenses of employment, which are more than offset by the income they can earn through employment, if they engage in that employment. Of course it is true, that if they then choose not to work very much, they will be out some quantity of money. However, the commission believes that this does not involve a situation of risk of business profit or loss such as is anticipated by this test." The same observations are appropriate here.
In this case, there is a lack of good quantitative evidence on the amount of the expenses which must be incurred to perform the services in question. However, as noted above, it appears that the purchase cost for the necessary equipment is around $1,000, and even assuming a useful life of only 3 years for this type of equipment (ladder, hand tools), this is equivalent to an expense of only about $27/month. As noted above, insurance costs appear to be at most in the area of $300/month. According to the testimony of Korene, however, even Carpenter, who worked less than the others, averaged about $200/week - well in excess of the amount of monthly expenses which had to be incurred to be able to perform the services called for under the contract with QCS. The commission therefore finds and concludes that there was no realistic possibility that a person who did the work which was made available to them under the contractual arrangements QCS offered, would suffer a "loss".
(QCS argues that Carpenter "stated in his testimony that he did claim a loss". The commission is not persuaded by this argument. Carpenter stated that he "believed" he had claimed a loss on his taxes. He explained that this was because he worked for such a short period of time that he did not recoup the money for tool expenses and truck payments. Carpenter acknowledged, however, that he leased his truck for personal use as well as business use and that he continued the lease even after he stopped performing these services, so it is questionable how much of the payments he made for the vehicle could have legitimately been considered an expense to count towards a "business" loss. He also testified that he sold his equipment when he stopped doing the work, so it is clear that there was some recoupment there. Furthermore, Korene testified that Carpenter averaged $200 per week in income; considering that Carpenter testified that his equipment cost him only "between $500 and $1,000" and that he performed services in 1998 and in 1999, it is difficult to believe that he would have sustained any significant loss. Most important, Carpenter's results in this activity were determined not by the types of risks that are attendant on a genuine business, but by his personal choice to stop performing the services when work was still available to him.)
The persons whose status is at issue here have a relatively small amount of "expense" connected with their activities. Their equipment could, as discussed above (supra, at p. 11) be considered to generate a small monthly expense based on depreciation. It appears that their most significant expense, for insurance, could not have been much over $200-$300/month even if all of the vehicle expense was attributed to the business. By way of contrast, there was testimony that even Benjamin Carpenter, who voluntarily chose to do less work than was available to him, averaged income of around $200/week - or over $800/month. The situation thus appears to be one like in Dane Co. Hockey Officials in which the persons whose status was at issue had certain fixed, predictable expenses, which were more than offset by the income they could earn through providing services if they simply did the work which was available to them. In such a case, there is no realistic prospect of experiencing a "loss" under a contract to provide tap audit services to QCS.
Therefore, QCS has not established that the persons whose status is at issue
satisfied the test stated in § 108.02(12)(b)(2)f.
g. The individual has recurring business liabilities or obligations --
In this case, there is evidence that the persons whose status is at issue have at least some recurring expenses for insurance. While it has been noted above that the evidence is inadequate to allow this expense to be accurately quantified, the "recurring business liabilities or obligations" test does not involve a quantitative comparison. Therefore, the lack of definite evidence as to the amount of the insurance expense is not critical. The recurring obligation to pay premiums for insurance which must be maintained in order for the individual to be able to perform their services under contract, appears to fit within the intended meaning of the phrase, "recurring business liabilities or obligations".
The department argues that if an individual is found not to satisfy the "separate business" test under sub. a., they cannot be found to have satisfied sub. g. The commission disagrees. As it noted in T-N-T Express LLC (LIRC, February 22, 2000), any construction of a test under Wis. Stat. § 108.02(12)(2)(b) which "links" it to another test, so that one test ipso facto cannot be deemed met unless the other one is met, is fundamentally at odds with the structure of the statute, in which the question is whether at least 6 of 8 tests are met. Unless each test is interpreted to mean something distinct from the other tests, and unless the interpretation given to each test allows the theoretical possibility that it can be met whether or not any other particular test is met, the "6-out-of-8" structure adopted by the legislature would be defeated.
The department has conceded that if its argument "linking" this test to sub. a. is not accepted, this test has been met. For the reasons given above, the commission agrees.
Therefore, QCS has established that the persons whose status is at issue satisfied the test stated in § 108.02(12)(b)(2)g.
h. The success or failure of the individual's business depends on the relationship of business receipts to expenditures --
As noted above, the commission believes that this test is intended to look at the overall course of the person's business. It contemplates that, as in any true business, there is a potential for success and also for failure in the relationship of business receipts to expenditures.
As it did in the case of sub. g., the department raises a "linkage" argument, that if an individual is found not to satisfy the "separate business" test under sub. a., they cannot be found to have satisfied sub. h. For the reasons discussed above, the commission disagrees with this argument.
However, the commission agrees with the alternative argument made by the department, that given the facts here the activities of the tap auditors are not within the scope of what was intended by this test. As the department points out, the tap auditors were paid at a fixed, per-unit rate, they had only a relatively small investment in tools and equipment, and their relatively small recurring expenditures could be readily discontinued if the flow of work they were given ceased, so that they faced no realistic prospect of any significant period in which they would have to make expenditures without any receipts coming in. See, Gronna (The Floor Guys) (LIRC, February 22, 2000). The commission considers that such a situation is far from what was contemplated by the legislature when it adopted this test.
Therefore, QCS has not established that the persons whose status is at issue
satisfied the test stated in § 108.02(12)(b)(2)h.
Conclusion -- QCS has established only that the persons whose status is at issue here satisfied the tests in sub. d and g. It has not established that they met any of the other tests.
