GROESCHL FORESTRY CONSULTING 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:
Groeschl Forestry Consulting, Inc. (hereinafter "the employer") is a business engaged in natural resource management in forestry services. The employer conducts forest inventories, sets up blocks of land for management for commercial timber sales, and writes management plans. In the first through fourth quarters of 1998, the time period at issue, the employer utilized the services of Shawn Morgan and Tom Magnuson (hereinafter "Morgan" and "Magnuson") to mark and cruise timber. They would designate trees to be harvested by logging contractors, develop volume estimates on those trees, and put paint marks on trees that were to be harvested.
The employer operates under contracts with the United States government. The employer makes the original proposal to its client, and warrants the work. Depending upon the location of the job, the employer might ask Morgan or Magnuson if they had time available to do the job and, if so, that individual would be listed on the contract as a potential subcontractor. Morgan and Magnuson did not bid on the jobs, but knew how much they would be paid for a job before they accepted the work. The amount they were paid per acre varied with the job. At the hearing Magnuson explained that his practice was to choose an area in which to work and, when he finished a unit, submit a bill to the employer.
Once a job had been accepted Morgan and Magnuson would work directly with inspectors for the client on issues involving the quality and performance of assigned tasks. If there was a question about the quality of their work, the inspector would address it and make corrective measures. Morgan and Magnuson were responsible for correcting any deficiencies in their work and would not be paid for work that was not up to standards. If they performed work in a manner that was not in compliance with acceptable standards and which resulted in costs to the employer, they were liable to reimburse the employer for those expenses. They were also liable for any injury to others.
During the relevant time period Morgan worked full-time doing forestry work for Bayfield County. He filed a self-employment tax return (hereinafter referred to as a "Schedule C") for 1997 and 1998, which included earnings from the employer. Morgan did similar jobs for other clients under the name of Morgan Forest Consultants, but indicated that a large percentage of the income listed on his Schedule C was from the employer.
Morgan worked out of his home. He kept a ledger showing his costs, which his accountant used to prepare his tax returns. He did not buy any insurance for his business, and paid no professional dues or licensing fees. Morgan provided his own transportation, using his personal vehicle. He also provided his own supplies, which consisted of a pressurized paint gun, which he purchased in 1998 for $382, some nozzles for the paint gun, for which he paid about $13, a $20 belt and suspenders to carry the paint gun, measurement equipment at a cost of $130, a prism for $64, and a tally meter for which he paid $200.
During the relevant time period Magnuson worked for the United States Department of Interior. He has a federal employer identification number (hereinafter "FEIN"), which he obtained when running his own consulting business some years earlier. He filed a Schedule C in 1997 and 1998. Apart from his full- time employment and his work for the employer, he had one other client during 1998.
Magnuson has an office set up in a bedroom of his home which, while not strictly designated for business, is used in conjunction with his forestry business. The office contains a computer purchased by Magnuson in 1995 in order to keep track of forestry consulting business records, but which is also used to keep records for a farming operation. Magnuson depreciates his computer on his self-employment tax return. Like Morgan, Magnuson uses his personal truck in his business and has his own equipment, including a backpack spray pump purchased in 1996 for $388, and a "tally whacker" to record tree numbers, which was purchased in 1995. The rest of Magnuson's equipment was purchased years earlier for use in his consulting business. He has no annual professional dues or license fees, nor any liability insurance.
For unemployment purposes, a two-step analysis is used to determine whether an individual is an employee. Goldberg v. DILHR, 168 Wis. 2d 621, 625 (Ct. App. 1992). The first step is to determine whether the individual has been performing services for an employing unit, in an employment. Wis. Stat. § 108.02 (12)(a). An "employment" is "any service . . . performed . . . for pay." Wis. Stat. § 108.02(15)(a). If this test is met, then (with exceptions not applicable here) the burden shifts to the employer to satisfy the department that:
1. The individual:
a. Holds or has applied for an employer identification number with the federal internal revenue service; or
b. Has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year; and
2. The individual meets 6 or more of the following conditions:
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 in curs 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).
Morgan and Magnuson were performing services for the employer, an employing unit, and were doing so for pay. Consequently, they are considered to be employees, unless the employer can establish that they satisfy the conditions set forth in Wis. Stat. § 108.02(12)(b).
The first prong of the test set forth in Wis. Stat. § 108.02(12)(b)1. is clearly satisfied where both Morgan and Magnuson filed Schedule C's in the relevant time period, and where Magnuson has an FEIN. The next step to consider is whether they meet six of the eight factors enumerated in Wis. Stat. § 108.02(12)(b)2.
