RYAN M ZANDER, Employee
MORTENSON INVESTMENT GROUP LLC, 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:
Ryan M. Zander ("Zander") worked for a number of years as a laborer and foreman for a landscaping business, Zingg Landscaping. He last worked for that employer on October 13, 2008 (week 42), when it laid him off. He then filed a claim for unemployment benefits. Zingg Landscaping is the only entity that has any potential liability for unemployment benefits which may be paid to Zander pursuant to this claim. Zingg was not made a party to this case.
Shortly after becoming unemployed and filing his claim for unemployment benefits, Zander began performing snow-clearing services for Mortenson Investment Group LLC ("Mortenson"), a property management business which is responsible for a number of apartment buildings. Under his agreement with the Mortenson, Zander uses his personal truck, to which he mounts a plow and salter, to clear parking lots and other areas of the grounds of the apartment buildings. He does his work after hours; Mortenson has its own staff who do similar snow-clearing work from 8 AM to 5 PM. Zander is paid a fixed amount ($900) per snowfall. After each such snow-clearing job, he sends an invoice to Mortenson.
The department's initial determination found that Zander performed his snow-clearing services as an employee of Mortenson, such that he would be required to report the amounts paid to him by Mortenson as wages received when he filed his weekly UI benefit claims. Zander did not appeal this determination. Mortenson, which was not actually affected by the determination (see NOTE, infra at p. 9), did file an appeal. Following hearing, an ALJ affirmed the determination that Zander was Mortenson's employee. Zander then appealed to LIRC.
The UI Act effectively provides that any individual who performs services for pay for an employing unit is presumed to be an "employee" of that employing unit, unless that employing unit establishes that certain stated conditions are met. Wis. Stat. § 108.02(12)(a). In the case of a private business such as Mortenson, the relevant conditions are those described in Wis. Stat. § 108.02(12)(bm), and the showing which must be made is that at least seven of those ten conditions are met. The entity for which the individual has performed services bears the burden of proving that a sufficient number of conditions are met.
In this case, there is no dispute that Zander provided services to Mortenson for pay. Thus, the question is whether Mortenson met its burden of establishing that at least 7 of the 10 conditions in § 108.02(12)(bm) are met. These conditions are discussed below.
1. The individual holds or has applied for an employer identification number with the federal internal revenue service -- Zander has does not hold an identification number with the federal internal revenue service and has not applied for one. Condition 1 was not met.
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 -- As of the date of the hearing in this matter, February 23, 2009, Zander's federal income tax return for tax year 2008 had been prepared by his tax preparation service and was ready for filing. That return included a Schedule C ("Profit Or Loss From Business") and a Schedule SE ("Self-Employment Tax"). Zander testified that he intended to file that return as soon as he could pay the tax due. However, it is clear that as of the date of the hearing, he had in fact not yet filed the return. In deciding cases before it, the commission is limited to the record made at the hearing and it cannot rely on speculation, including speculation about what may have happened after the hearing. There is thus no evidence in the record, that Zander "has filed" the required return.
The statute is unambiguous in stating that a business or self-employment income tax return must actually have been
filed. The taxpayer's intent to file such a return is not sufficient.
Al-Mujaahid v. Pre-Paid Legal Services (LIRC, Feb. 28, 2000),
aff'd., Pre Paid Legal Services, Inc. v. LIRC and Al-Mujaahid
(Dane Co. Cir. Ct., May 2, 2001) (1);
Sure Value Auto Sales, Inc. (LIRC, July 29, 2008). Therefore, and because there is no evidence in the record that Zander "has filed" a business or self-employment income tax return, condition 2 is not met.
3. The individual maintains a separate business with his or her own office, equipment, materials and other facilities -- This criterion asks whether the worker has maintained a separate business with the features of an actual business. Gilbert v. LIRC and DWD, 2008 WI App 173, ¶38, __ Wis. 2d __, 762 N.W.2d. 671. "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." Gary R. Gilbert (LIRC, July 21, 2005), aff'd, Gilbert v. LIRC and DWD, supra.
Zander has no "office" which is separate and free-standing. He testified that he operated out of his home. His production of standardized invoice forms seems to reflect that he is using a computer to generate paperwork relating to the business, but there was no testimony about any kind of home office or office equipment, and no testimony about whether any such equipment Zander might have been using in his home was being used "primarily" in connection with his snow-clearing activity. Zander certainly has his own "equipment" used in the services he performs for Mortenson. While the truck he uses is his personal vehicle which he owned before he started this work and which he still uses for personal services, he has invested almost $7,000 in the plow attachment and salter. Zander does not provide or maintain the principle "materials" used in the services he performs, which is the substantial quantities of salt that are spread as part of the work.
