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

SAMUEL CORTEZ-ROBLES, Claimant

PRO ONE JANITORIAL INC, Petitioner

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 11403642AP


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. At the end of the second paragraph of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" add the following:

In addition, the franchise agreement provided that if the claimant advertised his services, all advertising materials must be approved by Pro One in advance, that any solicitation of customers by the claimant could be made only in his designated geographical area, that all customers were required to execute Pro One's service agreement, and that the claimant was not permitted to bid against another Pro One franchisee if that other franchisee had decided to submit a bid proposal to the potential customer first. If the franchise agreement ended, the claimant was prohibited from engaging in a commercial cleaning business within his designated area or within 20 miles of that designated area for a period of 18 months.

2. Replace the first four sentences in the third paragraph of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

The claimant's work was performed for different customers based upon the claimant's acceptance of a written offer of work by Pro One for that customer account. Each of these agreements provided that the claimant would receive a fixed monthly payment for each month of completed janitorial services which the customer had contracted with Pro One to be performed. Apart from these monthly fees, the claimant received no other compensation or remuneration from the employer. In performing services per these agreements, the claimant was solely responsible for the costs of the cleaning equipment and cleaning materials, and for the travel costs associated with the services.

3. Replace the last three sentences in the last paragraph on page 7 of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

In this case, the claimant performed his services under a series of multiple customer account agreements. However, each of these customer account agreements was offered to the claimant by Pro One, and the claimant was permitted to either accept or decline each account on an "Account Acceptance/Denial Form." There is no evidence in the record that the claimant had an opportunity to negotiate at arm's length the terms of each account. He was, in fact, subject to the terms and conditions contained in the one franchise agreement, subsequently renewed, that he signed with Pro One. In addition, there was no evidence presented that the claimant had contracts with any customers other than those offered by Pro One. Accordingly, the "multiple contracts" requirement necessary to satisfy this condition is not met.

4. Replace the last two sentences of the first paragraph on page 8 of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

The claimant bore the costs of his travel expenses to and from customer locations, and the day-to-day costs of cleaning materials and supplies. However, none of these expenses are quantified in the record, and it is not obvious that one party's expenses would exceed the expenses of the other party. Accordingly, the condition is not met.

5. Replace the last four sentences of the first full paragraph on page 9 of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

Here, the claimant had the ability to increase profits under his contract with Pro One, insofar as he had the capacity to reduce out-of-pocket expenditures by shopping for the least expensive cleaning materials and supplies, and choosing to accept only those customer accounts with minimal travel expenses. However, he was guaranteed payment by Pro One for his services for each customer, regardless of whether the customer had paid Pro One, and did not have to accept those accounts in which travel expenses would exceed the payment he would receive for the job. Given these circumstances, it is difficult to imagine how the claimant might suffer a financial loss over the course of his performance of services for Pro One. This condition is not met.

6. Replace the fourth sentence (not counting the citations) of the second full paragraph on page 9 of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

The evidence presented indicated that, as of November 18, 2010, the claimant obtained liability insurance, in compliance with the requirements of the franchise agreement.

7. Replace the second sentence, and the citation following, through the fourth sentence in the last paragraph beginning on page 9 of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

If the claimant's relationship with Pro One were to end, it is not likely that his janitorial services operation would survive. He was contractually bound by non-compete provisions under the franchise agreement that prohibited him from providing commercial cleaning services for any of Pro-One's competitors.

8. Replace the first line of the first full paragraph on page 10 of the "FINDINGS OF FACT and CONCLUSIONS OF LAW" with the following:

In summary, the claimant in this case satisfied only 1 of the 9 conditions (condition e).

DECISION

The decision of the administrative law judge, as modified, is affirmed. Accordingly, the wages paid to the claimant by Pro One Janitorial Inc. shall be reported to the department as they are earned.

