METALOR TECHNOLOGIES USA, 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:

Prior to August 2005, the individual at issue (Meyer) performed sales services as an employee of the putative employer (Metalor).

Effective August 19, 2005, Meyer and Metalor entered into an agreement modifying the terms under which Meyer performed sales services for Metalor.

The issue is whether, on and after August 19, 2005, Meyer performed sales services for Metalor as a statutory employee, by contract and in fact.

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

(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 an employing unit, whether or not the individual is paid directly by such 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.

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....

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 they are not. 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).

Commission review of a decision of an administrative law judge is not appellate in nature, but is instead a de novo decision-making process. Any petition for commission review from any party brings the entire case before the commission. See, Dane County Hockey Officials, supra. As a result, the commission is not limited in its review of this case to those aspects of the administrative law judge's decision challenged in the petition.

It is undisputed that Meyer does not hold, and has not applied to the internal revenue service for, a federal identification number. As a result, condition 1. is not satisfied.

The record shows that Meyer filed business tax returns for services performed for Metalor in 2005, his first year in business, and each year thereafter. As a result, condition 2. is satisfied.

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 employer to satisfy its burden. The record shows that Meyer used his own equipment and materials, and had an area in his home dedicated to a business purpose. The lack of separate facilities, which would be consistent with the nature of the business in which Meyer 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, beginning in early 2006, Meyer performed sales services for another entity (Platinum Plating), a circumstance tending to support the existence of a separate business. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001). The department argues in essence that the services Meyer performed for Platinum Plating should not be taken into account in analyzing this condition since these services generated such a small part of his total sales income. However, the record shows that, in 2006, these services accounted for nine percent of Meyer's income and, in 2007, sixteen percent. These percentages are sufficient to support the existence of a legitimate business client.

As a result, condition 3. is satisfied.

The ALJ held that condition 3. was not satisfied based upon the fact that, even though Meyer maintained a home office, he had not deducted the expense of maintaining this office on his income tax returns. However, the language of condition 3. has not been interpreted to require that business office expenses have been deducted in order for the existence of a business office to be established.

The ALJ also based her holding that condition 3. was not satisfied on the requirement that Meyer obtain Metalor's approval before performing sales services for Platinum Plating. However, it is not uncommon for a manufacturer to prohibit its sales force from offering products directly competing with its own. Here, Metalor ultimately did not prevent Meyer from performing sales services for Platinum Plating because the product area in which Metalor and Platinum Plating competed did not represent a significant part of Metalor's core business. Moreover, the requirement that Meyer obtain Metalor's approval before performing sales services for Platinum does not alter the essential fact, for purposes of analyzing this condition, that Meyer was performing services, similar to those he performed for Metalor, for another entity.

To satisfy condition 4., it must be established that Meyer operates under contracts to perform specific services for specific amounts of money, and that, under these contracts, he controls 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 Meyer performed services for Metalor was a single contract specifying the terms under which he would conduct sales of Metalor products. This single contract, with terms not intended to vary over time or by event, did not satisfy the multiple contracts requirement of condition 4. See, Prouty v. Books Are Fun Ltd., UI Hearing No. 04610806MW (LIRC Aug. 3, 2005). However, Meyer not only had a contract to perform sales services for Metalor, but also a contract to perform similar services for Platinum Plating. This would satisfy the multiple contracts requirement of condition 4. See, MSI Services, Inc., UI Hearing No. S0600129AP (LIRC Sept. 5, 2008); Acute Care, Inc., UI Hearing No. S0500090MD (LIRC Feb. 15, 2008).

Condition 4. also requires that, under his contracts with Metalor and Platinum Plating, Meyer controlled the means and method of performing the contracted services. The ALJ held that Meyer did not exercise this control because Metalor provided him with product pricing information, product brochures, and business cards. The commission disagrees.

Under his contract with Metalor, Meyer was to solicit sales of products manufactured by Metalor to specifications, and at prices, determined by Metalor. Under this division of responsibilities, Metalor, not Meyer, would be expected to create the product pricing and description information. The record does not show that Metalor controlled the manner in which Meyer carried out the sales activities for which he was responsible under the contract, i.e., Meyer determined the manner in which the solicitation would be carried out. The fact that Metalor provided business cards for Meyer to use on his Metalor sales calls does not establish or even suggest that Metalor had any meaningful control over Meyer's sales strategies and techniques.

