DUNHAM EXPRESS, 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 putative employer (Dunham) provides package pickup and delivery services for a variety of customers, including but not limited to pharmaceutical companies, banks, office product retailers, government agencies, and newspapers.
During 2003/2004, the time period relevant here, driving services were provided for Dunham by long haul drivers, employee drivers, on-demand drivers (1), and contract drivers.
The issue is whether the contract drivers performed these services as employees or independent contractors during the four calendar quarters of 2003 and the first and second calendar quarters of 2004.
Based primarily upon geographical compactness and customer deadlines, Dunham developed a number of pickup/delivery routes. A bid sheet (e.g., exhibit #21) was prepared for each open route, describing the route and setting forth an amount which bidders were instructed to "use...when considering a counter bid."
For certain of these routes, Dunham received competing bids. Bidders were not limited to the amount stated on the bid sheet, but typically submitted bids based upon their assessment of the potential costs and profitability of the route, and actively negotiated with Dunham.
The ALJ found that "[i]n most situations...the base bid amount quoted by the employer was a 'take it or leave it' proposal." However, the record does not support this finding. Numerous contract drivers, as well as members of Dunham management, testified that counterbids were considered and accepted in active negotiations between the drivers and Dunham. Only one driver (Robert Nordness) testified that, on one occasion, when he and Dunham were renegotiating a route and his counterbids were not close to Dunham's stated amount for the route, he was told he "could take it or leave it." Not only was this testimony contrary to the clear weight of the evidence on this point, but there were problems with Nordness's credibility. Specifically, he accused Dunham of withholding payment from him for the last three or four days he worked, but later conceded that, after he severed his relationship with Dunham without providing the 30 days' notice required by his contract, Dunham would not have been able to contact him in order to provide his last check because he had no phone and had moved with no forwarding address.
Once a bid for a route was accepted, the successful bidder and Dunham entered into a contract (exhibit #4).
The contract drivers owned their vehicle or leased it from an entity other than Dunham. Dunham required that this vehicle be white, and that it display the Dunham name/logo and DOT number. Contrary to the ALJ's finding that this was the only identification Dunham permitted on the vehicle, the record shows that contract drivers were also permitted to display their name or their business's name.
Contract drivers could bid on and be awarded more than one route, and could hire their own employees to drive a route or to assist with loading/unloading. These employee drivers were required by the contract to satisfy Dunham's standards for drivers, primarily those imposed by federal law.
Contract drivers, on an ad hoc basis, were offered stops in addition to those on their routes, and could decline these additional stops without penalty.
In addition to the route payment, and payment for additional stops they had accepted, contract drivers also received part of the fuel surcharge assessed against certain customers. Contract drivers did not receive the total amount of a fuel surcharge because theirs were not the only Dunham vehicles involved in transporting product for a customer.
Contract drivers were required, by their agreement with Dunham, to wear a Dunham uniform, and to bear the costs for operating and maintaining their vehicle, for insurance, and for other equipment, including phones and electronic scanners.
Contract drivers were permitted by their agreement with Dunham to provide driving services for other entities as long as these services did not occur at times the driver was providing services for Dunham, and as long as these services were not performed for a Dunham competitor servicing a Dunham customer.
The contract provided for a 30-day notice of termination by either party, and enabled Dunham to sever its relationship with a contract driver for "substantial breach" of the agreement. The record establishes that this provision was utilized to sever relationships with drivers who, for example, had committed theft of customer product or engaged in inappropriate treatment of a customer. The ALJ found that Dunham "used that provision to immediately terminate any contract driver that was not totally compliant with its operation of its delivery business." The evidence of record does not support this finding.
A two-step analysis is used to determine whether an individual is an employee. 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). There is no dispute that the contract drivers performed services for Dunham for pay. A presumption therefore arises that such services were performed as an employee. The burden then shifts to Dunham to establish that the contract drivers are excepted from employee status by some statutory provision. 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).
