BERRYBUILT 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 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 part of the FINDINGS OF FACT and CONCLUSIONS OF LAW section beginning with the third paragraph and continuing through the penultimate paragraph is deleted, and the following substituted.
The putative employer (Berrybuilt) is a construction contractor. The individual at issue (Mazola) performed plumbing services for Berrybuilt during the time period at issue.
The issue is whether Mazola performed these services as a statutory employee.
Wisconsin Statutes §§ 108.02(12)(a) and (bm) state as follows, as relevant here (1):
(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).
Since it is undisputed that Mazola performed services for pay for Berrybuilt during 2007 and the first two quarters of 2008, the time period at issue, it is Berrybuilt's burden to rebut the presumption that Mazola did so as a statutory employee.
The ALJ held that the record does not show that Mazola had a FEIN, as required by
condition 1. Michael Scarberry (Scarberry), a member of Berrybuilt, a limited liability corporation, was the only hearing witness. Scarberry testified that he was aware that Mazola had a FEIN, because Mazola provided it to Berrybuilt. Although the audit documents, which are in the case file, but did not become part of the hearing record, show that there was some uncertainty regarding the validity of the FEIN Mazola provided to Berrybuilt, this is not reflected in the record. Scarberry's testimony in this regard constitutes competent evidence, which the department did not rebut, that Mazola has a FEIN.
The record does not establish that Mazola ever filed a business or self-employment income tax return, as required by
condition 2.
In its petition, Berrybuilt states, "...the employer's response at the hearing was to the best of his knowledge Mr. Mazola was in fact filing Self-employment tax returns for his business but could offer no specific proof." However, the record actually shows that Scarberry testified, "I do not know whether or not [Mazola] filed a business tax return for 2006. I am not aware of [it]. I do not have any personal knowledge as to whether he would have filed a business tax return for either 2007 or 2008."
Also in its petition, Berrybuilt states, "It is not the responsibility of the employer to verify whether or not sub-contractors have or will be filing self-employment tax returns." That is true. However, it is the putative employer's responsibility to prove at hearing that a sub-contractor did so in order to sustain its burden to prove that 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.
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). See, also,
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. The record shows that Mazola used certain of his own materials and equipment. However, the record does not show that Mazola maintained a separate office, or even a separate space in his home devoted primarily to a business purpose. In order to establish the existence of a separate home office, it is not sufficient to simply show, as here, that Mazola directed that business mail be sent to his home, and that he received and transmitted documents from a fax machine located there. Instead, Berrybuilt was required to show, through competent evidence, that Mazola maintained a separate space in his home devoted primarily to a business purpose, and acquired and utilized the equipment in this office primarily for business reasons. See,
Ziburski v. Shop n Check, UI Hearing No. 08201187EC (LIRC April 27, 2009). The record does not show this. Condition 3. is not satisfied.
To satisfy condition 4., it must be established that Mazola operated under contracts to perform specific services for specific amounts of money, and that, under these contracts, he 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 record shows that Mazola performed the subject plumbing services under a series of job-specific oral agreements with Berrybuilt. These oral agreements constitute contracts. The record also shows that Mazola controlled the means and method of providing services under these agreements with Berrybuilt. 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, Quality Communications Specialists, Inc., supra.
The record shows that Mazola incurred the costs of his plumber license; business liability insurance; materials, including pipes and pipefitting parts; depreciated cost of thousands of dollars worth of equipment, including hand tools and power tools; depreciated cost of a Q-van; and transportation to the work site. Although not articulated in the record, it would have to be presumed that Berrybuilt incurred certain minimal administrative costs related to reviewing job quotes, keeping records, and remitting payments to Mazola. The cost of the fixtures installed by Mazola, paid for by the homeowners, would not be cognizable for purposes of analyzing condition 5. Even though many of the costs are not quantified in the record, it is obvious that the costs incurred by Mazola are clearly the main expenses related to the performance of his plumbing services for Berrybuilt, within the meaning of condition 5. Condition 5. is satisfied.