Condition 4. is 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. See, Lozon Remodeling, supra.; Quality Communications Specialists, Inc., supra.

Here, Meyer is responsible for the cost of his office equipment and supplies; business phones; and travel, including gas, airfare, and lodging. Metalor is presumably responsible for administrative costs related to recording and processing Meyer's sales and determining his sales volume and commissions; and furnishing product pricing and specification information to Meyer. Although none of these costs is quantified in the record, it is obvious that the costs borne by Meyer necessarily exceed those borne by Metalor, and this condition is satisfied as a result.

In order to sustain its burden to show that the requirements of condition 6. are satisfied, Metalor would have to show that Meyer was responsible for the satisfactory completion of the sales services he 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. See, Matthew G. Frazer, UI Hearing Nos. S0600184MD, etc., (LIRC June 14, 2007); Kunst v. Energy Marketing Services, UI Hearing No. 08400750AP (LIRC July 31, 2008). The record does not show that, if he was responsible for such a failure, Meyer would be liable for it and would sustain a penalty over and above the simple loss of his commission on the sale. For example, the record does not show that, if Meyer quoted an incorrect price to a customer which resulted in a loss to Metalor, he would have any liability for this loss. The fact that a performance failure by Meyer could result in the loss of his commission or the termination of his contract with Metalor does not distinguish his circumstances from that of a piecework employee. See, Spencer Siding, Inc., UI Hearing Nos. S0300142GB, etc. (LIRC June 2, 2006); VanPelt v. Quality Controlled Services, supra. Condition 6. is not satisfied.

Meyer is compensated on a commission basis only, and condition 7. is satisfied as a result.

Condition 8. examines whether, under a contract for an individual'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). Here, Meyer would make a profit under his contract with Metalor if his sales commissions exceeded his expenses. In addition, since Meyer was paid only if he completed a sale, it is possible that his travel and other costs could exceed his commissions and he could realize a loss. See, Matthew G. Frazer, supra. Condition 8. is satisfied.

Condition 9. requires proof of a cost of doing business which the individual 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. Metalor argues that costs incurred by Meyer for vehicle insurance and business phones satisfy this condition. The record does not show that Meyer has a vehicle he acquired and used exclusively for business purposes, or that he paid an additional amount for insuring the vehicle he drives based upon business usage. However, the record does show that Meyer has an office phone and a cell phone he uses exclusively for business purposes. The minimum monthly charges for these phones are costs that would not be incurred if the business did not exist, and are incurred each month regardless of whether any business is being generated. The minimum monthly charges for these phones qualify as continuing business liabilities or obligations as a result.  See, Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004); Jolliffe v. Ripp Trucking, UI Hearing No. 06001123MD (LIRC July 20, 2006). In those cases in which phone charges have not been regarded as continuing business liabilities or obligations, these charges have been incurred for phones serving both a business and a personal purpose, i.e., the minimum monthly charges for these phones would be incurred even if the business did not exist. See, e.g., Borgheѕanі v. Vіrtual Heroeѕ, Inc., UI Hearing No. 06603325MD (LIRC Dec. 27, 2006).

As a result, condition 9. is satisfied.

Finally, the commission has interpreted condition 10. as intending to examine the overall course of an individual'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 Meyer has put any significant investment at risk, and condition 10. is not satisfied.

In summary, seven conditions, i.e., 2., 3., 4., 5., 7., 8., and 9. are satisfied here. Since Wis. Stat. § 108.02(12)(bm) provides that an individual will not be considered an employee if seven or more conditions are satisfied, the record shows that, during the relevant time period, Meyer performed his services for Metalor as an independent contractor, not an employee.

The decision of the administrative law judge is reversed. Accordingly, the putative employer (Metalor) is not liable for contributions and related interest in regard to the services performed by the individual at issue (Meyer) or any similarly situated individual on or after January 1, 2005.

Dated and mailed November 25, 2008
metalor . srr : 115 : 1 EE 410 EE 410.03  EE 410.04b  EE 410.04a  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:
Attorney Chuck Verbrisky
Attorney Peter W. Zeeh

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