DIANE M EGAN / HEALTH EXAMS PLUS 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 agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own, except that it makes the following modifications.
(1) Reference in the decision to "Eagan" is changed to "Egan" in order to correct an error.
(2) The last sentence of the third paragraph of the FINDINGS OF FACT and CONCLUSION OF LAW section is deleted because the record supports a finding that Egan provided training to examiner Miriah Wright.
(3) The ninth paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW section (the fourth paragraph on page 4 of the decision) is deleted.
(4) That portion of the FINDINGS OF FACT and CONCLUSIONS OF LAW section beginning in the final paragraph on page four of the appeal tribunal decision with the quoted language from Wis. Stat. § § 108.02(12)(a) and (bm), is deleted and the following substituted in order to more accurately reflect the commission's decision rationale:
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 for which the person is performing 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).
Commission review of a decision of an administrative law judge is not appellate in nature, but is instead a de novo decision-making process. Any petition for commission review from any party brings the entire case before the commission. See, Dane County Hockey Officials, supra. As a result, the commission has not limited its review of this case to those aspects of the administrative law judge's decision challenged in the petition.
The department stipulates that examiners Carla Fry and Marilyn McCoy were each issued a federal employer identification number (FEIN). The record does not establish that any of the other examiners applied for or were issued such numbers. As a result, condition 1. was satisfied only in regard to examiners Fry and McCoy.
The record establishes that examiners Roberta Bell, Jenny Larosh, Miriah Wright, Carla Fry, Marilyn McCoy, Dawn Sheard, and Jeri Strasser filed business/self-employment tax returns for the years in issue. As a result, condition 2. was satisfied only in regard to examiners Bell, Larosh, Wright, Fry, McCoy, Sheard, and Strasser.
The focus of condition 3. is upon determining whether a separate business, i.e., an enterprise created and existing separate and apart from the relationship with the putative employer, is being maintained with the individual's own resources. See, Princess House, Inc., v. DILHR, 111 Wis.2d 46, 330 N.W.2d 169 (1983); Larson v. LIRC, 184 Wis.2d 378, 516 N.W.2d 456 (Ct. App. 1994); Lozon Remodeling, UI Hearing No. S9000079HA (LIRC Sept. 24, 1999). 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. Although the record shows that the examiners used their own equipment and that certain of them, including examiner Strasser, performed exams for other entities, it establishes that only examiner Strasser had an office, i.e., an area in her home where she maintained the phone line and facsimile machine (FAX) she used to schedule exams and process related paperwork, as well as the equipment, including a centrifuge machine, she used to complete exams. The lack of separate facilities, which would be consistent with the nature of the business in which the examiners were engaged, would not be dispositive here. See, Groeschl Forestry Consulting, Inc., UI Hearing No. S0000141HA (LIRC March 19, 2002). As a result, the employer failed to sustain its burden in regard to condition 3 except as to examiner Strasser. See, also, Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004); Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).
To satisfy condition 4., it must be established that the examiners operated under contracts to perform specific services for specific amounts of money, and that, under these contracts, they controlled the means and method of performing the services. The examiners exercised enough independence and discretion in conducting the subject evaluations to satisfy the second part of the test. Without any supervision, they took blood pressure readings, drew and processed blood samples, and apparently observed and assessed physical and mental abilities. Unlike the form utilized by the putative employer in Tri-State Home Improvement Co., Inc., v. LIRC, 111 Wis.2d 103, 330 N.W.2d 186 (1983), the examination report form under consideration here was not utilized to monitor the quality of the examiners' performance, e.g., the appropriateness of their interactions with those whom they were examining or the accuracy of their observations or assessments, but instead was intended as a detailing of the type of information required by the client insurance companies in order to carry out their underwriting functions.
Condition 4. also requires multiple contracts. These may take the form of multiple contracts with separate entities, or multiple serial contracts with the putative employer if such contracts are shown to have been negotiated "at arm's length," with terms that will vary over time and will vary depending on the specific services covered by the contract. The existence of bona fide multiple contracts tends to show that the individual either has multiple customers, or that she has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship. See, T-N-T Express LLC, UI Hearing Nos. S9700385, etc. (LIRC Feb. 22, 2000). The competent evidence of record establishes that only examiners Wright and Strasser performed examinations under contracts with entities other than Egan. Egan's unwritten contracts with the examiners, other than Strasser and Wright, stated a core geographic area for each examiner, and the fixed percentage of Egan's per-exam payment each examiner would be awarded. Only in regard to Strasser did the record establish that this percentage varied over time, i.e., from 30% in 2001 to 40% at the time Strasser ceased providing services for Egan. Moreover, the record does not establish that Egan's contract with Strasser or any other examiner was negotiated at arm's length, i.e., Strasser testified that Egan independently determined the fixed percentage upon which her exam fee was computed. Although the record also establishes that certain examiners also negotiated unwritten contracts with Egan for exams to be conducted outside their core geographic areas and outside the fixed percentage fee structure, the record fails to establish which examiners entered into such contracts with Egan. Finally, in regard to Wright, the record establishes that she performed services for Egan under a single unwritten contract under which she was awarded a set fee for each exam she conducted. The record does not establish that the amount of this fee, or any other terms of this contract, varied over time.
