RHONDA J KUNST, Employee
ENERGY MARKETING SERVICES, 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 claimant (Kunst) performed direct sales services for Energy Marketing Services (EMS) during January and February of 2008. She was assigned a territory and visited the homes of potential customers for sale of AT&T high speed internet and fiber optic services.
Kunst filed a claim for benefits in week 5 of 2008.
The issue is whether Kunst was required to report the amounts she earned for performing services for EMS in January and February of 2008 as wages on her weekly claims.
Even though EMS is the appellant, the outcome will not directly affect EMS's liability for contributions, but instead the amount of benefits to which Kunst is entitled.
Wisconsin Statutes § 108.02 states as follows, as relevant here:
108.02 Definitions. As used in this chapter:
...(4) Base period. "Base period" means the period that is used to compute an employee's benefit rights under s. 108.06 consisting of:
(a) The first 4 of the 5 most recently completed quarters preceding the employee's benefit year; or
(b) If an employee does not qualify to receive any benefits using the period described in par. (a), the period consisting of the 4 most recently completed quarters preceding the employee's benefit year.108.02(4m) (4m) Base period wages. "Base period wages" means:
(a) All earnings for wage-earning service which are paid to an employee during his or her base period as a result of employment for an employer;...
(11) Eligibility. An employee shall be deemed "eligible" for benefits for any given week of the employee's unemployment unless the employee is disqualified by a specific provision of this chapter from receiving benefits for such week of unemployment, and shall be deemed "ineligible" for any week to which such a disqualification applies.
(12) Employee.
(a) "Employee" means any individual who is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit, except as provided in par. (b), (bm), (c), (d), (dm) or (dn).
...(bm) During the period beginning on January 1, 2000, with respect to contribution requirements, and during the period beginning on April 2, 2000, with respect to benefit eligibility, par. (a) does not apply to an individual performing services for an employing unit other than a government unit or nonprofit organization in a capacity other than as a logger or trucker, 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 methods of performing such 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 such 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....(e) This subsection shall be used in determining an employing unit's liability under the contribution provisions of this chapter, and shall likewise be used in determining the status of claimants under the benefit provisions of this chapter....
(14m) Employing unit. "Employing unit" means any person who employs one or more individuals.
(15) Employment.
(a) "Employment", subject to the other provisions of this subsection means any service, including service in interstate commerce, performed by an individual for pay....
(k) "Employment" as applied to work for a given employer other than a government unit or nonprofit organization, except as the employer elects otherwise with the department's approval, does not include service:...
16. By an individual whose remuneration consists solely of commissions, overrides, bonuses or differentials directly related to sales or other output derived from in-person sales to or solicitation of orders from ultimate consumers, primarily in the home;...
(20) Partial unemployment. An employee is "partially unemployed" in any week for which he or she earns some wages and is eligible for some benefits under s. 108.05 (3).
(26) Wages. Unless the department otherwise specifies by rule:
(a) "Wages" means every form of remuneration payable, directly or indirectly, for a given period, or payable within a given period if this basis is permitted or prescribed by the department, by an employing unit to an individual for personal services....
As relevant here, Wis. Stat. § 108.03, states as follows:
(3) Benefits for partial unemployment.
(a) Except as provided in pars. (b), (c), and (d), if an eligible employee earns wages in a given week, the first $30 of the wages shall be disregarded and the employee's applicable weekly benefit payment shall be reduced by 67% of the remaining amount, except that no such employee is eligible for benefits if the employee's benefit payment would be less than $5 for any week....
Pursuant to Wis. Stat. § 108.02(4m), in order to be considered base period wages, earnings must be "paid to an employee during his or her base period as a result of employment for an employer..." Because qualifying base period wages must have been received for services performed as a result of employment, and the definition of employment, in Wis. Stat. § 108.02(15)(k), excludes certain direct sales services, qualifying base period wages would not include payments for such services.
However, the issue under consideration here is not a base period wage issue but instead a wage reporting issue.
In order to be considered wages required to be reported when filing a weekly claim, payments for services, pursuant to Wis. Stat. § 108.05(3), are those made to an "eligible employee." The definition of employee in Wis. Stat. § 108.02(12), as relevant here, includes "any individual who is or has been performing services for pay for an employing unit (1)...except as provided in par....(bm).
This statutory definition of employee, as modified by 2005 Wisconsin Act 86, no longer requires that services be performed "in an employment." As a result, the exclusions to the definition of employment, including the exclusion stated in Wis. Stat. § 108.02(15)(k) for services performed as a direct seller, do not operate to exempt payment for such services from the wage reporting requirement.
As a result, Kunst is required to report payments she received for services performed as a direct seller for EMS during the weeks under consideration here unless she satisfies the exception to the definition of employee stated in Wis. Stat. § 108.02(12)(bm), i.e., unless she satisfied at least seven of the ten statutory conditions.
