THOMAS J HARRIS, 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:

The FINDINGS OF FACT and CONCLUSIONS OF LAW section is deleted through the third full paragraph on page 6 of the decision and the following substituted:

Thomas J. Harris (Harris) is the sole proprietor of a residential remodeling/new construction business. During the years at issue here, Harris hired the subject individuals to perform carpentry, drywall, roofing, framing, paneling, window/door installation, tiling, cement, masonry, and cleaning work. 
  

Employees or independent contractors

Those workers whose status is at issue include: John Dolney (2001); Mary Harkin (2002, 2003); Jamie Harris (2002); Matthew Harris (2003); David Hughes (2001, 2002); Mike McCarthy (2001, 2003); Paul Miclow (2001, 2002, 2003); Tom Sikorski (2003); Ed Tillman (2002, 2003); Tony Tozier (2001, 2002).

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 seven 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 persons who provide services for pay are employees and requires the entity for which the person is performing those services to bear the burden of proving that they are not. 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 review of this case is not limited to those aspects of the administrative law judge's decision challenged in the petition.

Harris failed to establish, in regard to condition 1., that any of the workers actually submitted an application for, or held, an identification number with the federal internal revenue service during the relevant time period. Condition 1. was not satisfied.

In regard to condition 2., Harris failed to establish that any of the workers filed business or self-employment income tax returns with the federal internal revenue service for services performed for Harris for the years at issue. Contrary to Harris's apparent contention, condition 2. is not satisfied simply because the employer considers a worker to be an independent contractor and issues a 1099 form to him. See, Gamble v. American Benefits Ltd., UI Hearing No. 04004847MD (LIRC Feb. 15, 2005). Condition 2. was not satisfied.

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); Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005); 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 workers generally used at least some of their own tools and equipment, it shows that only Miclow was actually engaged in a separate business. As a result, condition 3. was not satisfied as to those workers other than Miclow. Condition 3. was satisfied as to Miclow. The evidence of record shows that Miclow had a substantial investment in tools and equipment, performed similar services for other remodelers/builders, and had a business office space and equipment storage space in separate areas of his home.

To satisfy condition 4., it must be established that the workers 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 workers here exercised enough independence and discretion in carrying out their construction responsibilities to satisfy the second part of the test.

Condition 4., however, 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 he has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship, and that he is not dependent upon a single, continuing relationship that is subject to conditions dictated by a single employing unit. See, T-N-T Express LLC, UI Hearing Nos. S9700385, etc. (LIRC Feb. 22, 2000); Dane Co. Hockey Officials, supra. There was no specific evidence as to the existence of contracts between any of the workers and entities other than Harris. The contracts under which the workers performed services for Harris during the relevant time period were apparently project-specific oral contracts. The evidence of record shows that only in regard to workers McCarthy, Miclow, and Sikorski could it be said that at least some of these oral contracts were negotiated at arm's length with terms that varied over time and by job. The record here includes unrebutted testimony by Harris, McCarthy, and Miclow that at least some of the job-specific contracts with McCarthy, Miclow, and Sikorski were based upon the worker's development of a bid based on an estimate of the amount of time it would take to complete the job, with the understanding that, upon completion of the job, the basis for the worker's payment would be the bid amount, not the number of hours actually required to complete the job. As a result, condition 4. was satisfied as to workers McCarthy, Miclow, and Sikorski, but not as to any of the other workers.

Applying condition 5. requires a determination of what services are performed under the contract, what expenses are related to the performance of these services, which of these expenses are borne by the person whose status is at issue, and whether these expenses constitute the main expense. Lozon Remodeling, UI Hearing No. S9000079HA (LIRC Sept. 24, 1999); Quality Communications Specialists, Inc., supra. This inquiry requires quantification of these expenses, and, under the circumstances present here, a determination of which entity, the worker or Harris, bears the larger total expense.

The services performed under the contracts at issue here include providing construction labor, but not materials, to builders and homeowners.

A threshold question is whether the cost of the materials utilized by the worker, e.g., roofing shingles, siding, and lumber, should be considered an expense "related to" the performance of their services.

First of all, in this regard, as noted above, construction materials are not a subject of the contracts at issue. Moreover, the commission has looked to the practice in the particular industry to answer this question (see, Hauden & Scholl Builders, Inc., UI Hearing No. S9700339MD (LIRC Aug. 31, 1998)), and has generally held that materials installed by workers in the construction trades, such as the workers here, should not be considered as a related expense. See, Hauden & Scholl, supra.; Lozon Remodeling, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000); Dibbles & Dibbles, Inc., UI Hearing No. S0300140RH (LIRC Jan. 12, 2005); Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).