One of the statutory exceptions to the presumption of employee status appears in Wis. Stat. § 108. 02(12)(c), which provides,
(c) Paragraph (a) does not apply to an individual performing services for a government unit or nonprofit organization, or for any other employing unit in a capacity as a logger or trucker if the employing unit satisfies the department:
1. That such individual has been and will continue to be free from the employing unit's control or direction over the performance of his or her services both under his or her contract and in fact; and
2. That such services have been performed in an independently established trade, business or profession in which the individual is customarily engaged.
In T-N-T Express LLC, UI Hearing Nos. S9700385MD, etc. (LIRC Feb. 22, 2000), the commission analyzed the applicability of Wis. Stat. § 108.02(12)(c) to individuals who perform courier delivery services.
The first step in this analysis is to determine whether the contract drivers are "truckers," within the meaning of Wis. Stat. § 108.02(12)(c).
"Trucker" is defined by Wis. Stat. § 108.02(25e) as "a contract operator with a trucking carrier."
The term "contract operator" is defined in Wis. Admin. Code § DWD 100.02(12) as "an individual who contracts to lease a motor vehicle to a carrier for use in the carrier's business."
"Carrier" is defined in Wis. Admin. Code § DWD 100.02(8) as:
(8) "Carrier" means a person engaged in the hauling of passengers or freight by motor vehicle and includes a person engaged as a "common motor carrier," under s. 194.01 (1), Stats., as a "contract motor carrier," under s. 194.01 (2), Stats., or as a "private motor carrier," under s. 194.01 (11), Stats.
The statutory definitions of the three categories of "carriers" incorporated into Wis. Admin. Code § DWD 100.02(8) are sufficiently broad, individually and in the aggregate, that virtually any kind of courier service company, including Dunham, would fall within their ambit. See, T-N-T Express LLC, supra.
The next step then is to determine whether, within the meaning of Wis. Stat. § 108. 02(12)(c), the contract drivers performed their pickup and delivery services free from Dunham's direction and control, and performed these services in an independently established trade, business or profession in which they were customarily engaged.
This determination is governed by Wis. Adm. Code § § DWD 105.03 [direction and control], and DWD 105.04 [independently established business].
Direction and control
Wisconsin Administrative Code § DWD 105.03 provides as follows:
DWD 105.03 Contract operators; direction and control.
(1) The department shall examine the factors enumerated in this section to determine, both under contract and in fact, whether the contract operator is free from a carrier's direction or control, while the contract operator performs services for the carrier. The department shall determine whether:
(a) The contract operator owns the motor vehicle or holds the vehicle under a bona fide lease arrangement with any person other than the carrier;
(b) The contract operator is responsible for the maintenance of the motor vehicle;
(c) The contract operator bears the principal burden of the motor vehicle operating costs including such items as fuel, repairs, supplies, insurance and personal expenses while on the road;
(d) The contract operator supplies, or is responsible for supplying, the necessary personal services to operate the motor vehicle;
(e) The contract operator determines the details and means of performance, namely, the type of equipment, assignment of driver, loading, routes and number of stops to be made during the haul, as well as starting, completion and elapsed times;
(f) The contract operator may refuse to make a haul when requested by the carrier;
(g) The contract operator may terminate the lease at any time after reasonable notice; and
(h) The contract operator is compensated on a division of the gross revenue or by a fee based upon the distance of the haul, the weight of the goods, the number of deliveries, or any combination of these factors.
(2) If the department determines that all of the factors under sub. (1) (a) to (h) are present in the relationship between the contract operator and the carrier, the contract operator shall be deemed to be free from the carrier's direction and control in the performance of services under s. 108.02 (12) (b) 1., Stats. If one or more of the factors under sub. (1) (a) to (h) are not present in the relationship between the contract operator and the carrier, the department shall consider additional factors of the relationship, both under contract and in fact, including whether:
(a) The contract operator may negotiate with the carrier to determine the method, frequency and regularity of payments made to the contract operator;
(b) The contract operator has the authority to discharge any driver whom he or she employs;
(c) The carrier requires decals, lettering, signs, emblems or other markings on the contract operator's motor vehicle for the purpose of advertising the carrier's name or business;
(d) The carrier requires the contract operator to submit reports;
(e) The carrier requires the contract operator to obey any work rules or policies; and
(f) The carrier requires any deductions from payments owing to the contract operator for federal or state income taxes or taxes under the federal insurance contributions act.