In Quality Communications Specialists, Inc., (LIRC July 30, 2001) the commission stated that the "separate business" part of this test
looks at the question of whether the person "maintains a separate business", the term "separate" clearly being intended to focus on the question of whether the activity they engage in is genuinely separate from the activity of the putative employer, and the term "business" clearly being intended to focus on the question of whether the manner of engaging in the activity is characteristic of the way a business operates as distinct from the patterns typical of an employment relationship. It is critical under this test whether the person involved has a separate business apart from the appellant's business. See, St. Clair v. Rylan & Co. Inc (LIRC, June 7, 2000).
Zander had never done snow clearing work before he began performing these services for Mortenson. He started his business following a suggestion made to him by his girlfriend -- who works for Mortenson as the executive assistant to its president -- that he could "sub" himself out to Mortenson for some extra income. He did not buy his plow and salter until he had already discussed performing the services with Mortenson. The written agreement he entered into with Mortenson was drafted by someone at Mortenson. He does not operate under a business name. He does not advertise. He does no snow plowing for anyone other than Mortenson. In his statement to the department during the investigation, he said that he was "just planning on working for [Mortenson] right now", indicating that he had no aspirations to do any plowing work for anyone else. At the hearing he said nothing to indicate that he was seeking, or interested in, any other snowplowing work.
Zander has no business which is separate and apart from his relationship with Mortenson. He thus has no "separate business" within the meaning of condition 3, and the condition is therefore not met.
4. The individual operates under contracts to perform specific services for specific amounts of money under which the individual controls the means and methods of performing such services - This condition requires multiple contracts, either 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. Gilbert v. LIRC and DWD, supra, at ¶42.
Zander has a single contract with Mortenson, calling for him to perform a
particular service -- plow and salt certain described locations -- for a fixed
fee of $900, each time the service is performed. (2) Zander testified that the contract "covers the current season." There is no evidence of any renegotiation or revision of the contract over the course of the season; there is similarly no evidence of renegotiation or revision of terms from season to season. This kind of single, continuing relationship on fixed terms clearly does not satisfy this condition. Condition 4 was not met.
5. The individual incurs the main expenses related to the services that he or she performs under contract -- Applying this condition 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, (LIRC Sept. 24, 2999). This inquiry requires quantification of these expenses, and a determination of which entity bears the larger total expense.
Zander's services consisted of removing snow from parking lot surfaces with a plow, and applying salt to the surfaces with a salter. The expenses related to these services are the expenses for the equipment needed (the plow and salter), fuel for and repairs and maintenance on that equipment, and the expense of the materials used (salt). (3) Zander incurred the expenses for the purchase, fueling, and repairs and maintenance of the equipment, but Mortenson provides, and incurs the expense, of the salt.
The salt is a significant expense. Zander estimated that he uses $400 to $600 worth of salt with every snowfall. That is at least three times the expense incurred by Zander for vehicle fuel and maintenance. The question of whether Zander incurs the "main expense" connected with the services he performs, thus turns on the treatment of the one remaining expense: equipment costs.
If the expense for the purchase of the plow and salter were treated as being an expense related to Zander's services in the first year of his business, then for that year his total expenses would be over $9,000, thus exceeding the upper range of the estimated materials expense noted above. However, this is an unrealistic way in which to evaluate the expenses related to Zander's services, because it is clear that he does not incur the expense for the purchase of a plow and salter every single year.
In Quality Communications Specialists, the commission held that proper quantification of an equipment expense requires determination of the annual depreciation expense, i.e., the purchase price divided by the number of years of anticipated useful life. For example, if the plow and salter involved here were considered to have a useful life of 5 years, there would be an expense of around $1,360 booked each year as an operating expense.
Applying the depreciation method of quantifying equipment expenses here leads to the conclusion that Zander cannot reasonably be expected to incur the main expenses of the services he performs. Even if a useful life of only 3 years is used, thus increasing the amount to be booked to equipment expenses on an annual basis to $2,267, the expenses incurred by Zander still do not come close to exceeding the expense of materials (salt) incurred by Mortenson.
For the foregoing reasons, condition 5 was not met.
