OIL EQUIPMENT CO 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:

The employer is a Wisconsin Corporation that sells and installs underground and above ground fuel storage tanks and fuel dispensing pumps to convenience stores, service stations and companies operating fleets of motor vehicles. The claimant Robert Hayden worked as a salaried route sales representative for the employer. At that time the employer considered Mr. Hayden to be an employee. Mr. Hayden then quit the job for the employer to become a self-employed distributor of wild birdseed and related items. Mr. Hayden identified his sole proprietorship as "R & S Marketing Inc.". Mr. Hayden leases a warehouse to store his products until he sells them. He also obtained a vehicle and a trailer to deliver the birdseed to his customers.

On February 1, 2002 Mr. Hayden and the employer entered into a contractual agreement where Mr. Hayden agreed to work as a sales representative for the employer on a straight commission basis. Mr. Hayden was not given a sales quota or a requirement that he contact customers at set intervals. The employer retained ownership of the storage tanks and fuel dispension equipment that Mr. Hayden sold on behalf of the employer. The employer priced the products and had the right to approve all sales including any credit terms. The employer provided at no cost to Mr. Hayden literature to be distributed to customers. Mr. Hayden used the employer's order forms and the employer contacted potential customers directly regarding its inventory of equipment. The employer did not provide Mr. Hayden with any leads. In essence, the employee met with the appellant's customers and potentially new customers when he was in a specific area because of his bird seed business.

As a result of their contractual change in 2002, Mr. Hayden no longer had to attend company sales meetings or contact the employer daily regarding his itinerary. Mr. Hayden had to pay for the cost of his own telephone and for his own transportation including insurance on the car. Mr. Hayden did not have a business card; however, his name and telephone number were printed by the employer on a price list the employer supplied to Mr. Hayden for distribution to customers. Mr. Hayden did not have an office and did not identify his business name on the side of his cargo van. Mr. Hayden also did not apply for and had not been issued an identification number from the federal Internal Revenue Service (IRS) for use in his business or for his income tax return. Mr. Hayden did not work for any competitor of the employer during 2002. The employer did not issue an IRS form 1099 to Mr. Hayden for 2002 and Mr. Hayden did not file a Schedule C with his form 1040 federal Income Tax return for that year. Finally, as of December 31, 2002, the parties terminated their contractual agreement.

The issue to be decided is whether starting in February 2002, Mr. Hayden performed services for the appellant as a statutory employee, or as an independent contractor.

A two step analysis is used to determine whether an individual is an employee for unemployment insurance purposes. See 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 the burden shifts to the employer to satisfy the department that the individual meets seven of the ten conditions found at Wis. Stat. § 108.02(12)(bm).

Once there is proof that an individual has been performing services for an employing unit for pay, as is the case here, the burden shifts to the putative employer, here the appellant, to establish that Mr. Hayden is not a statutory employee within the meaning of Wis. Stat. § 108.02(12). Therefore, pursuant to Wis. Stat. § 108.02(12)(bm), the appellant is required to establish that Mr. Hayden meets seven of the ten conditions found in that statute.

Condition one requires that the "individual holds or has applied for an identification number with the Federal Internal Revenue Service." The appellant contends that Mr. Hayden holds his social security number as his identification number with the federal Internal Revenue Service. The appellant correctly notes that the statute fails to refer to the issuance of a federal employer identification number (FEIN).

The appellant therefore argues that because Mr. Hayden can legally file his federal taxes for his sole proprietorship using his social security number he has met this condition. However, a social security number is, of course, issued by the Social Security Administration. While Mr. Hayden may place that number on his tax forms, appellant has not shown that Mr. Hayden holds or applied for an identification number with the IRS, whether incorporating his social security number or otherwise. See Angel Care, Inc., UI Hearing No. S0200141MW, (LIRC December 30, 2004). Merely asserting this argument does not constitute proof that this condition has been met.

Condition two is whether Mr. Hayden has filed business or self-employment income tax returns with the federal Internal Revenue Service based on such services in the previous year. There is no evidence in the record that the appellant issued an IRS form 1099 to Mr. Hayden for 2002 and Mr. Hayden did not file a Schedule C with his form 1040 Federal Income Tax Return for that year. The appellant argues that Mr. Hayden testified he was sure that his accountant filed an IRS Schedule C with Mr. Hayden's form 1040 Federal Income Tax for the calendar year 2002 contrary to the ALJ's finding. The appellant could have easily proved this condition by producing a copy of Mr. Hayden's Schedule C for the relevant year or a copy of its 1099 issued to Mr. Hayden for 2002. The appellant failed to meet this condition.

Condition three requires that the individual maintain a "separate business with his or her own office, equipment, materials and other facilities." Mr. Hayden leased a warehouse to hold his birdseed but used his van to transport pumps. However, there is insufficient proof of Mr. Hayden maintaining an office, equipment and materials as required by the commission's interpretation of this condition announced in Quality Communication Specialists, Inc., UI Hearing No. S0000094 (LIRC July 30, 2001).