(3) If the contract operator is found to be under the carrier's direction or control under subs. (1) and (2), the contract operator shall be deemed to be an employe of the carrier under s. 108.02 (12) (b) 1., Stats.
In regard to the factor stated in Wis. Adm. Code § DWD 105.03(1)(e), the record shows that pickup/delivery deadlines and locations were determined by the customers, not by Dunham. The presence of requirements such as these, imposed by the customer to meet business needs, does not constitute control by the putative employer over the details and means of performance within the meaning of Wis. Adm. Code § DWD 105.03(1)(e). See, e.g., Thomson Newspapers, Inc., UI Hearing No. S9200097MW (LIRC May 31, 1994)(no direction and control where employer's establishment of pick-up and delivery times simply insured the result for which bundle haulers' services were retained); McSorley v. Velocity Express, UI Hearing No. 06004688MD (LIRC May 9, 2007)(delivery driver meeting requirements of customer as to pickup/delivery deadlines and locations not subject to direction and control by putative employer).
The record also shows that the arrangement of stops on a route was primarily dictated by customer deadlines and demands. Consistent with Wis. Adm. Code DWD 105.02 (2), a requirement that a contract operator satisfy such customer deadlines and demands does not constitute evidence of direction and control by the putative employer. The record does not show that, if customer deadlines and demands permitted flexibility as to the arrangement of stops on a route, contract drivers were prohibited from exercising such flexibility. In fact, both Mark McDonald, Dunham CEO, and Chris Henry, Dunham Independent Contractor Administrator during 2003-04, credibly testified that Dunham did not require contract drivers to drive a route in a particular order. In addition, certain of the contract drivers (e.g., Daniel Davis on page 146 of transcript, and Dennis Thompson on page 296) testified that Dunham did not dictate the order of stops on routes, but that contract drivers were required to meet all customer deadlines. The contract drivers independently determined the roadways they would follow to make the pickup/delivery at the location specified by the customer, the vehicle they would use, the manner in which the item to be picked up or delivered would be loaded into the vehicle, and the timing required to complete the delivery by the customer's deadline. In McSorley, supra., the commission determined that delivery drivers with a range of independence comparable to the contract drivers at issue here were not subject to the putative employer's direction and control within the meaning of Wis. Adm. Code § DWD 105.03(1)(e).
The department argues, however, that the language of Wis. Adm. Code § DWD 105.03(1)(e), to the effect that direction and control exists when a putative employer determines the "routes and number of stops to be made during the haul," describes the actions of Dunham in creating the routes for the contract drivers and specifying the stops on each route. However, under a more reasonable interpretation of the language of this code provision, taking into account the practices of the trucking industry as a whole, "route" would refer to the series of roadways a driver uses to travel from one pickup/delivery location to another, and "stops" to down time between such locations for purposes of rest breaks or meals, for example.
The department also contends, and the ALJ held, that the contract drivers do not satisfy Wis. Adm. Code § DWD 105.03(1)(f). because they could not refuse to make a haul requested of them by Dunham.
A necessary underpinning of the department's contention is that each stop on a Dunham delivery route should be regarded as a "haul." A more reasonable interpretation, however, is that each route organized by Dunham would be considered a haul, which a contract driver could refuse at the point the open route was being offered by Dunham for bid; and each ad hoc stop would be considered a haul, which the record shows each contract driver could refuse without penalty. Given this interpretation, the record establishes that contract drivers could refuse a haul within the meaning of Wis. Adm. Code § DWD 105.03(1)(f).