The commission concludes that the multiple contracts requirement of condition 4. was not satisfied here.
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. Here, related expenses include those for required equipment, e.g., stethoscope, blood pressure cuff, centrifuge machine, EKG machine, lab kits, weight scale, tape measure, FAX machine, telephone; and for travel to the homes of those being examined. The record establishes that the examiners, other than Wright who used Egan's centrifuge machine, paid all these expenses other than those related to the $3 lab kit. Clearly, the examiners, including Wright, who were responsible for their travel expenses, bore the main expense for the conduct of the subject exams. Although it is argued that Egan's expense of maintaining an office should be considered as a part of the equation here, since the record does not establish that any of the examiners conducted exams at this office, it has not been shown, consistent with the language of condition 5., that the expense of maintaining this office was an expense related to the services that the examiners performed under their contracts with Egan, or, even if it were, what the extent of such an expense would be. Condition 5. has been satisfied here.
In regard to condition 6., it is not simply the obligation to do re-work without additional pay which is the determining factor, because this obligation is typical as well of piece-work employees. See, T & D Coils, UI Hearing No. S9800147MW (LIRC Dec. 15, 1999); Quality Communications Specialist, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001); Wisconsin Tennis Officials, Inc., UI Hearing Nos. S0200129MW, etc. (LIRC, Feb. 28, 2005) . Evidence establishing, for example, not only an obligation to do such re-work but an expectation that it will be done, as well as a penalty for not doing so, would satisfy this condition. Here, the record establishes not only that examiners, other than Wright, were expected to remedy exam deficiencies without additional pay, but also that, if they failed to do so, they would be penalized by non-payment of the underlying exam fee. Condition 6. has been satisfied here in regard to all examiners other than Wright, who was paid a set fee without a re-work obligation, expectation, or penalty.
In regard to condition 7., the evidence of record establishes that the examiners were essentially paid on a per-job basis, i.e., as a fixed percentage of the per-exam payment that Egan received or, in regard to Wright, as a fixed fee per exam. As a result, the record supports a conclusion that condition 7. was satisfied here.
Under the subject contracts, there is no business risk to the examiners within the meaning of condition 8., i.e., no realistic possibility that, in performing exams, they would earn less than they expended. The possibility of non-payment after incurring the expense of traveling to the work site does not establish the existence of a cognizable business risk, since employees as well as independent contractors share the risk of not being paid for services they have rendered. Here, the typical distance traveled to conduct an exam was not shown to exceed that of a commuting employee. Condition 8. was not satisfied.
Condition 9. requires proof of a cost of doing business which the examiners would incur even during a period of time they were not performing work through Egan. The record does not establish that any of the examiners carried their own liability insurance, leased a separate office, financed a major equipment purchase, or incurred any other expense which they could not discontinue, and for which they would continue to be liable, during a period of time they were not receiving work through Egan. As a result, condition 9. was not satisfied here.
The commission has interpreted condition 10. as intending to examine the overall course of a person's business. See, Quality Communications Specialists, Inc., supra. Here, the record supports a conclusion that the examiners had a relatively small investment in equipment, (1) and their recurring expenditures could be readily discontinued if the flow of work they received through Egan 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, UI Hearing No. S9900063WU (LIRC, Feb. 22, 2000); Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004) (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); Barnett v. Alternative Entertainment, UI Hearing No. 02003109WU (LIRC, Oct. 29, 2002); Dane County Hockey Officials, Inc., supra. Condition 10. was not satisfied.
To summarize, during the relevant time period, only conditions 5., and 7. were satisfied as to all examiners. Condition 1. was satisfied only as to examiners Fry and McCoy. Condition 2. was satisfied only as to examiners Bell, Larosh, Wright, Fry, McCoy, Sheard, and Strasser. Condition 3. was satisfied only as to examiner Strasser. Condition 6. was satisfied as to all examiners except examiner Wright. As a result, five conditions were satisfied as to examiners Strasser, Fry, and McCoy; four as to examiners Bell, Larosh, and Sheard; and three as to the remaining examiners. Egan, as a result, failed to rebut, by establishing that at least seven conditions were satisfied, the presumption that the examiners performed services as employees during the relevant time period.
The decision of the administrative law judge, as modified, is affirmed. Accordingly, during 2001 and 2002 the individuals named in the subject audit reports, except Jenny Trapp and Diane Vadnais, were employees of Diane M. Egan/Health Exams Plus, Inc., and, as a result, the employer is liable for contributions to the Unemployment Reserve Fund on the basis of payments made to those individuals. This matter is remanded to the department for a recalculation of the correct amount of such contributions.
Dated and mailed April 15, 2005
egandia . smd : 115 : 1 EE 410 EE 410.03 EE 410.04a EE 410.06 EE 410.10
/s/ James T. Flynn, Chairman
David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
Diane M. Egan
Attorney Kelly C. Nickel
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(1)( Back ) Although Egan testified that certain of the examiners owned EKG machines which typically cost between $500 and $1500, the record does not establish which examiners owned such machines or how much they actually paid for them.