MSI SERVICES 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:

That portion of the FINDINGS OF FACT and CONCLUSIONS OF LAW SECTION beginning with the first paragraph on page 2 and continuing through the third full paragraph on page 8, concluding that "Condition 10. has not been met.", is deleted and the following substituted:

The putative employer (MSI), as relevant here, utilized the services of mystery shoppers to evaluate business services or products for its clients.

During the time period at issue, 130 individuals provided mystery shopper services for MSI in Wisconsin.

Mystery shoppers entered into a standard agreement with MSI defining the overall terms of the relationship.

MSI posted assignment opportunities online. This posting included the general nature and location of an assignment as well as the amount MSI was offering for completing it. Mystery shoppers could indicate online their interest in a particular assignment, as well as their willingness to either complete the assignment for the posted amount or for a higher "pre-authorized distance (PAD)" amount (exhibit #8). MSI would then review the online responses and select a mystery shopper for the assignment

Once a mystery shopper was selected, MSI would conduct an orientation for the assignment, including detailed instructions. These instructions were generally specified by the client.

The issue is whether MSI is liable for contributions based upon the services performed by these mystery shoppers.

MSI argues that, by creating reports after completing their evaluations, mystery shoppers were not performing a service for MSI but instead crafting a product. This distinction is inapt for purposes of interpreting and applying Wis. Stat. § 108.02(12). Whether the output is tangible or intangible, the act of producing it constitutes the performance of a service.

It should be noted that MSI asserts this is a fact situation the commission has not considered previously. However, this is not accurate. In Vanpelt v. Quality Controlled Services, UI Hearing No. 07200634EC (LIRC Aug. 31, 2007), the commission, in considering whether the claimant was eligible for benefits resulting from services she performed as a mystery shopper, concluded she satisfied only condition 7., within the meaning of Wis. Stat. § 108.02(12)(bm), and was an employee for benefit purposes as a result.

MSI also asserts that the testimony of Rebecca Strome, the only mystery shopper called as a hearing witness, and the stipulated testimony of mystery shoppers Lefeber and Levandoski-Buser, should be deemed representative of the testimony which would have been offered by the other 127 mystery shoppers.

This, however, would be inconsistent with the commission's recognition that the testimony of certain individual workers is not properly considered to represent the testimony of a larger group of workers in the absence of stipulation by the parties, or competent evidence, to that effect. See, e.g., T-N-T Express LLC, UI Hearing Nos. S9700385MD, S9700386MD (LIRC Feb. 22, 2000) ("the evidence provided by, and in relation to, the seven drivers who appeared was not sufficiently probative or representative to establish the highly individual facts as to whether each of the non-appearing drivers met the...test.")

MSI argues that requiring a putative employer to call as hearing witnesses each of the individuals whose services were at issue would be unduly burdensome, and would subject the putative employer to the whims of an uncooperative adverse party. However, this argument would be persuasive only if MSI had in fact attempted to negotiate such a stipulation with the department and been unsuccessful. There is no indication in the record or in the case file that MSI ever broached the subject of stipulated testimony with the department at any time prior to or during the hearing.

MSI cites Dane County Hockey Officials, supra., for the proposition that, in cases involving large numbers of individual workers, the testimony of the few who are called as witnesses is appropriately regarded as representative of the group as a whole.

However, in Dane County Hockey Officials, supra., as noted in footnote (4) of that decision, the putative employer had asserted in its reply brief that "all parties agreed...the facts were similar for all officials," and the department had not taken issue with that assertion. There is no such implicit stipulation in the instant case.

Here, even though it had the burden to rebut the presumption that the mystery shoppers performed their services for MSI as employees, MSI called as witnesses only its chief executive officer and chief financial officer. Although these two witnesses were generally competent to testify as to the manner in which the conditions stated in Wis. Stat. § 108.02(12)(bm) were satisfied pursuant to contract, they were, for the most part, not generally competent to testify as to the manner in which these conditions were satisfied by the mystery shoppers in fact.

The mystery shoppers called as hearing witnesses were subpoenaed and called by the department, not MSI. MSI, consequently, was not prepared to, and did not, offer any competent testimony as to the individual circumstances of the Wisconsin mystery shoppers as a part of its case in chief.
Finally in this regard, even if the testimony of Strome, Lefeber and Levandoski-Buser were accepted as representative of the group of 130 mystery shoppers, MSI failed, as set forth below, to sustain its burden to show that Strome, Lefeber, or Levandoski-Buser performed services for MSI as independent contractors.