Dated and Mailed May 3, 2012

BY THE COMMISSION:

/s/ Robert Glaser, Chairperson

/s/ Ann L. Crump, Commissioner

/s/ Laurie R. McCallum, Commissioner

MEMORANDUM OPINION

In its petition for commission review and subsequent brief, Pro One Janitorial, Inc. (hereinafter "Pro One" or the "petitioner") makes a number of arguments in support of its position that the claimant, having signed a "Franchise Agreement" and renewed that agreement five years later, is a franchisee independent contractor and not an employee of Pro One. The commission will address these arguments as they relate to the specific conditions.

Substantive changes were made to the statutory definition of "employee" in Wisconsin unemployment insurance law by 2009 Wisconsin Act 287, enacted on May 12, 2010, and applicable to services performed after December 31, 2010. In this case, the claimant performed services for Pro One in 2011, so the new statute is applicable.

The commission notes that, in its interpretation of the new law, it has looked, when appropriate, to the legislative history giving rise to the change in the statute, specifically a report to the Unemployment Insurance Advisory Council(1) dated June 25, 2009, by the committee appointed to study and to suggest changes to the definition of "employee" under 108.02(12).(2) See Milwaukee County v. DILHR, 80 Wis. 2d 445, 259 N.W.2d 118 (1977) (Wisconsin Supreme Court looks to Advisory Council comments made in conjunction with recommended law changes to determine or to clarify legislative intent), citing Western Printing & Lithographing Co. v. Industrial Comm., 260 Wis. 124, 130, 50 N.W.2d 410 (1951).

Certain provisions in the law were left unchanged and are applicable both before and after December 31, 2010. These provisions include specific conditions from the old law that were considered by the committee to remain useful and were retained in the new law, as well as the general provisions that are cited below:

108.02 Definitions. As used in this chapter:

(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.

(14m) EMPLOYING UNIT. "Employing unit" means any person who employs one or more individuals.

(20) PARTIAL UNEMPLOYMENT. An employee is "partially unemployed" in any week for which he or she earns some wages and is eligible for some benefits under s. 108.05(3).

(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. . . .

Wis. Stat. § 108.05 states, as relevant here, as follows:

(3) BENEFITS FOR PARTIAL UNEMPLOYMENT. (a) Except as provided in pars. (b), (c), and (d), if an eligible employee earns wages in a given week, the first $30 of the wages shall be disregarded and the employee's applicable weekly benefit payment shall be reduced by 67% of the remaining amount, except that no such employee is eligible for benefits if the employee's benefit payment would be less than $5 for any week. . . .

Definition of "employee" under law applicable to services performed after December 31, 2010

Wis. Stat. § 108.02(12) provides, in relevant part, as follows:

(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. (bm), (c), (d), (dm) or (dn).

(bm) Paragraph (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 the conditions specified in subds. 1. and 2., by contract and in fact:

1. The services of the individual are performed free from control or direction by the employing unit over the performance of his or her services. In determining whether services of an individual are performed free from control or direction, the department may consider the following nonexclusive factors:

a. Whether the individual is required to comply with instructions concerning how to perform the services.

b. Whether the individual receives training from the employing unit with respect to the services performed.

c. Whether the individual is required to personally perform the services.

d. Whether the services of the individual are required to be performed at times or in a particular order or sequence established by the employing unit.

e. Whether the individual is required to make oral or written reports to the employing unit on a regular basis.

2. The individual meets 6 or more of the following conditions:

a. The individual advertises or otherwise affirmatively holds himself or herself out as being in business.

b. The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual and uses his or her own equipment or materials in performing the services.

c. The individual operates under multiple contracts with one or more employing units to perform specific services.

d. The individual incurs the main expenses related to the services that he or she performs under contract.

e. The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.

f. The services performed by the individual do not directly relate to the employing unit retaining the services.

g. The individual may realize a profit or suffer a loss under contracts to perform such services.

h. The individual has recurring business liabilities or obligations.

i. The individual is not economically dependent upon a particular employing unit with respect to the services being performed.

