ACUTE CARE INC, Employer
Account No. 826949, Hearing No. S0500090MD
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 putative employer (Acute Care) contracted with physicians to staff emergency rooms in rural hospitals. During 2004, the period at issue, Acute Care had contracts with two physicians in Wisconsin, Russo and Khan.
The issue is whether Russo and Khan performed services for Acute Care during 2004 as employees or as independent contractors.
It was stipulated by the parties at hearing that, during at least one quarter in 2004, both Russo and Khan were paid wages in excess of $1,500 to perform services for Acute Care. As a result, Acute Care qualified as an employer beginning in 2004 by operation of Wis. Stat. § 108.02(13)(e)1. (1)
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).
It is undisputed that both Russo and Khan performed services for pay for Acute Care during 2004. It is Acute Care's burden to rebut the presumption they did so as employees by showing that their employment satisfied at least seven of the ten conditions set forth in Wis. Stat. § 108.02(12)(bm).
Russo
Russo did not testify at hearing. Mark Menadue, the president and CEO of Acute Care, testified that all physicians were required to enter into a standard contract (exhibit #1), Acute Care issued the 1099 for the services performed by Russo during 2004 which constitutes exhibit # 2, and Acute Care generated the payroll report for the services performed by Russo during January 2004 which constitutes exhibit #3.
This is essentially the only evidence of record relating to Russo, and is clearly insufficient to show that the services he performed in 2004 satisfied at least seven of the ten conditions. Although Acute Care argues that the standard contract language shows that certain of these conditions were satisfied, Wis. Stat. § 108.02(12)(bm) requires the employing unit to show that the individual performing the services meets the conditions "by contract and in fact."
Acute Care has also raised a procedural issue relating to Russo.
By letter to Acute Care dated October 19, 2006, Jorge Fuentes, the department's attorney, stated:
In addition, we have attempted to secure the voluntary telephonic appearance of Mr. Russo. We will attempt to call him at the time and date of the hearing.
Fuentes suggested to ALJ Junceau early in the hearing that an attempt be made to contact Russo but ALJ Junceau decided instead to proceed with the testimony of Khan at that time. No attempt was made to contact Russo before the hearing record was closed. Acute Care now argues that this circumstance prevented its examination of Russo.
Of course, Acute Care has the burden to prove that Russo satisfied at least seven of the 10 conditions, and it was in its interest, given that burden, to arrange for the appearance of Russo, either voluntarily or by subpoena. See, e.g., Kip Koth LLC, UI Hearing No. S0100034RH (LIRC April 8, 2003).
The department, however, through the letter authored by Fuentes, led Acute Care to believe that the department had been in touch with Russo, anticipated he would appear voluntarily by phone at the hearing, and intended to call him as a witness at hearing; and Acute Care reasonably relied upon this belief in preparing for hearing.
What Acute Care failed to do, however, is to address this matter directly at hearing either through a request that Russo be called as a witness, a request for further hearing to offer the testimony of Russo, or a request that Khan be considered a representative of the physicians under contract with Acute Care in Wisconsin in 2004, or otherwise. In fact, at the end of the hearing, ALJ Junceau asked counsel for Acute Care whether he wanted to call any further witnesses or offer any further evidence, and he indicated he did not.
As a result, even though the department's practice here was not optimal, Acute Care, which was represented by counsel throughout these proceedings, did not take sufficient action at hearing either to attempt to call Russo as a witness, or to request further hearing for that purpose. To do so in its petition to the commission is simply too late.
Khan
The record shows that Khan possessed a FEIN, as required by condition 1.
The record shows that Khan filed self-employment income tax returns for each of the years, beginning in 2000, he performed services for Acute Care, as required by condition 2. The department argues, and the ALJ's decision implies, that Khan's testimony in this regard was ambiguous. However, neither the department nor the ALJ accurately characterize Khan's testimony in this regard.
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). The record shows that Khan maintained a separate business office, and used certain of his own equipment. The lack of separate facilities, which would be consistent with the nature of the business in which Khan was engaged, would not be dispositive here. See, Groeschl Forestry Consulting, Inc., UI Hearing No. S0000141HA (LIRC March 19, 2002); Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005). In addition, the fact that Khan contracted with other entities to provide emergency room medical services further supports a conclusion that he maintained a separate business. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001).
To satisfy condition 4., it must be established that Khan operated under contracts to perform specific services for specific amounts of money, and that, under these contracts, he controlled the means and method of performing the services. Even though Khan was subject to the protocols and procedures of the hospitals in which he provided emergency medical services, given the nature of the industry, this would be true whether he was an employee or an independent contractor. See, Ristau v. Fox Valley Symphony, UI Hearing No. 06401057AP (LIRC Aug. 23, 2006); Eichman v. Wisconsin Technical College System Foundation, UI Hearing No. 06003528JV (LIRC Jan. 18, 2007). The fact that Khan exercised his independent medical judgment in examining, diagnosing, and providing medical care establishes that he controlled the means and method of performing the subject services. See, Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005).
