SUSAN A BETTENHAUSEN, Respondent
SILVER CONNECTIONS LLC, Petitioner
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. Delete the third sentence of the fourth paragraph of "FINDINGS OF FACT AND CONCLUSIONS OF LAW."
2. Delete the fourth sentence of the first full paragraph on page 3 of the decision, relating to condition five, and replace with the following:
Condition five is met, given the expenses incurred by the claimant in performing the services.
3. Delete the "DECISION" paragraph and replace it with the following:
The department's determination is amended as to week of issue and, as amended, is affirmed. Accordingly, wages paid to the claimant by the employer in 2010 were properly reported to the department as they were earned, and those wages paid to the claimant by the employer during the relevant base period shall be included in the department's computation of the claimant's base period wages.
The decision of the administrative law judge, as modified, is affirmed. Accordingly, wages paid to the claimant in 2010 by Silver Connections LLC were properly reported to the department as they were earned, and those wages paid to the claimant by Silver Connections LLC during the relevant base period shall be included in the department's computation of the claimant's base period wages.
Dated and Mailed October 26, 2011
BY THE COMMISSION:
/s/ Robert Glaser, Chairperson
/s/ Ann L. Crump, Commissioner
/s/ Laurie R. McCallum, Commissioner
Silver Connections LLC (hereinafter "SC" or "petitioner") is a marketing business for senior communities. During 2010, the claimant performed services for SC as a sales representative, placing senior citizens into retirement communities. She functioned as a broker between SC and the retirement care centers.
The sole issue presented is whether the claimant's earnings from SC may be used to calculate her unemployment insurance benefit eligibility.(1)
Wisconsin Stat. § 108.02 states, in relevant provisions, as follows:
108.02 Definitions. As used in this chapter:
(4) BASE PERIOD. "Base period" means the period that is used to compute an employee's benefit rights under s. 108.06 . . .
(4m) BASE PERIOD WAGES. "Base period wages" means:
(a) 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; . . .
(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.
(14m) EMPLOYING UNIT. "Employing unit" means any person who employs one or more individuals.
(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.
(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.
Pursuant to Wis. Stat. § 108.02(4m), in order to be considered base period wages, earnings must be "paid to an employee during his or her base period as a result of employment for an employer."
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 Quality Communications Specialists Inc., UI Dec. Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001);
Dane County Hockey Officials Association, Inc., UI Dec. Hearing No. S9800101MD (LIRC Feb. 22, 2000).
Since the record shows that the claimant performed services for SC for pay during the relevant base period, SC has the burden to rebut the presumption that she did so as a statutory employee and must establish, therefore, that the claimant met seven of the ten conditions listed in the statute.
In this regard, the commission notes that the statutory provision at issue, Wis. Stat. § 108.02(12)(bm), specifically states that an employing unit must meet seven or more of the criteria "by contract and in fact". In other words, a contract between the parties is not sufficient alone to establish that independent contractor criteria are met - and a hearing in which questions are asked and employment circumstances described is the proper setting to determine the actual facts of the employment.
In addition, the unemployment statute specifically states, at Wis. Stat. § 108.12, that "[n]o agreement by an employee to waive the employee's right to benefits or any other rights under this chapter shall be valid." In sum, the claimant's status as an independent contractor or an employee, for unemployment insurance purposes, is determined by statute, and not by any agreement or understanding between the parties.
Analysis of conditions
Condition 1 - The petitioner does not dispute that the claimant did not possess or apply for an employer identification number with the federal internal revenue service. This condition is not met.
Condition 2 - This condition, that the claimant has filed business or self-employment income tax returns with the federal internal revenue service based on such services for the previous year or, in the case of a new business, in the year in which such services were first performed, is not met.
