DIBBLES & DIBBLES 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 appellant is a corporation which owns and operates a retail furniture and flooring store. Timothy Schnoor, Timothy Schicker, and Dennis Sheldon (the "installers"), the three individuals at issue here, performed flooring installation services of the appellant's products.
The issue is whether, for unemployment insurance tax contribution purposes, the installers performed services as independent contractors or as employees of the appellant.
Wisconsin Statutes §§ 108.02(12)(a) and (bm) state as follows, as relevant here:
(a) "Employee" means any individual who is or has been performing services for an employing unit, in an employment, whether or not the individual is paid directly by such employing unit; except as provided in par. (b), (bm), (c), or (d).
(bm) During the 4-year period beginning on January 1, 2000, with respect to contribution requirements, ...par. (a) does not apply to an individual performing services for an employing unit...if the employing unit satisfies the department that the individual meets 7 or more of the following conditions by contract and in fact:
1. The individual holds or has applied for an identification number with the federal internal revenue service.
2. The individual has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year or, in the case of a new business, in the year in which such services were first performed.
3. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.
4. 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.
5. The individual incurs the main expenses related to the services that he or she performs under contract.
6. 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.
7. 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.
8. The individual may realize a profit or suffer a loss under contracts to perform services.
9. The individual has recurring business liabilities or obligations.
10.The success or failure of the individual's business depends on the relationship of business receipts to expenditures.
Wisconsin Statutes § 108.02(12)(a) creates a presumption that a person who provides services for pay is an employee, and it requires the entity paying them for those services to bear the burden of proving that they are not employees. See, Dane County Hockey Officials, UI Hearing No. S9800101MD (LIRC Feb. 22, 2000); Quality Communications Specialists, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001).
Although the status of three installers (Schnoor, Schicker, and Sheldon) is at issue, there was no evidence adduced in regard to installer Sheldon. As a result, installer Sheldon, consistent with the presumption created by Wis. Stat. § 108.02(12)(a), is concluded to be an employee of Dibbles and Dibbles, Inc., during the relevant time period, and the following discussion will relate only to installers Schnoor and Schicker.
The record does not establish, and installers Schnoor and Schicker do not assert in their petition, that they hold or have applied for a federal employer identification number (FEIN). As a result, condition 1. is not satisfied.
In regard to condition 2., the business/self-employment tax returns filed by installers Schnoor and Shicker in 2001 and 2002 are a part of the record, and it is undisputed that this condition is satisfied.
In Quality Communications Specialists, Inc., supra., the commission clarified that all parts of the test articulated in condition 3. must be met in order for the employer to satisfy its burden. The record supports a conclusion that the installers maintained separate businesses, and used their own equipment (vehicle, carpet stretcher, tile breaker, seam iron, compressor, staple gun, wet saw, trowels, knee kicker, floats) and materials/supplies (glue, tack stripes, tape). Although the administrative law judge concluded that the installers did not have their own offices, she appears to have based this conclusion on the fact that they did not have offices outside their homes. This is not required, however. The focus of condition 3. is upon determining whether a separate business is being maintained with the individual's own resources. See, Lozon Remodeling, UI Hearing No. S9000079HA (LIRC Sept. 24, 1999). The record supports a conclusion that the installers ran their businesses from offices in their homes. Schnoor testified that he operated his business, T & S Carpet, Vinyl, & Flooring, out of his home, and his 2001 tax return reflects a $674 deduction for an office expense(s). Schicker testified that he operated his business and kept his business records in his home, and that his business expenses included those for a home office. In addition, Schicker's 2002 tax return reflects a $110 deduction for an office expense(s). Finally, the lack of separate facilities, which would be consistent with the nature of the business in which the installers were engaged, would not be dispositive here. See, Groeschl Forestry Consulting, Inc., UI Hearing No. S0000141HA (LIRC March 19, 2002. As a result, condition 3. has been satisfied. See, also, Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004).
To satisfy condition 4., it must be established that the installers operate under contracts to perform specific services for specific amounts of money, and that, under these contracts, they control the means and method of performing the services. The record establishes that the installers negotiate agreements directly with the customer, these agreements provide for the performance of a specific job for a specific amount of money, and the installers independently control the means and method of performing the services under these agreements. Although the record shows that a Dibbles & Dibbles, Inc. (D&D) employee had occasionally visited a job on which installer Schnoor was working, the purpose of the visit was customer relations, not oversight. Condition 4. is satisfied.
Applying condition 5. 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 expense. See, Lozon Remodeling, supra.; Quality Communications Specialists, Inc., supra. The services performed under the agreements at issue here include providing installation labor and supplies, but not flooring products, to building owners. The record shows that the installers transport the product to the work site; provide the materials/supplies such as tack strips, tape, and glue; use their own equipment; carry their own liability insurance; and warrant their work. The record does not show that D&D bore any of the expenses related to performing these services, i.e., in contrast to the fact situation in Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004), for example, D&D did not provide liability insurance or coordinate the performance of warranty work. Condition 5. is satisfied.