(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.

This test involves first, an analysis of whether the claimant's services are performed free from control or direction by the employing unit, and second, whether the claimant meets six or more of nine specific conditions relating to economic independence and entrepeneurial risk.

Wisconsin Stat. 108.02(12)(a) was not substantively changed by the new law(3). It still creates a presumption that a person who provides services for pay is an employee, and it still 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 Association, Inc., UI Hearing No. S9800101MD (LIRC Feb. 22, 2000); Quality Communications Specialists Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001).

Since the record shows that the claimant performed services for Pro One in 2011 for pay, Pro One has the burden to rebut the presumption that he did so as a statutory employee. It must establish that the claimant operated free of its direction or control and that the claimant meets at least six of the nine conditions set forth in the statute.

Analysis of Conditions

The first part of the test provides five important statutory factors to consider, although these factors are not the only factors that may be considered in
determining whether the claimant performs his services free from the control or direction of the employing unit. Each factor is a separate indicator of an employing unit's exercise of direction or control over the claimant, none of them are essential in any case, and each factor may be weighted differently depending upon the facts of each case.

Wis. Stat. § 108.02(12)(bm)1. - Freedom from control or direction by the employing unit

a. Instructions - This factor looks at whether the individual is free from the employing unit's direction to comply with instructions concerning how to perform the services. In this case, there was little evidence of direct supervision or instructions from Pro One to the claimant as to how to perform the cleaning services he provided. This factor is met.

b. Training - This factor looks at whether the individual is free from training by the employing unit with respect to the services performed. Here, the evidence demonstrated that the claimant received 20 - 40 hours of general training from Pro One when he started the franchise. In addition, each time he accepted a new customer, a Pro One representative accompanied him to the first cleaning to walk him through the process. This factor is not met.

c. Personal performance - This factor looks at whether the individual is free from the requirement of personal performance of the services. In this case, the claimant was not required to personally perform the cleaning services, and was free to hire others to perform the services. This factor is met.

d. Services at times or in a particular order or sequence - This factor looks at whether the individual is free from the requirement of performing services at times or in a particular order or sequence established by the employing unit. The evidence presented in this case indicated that, although each customer chose the times during which the cleaning services would be performed, the claimant had autonomy in the pacing and organizing of the cleaning services. Pro One did not require that the claimant perform his cleaning services at times or in a particular order or sequence. This factor is met.

e. Oral or written reports - This factor looks at whether the individual is free from the requirement of making oral or written reports to the employing unit on a regular basis. In this case, the claimant was not required to provide oral or written reports to Pro One about the cleaning services he performed. This factor is met.

No other factors were raised by either party on the issue of whether the claimant has been, and will continue to be, free from control or direction by Pro One, and the commission does not note any other relevant factors. Given that four of the above five factors have been met, the commission finds that the claimant performed his services free from control or direction by Pro One.

Therefore, since both parts of the statutory test must be satisfied for an individual to be considered an independent contractor rather than an employee, it is necessary to determine whether Pro One has established that six of the nine conditions in the second part of the test have been met.

Wis. Stat. § 108.02(12)(bm)2. - Economic independence and entrepreneurial risk

Several of these conditions, in whole or in part, are the same as conditions contained in the previous law. As noted previously, the committee recommending the changes in the law chose not to change these particular provisions due to their continuing relevance and usefulness. Accordingly, the commission decisions and case law relating to these conditions under the previous law would retain their applicability. In addition, two of the conditions (conditions f. and i.) are the same or substantively similar to the current conditions in the "employee" test applicable to non-profit and governmental organizations, and commission decisions and case law relating to those two conditions would be equally applicable in this context.

a. The individual advertises or otherwise affirmatively holds himself or herself out as being in business.

