PREFERRED FINANCIAL OF WISCONSIN 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 makes the following:
The issue is whether the subject individuals performed services for the putative employer as statutory employees during the time period at issue, calendar years 2004 and 2005.
During that time period, fifteen individuals (1) performed services for pay for the putative employer (Preferred) as loan originators. (2) Preferred was a licensed mortgage broker.
Loan originators were also required to be licensed, and were prohibited from performing services for more than one mortgage broker at a time.
The loan originators sought customers for new purchase home mortgage loans, loans for refinancing existing home mortgages, and home equity loans. The loan originators would research whether an interested customer met the income/credit requirements of the lenders with which Preferred did business; refer customers meeting such requirements to a particular lender; prepare the necessary paperwork and otherwise process the loan once it was approved by the lender; and attend the closing. The loan originators received a commission for each loan they closed, at the rate established in their fee agreement with Preferred.
Although the loan originators paid their own marketing, office, and travel expenses, their expenses for appraisals, credit reports, and certain loan processing were reimbursed by the customers.
It should be noted that only two of the fifteen loan originators testified at hearing, and there was no agreement by the parties that the testimony of these two would be considered representative of the group. See, MSI Services, Inc., UI Hearing No. S0600129AP (LIRC Sept. 5, 2008) (testimony of certain individual workers not properly considered to represent the testimony of a larger group of workers in absence of stipulation by parties, or competent evidence, to that effect); T-N-T Express LLC, UI Hearing Nos. S9700385MD, S9700386MD (LIRC Feb. 22, 2000).
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, 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 the person is not an employee. 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 any of the loan originators held or applied for a federal employer identification number (FEIN) as required by condition 1.
The record shows, through the testimony of loan originators Tanya Alonzo and Sean Brazeau, that, as required by condition 2., they filed business or self-employment income tax returns based on services performed for Preferred, but does not show that any of the other loan originators did so. As a result, condition 2. is satisfied only as to Tanya Alonzo and Sean Brazeau.
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. 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). See, also, 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. Although the record shows that Tanya Alonzo and Sean Brazeau had spaces in their homes dedicated to a business purpose, and used certain of their own equipment, e.g., vehicle, cell phone, computer, fax machine, scanner, copier, and printer, it does not show that they had an enterprise existing separate and apart from their relationship with Preferred, i.e., they were prohibited from performing loan originator services for any entity other than Preferred. Simply because an individual works from their home, and uses certain of his/her own materials and equipment, does not establish that he/she is operating a separate business within the meaning of condition 3. See, Roth v. World Financial Group, Inc., UI Hearing No. 07002934MD (LIRC Jan. 10, 2008)(fact that worker prohibited from performing services for entity other than putative employer militates against existence of a separate business); 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).
Preferred argues that, because, in its agreements with the loan originators (exhibit #2), Preferred required them to "maintain a separate business with his or her own office, equipment, and supplies," condition 3. was satisfied. However, not only does this ignore the requirement that the enterprise exist separate and apart from the relationship with Preferred, as discussed above; but it also ignores, for those loan originators other than Tanya Alonzo and Sean Brazeau, that the condition be satisfied, according to Wis. Stat. § 108.02(12)(bm) "by contract and in fact." (emphasis added) Clearly, the requirement that the condition be satisfied in fact cannot be satisfied for those loan originators for which no competent evidence exists in the record in regard to this condition.
Condition 3. is not satisfied.
To satisfy condition 4., it must be established that the loan originators 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 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.
The contract under which the loan originators performed services for Preferred was a single contract. The only term of this contract which varied over time, and apparently only for certain loan originators, was that setting the commission percentage. This does not satisfy the multiple contracts requirement of condition 4. See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002) (condition 4. not satisfied by single contract with putative employer which was essentially renewed unchanged except for updated price structure).