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 he 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 record shows that Khan had contracts to provide emergency medical services with multiple entities, including the Veterans Administration and EmCare in addition to Acute Care.
Conditions 1., 2., 3., and 4. are 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. This inquiry requires quantification of these expenses.
The record shows that Acute Care incurred certain unspecified administrative costs; Khan incurred the cost of medical malpractice insurance ($3,000/year), state patients compensation fund fees ($1,700-3,800/year), continuing education, travel, small equipment such as a stethoscope, and office lease and equipment; and the hospitals in which the services were performed incurred the costs of diagnostic machines and laboratory services. Since most of these costs were not quantified in the record, and since it is not obvious that the costs incurred by Khan would necessarily exceed those borne by Acute Care or the hospitals, condition 5. is not satisfied.
In order to satisfy condition 6., Khan is required to have been responsible for the satisfactory completion of the services he performed, and liable for any failure to satisfactorily complete them. Khan was required in his relationship with Acute Care to possess, and to pay for, professional malpractice insurance. In addition, his contract with Acute Care stated that he would be responsible for any professional or administrative failures on his part, including his failure to report for a scheduled shift. According to the record, if such a failure occurred, Khan would be responsible for paying the costs of a replacement physician, even if this cost exceeded what Khan would have been paid for the shift. This establishes his liability for any failure to satisfactorily render emergency medical services, and condition 6 is satisfied as a result. See, Care & Comfort Associates, UI Hearing No. S9700120MW (LIRC April 30, 1999); O'Brien v. Angel Adams, Inc., UI Hearing No. 07601554MW (LIRC July 9, 2007).
Condition 7. requires that Khan have been paid on a per-job, competitive bid, or commission basis, and not on any other basis. The ALJ, based apparently on Russo's payroll record, in which his compensation was recorded in hourly terms, concluded that Khan was paid on an hourly basis and did not, as a result, satisfy condition 7. The commission disagrees. Both Menadue and Khan testified that Khan was paid by the shift. Menadue testified that physicians typically bid on shifts at individual hospitals, and Acute Care selected the lowest bid. Simply because the shift payment or the bid may have been computed by multiplying an hourly amount by the number of hours in a typical emergency room shift does not convert a per-job payment or a competitive bid into an hourly wage. As a result, condition 7. is satisfied here.
Condition 8. examines whether, under an individual contract for 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). It is at least arguable, as the commission held in Quality Communications Specialists, Inc., supra., that the receipt by Khan of more in pay for his services under his contract with Acute Care than he incurred in performing such services would constitute "realiz[ing] a profit under contracts to perform services." In addition, there is a possibility that Khan could suffer a loss if Acute Care ceased offering shifts to him and he continued to have to pay his office, malpractice insurance, and other continuing costs. The ALJ concluded, based on the fact that Khan was virtually assured payment from Acute Care if he completed the work he was offered, that Khan could not realize a loss. However, this is only one relevant factor. The others are whether Khan was guaranteed work by Acute Care, which he was not, and whether he had expenses which would continue whether or not Acute Care offered him work, which he did. The record shows that Khan could suffer a loss. See, Lakeshore Mental Health, Inc., UI Hearing No. S0600162AP (LIRC Nov. 30, 2007).
Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time he was not performing work through the putative employer, such as the cost of an office lease, professional fees, or liability insurance. The record shows that Khan had continuing expenses for professional malpractice insurance, an office lease, continuing education, and professional fees for licensing and for the state patients compensation fund. Condition 9. is satisfied.
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 shows that Khan had an investment in an office and in equipment, as well as recurring expenditures which could not be readily discontinued if the flow of work he received through his contracts for emergency medical services ceased. This is the type of entrepreneurial risk contemplated by condition 10. See, 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). Condition 10. is satisfied.
To summarize, during the relevant time period, the services Khan performed for Acute Care satisfied all but condition 5. 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 nine of the ten conditions compels the conclusion that Khan performed services for Acute Care as an independent contractor, not an employee, during the time period at issue.
As of January 1, 2004, Acute Care was an employer subject to the Wisconsin Unemployment Insurance law, within the meaning of Wis. Stat. § 108.02(13)(e).
Russo performed services for Acute Care during 2004 as an employee, within the meaning of Wis. Stat. § § 108.02(12)(a) and (bm).
Khan performed services for Acute Care during 2004 as an independent contractor, not an employee, within the meaning of Wis. Stat. § § 108.02(12)(a) and (bm).
The decision of the administrative law judge is affirmed in part and reversed in part. Acute Care was subject to the Wisconsin Unemployment Insurance law as of January 1, 2004. This matter is remanded to the department to calculate Acute Care's liability for tax contributions and interest consistent with this decision.
Dated and mailed February 15, 2008
acuteca . srr : 115 : 1 PC 715 EE
410 EE 410.04a EE 410.06 EE 410.08 EE 410.10
/s/ James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
cc: Attorney Jorge L. Funetes
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