The record does not show that Kunst possessed, or had applied for, a FEIN, as required by condition 1.; or filed business or self-employment tax returns, as required by condition 2. Although EMS argues that the possession of a social security number satisfies condition 1., it is well-settled that it does not. See, Angel Care, UI Hearing No. S0200141MW (LIRC Dec. 30, 2004); Rabe v. Tatge, UI Hearing No. 05003125 (LIRC Nov. 10, 2005); Oil Equipment Co., Inc., UI Hearing No. S0300057MW (LIRC Dec. 30, 2004).
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., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001), the commission clarified that all parts of the test articulated in condition 3. must be met. Although the record shows that Kunst used certain of her own equipment, e.g., her personal vehicle, it does not show that she maintained a separate office. Although EMS argues that, since Kunst worked out of her vehicle, it qualified as a separate business office, the use of one's personal vehicle to carry out certain sales duties and to prepare related paperwork does not qualify as maintaining a separate business office, just as using one's dining room table or personal computer to carry out work responsibilities does not.
See, Stehn v. Cybrcollect, Inc., UI Hearing No. 05000775MD (LIRC Sept. 7, 2005);
Ziebell v. Cox Auto Trader, UI Hearing No. 07606213MW (LIRC Jan. 4, 2008). Moreover, the fact that Kunst did not perform similar services for any other entity militates against the existence of a business enterprise existing separate and apart from her relationship with EMS.
See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001) (fact that worker performs services only for putative employer generally inconsistent with existence of separate business).
To satisfy condition 4., it must be established that Kunst operated under contracts to perform specific services for specific amounts of money, and that, under these contracts, she controlled the means and method of performing the services.
Condition 4. 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/she has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship, and that he/she 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.
The contract under which Kunst performed services for EMS was a single contract with terms that did not vary over time or by event, and which were dictated, apparently without negotiation, by EMS. This single contract did not satisfy the multiple contracts requirement of condition 4. See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002); Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000); Gary R. Gilbert, UI Hearing No. S0200083DB (LIRC July 21, 2005).
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. See, Quality Communications Specialists, Inc., supra. In the absence of quantification of the expenses borne by Kunst, and given that it is not obvious that her expenses would necessarily exceed those borne by EMS, the record does not show that condition 5. is satisfied.
In order to show that the requirements of condition 6. are satisfied, the record would have to show that Kunst was responsible for the satisfactory completion of the services she performed, and liable for any failure to satisfactorily complete them. In the sales context, such a failure could include, for example, mistakes in preparing or transmitting a customer order; or in communicating cost, product features, or availability to a customer.
Matthew G. Frazer, UI Hearing Nos. S0600184MD, etc., (LIRC June 14, 2007). Since the record shows that EMS withheld 15% of Kunst's commission on a sale until it had been finally and properly effected, it is implicit that Kunst was responsible for the satisfactory completion of the services she performed and liable for any failure.
Kunst was compensated on a commission basis only and, therefore, condition 7. is satisfied.
Condition 8. examines 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). It is arguable, as the commission concluded in Quality Communications Specialists, Inc., supra., that the receipt by Kunst of more in commissions than she was required to spend performing sales services for EMS would constitute "realiz[ing] a profit...under contracts to perform services." In addition, since Kunst was paid only if she completed a sale, it is possible that her expenditures on travel and other costs could exceed her commissions and she could realize a loss. Condition 8. is satisfied. See, Frazer, supra.
Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time she was not performing work through the putative employer, such as the cost of an office lease, professional fees, or liability insurance. The record does not show that Kunst had such continuing costs. EMS argues that the cost to Kunst of maintaining and operating a vehicle satisfies this condition. However, since she did not acquire and maintain this vehicle solely for business purposes, her vehicle costs would not qualify as recurring business liabilities or obligations within the meaning of condition 9.
Finally, 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 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. See, Thomas Gronna, supra. The record does not show that Kunst put a significant investment, or, in fact, any investment, at risk. Condition 10. is not satisfied.
In summary, only conditions 6., 7., and 8. are satisfied. 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 of the ten conditions compels the conclusion that Kunst performed services for EMS as an employee, not an independent contractor, during the time period at issue.
EMS argues that Kunst should be regarded as an independent contractor, not an employee, because that is what her contract with EMS specified. However, Kunst's status is determined by statute, not by the terms of a private agreement. Roberts v. Industrial Comm., 2 Wis. 2d 399 (1957). See, also, Knops v. Integrity Project Management, UI Hearing No. 06400323AP (LIRC May 12, 2006).
As a result, beginning in week 5 of 2008, Kunst was required to report wages earned from services performed for EMS as they were earned.
This decision does not result in an overpayment of benefits.
The decision of the administrative law judge is reversed. Accordingly, beginning in week 5 of 2008, the claimant is required to report wages earned from services performed for the putative employer as they are earned.
Dated and mailed July 31, 2008
kunstrh . urr : 115 : 8 ET 483.07 UW 900 EE 410
EE 410.03 EE 410.09
the claimant did not satisfy seven of the ten conditions required to be treated as an independent contractor.
/s/ James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, 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 interpretation of the relevant law.
cc:
Attorney Jane D. Fergason
Daniel J. LaRocque
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