The department also argues that the contract drivers do not satisfy Wis. Adm. Code § DWD 105.03(1)(h) because the record fails to establish how their compensation is determined. However, the record shows, through the testimony of Mark McDonald, Dunham CEO, and various contract drivers, that both the amount stated by Dunham on the bid sheet, and the counterbids offered by potential contract drivers, were based upon driving distances and the number of stops. In addition, the record shows that the payments to contract drivers for stops in addition to those on their routes was calculated as a percentage of gross revenue earned for the stop. The commission agrees with the ALJ that each of these compensation models satisfies the language of Wis. Adm. Code § DWD 105.03(1)(h).
Finally, the record shows, and the parties do not dispute, that the contract drivers met the remaining requirements of Wis. Adm. Code § DWD 105.03(1). They (a) owned or leased from a third party the vehicles they used to make pickups and deliveries, (b) maintained these vehicles, (c) paid the costs of operating these vehicles, (d) operated these vehicles or supplied drivers to operate these vehicles, and (g) could terminate their vehicle leases upon reasonable notice to Dunham.
As a result, the contract drivers met each of the requirements of Wis. Adm. Code § DWD 105.03(1) and it is not necessary to consider the additional factors set forth in Wis. Adm. Code § DWD 105.03(2).
However, even considering such additional factors, the record does not show that Dunham exercised direction and control over the contract drivers within the meaning of Wis. Stat. § 108. 02(12)(c)1.
The department argues that Wis. Adm. Code § DWD 105.03(2)(a) is not satisfied because the record does not show that the contract drivers had the ability to negotiate with Dunham as to the frequency of their pay. However, CEO McDonald testified that contract drivers are paid every other week unless they request a different frequency of payment, and he specifically recalled Dunham granting one contract driver's request to be paid on a weekly rather than a biweekly basis. The agreement between Dunham and the contract drivers does not limit the frequency of payment to biweekly, and none of the contract drivers testified that they had requested but been denied a different payment frequency. As a result, the commission agrees with the ALJ that the contract drivers satisfied this requirement.
The department also argues, and the ALJ held, that Wis. Adm. Code § DWD 105.03(2)(c) is not satisfied because Dunham requires decals on the contract drivers' vehicles for advertising purposes. .
It is undisputed that Dunham required that decals with its name, logo, and DOT number be displayed on contract drivers' vehicles. Pursuant to Wis. Adm. Code § DWD 105.03(2)(c), such a display would establish direction and control if it was required "for the purpose of advertising the carrier's name or business."
The commission first notes that Wis. Stat. § 194.09 requires that contract operators, such as the contract drivers here, use "plainly marked" vehicles identifying the carrier (Dunham).
The record shows that Dunham's vehicle decal requirement was primarily motivated by this statutory requirement, and by security considerations when its customer was a bank, pharmaceutical company, or other entity particularly vulnerable to product theft; or when its vehicles were, for example, making night deliveries, i.e., certain of the obvious security concerns of banks, pharmacies, and night clerks at convenience stores could be addressed by the appearance of a clearly identifiable Dunham vehicle. A representative of one of Dunham's pharmaceutical customers testified that utilizing a clearly identifiable vehicle for picking up and delivering pharmaceutical products was a company requirement and a non-negotiable provision in its contracts with delivery services, including Dunham. Contract drivers were routinely offered extra stops, potentially including those implicating security concerns, so it was reasonable for Dunham to require that each of it contract drivers utilize white vehicles with the Dunham decal. Although the record shows that advertising of the Dunham brand was also a motivating factor, it establishes that security was the primary reason for its vehicle identification requirements.
The ALJ held that direction and control was also established pursuant to Wis. Adm. Code § DWD 105.03(2)(c) because Dunham required its contract drivers to wear uniforms. However, since this code provision relates only to displays "on the contract operator's motor vehicle," the fact that the contract drivers wore a Dunham uniform appears to be irrelevant. See, McSorley, supra.
Although it is possible to envision circumstances in which a requirement that a vehicle bear the logo of the putative employer or meet certain appearance requirements could establish direction and control, the commission concludes that the evidence of record does not justify such a conclusion here.