Preferred argues that the various contracts the loan originators entered into with their individual customers satisfied the multiple contracts requirement of condition 4. Although the commission accepted such an assertion in Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004), noting in its decision that it was a close question, it does not do so here. In Quale, the individual craftsworkers were more autonomous and had a more direct relationship with their customers than the loan originators at issue. As a result, the proper agreement to be analyzed in regard to this condition is the loan originators' agreement with Preferred. See, Suzette M. Beau, UI Hearing Nos. SO500044GB, S0500045GB (LIRC Dec. 7, 2007).
Condition 4. is not satisfied.
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 record shows that Tanya Alonzo and Sean Brazeau paid for their own licenses, travel expenses, equipment, supplies, and marketing, but, other than in those circumstances in which a loan is processed but not closed, their customers paid for credit reports, property appraisals, and loan processing. The record does not establish the costs paid by the other loan originators. Preferred paid for its broker license and bond, its office and equipment, and its administrative costs, some of which were devoted to supporting its loan originators. Other than the licensing costs, and a $2500 estimate of Tanya Alonzo's overall, non-depreciated equipment costs, none of the costs are quantified in the record. Without such quantification, and given that it is not obvious that the expenses borne by the loan originators necessarily exceeded those borne by others, Preferred has failed to sustain its burden to show that condition 5. is satisfied.
In order to sustain its burden to show that the requirements of condition 6. are satisfied, Preferred would have to show that the loan originators were responsible for the satisfactory completion of the services they 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 loan request; mistakes in screening a customer; or mistakes in communicating cost, loan features, or availability to a customer. See, Matthew G. Frazer, UI Hearing Nos. S0600184MD, etc., (LIRC June 14, 2007). It is argued that this condition was satisfied because, if the loan originators did not satisfactorily complete the services they performed, the consequences could range from not closing loans and losing money out of their pockets to losing their state license. The risk of not being paid for unsatisfactory work performed does not satisfy this condition, because this would be typical of piecework employees as well. In addition, the record does not establish the conditions under which a loan originator could lose his or her state license, e.g., does not establish that a license could be lost for making an error in processing a loan. Condition 6. is not satisfied.
The loan originators were 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 the loan originators of more in commissions than they were required to spend performing services for Preferred would constitute realizing a profit. In addition, since the loan originators were paid only if they closed a loan, it is possible that their costs could exceed their commissions and they could realize a loss. See, Matthew G. Frazer, supra; Roth, supra. Condition 8. is satisfied.
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 loan originators' licensing fees satisfy this condition. The department argues that, because the $100 annual cost is de minimus, it should not satisfy this condition. However, the commission has not interpreted the relevant statutory language to require a certain dollar minimum in order to satisfy condition 9. See, Dibbles & Dibbles, Inc., UI Hearing No. S0300140RH (LIRC Jan. 12, 2005) (the statutory language does not require that the recurring business liability or obligation meet a certain dollar minimum); Quality Communications Specialists, Inc., supra. ("recurring business liabilities or obligations" test does not involve a quantitative comparison). Condition 9. is 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, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000). The record does not show that any of the loan originators put a significant investment at risk. The investments by Tanya Alonzo and Sean Brazeau in office equipment were not shown to be significant or to be subject to the risk of actual loss, and some of such equipment appears to have been used for personal as well as business purposes. Condition 10. is not satisfied.
In summary, only conditions 7., 8., and 9. are satisfied as to all of the loan originators; and condition 2. as to Tanya Alonzo and Sean Brazeau. 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 four of the ten conditions compels the conclusion that the loan originators performed services for Preferred as employees, not as independent contractors, during the time period at issue.
Preferred appears to argue that the loan originators should be regarded as independent contractors, not as employees, because that is what their contract specified. However, the loan originators' 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).
The decision of the administrative law judge is reversed. Accordingly, the employer is liable for contributions in the amount of $1,479.63, based upon the services performed by the subject loan originators, for calendar years 2004 and 2005.
Dated and mailed October 23, 2008
preferr . srr : 115 : 1 EE 410 EE 410.03 EE
410.04a EE 410.06 EE 410.08 EE 410.09
/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 conclusion as to what the hearing record in fact established and upon a differing interpretation of the relevant law.
cc:
Preferred Financial (Milwaukee, Wisconsin)
Attorney Michael J. Mathis
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