The petitioner argues that the claimant filed self-employment taxes for 2010, the first and only year in which she performed services for the petitioner. In support of that contention, pages of the claimant's 2010 income tax return forms were admitted into the record at the hearing. However, pages of that tax return are missing, specifically including those comprising Schedule C. In fact there is only one page from Schedule C, listing the claimant's name, 19,958 miles driven for business, and expenses of $275 for association dues and $480 for internet usage. In addition, unreimbursed employee business expenses, including significant vehicle expenses, are attributed to the claimant's husband in his occupation as a mason. There was no testimony at the hearing clarifying these matters; only the claimant's testimony that these pages constituted her 2010 income tax returns. This evidence, incomplete as it is, is insufficient to establish that the claimant filed self-employment tax returns based on her services for SC in 2010.
Condition 3 - This condition, that the claimant maintains a separate business with her own office, equipment, materials and other facilities, is not met.
The focus of condition 3 is to determine whether a separate business, one created and existing separate and apart from the claimant's relationship with SC, is being maintained with the claimant's own resources. Princess House, Inc. v. DILHR, 111 Wis. 2d 46, 330 N.W.2d 169 (1983); Gilbert v. LIRC and DWD, 2008 WI App 173, 315 Wis. 2d 726, 762 N.W.2d 671. See also
Campbell v. Speedmark, UI Dec. Hearing
No. 08002536MD (LIRC April 27, 2009) (no evidence of a separate free-standing office of any kind, or a home office primarily for business purposes);
Brusletten
v. Primerica Life Insurance Co., UI Dec. Hearing No. 08202264EC (LIRC Feb. 26, 2009) (use of one's personal computer to carry out work responsibilities does not qualify as maintaining a separate business office);
Christman v. Cybrcollect Inc., UI Dec. Hearing No. 06201682EC (LIRC Feb. 9, 2007) (although claimant had a separate office, materials and equipment for work with Cybrcollect, record did not show that she performed or even sought similar work with other entities or had an enterprise that existed separate and apart from her work for Cybrcollect);
Quality Communications Specialists, Inc., cited previously (all parts of this test must be considered in determining whether the condition is met).
In its petition, SC argues that the claimant maintained a home office, performing services for SC from her home office and from her vehicle. The petitioner asserts that the claimant's line of work did not require that she lease a location outside her home to complete her work, but that she owned and maintained office supplies and equipment.
It is true that it would not be necessary for the claimant to lease a business office outside her home in order to satisfy this condition. However, there was no evidence presented that she had a home office, i.e., an area in her home dedicated primarily to business purposes. In addition, she did not perform, nor was she permitted to perform, similar marketing services for any entity other than the petitioner. She had no business name, nor did she advertise her services. There is simply insufficient evidence in the record that she maintained a separate business, as defined in this condition.
Condition 4 - This condition, that the claimant operate under contracts to perform specific services for specific amounts of money and under which the claimant controls the means and methods of performing such services, is not met. In its petition, SC agrees that this condition is not met, because there is only one agreement involved, not the multiple contracts required by this condition.
Condition 5 - This condition, that the claimant incurs the main expenses related to the services that she performs under contract, is met. However, the commission does not agree with the ALJ that the claimant's tax returns, or her testimony, establish that she incurred $12,000 in transportation expenses. As noted earlier, her husband also claimed significant travel expenses and the incomplete tax return is not helpful, nor is it particularly credible.
In analyzing this condition, it is necessary to determine what services were performed under the contract, what expenses were related to the performance of these services, which expenses were borne by the person whose status is at issue, and whether these expenses constitute the main expense. See, e.g., Quality Communications Specialists, Inc., cited previously; J Lozon Remodeling, UI Dec. Hearing No. S9000079HA (Sept. 24, 1999).
In performing her placement and brokerage services, the claimant had fuel costs associated with her travel, as well as related vehicle maintenance. She also had internet and cell phone expenses, paper and postage expenses, and association fees. Although the petitioner had expenses in maintaining a website from which the claimant received and provided leads and sales, and in processing her payments as they were earned, the evidence supports a conclusion that the claimant's expenses in performing her services exceeded those of the petitioner.
Condition 6 - This condition, that the claimant is responsible for the satisfactory completion of her services and is liable for failure to satisfactorily complete the services,
is not met.