MSI further argues that the hearsay testimony offered by its witnesses should, in the absence of objection by the department at hearing, be accepted as proof of the practices or circumstances of the mystery shoppers described in this testimony. However, even though hearsay evidence is admissible in administrative proceedings, such as the hearing held before the ALJ, the ALJ and the commission have discretion, based upon the strength of the indicia of reliability associated with this evidence, to accord it varying degrees of weight.

Wisconsin Statutes § 108.02 states as follows, as relevant here:

(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 (emphasis added):

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....

The record reflects that the mystery shoppers, within the meaning of Wis. Stat. § 108.02(12)(a), provided services for pay for MSI and, as a result, a presumption that they did so as employees is created. It is MSI's burden to rebut this presumption by showing that these individuals satisfied at least 7 of the 10 conditions set forth in Wis. Stat. § 108.02(12)(bm). 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).

The record does not show that Strome or any other mystery shopper held or applied for a federal employer identification number (FEIN) as required by condition 1.

MSI contends that the language of Wis. Stat. § 108.02(12)(bm)1. should be interpreted as requiring only that an individual possess or have applied for a social security number, since the IRS solicits and maintains taxpayer social security numbers. This contention is possibly, although only tenuously, arguable in regard to holding an identification number, i.e., an individual taxpayer "holds" a social security number, and this number, used as an "identification number," appears on taxpayer documents filed "with the federal internal revenue service." However, this contention is not even possibly arguable in regard to applying for an identification number, i.e., an individual does not "appl[y] for" a social security number "with the federal internal revenue service," but instead with the Social Security Administration.

In addition, the commission has consistently held that possession of, or application for, a social security number does not satisfy condition 1. See, Rabe v. Tatge, UI Hearing No. 05003125 (LIRC Nov. 10, 2005); Kunst v. Energy Marketing Services, UI Hearing No. 08400750AP (LIRC July 31, 2008). Although MSI argues that "legislative history" suggests otherwise, it does not cite any authority for this argument. Moreover, a common-sense reading of Wis. Stat. § 108.02(12)(bm)1. does not support MSI's argument. All wage earners are required to obtain a social security number and to report their earnings to the IRS using this number, but generally only those who operate a business employing other individuals hold or apply for a FEIN. The ten conditions stated in Wis. Stat. § 108.02(12)(bm) are intended to represent factors more likely present when services are rendered as an independent contractor rather than as an employee. Adopting MSI's interpretation would, by permitting every individual wage earner to satisfy condition 1., frustrate this intent as it relates to this condition.

Condition 2. requires that the individual have filed a business or self-employment tax return. Strome testified without rebuttal that she filed a self-employment tax return, and the parties stipulated that Lefeber did as well. As a result, the record shows that condition 2. is satisfied as to Strome and Lefeber, but not the other mystery shoppers.

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 putative employer to satisfy its burden.

Strome testified without rebuttal that she used her own materials and equipment to perform services as a mystery shopper; had a space in an empty bedroom in her room where she maintained the computer, printer, and scanner she used for mystery shopper as well as personal purposes; and performed mystery shopper services for several entities in additional to MSI. The parties stipulated that Lefeber also performed mystery shopper services for several entities in addition to MSI, but there is no evidence in the record that he maintained his own equipment and materials or a separate business office.

The record shows that Strome, who had her own materials and equipment and a separate space in her home dedicated to a business purpose, and who performed similar services for others, satisfied condition 3. The record does not show that any of the other mystery shoppers satisfied this condition.

To satisfy condition 4., it must be established that the mystery shoppers 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.

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); Dane Co. Hockey Officials, supra.

It is not apparent from the record whether the relevant contract(s) would be the single written contract entered into between MSI and the mystery shoppers, or the multiple agreements created by the mystery shoppers' acceptance of particular jobs. Neither, however, satisfies the multiple contracts requirement of condition 4., the single written contract for obvious reasons, and the multiple job-specific agreements because the record does not show they were negotiated at arms length See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002); Van Pelt v. Quality Controlled Services, supra. MSI argues that, by requesting "pre-authorized distance" fee augmentations, the mystery shoppers were negotiating the terms of the job-specific agreements at arms length. However, although the record shows that the mystery shoppers had the contractual ability to engage in such negotiations, it does not show that these negotiations ever occurred in fact.

The record does show, however, that Strome, Lefeber, and Levandoski-Buser performed mystery shopper services under agreements with entities other than MSI, and this would satisfy the multiple contracts requirement of condition 4. as to them.

Condition 4. also requires that the mystery shoppers control the means and method of performing services under these agreements. Although the parameters of the mystery shopping assignments are tightly controlled, the record shows this is attributable to client requirements rather than MSI.