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
-- If Zander did not finish the plowing called for by the agreement before 8:00 A.M., Mortenson's daytime maintenance crew would do it. There was nothing in Zander's testimony, or in the testimony of Mortenson's witness, or in the contract between them, that indicated that Zander would ever have any liability for failure to satisfactorily perform the contracted services in these circumstances. On the contrary, the contract affirmatively stated that Zander would not be liable for any damage to the plowed surface or to landscaping caused by his plowing. Also, in his statement to the department during the investigation, Zander indicated that he would not have to pay for someone else to re-do the work if his plowing was found unsatisfactory. Condition 6 was clearly not met.
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 - Zander was paid on a per-job basis for the services he provided under the contract and not on any other basis. This condition was met.
8. The individual may realize a profit or suffer a loss under contracts to perform such services -- In Quality Communications Specialists (LIRC, July 30, 2001), the commission recognized and discussed the difficulty in distinguishing between the "may realize a profit or suffer a loss under contracts to perform services" test and the "success or failure of the individual's business depends on the relationship of business receipts to expenditures" test. (4) The commission stated:
Another difficulty in determining the meaning of [the "may realize a profit or suffer a loss under contracts to perform services"] test, is in distinguishing its intended meaning from that of test h. ("The success or failure of the individual's business depends on the relationship of business receipts to expenditures"). This difficulty arises because "profit" and "loss" are in large part defined by "the relationship of business receipts to expenditures", and by most standards, the success or failure of a business is measured precisely by whether it makes a profit or generates a loss.
Notwithstanding the fact that sub. f and sub. h seem to be addressed to the same characteristics of a business, the structure of the statute absolutely requires the commission to give them an interpretation which allows them to have different meanings.
The commission concludes that the most reasonable way to distinguish between sub. f. and sub. h. is to interpret the former as looking at the potential for profit or loss arising under particular individual contracts which a person enters into in the course of their business, while interpreting the latter as looking at the overall course of the person's business, which presumably involves a number of different contracts with different parties, or at least a number of separately-negotiated sequential contracts with a single party (see, discussion of sub. b., supra at p. 7). The language of sub. f. asks whether the individual may realize a profit or suffer a loss under contracts to perform services. It is important, in the construction of statutes, to give meaning to every word, clause and sentence in the statute. Kollasch v. Adamany [104 Wis. 2d 552, 563, 313 N.W.2d 47 (1981)]. The commission believes, that the use of the phrase "under contracts to perform services" in sub. f. implies that the potential for profit and the potential for loss need to be evaluated by looking at the specific contracts the individual enters into. In other words, this test does not look at the question of whether, in the long run, income received through the person's business will exceed expenses (or vice-versa). Rather, it looks at the question of whether under particular contracts the person enters into, there can be a profit (if the income received under that contract exceeds the expenses incurred in performing the contract), and also 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).
Applying condition 8 here presents the same problem as was presented in applying condition 5: how to take into account the expense of capital equipment which generates a large one-time expense at the time of purchase, but which will last over the course of a number of years, and thus, presumably, over a number of separate contracts.
However, as noted above, condition 8 looks at (among other things) the possibility of loss under individual contracts. It is not necessary that it be possible that an individual sustain a loss under every contract, but that it be possible that they sustain a loss under at least some contracts. For a season in which a large capital equipment purchase has actually been made, the amounts received under that contract may (depending on the number of snowfalls that season) be less than the amount spent in that season. The commission believes that in the particular situation presented here, it is reasonable to conclude that there may be a loss within some individual seasons. Therefore, this condition is met.
9. The individual has recurring business liabilities or obligations -- Zander had extra liability insurance on his truck, above that which he would have normally carried on it, to cover possible damages he might cause while using the plowing and salting equipment. The amount of the premium corresponding to this would be a recurring expense that would continue whether or not services were being performed. While the amount he had to pay for this extra insurance was not specified, it obviously cost something. That is sufficient:
In this case, there is evidence that the persons whose status is at issue have at least some recurring expenses for insurance. While it has been noted above that the evidence is inadequate to allow this expense to be accurately quantified, the "recurring business liabilities or obligations" test does not involve a quantitative comparison. Therefore, the lack of definite evidence as to the amount of the insurance expense is not critical. The recurring obligation to pay premiums for insurance which must be maintained in order for the individual to be able to perform their services under contract, appears to fit within the intended meaning of the phrase, "recurring business liabilities or obligations".