In order to show that the requirements of condition 6. are
satisfied, the record would have to show that Mazola was responsible for the
satisfactory completion of the services he performed, and liable for any failure
to satisfactorily complete them. It is not simply the obligation to do re-work
without additional pay which is the determining factor, because this obligation
is typical as well of piecework employees. See, T & D Coils, UI Hearing
No. S9800147MW (LIRC Dec. 15, 1999); Spencer Siding, Inc., UI Hearing
Nos. S0300142GB, etc. (LIRC June 2, 2006). Under the circumstances present here,
condition 6. could be satisfied, for example, if the record showed that Mazola
was not only expected to personally remedy unsatisfactory work without
additional compensation, but also that he would incur some sort of penalty,
e.g., he would incur additional costs for having to perform re-work (2), or he would be liable to Berrybuilt
for the cost of having such re-work performed if he did not do it himself (3). Although the record shows that Mazola would be expected to correct unsatisfactory work without additional compensation, it does not show that Mazola would incur any type of penalty. Condition 6. is not satisfied.
Condition 7. requires that the individual be compensated on a commission, per-job, or competitive-bid basis, and not on any other basis. The ALJ held that this condition was satisfied because Mazola performed plumbing services for Berrybuilt on a competitive-bid basis. Although the commission agrees that condition 7. is satisfied, the record shows that Mazola performed the subject services on a per-job basis, not a competitive-bid basis. There was no competition here. Mazola simply submitted a quote to Berrybuilt, and this formed the basis for their contract.
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 Mazola of more in earnings then he was required to spend performing services for Berrybuilt under one of their contracts would constitute "realiz[ing] a profit...under contracts to perform services." It is less clear whether Mazola could suffer a loss. The test is whether, over the course of an individual contract between Mazola and Berrybuilt, there was a realistic possibility that Mazola could suffer a loss.
See, Zoromski v. Cox Auto Trader, UI Hearing No. 07000466MD (LIRC Aug. 31, 2007). For each contract, Mazola provided a quote to Berrybuilt in which he estimated the cost of materials and the number of hours he would need to complete the job. Given that Mazola's material costs are not quantified in the record, and he was essentially guaranteed payment if he satisfactorily completed his contracts with Berrybuilt, the record does not establish that it was realistically possible for Mazola to incur a loss within the meaning of condition 8. It should be noted in this regard that Scarberry testified (see page 11 of synopsis) that, in his judgment, "I don't believe there is any way that Mr. Mazola could have suffered an actual loss."
Berrybuilt argues that, "If the job were to take twice as long as originally planned Mr. Mazola would have lost of out [sic] other potential revenue thereby making his time or [sic] this job half as profitable." However, the commission has generally held that a potential loss of opportunity is not sufficient to satisfy condition 8. See,
Joseph Hauser, UI Hearing No. S9700157LX (LIRC Jan. 29, 1999).
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, certain professional fees, or liability insurance. The record shows that Mazola incurred the continuing cost of business liability insurance. Condition 9. is satisfied.
In its petition, Berrybuild asserts that the ALJ's decision failed to acknowledge that Mazola paid for his own business liability insurance. However, the ALJ did use this as the basis for his conclusion that 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). Although the record shows that Mazola had an investment in equipment, the record does not establish how significant this investment was, nor that there was any realistic risk to Mazola that this investment could be lost.
In summary, only conditions 1., 4., 5., 7., and 9. 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 five of the ten conditions compels the conclusion that Mazola performed services for Berrybuilt during the relevant time period as an employee, not an independent contractor.
In its petition, Berrybuilt claims that the ALJ's decision finds that Mazola does not advertise, but evidence to support this finding is not set forth in the hearing record. However, Scarberry testified (see page 4 of synopsis) that, "Mr. Mazola did not advertise or otherwise hold himself out as having his own plumbing business."
In addition, in its petition, Berrybuilt suggests that, "With respect to the questions regarding the specifics of Mr. Mazola's business the Employer requests that the State follow-up directly with Mr. Mazola, as the employer runs a carpentry business not a private detective firm." However, as discussed above, it was Berrybuilt's burden, not the department's, to rebut the presumption that Mazola performed the subject plumbing services as an employee. Moreover, the commission is limited to the evidence set forth in the hearing record in rendering its decision. Berrybuilt had the ability to subpoena Mazola's testimony (4) if it felt it was necessary in order to sustain its burden of proof, but apparently did not do so, and has provided no persuasive reason for granting further hearing for this purpose.
The decision of the administrative law judge, as modified, is affirmed. Accordingly, Berrybuilt LLC owes past due and delinquent unemployment insurance taxes together with interest as set forth in the department determination.
Dated and mailed October 8, 2009
berrybu . smd : 115 : 6 EE 410 EE 410.03
EE 410.05 EE 410.06
/s/ James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
cc:
Jason Starr
Michael Mathis
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