The petitioner argues that the claimant was entitled to advertise independently and had the right to hold himself out as being in business through advertising. In addition, the petitioner disputes the ALJ's conclusion that this condition is not met due to the requirement that the claimant wear a uniform shirt identifying him with Pro One, thereby holding himself out as being directly affiliated with Pro One, rather than operating a separate business endeavor wholly independent of Pro One.

The commission disagrees. This condition is one of nine conditions that are designed to determine whether an individual has his own business or is working as an employee of another business. There was no evidence presented that he advertised his own business, separate from the Pro One business. In fact, the franchise agreement provided that if the claimant advertised his services, all advertising materials must be approved by Pro One in advance. In addition, any solicitation of customers by the claimant could be made only in his designated geographical area, all customers were required to execute Pro One's service agreement, and the claimant was not permitted to bid against another Pro One franchisee if that other franchisee had decided to submit a bid proposal to the potential customer first. These significant limitations on advertising or soliciting customers by the claimant compel the commission to conclude that this condition is not met.

b. The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual and uses his or her own equipment or materials in performing the services.

This two-part condition requires that an individual maintain his own office or choose where to perform his services, and that he use his own equipment or materials in performing the services. The second part of the condition is met. The claimant used his own equipment and materials in performing the cleaning services. It is the first part of the condition that is disputed.

The petitioner argues that the claimant's relationship with Pro One is entirely different from the typical employment relationship, given that he paid $22,500 to enter the relationship, purchased products from Pro One, picked and chose the jobs he wanted and could negotiate the price(4), chose the number and identity of his employees, decided when to service customers, and the relationship was governed by the Wisconsin Fair Dealership law. The petitioner further argues that the Wisconsin Fair Dealership law protects the rights of franchisees, such as the claimant, in various ways that would be lost if the claimant were determined to be an employee. It cites a federal court of appeals case, Moore v. Tandy Corporation, 819 F.2d 820 (7th Cir. 1987), that found that a Radio Shack manager was not a dealer, but was an employee, and therefore was not protected by the Wisconsin Fair Dealership law that permitted discharge only for cause. It also cites two Wisconsin cases, Foerster, Inc. v. Atlas Metal Parts Co., 105 Wis. 2d 17, 313 N.W.2d 60 (1981) and Rossow Oil Co. v. Heiman, 72 Wis. 696, 242 N.W.2d 176 (1976), for the same proposition that in order to enjoy the protection of the Wisconsin Fair Dealership law, one must be a franchisee or dealer.

However, be that as it may, the case at issue here is whether the claimant is an employee under the Wisconsin law applicable in unemployment insurance cases. The petitioner cannot cite to cases that have found that under Wisconsin unemployment insurance law, a claimant who has signed a franchise agreement with a franchisor cannot be considered an employee of that franchisor, because there are not any.(5) In fact, the commission recently addressed this issue in Smith v. Coverall of Milwaukee, UI Dec. Hearing No. 09609802MW (LIRC May 27, 2010), a franchise case that also involved commercial cleaning services. In that case, the commission found that the franchisee was an employee, not an independent contractor, based upon its analysis and application of the statutory conditions under the pre-2011 law. As it did in that case, the commission must apply the proper statutory conditions to this case to make its decision.

As under the old law, the focus of this condition is to determine whether a separate business, one created and existing separate and apart from the claimant's relationship with Pro One, is being maintained with the claimant's own resources. Princess House, Inc. v. DILHR, 111 Wis. 2d 46, 330 N.W.2d 169 (1983). See also 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); Ronald Smith dba Smith Field Service, UI Dec. Hearing No. S0300197MD (LIRC Mar. 29, 2006) (although offices and equipment were maintained at claimants' own expense at their homes, the central inquiry is whether the activity engaged in by the claimant is genuinely separate from the activity of the putative employer); Quality Communications Specialists, Inc., cited previously (rules of statutory construction require that all parts of this test must be considered in determining whether the condition is met). Although these cases were decided under the old law, their reasoning remains persuasive.