Wis. Adm. Code § DWD 105.03(2)(e) relates to a carrier requirement that a contract operator obey work rules or policies. The department argues that, because they were required to wear a Dunham uniform, drive a white vehicle with the Dunham decal, and lock their vehicles between stops, contract drivers were required to obey Dunham work rules and policies. However, these were requirements imposed primarily to address security considerations and requirements imposed by certain customers, and were of a type that would apply to any Dunham driver, whether an employee or an independent contractor. The record shows that contract drivers were not subject to the work rules and policies stated in Dunham's employee handbook and, in fact, were not even provided a copy of the handbook.
As a result, the commission agrees with the ALJ that Dunham did not exercise direction and control over its contract drivers within the meaning of Wis. Adm. Code § DWD 105.03(2)(e). See, McSorley, supra.
It appears to be undisputed that the remaining factors stated in Wis. Stat. § DWD 105.03(2), support a conclusion that the contract drivers performed their driving services free of Dunham's direction and control. In particular, the contract drivers: (b) were given the authority to discharge any driver they employed, (d) were only required to submit reports to comply with DOT requirements and as to their completed deliveries, and (f) were not subject to any tax withholding deductions by Dunham.
The contract drivers were not subject to Dunham's direction and control within the meaning of Wis. Adm. Code § DWD 105.03.
Independently established business
The next question then is whether the contract drivers were engaged in an independently established business, trade, or profession in which they were customarily engaged within the meaning of Wis. Adm. Code § DWD 105.04.
This code provision states as follows:
DWD 105.04 Contract operators; independently established business; customarily engaged.
(1) If the department determines that a contract operator is free from a carrier's direction or control in the performance of services under s. DWD 105.03, the department shall examine the following factors to determine whether a contract operator who performs services for a carrier is performing these services in an independently established business in which the contract operator is customarily engaged. The department shall determine whether:
(a) The contract operator owns the motor vehicle or holds the vehicle under a bona fide lease arrangement with any person other than the carrier;
(b) The contract operator is free to hire another person as a driver in the performance of services for the carrier; and
(c) The contract operator is free to reject hauling a load offered by the carrier.
(2) If the department determines that all of the factors under sub. (1) (a) to (c) are present in the relationship between the contract operator and the carrier, the contract operator shall be deemed to be performing services in an independently established business in which the contract operator is customarily engaged under s. 108.02 (12) (b) 2., Stats. If one or more of the factors under sub. (1) (a) to (c) are not present in the relationship between the contract operator and the carrier, the department shall consider additional factors including whether:
(a) The contract operator's business may provide a means of livelihood that is separate and apart from the livelihood gained from services performed for a particular carrier;
(b) The business would continue if the relationship with the carrier were terminated; and
(c) The contract operator has an ownership interest in a business that the contract operator alone may sell or give away without restriction from the carrier.
(3) If the contract operator is found to be free from the carrier's direction or control but not engaged in an independently established business under subs. (1) and (2), the contract operator shall be deemed to be an employe of the carrier under s. 108.02 (12) (b) 1. and 2., Stats. If the contract operator is found to be free from the carrier's direction or control and engaged in an independently established business, the contract operator shall be deemed to be an independent contractor and not an employe of the carrier under s. 108.02 (12) (b) 1. and 2., Stats.
The ALJ, relying upon his finding that contract drivers were not free "to reject making stops on his or her route," concluded that the requirement stated in Wis. Adm. Code § 105.04(1)(c) was not met. However, as discussed above, the commission disagrees with this finding. The fact that contract drivers may refuse a route, or the offer of an additional stop outside their route, constitutes the freedom to reject "hauling a load offered by the carrier" within the meaning of this code provision.
It is undisputed that the contract drivers met the other two requirements of Wis. Adm. Code § 105.04(1). In particular, the contract drivers owned or leased from a third party the vehicles they used to perform delivery services for Dunham, and were free to hire another driver to perform these services.