The administrative law judge found that condition 6. was not satisfied as to installer Schnoor because he "did not believe that he was liable for the satisfactory completion of the services" under his agreements with customers referred to him by D&D. The commission does not agree with this finding. Jeff Dibbles, vice president of D&D, testified that the installers were completely responsible for their own work; if a problem arose with the work performed by an installer, the customer was advised by D&D to contact the installer directly; D&D's sales receipts and showroom signs stated that installation of flooring products was done by independent contractors who were responsible for installation warranties; and that installers are responsible for their own work performance. Installer Schnoor testified that, if he did not believe the flooring product was appropriate for the job, he would draft and ask the customer to sign a warranty disclaimer; he did not believe D&D could sue him for unsatisfactory work because his relationship was with the customer; and he was responsible for his failure to provide service in a reasonable fashion. Installer Schicker testified that he was solely responsible for the satisfactory completion of the work he performed. The record supports a conclusion that D&D is not involved in any way with warranting or correcting the work of the installers, who are solely and independently responsible for carrying out this function, and, as a result, condition 6. is satisfied as to both installers Schnoor and Schicker.
The installers were paid solely on a per job basis in regard to the work referred to them by D&D and, as a result, condition 7. is satisfied.
Condition 8. examines whether, under an individual contract for an installer's services, there can be a profit (if the income received under that contract exceeds the expenses incurred in performing the contract), as well as 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). Assuming, as the commission did in Quality Communications Specialists, Inc., supra., that it is at least arguable that the receipt by the installers of more in pay for their services under the subject contracts than they are required to spend on the various expenses they incur in performing such services would constitute "realiz[ing] a profit...under contracts to perform services," the record does not support a conclusion that they could suffer a loss within the meaning of condition 8. There is no business risk to the installers under the subject agreements with customers, i.e., no realistic possibility that an installer who did the work under the subject agreements would earn less than he expended. As a result, the record does not support a conclusion that condition 8. is satisfied. See, also, Lozon Remodeling, supra. The administrative law judge concluded that this condition was not satisfied because D&D reimbursed the installers for their share of a flooring job, in credit card and certain personal check transactions, before the credit payment/check had cleared the relevant financial institution, and, as a result, the installers did not bear the risk of nonpayment in regard to these jobs. However, as the commission concluded in Quale, supra., the risk of nonpayment is not the type of business risk contemplated by condition 8. because it is a risk shared by both employees and independent contractors.
Condition 9. requires proof of a cost of doing business which the installer would incur even during a period of time he was not performing work through D&D. Both installer Schnoor and installer Schicker carried their own liability insurance. This type of insurance, for which the installer would have to pay premiums whether they had a customer or not, would be a continuing business liability or obligation. See, Quale, supra. Although the administrative law judge appears to conclude that the cost of such liability insurance, i.e., $400-$800 a year, is not sufficient, standing alone, to satisfy condition 9., the statutory language does not require that the recurring business liability or obligation meet a certain dollar minimum. See, Quality Communications Specialists, Inc., supra. ("recurring business liabilities or obligations" test does not involve a quantitative comparison). Condition 9. is satisfied.
The commission has interpreted condition 10. as intending to examine the overall course of the installer's business. See, Quality Communications Specialists, Inc., supra. Here, the installers, as in Quale, supra., 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 of time in which they would have to make expenditures without any receipts coming in. See, Thomas Gronna, supra.; Mrochinski, supra.(condition 10. requires that a significant investment is put at risk and there is the potential for real success through the growth in the value of the investment and for real failure in the sense of actual loss of the investment). Condition 10. is not satisfied.
To summarize, the record supports a conclusion that conditions 2., 3., 4., 5., 6., 7., and 9. are satisfied here. In view of the language of Wis. Stat. §§ 108.02(12)(a) and (bm), since at least seven of the ten conditions are satisfied, it is concluded that installers Schnoor and Schicker did not perform services for the appellant as employees for unemployment contribution purposes.
The decision of the administrative law judge is affirmed as it relates to installer Sheldon and reversed as it relates to installers Schnoor and Schicker. Accordingly, the employer is liable for unemployment insurance contributions and interest in regard to installer Sheldon, but is not liable for such contributions and interest in regard to installers Schnoor and Schicker. This matter is remanded to the department for action in accordance with this decision.
Dated and mailed January 12, 2005
dibbles . srr : 115 : 1 EE 410 EE 410.03 EE 410.08 EE 410.09
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
NOTE: The commission did not confer with the administrative law judge before reversing her decision, because its reversal was not based upon a differing view as to the credibility of witnesses, but instead upon a differing conclusion as to what the hearing record in fact established and upon a differing interpretation of the relevant law.
John R. Riopel, CPA
Attorney Mitchell R. Olson
Jorge L. Feuntes
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