The petitioner also argues that the claimant chose where to perform services, that he must have had an office in order to manage the cleaning business, and that, in any case, it is not necessary for a cleaning business to have an office. The commission disagrees.

The new law changed the requirements in the old condition 3 to reflect the changing times in which "consultants, writers, programmers and others" are very mobile, do not maintain their own offices, and sometimes do not perform their services in an office. As noted in the committee report, under the new law "those who do not maintain their own office but perform most of their services at locations that they select would satisfy" this factor. That is not the case here. The claimant is not within the group of workers contemplated by this changed condition, nor does he have a choice as to where to perform the cleaning services, which must be performed at the customer's location.

In addition, the commission rejects the argument that it must be presumed that the claimant has an office for paperwork, ordering and keeping supplies, processing payments to employees(6), and other recordkeeping, since Pro One does not provide an office for him. No evidence was presented indicating the existence of such an office, and the commission is not convinced by the evidence that was presented that the claimant maintained his own office.

Finally, the petitioner relies on a 1998 commission case, Struck & Irwin Fence, Inc., UI Dec. Hearing No. S9700192MD (LIRC Oct. 30, 1998), in which the commission said, in analyzing this condition, that an office would be unnecessary in a case involving a claimant who provided cleaning services. The commission notes that this decision was subsequently set aside and another commission decision issued
on February 26, 1999, although the analysis for this condition remained the same. However, that case did not involve a franchise relationship, and other factors of independent contractor status were present. In addition, since that decision was issued, the commission's position on this matter has evolved, and it has consistently held under the old law that an office, which might be located in the individual's home, must be present.

Under the new law, the office requirement is maintained, although it can be satisfied in a situation in which an individual does not have an office, but chooses the location in which services, such as consulting, writing, programming and the like, are performed. That is not the case here, and the commission concludes that this condition is not met.

c. The individual operates under multiple contracts with one or more employing units to perform specific services.

This condition is similar to condition 4 under the old test, retaining the first part of that condition relating to multiple contracts. This condition is not met.

As noted in Thomas Gronna dba The Floor Guys, UI Dec. Hearing No. S9900063WU (LIRC Feb. 22, 2000), the requirement of multiple contracts is based on sound legislative policy, as it "tends to show that an individual is not dependent upon a single, continuing relationship that is subject to conditions dictated by a single employing unit." The commission has consistently stated that this requirement may be satisfied by multiple contracts with separate entities or by multiple serial contracts with a putative employer if it is established that those contracts 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. See, e.g., Preferred Financial of Wisconsin, Inc., UI Dec. Hearing No. S0600240MW (LIRC Oct. 23, 2008); Stark v. 3246 LLC, UI Dec. Hearing No. 07401621SH (LIRC Mar. 12, 2008); Zoromski v. Cox Auto Trader, previously cited (a single, continuing relationship with conditions dictated by the putative employer does not satisfy the multiple contracts requirement). See also Dane County Hockey Officials Association, Inc., cited previously (condition not met, officials do not negotiate and re-negotiate pay rates with DCHOA, but accept rates provided for matches to which they are assigned).

In addition, in VanPelt v. Quality Controlled Substances, UI Dec. Hearing No. 07200634EC (LIRC Aug. 31, 2007), the commission found that regardless of whether the relevant contract involved there was a single written contract between the company and the claimant, or multiple agreements created by the claimant's acceptance of specific jobs posted online, the "multiple job-specific agreements" with the company's retail clients were not negotiated at arms length and, therefore, the multiple contracts requirement was not met.