Since all three requirements of Wis. Adm. Code § 105.04(1) are met, it is not necessary to consider the additional factors stated in Wis. Adm. Code § 105.04(2), i.e., subsection (2) states that, "If...all of the factors under sub. (1)(a) to (c) are present in the relationship between the contract operator and the carrier, the contract operator shall be deemed to be performing services in an independently established business in which the contract operator is customarily engaged under s. 108.02(12)(b)2., Stats...."
Because the contract drivers were free from Dunham's direction and control within the meaning of Wis. Adm. Code § DWD 105.03, and engaged in an independently established business within the meaning of Wis. Adm. Code § 105.04, they should be regarded as independent contractors, not employees, by operation of Wis. Adm. Code § 105.04(3).
The decision of the administrative law judge is reversed. Accordingly, Dunham is not liable for unemployment insurance contributions and interest based upon the services at issue.
Dated and mailed July 18, 2008
dunhame . srr : 115 : 8 EE 412 EE 421
/s/ James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
NOTE: The commission did not confer with the administrative law judge before reversing his 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.
ANN L. CRUMP, Commissioner, (dissenting):
I respectfully dissent from the majority opinion in this case.
Dunham created the routes and, with few exceptions, required the contract drivers to follow these specific routes. While starting times, pickup points, arrangement of stops and delivery times were based upon customers' agreements with Dunham, generally these specifications were just passed through to the contract drivers with little or no negotiations with the employer or the customer.
While the record does not show that, if customer deadlines and pickup/delivery demands changed, the contract drivers were prohibited from any flexibility whatsoever, it is clear that customers were not to be contacted directly by the contract driver for negotiations on those changes. This inability to talk directly to customers provides ample doubt that drivers were independent contractors.
Negotiation of route payments was not common. One witness credibly testified that, in his attempt to negotiate, Dunham told him "to take it or leave it." This leaves reasonable people to question the reality of the scope of negotiations, in fact.
Certainly, contract drivers not being accorded access to how their compensation was determined based upon route revenue supports a conclusion that provisions in sections Wis. Adm. Code § § DWD 105.03 and 105.04 are in fact not being met.
Dunham also required that vehicles used by the contract drivers be white and display the Dunham logo. This means the contract drivers did not determine the details and means of performance within the meaning of Wis. Adm. Code § DWD 105.03(1)(e). Dunham prescribed the color and type of equipment they could use in their performance of work. Consequently, at least one of the factors of Wis. Adm. Code § DWD 105.03(1) is not satisfied and requires a review of the additional factors in order to determine whether the contract drivers were under the direction and control of Dunham.
In addition to requiring drivers to utilize a white truck with a Dunham logo, they were required to wear a Dunham uniform at all times, even when performing services for customers who did not indicate any security concerns.
One could reasonably conclude that these rules and conditions were enacted primarily for the purpose of advertising the Dunham brand. This is a factor in establishing direction and control. Wis. Adm. Code § DWD 105.03(2)(c).
/s/ Ann. L. Crump, Commissioner
Attorney Peter W. Zeeh
Attorney Stephen A. Ditullio
Appealed to Circuit Court. Affirmed April 10, 2009. Appealed to the Court of Appeals. Reversed, sub nom. Wisconsin DWD v. Wisconsin LIRC and Dunham Express Corp. , 2010 WI App 123, ___ Wis. 2d ___, ___ N.W.2d ___ .
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(1)( Back ) Despite the fact that these on-demand drivers entered into the same agreement with Dunham as the contract drivers; and were required by Dunham to wear a uniform and display a Dunham decal on their white vehicles, factors consistently relied upon by the department to argue that contract drivers are employees subject to the direction and control of Dunham, the department has conceded that on-demand drivers are independent contractors.
(2)( Back ) Requirements of shipper or law; department policy. In determining whether the carrier exercises direction or control and whether the contract operator is engaged in an independently established business, the department may not use as evidence any factor to the extent that it is specified by the shipper or required by state or federal laws or regulations. The department believes it is unreasonable to consider mandates of law or specifications of shippers as evidence because they have not been imposed on the relationship between the contract operator and the carrier by those parties of their own volition.