STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

PATRICK L BALDWIN, Employee

CATHOLIC KNIGHTS, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 10604303MW


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:

1. That part of the FINDINGS OF FACT and CONCLUSIONS OF LAW section beginning with the third paragraph and continuing through the citation of the language in Wis. Stat. § 108.02(120(bm) is deleted and the following substituted:

Since the claimant performed services for pay for the putative employer, within the meaning of Wis. Stat. § 108.02(12)(a), he is considered a statutory employee unless seven of the ten conditions stated in Wis. Stat. § 108.02(12)(bm) are satisfied.

2.  The final sentence in the first full paragraph on the second (unnumbered) page of the text of the decision, relating to recurring business liabilities or obligations, is deleted.

DECISION

The decision of the administrative law judge, as modified, is affirmed. Accordingly, the amounts earned by the claimant performing services for the putative employer during the time period relevant to this matter are base period wages.

Dated and Mailed March 4, 2011

BY THE COMMISSION:

/s/ Robert Glaser, Chairperson

/s/ Ann L. Crump, Commissioner

MEMORANDUM OPINION


The claimant (Baldwin) performed services for the putative employer (CK) as a member of its sales force beginning in June 2008 and ending in February 2009. Baldwin initiated a claim for benefits thereafter.

The issue is whether the amounts earned by Baldwin performing services for CK during the base period relevant to his claim constitute base period wages.

This issue does not directly relate to CK's liability for unemployment insurance contributions.

As defined in Wis. Stat. § 108.02(4m)(a), base period wages means, "All earnings for wage-earning service which are paid to an employee during his or her base period as a result of employment for an employer."

The first question is whether Baldwin was performing services for CK in an employment. Subject to certain exceptions, an "employment" is defined by Wis. Stat. § 108.02(15)(a) as "any service...performed by an individual for pay." It is undisputed that Baldwin performed services for CK for pay during the base period.

The next question is whether any of the exceptions to the definition of employment set forth in Wis. Stat. § 108.02(15)(k) would apply. The only exception arguably applicable here is set forth in Wis. Stat. § 108.02(15)(k)6. which states as follows:

(k) "Employment" as applied to work for a given employer...does not include service:

6. By an individual for a person as an insurance agent or an insurance solicitor, if all of the service performed as an insurance agent or solicitor by the individual for the person is performed for remuneration solely by way of commissions;...

The products offered by Baldwin to consumers as a part of CK's sales force included insurance policies, annuities, and securities. Baldwin, consistent with his agreement with CK, became licensed as an insurance agent by the insurance commissioner of the State of Wisconsin in order to sell CK insurance policies and annuities, and as a securities agent by the Financial Industry Regulatory Authority (FNRS) of the federal government in order to sell CK securities.

Although the language of Wis. Stat. § 108.02(15)(k)6. does not state that an individual must perform services for an entity solely as an insurance agent or solicitor in order for the exclusion to apply, it is a reasonable implication from this language that such services must at least be performed primarily as an insurance agent or solicitor. See, Roth v. World Financial Group, Inc., UI Hearing No. 07002934MD (LIRC Jan. 10, 2008). The record here does not show, however, what portion of the services Baldwin performed for CK related to the sale of insurance products and what portion to securities products.

In addition, Wis. Stat. § 108.02(15)(k)6. requires that the individual be remunerated solely by way of commissions in order for the exclusion to apply. In Geib v. Mutual of Omaha, UI Hearing No. 92005533FL (LIRC Sept. 29, 1993), the commission held that the use of the word "solely" in relation to the receipt of commissions in Wis. Stat. § 108.02(15)(k)6. means that the Legislature intended the statute to be strictly construed. See, also, Prosch v. Bankers Life & Casualty, UI Hearing No. 05001155MD (LIRC Nov. 8, 2005); Weger v. Rural Mutual Insurance Co., UI Hearing No. 07607809MW (LIRC April 25, 2008).

However, the record in this matter establishes that Baldwin was remunerated not only by way of sales commission, but also through "service fees." The fact that the written agreement between the parties (exhibit #1) references, for example, in provision 16) on page 3, both commissions and service fees, necessarily implies that they are mutually exclusive.

As a result, the exclusion stated in Wis. Stat. § 108.02(15)(k)6. does not apply, and Baldwin performed services for CK in an employment during the base period.

The next question then is whether Baldwin performed such services as an employee.

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

108.02 Definitions. As used in this chapter:

(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:

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....

(e) This subsection shall be used in determining an employing unit's liability under the contribution provisions of this chapter, and shall likewise be used in determining the status of claimants under the benefit provisions of this chapter....

(26) Wages. Unless the department otherwise specifies by rule:

(a) "Wages" means every form of remuneration payable, directly or indirectly, for a given period, or payable within a given period if this basis is permitted or prescribed by the department, by an employing unit to an individual for personal services....

Under the circumstances present here, Baldwin would qualify as a statutory employee unless the record shows that at least seven of the ten conditions stated in Wis. Stat. § 108.02(12)(bm) are satisfied.

Although CK contends that its agreement with Baldwin provides that he is to be considered an independent contractor in his relationship with CK, Baldwin's status as an independent contractor or a statutory employee 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).

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, UI Hearing No. S9800101MD (LIRC Feb. 22, 2000). As a result, the commission review of this case is not limited to those aspects of the administrative law judge's decision challenged in the petition.

The record shows that Baldwin held a federal employer identification number (FEIN) as required by condition 1.