With regard to subparagraph a., the commission has held that the requirement that the individual maintain a "separate business" focuses on the question of whether the activity he engages in is genuinely separate from the activity of the putative employer, with the term "business" focused 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. Quality Communication Specialists, Inc. (LIRC, July 30, 2001). It is critical under this test whether the person involved has a separate business apart from the employer's business. St. Clair v. Rylan & Co. Inc (LIRC, June 7, 2000). Here, both Morgan and Magnuson obtained their forestry experience and expertise prior to performing any services for the employer, assisted the employer with specific jobs rather than working for it on a continuous basis, and performed similar work for other clients separate from their work for the employer. Given the circumstances, the commission is satisfied that they had separate businesses apart from the employer's business.
While the record does not contain a great deal of evidence on the question of whether Morgan and Magnuson had their own offices, equipment, materials and other facilities, the commission believes there is a sufficient basis upon which to conclude that this factor has been satisfied. The record establishes that Morgan worked out of his home, and that he kept a ledger of his costs which he provided to his accountant. Magnuson has an office set up in a bedroom of his home which, while not strictly designated for his forestry business, is used for that business. Moreover, Magnuson's office contains a computer purchased specifically to keep track of forestry consulting business records. Although neither Morgan nor Magnuson has any "other facilities," the lack of such facilities is consistent with the type of business in which they are engaged.
Next, the commission finds that Morgan and Magnuson operated under contracts to perform specific services for specific amounts of money under which they controlled the means and method of performing the services, as set forth in subparagraph b. Unlike typical employees, they did not operate under a single open-ended contract, but had various written and verbal contracts to perform specific jobs for specific amounts of money. Morgan and Magnuson controlled the means and methods of performing their services and worked without any supervision or direction from the employer.
There were no major expenses associated with the job. However, the record indicates that Morgan and Magnuson did provide the necessary tools and supplies. Consequently, subparagraph c. is deemed to be satisfied.
Turning to the question of whether Morgan and Magnuson were responsible for the satisfactory completion of the services that they contracted to perform and were liable for a failure to satisfactorily complete the services, subparagraph d. of the statute, the commission believes that this factor has also been met. Morgan and Magnuson were responsible for redoing any substandard work without additional compensation, and Magnuson indicated that on at least one occasion he had had to go back and remark a unit when it had not been marked up to Forest Service standards. The evidence further indicates that Morgan and Magnuson assumed all risk involved in the performance of their services, including risk of injury to others, and that they were expected to reimburse the employer for any loss to it arising from their work.
Morgan and Magnuson were paid on a per-job basis. They therefore satisfy subparagraph e., which requires that they receive compensation for services performed under a contract on a commission or per-job or competitive-bid basis and not on any other basis.
The next factor, subparagraph f., provides that the individual may realize a profit or suffer a loss under contracts to perform services. This factor is not satisfied. Although Morgan and Magnuson could realize a profit in that they could accept jobs and be paid for them, there were few costs associated with the performance of their services and they were not in the position to sustain a loss in the ordinary course of business.
The employer also failed to demonstrate that Morgan and Magnuson had recurring business liabilities or obligations. They had no overhead, paid no professional dues, and maintained no special insurance. Thus, they did not incur any ongoing expenses of the sort contemplated in subparagraph g.
Finally, the commission concludes that the success or failure of Morgan's and Magnuson's businesses depended on the relationship of business receipts to expenditures. As a general rule, the success of a business will hinge on the relationship between receipts and expenditures, and the businesses at issue here are no exception. Subparagraph h. is, therefore, satisfied.
Based on the above, the commission concludes that Morgan and Magnuson satisfy six of the eight conditions set forth in Wis. Stat. § 108.02(12)(b)2. Therefore, the employer has met its burden of establishing that they operated independent businesses.
The commission therefore finds that Shawn Morgan's and Tom Magnuson's services for the employer during the relevant time period were performed as independent contractors, and that payments they received are not wages within the meaning of Wis. Stat. § 108.02(12) and 108.02(26).
The decision of the administrative law judge is reversed. Accordingly, the employer
is not liable for unemployment insurance contributions and interest as set forth in
Dated and mailed March 19, 2002
groesch . srr : 164 : 1 EE 410 EE 410.03
/s/ David B. Falstad, Chairman
/s/ James A. Rutkowski, Commissioner
/s/ Laurie R. McCallum, Commissioner
NOTE: The commission did not consult with the administrative law judge about witness credibility. The commission's decision is not based upon a differing assessment of witness credibility, but is as a matter of law when considering essentially the same set of facts as that found by the appeal tribunal.
cc: Jorge L. Fuentes
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