In this case, as in VanPelt and Dane County Hockey Officials Association, Inc., the claimant either accepted the customer account or declined it, but he relied on his continuing relationship with Pro One to obtain the accounts, and he remained subject to provisions contained in the one continuing franchise agreement with Pro One. There is no evidence in the record that the claimant had an opportunity to negotiate at arm's length the terms of each account. Instead, the contract prices were determined by Pro One, who made the bid to the customer. This is not the type of "contract" contemplated by this condition. See also Spencer Siding Inc., UI Dec. Hearing Nos. S0300142GB (LIRC June 2, 2006) (terms of contract must actually be subject of arm's length negotiation to satisfy condition 4). In addition, there was no evidence presented that the claimant had contracts with any entities other than the customers offered by Pro One.

d. The individual incurs the main expenses related to the services that he or she performs under contract.

This condition is identical to condition 5 under the old test, and is not met. 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 (LIRC Sept. 24, 1999). In that regard, the commission has consistently held that, without a quantification of these expenses or an obvious conclusion as to the expenses borne by the respective parties, it must be found that condition 5 has not been met. See, e.g., Schumacher v. Spar Marketing Services, Inc., UI Dec. Hearing No. 11203182EC (LIRC Mar. 21, 2012); Gustavson v. Carpenters Inc., UI Dec. Hearing No. 09400168AP (LIRC April 30, 2009); Preferred Financial of Wisconsin, Inc, cited previously; Stark v. 3246, cited previously.

Pro One bore the costs of advertising and marketing, the administrative costs associated with contracting with the customers and with the claimant and with the processing of payments under the contract, and the costs related to Pro One's initial orientation walk-throughs with the claimant of new customer's facilities, periodic quality assurance inspections of the claimant's work, and handling customer concerns and complaints. The claimant bore his travel expenses and the day-to-day costs of cleaning materials and supplies, as well as some expenses associated with processing paperwork in contracting with Pro One. Since none of these expenses are quantified in the record and it is not obvious that one of the party's expenses exceeds that of the other party, the commission cannot find that this condition is met.

e. The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.

The written agreement between the parties includes a liability and indemnification provision. The commission has held that such indemnification provisions may satisfy this condition. See, e.g., Schumacher v. Spar Marketing Services, Inc., cited previously; Bentheimer v. Bankers Life & Casualty Co., UI Dec. Hearing No. 10006546JV (LIRC Aug. 16, 2011). This condition is met.

f. The services performed by the individual do not directly relate to the employing unit retaining the services.

This condition is a factor relating to "integration" of the individual's services into the kind of work done by the employing unit. The committee of the Unemployment Insurance Advisory Council notes in its report that this is one of the factors currently used by the courts and the commission for government and nonprofit employers, citing the case of Keeler v. LIRC, 154 Wis. 2d 626, 631 (Ct. App. 1990). In Keeler, the Court of Appeals gave an example of the integration concept - a tinsmith was called upon to repair the gutter of a company engaged in a business unrelated to the repair or manufacture of gutters. Since the tinsmith's activities were totally unrelated to the business of the company retaining his services, his services were not "integrated" into the alleged employer's business, and were considered to be a factor evidencing an independent business.

In this case, the claimant's janitorial cleaning services are part of Pro One's business as a janitorial cleaning services provider. The claimant performs services that are directly related to, and integrated into, the business of Pro One. This condition is not met.

g. The individual may realize a profit or suffer a loss under contracts to perform such services.

This condition is identical to condition 8 under the old test, 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).

The petitioner argues that the proper contract to consider is the parties' franchise contract, and not each specific customer contract. The commission agrees. However, the petitioner also argues that a mere possibility of loss is all that is required under this condition, and that the claimant could suffer a loss by choosing the wrong customers and improperly managing his expenses. However, the mere possibility of loss is not the test.(7) The test is whether, over the term of the contract between the claimant and Pro One, there was a realistic possibility that the claimant could realize a profit or suffer a loss. See, e.g., Zabel v. Snyder's of Hanover, UI Dec. Hearing No. 10000988MD (LIRC Sept. 2, 2010) (even though claimant suffered losses during certain weeks, there was no realistic possibility of loss over term of agreement); Gustavson, cited previously. The test is not whether the claimant might suffer a loss on one assignment from being required to re-do services without additional payment, or from overpaying a subcontractor on an assignment or accepting an assignment far away with higher travel expenses. The test requires an assessment over the entire term of the contract. In addition, as noted in Alsheski v Codeworks, Inc., UI Dec. Hearing No. 09403672AP (LIRC Feb. 26, 2010), in assessing whether a realistic possibility of loss exists, the proper evaluation is whether there is a genuine business risk if the services are completed as contracted, and "not whether, given the universe of possibilities, something could occur that could result in a loss."