The record does not show that Baldwin filed business or self-employment income tax returns based on services performed for CK as required to satisfy condition 2. CK argues that this condition is satisfied because its written agreement with Baldwin required him to file such a return. However, Wis. Stat. § 108.02(12)(bm) requires that each condition be satisfied by contract and in fact.

Condition 2. is not 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. Although the record shows that Baldwin used certain of his own equipment, e.g., vehicle, cell phone, and laptop computer, it does not show that he had a separate business office he maintained at his own expense, or even a separate space in his home devoted primarily to a business purpose. See, Campbell v. Speedmark, UI Hearing No. 08002536MD (LIRC April 27, 2009).

CK argues that, consistent with the commission's decision in Struck & Irwin Fence, Inc., UI Hearing No. S9700192MD (LIRC Feb. 26, 1999), Baldwin should not be required to have a separate business office in order to satisfy condition 3. However, in Struck & Irwin, the individual worked as a cleaner, necessarily performing her duties in client's office spaces, and the commission reasoned that use of a business office would be inconsistent with the nature of this type of endeavor. The commission has reached similar results in regard to circumstances in which separate facilities would be inconsistent with the nature of the work done by the individual. See, Groeschl Forestry Consulting, Inc., UI Hearing No. S0000141HA (LIRC March 19, 2002)(lack of separate facilities, consistent with the nature of the business, not dispositive as to condition 3.)

Here, however, use of a business office would not be inconsistent with the nature of the insurance/securities sales business, and is required in order to satisfy condition 3.

Moreover, the fact that the governing agreement required Baldwin "to devote substantially full time to performing sales activities" for CK, and that Baldwin did not perform similar services, other than as an acknowledged employee, for any other entity, militates against the existence of a business enterprise existing separate and apart from his relationship with CK. See, 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).

Condition 3. is not satisfied.

To satisfy condition 4., it must be established that Baldwin 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.

CK argues that the ALJ erred in requiring multiple contracts in order to satisfy condition 4., since this is "not a statutorily required element." However, not only has the commission held that condition 4. requires multiple contracts (see, e.g., Quality Communications Specialists, supra.), but so has the Wisconsin Court of Appeals (Gilbert v. LIRC and DWD UI Division, 2008 WI App 173, 315 Wis. 2d 726, 762 N.W.2d 671).

The contract under which Baldwin performed services for CK was a single contract with terms that did not vary over time or by event, and which were dictated, apparently without negotiation, by CK. This single contract did not satisfy the multiple contracts requirement of condition 4. See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002); Dane Co. Hockey Officials, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000).

The record does not show that Baldwin performed similar services under contracts with entities other than CK.

Since the multiple contracts requirement is not met here, 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. See, Lozon Remodeling, supra.; Quality Communications Specialists, Inc., supra. This inquiry generally requires quantification of these expenses.

Baldwin paid his own vehicle, cell phone, licensing, and errors and omission insurance expenses. CK paid approximately $200 per calendar quarter for Baldwin's marketing expenses, which constituted the minority of such expenses. CK paid the cost of the office cubicle that Baldwin utilized when he was not working at home or at a client's home. It is presumed that CK incurred certain administrative costs in entering into and overseeing its contract with Baldwin, in training Baldwin in regard to its insurance and securities products, and in remunerating Baldwin. In the absence of quantification of most of these expenses, and given that it is not obvious that the expenses borne by Baldwin necessarily exceeded those borne by others, condition 5. is satisfied.

The fact that Baldwin maintained errors and omissions insurance is sufficient to satisfy condition 6. See, Care & Comfort Associates, UI Hearing No. S9700120MW (LIRC April 30, 1999); O'Brien v. Angel Adams, Inc., UI Hearing No. 07601554MW (LIRC July 9, 2007).

As discussed above, Baldwin was compensated on the basis of both sales commissions and service fees. Since compensation through service fees is not one of the bases specified in the statutory language, condition 7. is not satisfied.

Although CK asserts in its reply brief to the commission that Baldwin testified he was "only paid a commission," the record does not reflect this. Instead, the record indicates that Baldwin testified, on the page cited by CK and in other parts of the record, that he was paid by commission, not that he was only paid by commission.

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 Baldwin of more in commissions than he was required to spend performing sales services for CK would constitute "realiz[ing] a profit...under contracts to perform services." In addition, since Baldwin earned commissions only if he completed a sale, it is possible that his travel and other costs could exceed his compensation and he could realize a loss. See, 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. Baldwin's professional fees and the cost of errors and omissions insurance satisfy this condition, and 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, supra. The record does not show that Baldwin put a significant investment at risk, and condition 10. is not satisfied as a result.

In summary, only conditions 1., 6., 8., 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 four of the ten conditions compels the conclusion that Baldwin performed services for CK as an employee, not an independent contractor, during the time period at issue.

Finally, there is a procedural matter which the commission believes should be addressed. The ALJ refused to mark an exhibit when offered by a party because the ALJ had decided not to receive it into the hearing record. Although it did not affect the result here, the proper procedure to utilize in creating a record sufficient for review by a higher authority is for the ALJ to mark the exhibit, provide the parties the opportunity to object to its admission, rule on the objection, and include the exhibit with the record. The ALJ here stated at the hearing that he was not going to mark the exhibit and the commission could look through the file if it wanted to review his ruling. This is both incorrect and inefficient.

cc: Attorney Barry Chaet


Appealed to Circuit Court.  Appeal dismissed October 14, 2011.

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