The commission has consistently held that it is not simply the obligation to do re-work without additional pay that is the determining factor in condition 6, because this obligation is typical as well of piecework employees. See T & D Coils, Inc., UI Dec. Hearing No. S9800147MW (LIRC Dec. 15, 1999). There must be an additional factor, such as payment for the repair/replacement materials, as noted in Thomas J. Harris, UI Dec. Hearing No. S0400196HA (LIRC June 15, 2006), or a loss of corporate profits by having the costs of the redone work deducted from the worker's share of corporate profits, as occurred in Marv Mews & Sons, Inc., UI Dec. Hearing No. S0800184MW (LIRC March 24, 2009), or liability for faulty work as may be found in an indemnification provision in the parties' agreement, as noted in MSI Services Inc., UI Dec. Hearing No. S0600129AP (LIRC Sept. 5, 2008).
Not one of those additional factors is present in this case. If the claimant's work was not satisfactory, she would not suffer a penalty nor would she bear any liability, although the petitioner might no longer use her services.
Condition 7 - This condition, that the claimant is paid on a commission, per-job, or competitive-bid basis, and not on any other basis, is met. The claimant is paid a percentage of a finder's fee, akin to a commission.
Condition 8 - This condition, which requires a finding that an individual may realize a profit (income received under the contract exceeds expenses incurred in performing the contract) or suffer a loss (income received under the contract fails to exceed expenses incurred in performing the contract), is met.
It is possible that the claimant could earn more in commissions than she paid in expenses, and could realize a profit. It is also possible that, since she was only paid if she placed a senior citizen in a community, her costs could exceed her commissions, and she could suffer a loss. See, e.g.,
Preferred Financial of Wisconsin, Inc., cited previously;
Roth v. World Financial Group Inc., UI Dec. Hearing No. 07002934MD (LIRC Jan. 10, 2008);
Quality Communications Specialists, Inc., cited previously.
Condition 9 - This condition, that the individual has recurring business liabilities and obligations, is met. This test requires proof of a cost of doing business that the claimant would incur even during a period of time that she was not performing work for SC. She has such costs, attributable solely to her services for SC, including association dues in the annual amount of $275 and internet usage costing $480 a year. Although not substantial, these expenses are more than the nominal amount found in
MDP Maximize Dealer Performance Ltd, UI Hearing No. S0700135EC (LIRC Dec. 11, 2009) (de minimus expenses do not satisfy condition 9), and are sufficient to satisfy this condition.
*
Condition 10 - This condition, that the success or failure of the individual's business depends on the relationship of business receipts to expenditures, is not met. The commission has interpreted this condition to require a significant investment that is put at risk. See, e.g., Gustavson, cited previously (carpentry tools and fax machine are not the types of business investments with attendant entrepreneurial risk contemplated by condition 10); Quality Communications Specialists, Inc., cited previously (relatively small recurring expenditures could be readily discontinued if the flow of work ceased).
The claimant does not have a significant investment in her work for SC that is being put at risk. Her only durable property investment is her cell phone, and the commission has held that investments in tangible property that continue to hold value and may be sold would not involve the significant business risk required by this condition.
See Czech v. Snyder's of Hanover, UI Hearing No. 09006326MD (LIRC Aug 20, 2010). Her recurring expenses - association dues and internet usage - are not substantial, and could be discontinued if the flow of work ceased. She simply does not have a significant investment at risk in performing services for SC, as required by this condition.
In summary, only four conditions - conditions 5, 7, 8, and 9 - are satisfied. Since Wis. Stat. § 108.02(12)(bm) requires that seven conditions be satisfied for an individual to be considered an independent contractor, the claimant must be deemed to be an employee of SC.
bettesu : 120 : 5
cc:
Attorney Shana Lewis
[ Search UC Decisions ] - [ UC Digest - Main Index ] - [ UC Legal Resources ] - [ LIRC Home Page ]
uploaded 2012/07/25