The record shows that Strome, Lefeber, and Levandoski-Buser satisfied condition 4., but does not show that the remaining mystery shoppers at issue satisfied this condition.

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, supra.; Quality Communications Specialists, Inc., supra. This inquiry requires quantification of these expenses.

The mystery shoppers bore the cost of transportation. Strome acquired a computer, printer, scanner, and internet access prior to performing services for MSI, and used this equipment/access for personal as well as business purposes. MSI, or its clients, bore the cost of the retail products or food purchased by the mystery shoppers, and, presumably, certain administrative and record-keeping costs, including the costs of assignment posting, screening, and orientation. Since there is no quantification in the record of any of these costs, and it is not obvious that the costs borne by Strome or any of the other mystery shoppers necessarily exceeded those borne by others, condition 5. is not met.

MSI argues that, since it passes its retail product/food costs and certain other costs on to its clients, the mystery shoppers necessarily bear more of the costs than MSI and condition 5. is satisfied as a result. However, condition 5. does not evaluate whether the worker or the putative employer bears the larger cost, but instead whether the worker bears a larger cost under the contract than any other entity, including, as here, the putative employer's clients.

In order to satisfy condition 6., the mystery shoppers are required to have been responsible for the satisfactory completion of the services they performed, and liable for any failure to satisfactorily complete them. The record shows that the mystery shoppers may not get paid if they did not properly complete the required post-shopping reports, and would not be offered further jobs if their performance was not satisfactory. These facts do not distinguish the mystery shopper's circumstance in this regard from that of a piecework employee. See, Spencer Siding, Inc., UI Hearing Nos. S0300142GB, etc. (LIRC June 2, 2006); Van Pelt v. Quality Controlled Services, supra. However, the record also shows that MSI's standard agreement with its mystery shoppers includes an indemnity provision requiring the mystery shoppers to indemnify and hold MSI harmless for any claims or loss "arising out of or resulting from the performance of" services by the mystery shoppers. In addition, the record shows that, if a mystery shopper does not, as part of an assignment, make the required expenditure, he or she incurs a penalty by not being reimbursed for the purchase. As a result, condition 6. is satisfied.

Since the mystery shoppers were paid on a per-job basis, 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 mystery shoppers of more in payments than they were required to spend performing services for MSI could constitute "realiz[ing] a profit...under contracts to perform services." However, since the mystery shoppers are essentially guaranteed payment if they satisfactorily perform the shopping services, and select the shopping jobs they perform, it is difficult to envision how they could suffer a loss. See, Dane County Hockey Officials, supra.; Van Pelt v. Quality Controlled Services, supra.

Condition 8. is not satisfied.

Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time he or she was not performing work through the putative employer, such as the cost of an office lease, professional fees, or professional liability insurance. The record does not show that the mystery shoppers actually incurred any such costs, and, as a result, condition 9. is not met. MSI argues that its standard agreement requires that mystery shoppers carry business liability insurance. However, as stated in Wis. Stat. § 108.02(12)(bm), the employing unit must establish "that the individual meets 7 or more of the...conditions by contract and in fact," and the record does not show that any of the mystery shoppers in fact carried such business liability insurance. MSI also argues that Strome's expenses for her vehicle, computer, printer, scanner, and other equipment should be considered continuing business liabilities or obligations. However, Strome acquired and used this equipment for personal as well as business purposes, and her related costs do not, as a result, satisfy condition 9. Finally, MSI argues, citing T-N-T Espress, supra., that increased vehicle insurance costs due to use of the vehicle for primarily business purposes would constitute a continuing business liability. However, MSI did not prove that any of the mystery shoppers in fact incurred such costs. Condition 9. is not satisfied.

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 any of the mystery shoppers put a significant investment at risk, and, as a result, condition 10. is not satisfied.

In summary, only conditions 6. and 7. are satisfied as to all 130 mystery shoppers; and, in addition, condition 4. as to Strome, Lefeber, and Levandoski-Buser, and 2. and 3. as to Strome and Lefeber. 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 no more than five of the ten conditions by any of the mystery shoppers compels the conclusion that the mystery shoppers performed services for MSI as employees, not independent contractors.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, based on its employment of the subject individuals during the period at issue, the employer is liable, effective January 1, 2005, for contributions to the Unemployment Reserve Fund.

Dated and mailed September 5, 2008
msiserv . smd : 115 : 1 EE 407 EE 410  PC 716 EE 410.01  EE 410.06  EE 410.09

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc:
Attorney Eulalio J. Garcia
Attorney Peter W. Zeeh

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uploaded 2008/09/26