Quality Communications Specialists, Inc. (LIRC, July 30, 2001). This condition was met.
10. The success or failure of the individual's business depends on the relationship of business receipts to expenditures -- The commission has interpreted this condition as intending to examine the overall course of a worker's business, and as requiring that a significant investment is put at risk and that 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.
As distinct from condition 8, which looks (in part) at the issue of whether there is a genuine possibility that an individual could suffer a loss under a particular individual contract, condition 10 examines the overall course of a worker's business, and 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.
As discussed above in connection with condition 8, it could be possible that in some individual seasons the combination of large amounts being spent in that season on capital investments and a lower than normal number of snowfalls would generate a net loss. In the long term, however, the averaging out of snowfalls and of the expenses of capital equipment will govern the course of the activity. At the level of investment which Zander is making (i.e., plow and salter used with his personal truck, no salt expense), and considering the average annual snowfall in this part of the country, there is just no realistic possibility that in the long term, Zander's snow-plowing activity for Mortenson is going to involve any entrepreneurial risk. The commission therefore concludes that this condition was not met.
Conclusion - Only three of the conditions stated in Wis. Stat. § 108.02(12)(bm) -- specifically, conditions 7, 8 and 9 -- were shown to have been met. The presumption of employee status which arises from the fact that Zander performs services for Mortenson, stands unrebutted.
The commission therefore finds that as of week 48 of 2008, the claimant performed services as an employee of Mortenson, within the meaning of Wis. Stat. § 108.02(12)(a) and (c).
The decision of the administrative law judge is modified to conform with the foregoing and, as modified, is affirmed. Accordingly, the claimant is required to report his earnings for services performed for Mortenson as they are earned while he is claiming unemployment benefits.
Dated and mailed May 7, 2009
zandery . urr : 110 : EE 410 EE 410.02 EE 410.05
EE 410.08
/s/ James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
NOTE: The determination in this case involved the question of whether the services performed by Zander for Mortenson Investment Group were performed by him as an employee of Mortenson. However, that question was presented only for a limited purpose: it had to be answered in order to decide whether Zander was required to report his earnings from Mortenson as wages when he filed weekly claims for unemployment benefits.
The determination which was issued in this case made it clear that its actual effect was similarly limited: it determined simply that Zander was required to report amounts received from Mortenson as wages as those amounts were earned. The determination also stated,
NOTE: This determination is issued under section 108.09 of the Statutes and only resolves the current benefit eligibility issue. Under section 108.101 of the statutes, this decision is not binding for any other purpose and cannot be used to determine whether Mortenson is liable for contributions based on services performed by this claimant.
The statutory section referred to, Wis. Stat. § 108.101, provides:
108.101 Effect of finding, determination, decision or judgment.
. . .
(2) No finding of fact or law, determination, decision or judgment made with respect to rights or liabilities under s. 108.09 is binding in an action or proceeding under s. 108.10.As the NOTE explained, the determination was one issued under Wis. Stat. § 108.09 involving the particular benefit claim and rights of a claimant. It was not a determination issued under § 108.10 holding that Mortenson had to pay UI taxes on amounts it paid to Zander (or anyone else). By virtue of § 108.101(2), in any separate proceeding which did involve Mortenson's tax liability -- which would be a proceeding under § 108.10 -- this determination would not be binding. Thus, this determination had no binding effect, actual or potential, on the current or future tax liability of Mortenson.
The determination also had no other effect, actual or potential, even on the balance of Mortenson's UI account. Zander had no earnings from Mortenson during his base period, and Mortenson thus faced no possibility of any charges being made against its UI account based on benefits being paid to Zander.
Pursuant to Wis. Stat. § 108.09(7), a party may commence an action for judicial review of a commission decision if the party does so "in accordance with s. 102.23." Section 102.23 in turn provides that "any party aggrieved [by]" a commission decision may commence an action for judicial review thereunder. It has been expressly held that an employer whose UI account is not affected by the commission's decision, is not "aggrieved" within the meaning of this provision, and has no standing to commence an action for judicial review of that decision. Cornwell Personnel Associates v. ILHR Dept., 92 Wis. 2d 53, 63, 284 N.W.2d 706 (Ct. App. 1979). Because the decision in this case has no effect on Mortenson's UI tax liability or on the balance of its UI account, it is not a party "aggrieved by" the decision within the meaning of Wis. Stat. § 102.23.
cc: Mortenson Investment Group, Madison, WI
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