As a result, the cost of materials should not be factored into the apportionment of expenses for purposes of condition 5.

Here, the workers provided their own transportation and generally provided their own tools and equipment. Harris paid for liability insurance. Even though the cost of some of the tools and equipment is detailed in the hearing record, the depreciated value of such tools and equipment, as well as the breakdown between business use and personal use, is not. In addition, the record does not establish that the workers' transportation costs generally exceeded those which would be expected for a commuting employee. Finally, the cost of those items for which Harris assumed responsibility, e.g., liability insurance, is not specified in the record. As a result, the record does not support a conclusion that the workers bore the main expense related to the services they performed under their contracts with Harris.

Condition 5. was not satisfied.

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 piecework employees. See, T & D Coils, UI Hearing No. S9800147MW (LIRC Dec. 15, 1999). 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. The evidence of record in this regard, although silent as to worker Harkin, shows that the other workers were expected to repair any defects in their work without additional compensation for time or for materials. The fact that these workers were expected to pay for repair/replacement materials distinguishes their situation from piecework employees, and, as a result, condition 6. was satisfied as to all workers except Harkin. See, Quality Communications Specialists, Inc., supra.; Quale & Associates, Inc., supra.

Condition 7. requires that workers receive compensation for the services they perform under contract with Harris on a commission, per-job, or competitive-bid basis and not on any other basis.

However, the record shows that workers Dolney, Hughes, McCarthy, Miclow, Sikorski, Tillman, and Tozier, although paid at times on a per-job basis, were also paid on an hourly basis and, as a result, condition 7. was not satisfied as to them. Since there is no evidence regarding the manner in which Matthew Harris was paid, the record does not support a conclusion that this condition was satisfied as to him. Finally, the record shows that workers Harkin and Jamie Harris were paid only on a per-job basis, so condition 7. was satisfied as to these two workers.

Condition 8. looks at whether, under an individual contract for a worker'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 workers 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. Although the witnesses pointed to such factors as the cost of lunch, clothing replacement, and commuting, such costs are borne as well by employees. Condition 8. was not met.

Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time the employee was not performing work through the employer. The record does not show that any of the workers had such fixed expenses. See, Quale & Associates, Inc., supra. Condition 9. was not met.

The commission has interpreted condition 10. as intending to examine the overall course of a worker's business. See, Quality Communications Specialists, Inc., supra. Condition 10. requires that a significant investment have been 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. See, Thomas Gronna, supra. The record fails to show that any of the workers had put a significant investment at risk. Condition 10. was not satisfied.

To summarize, no more than three conditions were satisfied as to any worker. Since Wis. Stat. § 108.02(12)(bm) requires that seven conditions be satisfied in order for a worker to be considered an independent contractor, the satisfaction of only three conditions compels the conclusion that the workers performed services for Harris as employees, not independent contractors, during the relevant time period. 
  

Date and rate of coverage

The second issue is the date by which Harris should be considered an employer and the proper rate of contribution.

Wisconsin Statutes. § 108.02(13)(e), as relevant here, provides that:

(e) Any...employing unit, except a government unit, shall become an employer as of the beginning of any calendar year if the employing unit:

1. Paid or incurred liability to pay wages for employment which totaled $1,500 or more during any quarter in either that year or the preceding calendar year;...

Here, Harris paid wages of at least $1,500 in the third and fourth quarters of 2001, and, as a result, became an employer effective at the beginning of that year, i.e., January 1, 2001.

In addition, as a construction employer, Harris is liable for contributions at the rate specified in Wis. Stat. § 108.18(2)(c).

The decision of the administrative law judge, as modified, is affirmed. Accordingly, Thomas J. Harris is a covered Wisconsin employer effective January 1, 2001, and is liable for contributions to the Unemployment Reserve Fund for 2001, 2002, and 2003, as more particularly set forth in the department determination.

Dated and mailed June 15, 2006
harrist . smd : 115 : 4 EE 410  EE 410.05  EE 410.06

/s/ James T. Flynn, Chairman

/s/ David B. Falstad, Commissioner

/s/ Robert Glaser, Commissioner

cc: Attorney Michael R. Inglimo

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