The commission therefore finds that QCS did not meet its burden of proof under Wis. Stat. § 108.02(12)(b)2. to establish that the individuals whose services are at issue met at least six of the eight tests stated in that section while performing services for QCS.
The commission further finds that all services performed for QCS by Benjamin Carter, Robert Dixon, Scott Geboy, Nathan Kallas, and Kevin Kallas, in the calendar quarters at issue, as set forth with more particularity in the Initial Determinations in this matter, were performed by them as employees of QCS, within the meaning of Wis. Stat. § 108.02(12). QCS is therefore liable for unemployment compensation contributions or taxes based on all such services performed for it by those individuals in the calendar quarters at issue.
The decision of the administrative law judge is reversed. Accordingly, Benjamin Carter, Robert Dixon, Scott Geboy, Nathan Kallas, and Kevin Kallas performed services for QCS as its employees, within the meaning of Wis. Stat. § 108.02(12), in the calendar quarters at issue, as set forth with more particularity in the Initial Determinations in this matter
QCS is required to pay Wisconsin Unemployment Insurance taxes on wages paid to Benjamin Carter, Robert Dixon, Scott Geboy, Nathan Kallas, and Kevin Kallas for services performed by them calendar quarters in 1997, 1998, and 1999, as set forth with more particularity in the Initial Determinations in this matter.
Dated and mailed July 30, 2001
qualcom . srr : 110 : EE 410 EE 410.03 410.04a EE 410.04b EE 410.05 EE 410.07 EE 410.08 EE 410.09
/s/ David B. Falstad, Chairman
/s/ James A. Rutkowski, Commissioner
NOTE: The commission consulted with the ALJ in order to provide him with an opportunity to describe to the commission any impressions he acquired as to the credibility of the witnesses who testified before him. In this consultation, the ALJ described his views as to the issues presented by the case and the way in which he believed the statute should be applied. He did not, however, describe anything touching upon the demeanor of the witnesses, or whether or how any observations he made of the demeanor of the witnesses affected his assessment of the credibility of their testimony. From its consultation with the ALJ, as well as from the fact that the ALJ's decision did not mention anything about witness credibility, the commission believes that the ALJ did not find there to be any issues of fact in the case on which questions of witness credibility arose. The commission also does not believe that there were any issues of fact in this case as to which witness credibility was significant. The commission has reached a different result than that reached by the ALJ because it took a different view on how the statute should be applied to the essentially undisputed evidence here.
Attorney Michael J. Mathis
DWD Bureau of Legal Affairs
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(1)( Back ) The appeals filed by QCS have put before the commission two determinations, in Hearing Nos. S0000094MW and S0000095MW, involving liability for unemployment compensation taxes for the 5 individuals for 1997, 1998, and the first 2 quarters of 1999. The individuals in question, and the calendar quarters during which the services they performed are at issue, are: Benjamin Carter (4/97, 1/98), Robert Dixon (1-4/97, 1-4/98, 1/99), Scott Geboy (1-4/97), Nathan Kallas (4/97, 1-4/98, 1-2/99), and Kevin Kallas (1-2/99).
(2)( Back ) Korene argues that this amounts to a "Catch 22", since if the tap auditors are not part of his company, "how would [QCS] have detailed financial records, records of expense, etc." This argument is not persuasive. A business which enters into a contract with a person to provide services, can require as a condition of entering into that contract that the person provide it "up front" with the kind of information that would be important to prove that they were a true independent business. Even if it does not do so, the business can also subpoena necessary witnesses and records from the individual in order to have the information at hearing.
(3)( Back ) See, Carlson v. Helke Funeral Home (LIRC, July 8, 1999) and Traaholt v. Robert Oien & Co. (LIRC, August 25, 1999), in which the commission rejected arguments that the requirement for an office could be overlooked because an office was supposedly not required for the type of services there involved.
(4)( Back ) Travel expenses to and from the employer's premises are generally not weighed in this factor, as virtually all employees are required to pay for their own travel to and from the workplace. Pony Queensway Laundry (LIRC, January 30, 1998). However, in this case it is necessary to have a ladder to perform the services in question, and the person providing the services is required to provide the ladder, so transportation to and from the site(s) at which the work is done is necessary if only to transport the ladder.
(5)( Back ) An example of a "negative pregnant" in a pleading, would be an answer to an allegation that a payment was made on January 1, by way of a denial that a payment was made on January 1; this is considered "pregnant" with an admission that the payment was made on some other date. "Negative pregnant" denials are generally considered defective in pleadings because they do not fully meet the allegations they respond to.
(6)( Back ) For example, while Carpenter testified that he leased a truck specifically to do this work, he also testified that he leased it "for personal use and business use" and that he continued the lease after he stopped doing the work. Geboy testified that he used his own personal vehicle, and that he was not even sure if he claimed a tax deduction for the mileage he put on it in connection with the work he did. Dixon testified that he had a separate landscaping business and it appears from his testimony that he used the same truck in that business as for his work as a tap auditor. (There was no specific or competent evidence as to the nature of the vehicle used by the other two tap auditors). In these circumstances, it is reasonable to conclude that the tap auditors would have had vehicle insurance expenses anyway entirely apart from the services they provided here, and there is no good basis provided in the record for deciding how much of the vehicle insurance expense could be attributed to the use of the vehicles in the tap audit work.
(7)( Back ) A similar argument could be made, that this test is met where an individual may suffer a loss, even where there is no realistic possibility that the individual could realize a profit - although it is doubtful that anyone would enter into any such enterprise.
(8)( Back ) In this case, the tap auditors entered into only one contract, with one party. They agreed to perform certain tap audit services for QCS, for a certain fixed "per unit" price.