Condition four requires that 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." Here, there is insufficient proof that Mr. Hayden controls the means and method of performing the services. For example, Mr. Hayden did not have the authority to deviate from the sale price and he could not extend credit to a potential customer without approval. This condition has not been met.

Condition five requires that Mr. Hayden incur the main expense related to the services that he performed under contract. The main expenses here were travel expenses related to selling the equipment. These expenses included mileage and maintenance of the vehicle and insurance. Proof of this condition has been satisfied.

Condition six requires that Mr. Hayden be responsible for the satisfactory completion of the services that he contracted to perform and is liable for the failure to satisfactorily complete the services. Mr. Hayden provided a warranty that he would perform his services without exposing the employer to liabilities, losses, damages, costs and expenses arising out of his negligence for misconduct, thereby satisfying this condition.

Condition seven requires that Mr. Hayden receive compensation for services performed under a contract on a commission or per job or competitive bid basis and not on any other basis. Here, the appellant established that Mr. Hayden received compensation for his services performed under a contract in the form of commissions based on individual sales thereby satisfying this condition.

Condition eight requires that Mr. Hayden "may realize a profit or suffer a loss under contracts to perform services." In Quality Communication Specialists, Inc., supra, the commission held that this test asks "whether a business faces both an actual possibility of making a profit and an actual possibility of suffering a loss. Interpreted in this way it describes the situation which is faced by real business endeavors." Here, the appellant failed to establish that Mr. Hayden faced both an actual possibility of making a profit and an actual possibility of suffering a loss, given all Mr. Hayden did was contact the appellant's customers along his bird seed distributor route.

Condition nine requires that Mr. Hayden experience recurring business liabilities or obligations. Mr. Hayden had virtually no expenses because he performed his sales work for the employer in conjunction with his bird seed sales. The appellant failed to meet this condition by producing sufficient evidence regarding Mr. Hayden's business liabilities and obligations.

Condition ten requires that the success or failure of the individual's business depends on the relationship of business receipts to expenditures. Here, the appellant failed to meet this condition by failing to submit sufficient evidence regarding Mr. Hayden's business receipts vis-a-vis his expenditures. In Quality Communication Specialists, Inc., supra, the commission held that this test is "intended to look at the overall course of the person's business, in that it contemplates as in any true business whether there is a potential for success and also for failure in the relationship of business receipts to expenditures." Again, it is difficult to conclude that Mr. Hayden's services performed for the appellant met this condition since these services were performed in conjunction with his bird seed route. Moreover, the commission in Dane County Hockey Officials Association, Inc., Hearing No. S9800101MD, (LIRC February 22, 2000), expressed that this condition contemplates the existence of a genuine business endeavor. The appellant has not produced substantial and credible evidence of a genuine business endeavor. This condition has not been met.

The appellant failed to prove that Robert Hayden's services meet seven of the ten conditions enumerated in Wis. Stat. § 108.02(12(bm).

Consequently, Robert Hayden performed services for the appellant-employer during 2002 within the meaning of Wis. Stat. § 108.02(12)(a) and (bm).

The appeal tribunal decision is modified, and as modified, is affirmed. Accordingly, the employer is liable for contributions to the Unemployment Reserve Fund on the basis of amounts paid to Robert Hayden during 2002.

Dated and mailed December 30, 2004
oileq . srr : 135 : 9  EE 410

/s/ James T. Flynn, Chairman

/s/ David B. Falstad, Commissioner

/s/ Robert Glaser, Commissioner

The appellant's arguments and main concerns raised in his petition for commission review were addressed in the commission decision. The commission emphasizes that its decision to affirm the ALJ's decision, as modified, was based essentially on the appellant's failure to meet its burden of proof by satisfying that seven of the ten conditions outlined in the decision were met. In particular, if the appellant had actually issued a 1099 for Robert Hayden in 2002, the time to introduce the document was at the hearing. The same could be noted for Mr. Hayden's Schedule C form for his individual income tax form for that year. In regard to conditions 8, 9 and 10, merely asserting that an individual may realize a profit or has recurring business liabilities is insufficient to meet these conditions. Substantial and credible evidence regarding the realization of a profit or a suffered loss under a contract to perform such services is required. Additionally, some documentation is necessary to allow the factfinder to determine that Mr. Hayden's business did depend on the relationship of business receipts to expenditures. The fact that Mr. Hayden may have been a sole proprietor in regard to distributing birdseed is not proof in and of itself that he was an independent contractor in regard to the services he performed for the appellant. Because the employer failed to meet its burden of proof in this case, the commission affirms, with modifications, the appeal tribunal decision.

cc:
Attorney Peter W. Zeeh
Bureau of Tax & Accounting

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