In this case, although the claimant might realize a profit by earning more than he had to spend for his expenses, it is not likely that he would suffer a loss given that he was being paid for each service he provided for customers each day, regardless of whether the customers paid Pro One. In addition, he could (and he did) minimize his travel expenses by accepting only those customers that were not located too far away. As noted in Quality Communications Specialists, Inc., cited previously, there is no realistic prospect of experiencing a loss under a contract when fixed, predictable expenses are more than offset by the income that is earned providing those services.

h. The individual has recurring business liabilities or obligations.

This condition is identical to condition 9 under the old test. This condition requires proof of a cost of doing business that the claimant would incur even during a period of time that he was not performing work for Pro One, such as office rent, professional or license fees, liability insurance. See, e.g., Spencer Siding, cited previously; Clear Choices Inc., UI Dec. Hearing No. S0300202EC, etc. (LIRC Oct. 26, 2005) (expenses that are incurred regardless of the level of actual business activity); Gamble v. American Benefit LTD, UI Dec. Hearing No. 04004847MD (LIRC Feb. 15, 2005) ("overhead expenses that cannot be avoided by ceasing to perform services").

The petitioner argues that ALJ improperly analyzed this condition by relying on the lack of evidence of the cost of liability insurance to find that the condition was not met, and cites Quality Communications Specialists, Inc., cited previously, Struck & Irwin Fence, Inc.(8), cited previously, and MDP Maximize Dealer Performance, Ltd., UI Dec. Hearing No. S0700135EC (LIRC Dec. 11, 2009), in support of its argument.

However, the petitioner does not point out that the commission held, in MDP Maximize Dealer Performance, Ltd., that previous analyses by the commission of this condition had gone too far, in allowing insignificant recurring business expenses to satisfy this condition. Specifically, the commission noted that an annual expense of $100 would not be sufficient to satisfy this condition. In so doing, it distinguished its decision in Quality Communications Specialists, Inc., because in that case there was evidence in the record that recurring business obligations included workers compensation insurance, liability insurance, and vehicle insurance, and that the liability insurance alone was $200 - $300, not a de minimus sum. The commission noted that language in Quality Communications Specialists, Inc. stating that the "lack of definite evidence as to the amount of an insurance expense is not critical" must be understood in the context of that case, in which the range of the expense was definite although the exact amount was not.

In contrast, in this case, there was no evidence presented as to the amount of the claimant's liability insurance, so it is not possible to determine whether it is a sufficient amount to satisfy this condition or is a de minimus amount that would not satisfy this condition.

The petitioner also argues that the claimant must have maintained workers compensation insurance on his employee and must have kept his supplies and equipment in some sort of office, which involved an additional expense. However, these are presumptions on the petitioner's part, without any specific evidence in the record to substantiate them. The commission notes that, in some cases, franchise fees might constitute recurring business obligations. There is, however, no evidence in this record to support the position that these are recurring expenses.

It is necessary, under this condition, to show significant recurring business expenses. *    Pro One has not presented any definite evidence to show such expenses. Therefore, this condition is not met.

i. The individual is not economically dependent upon a particular employing unit with respect to the services being performed.

This condition replaces condition 10 under the old test - "The success or failure of the individual's business depends on the relationship of business receipts to expenditures". The Unemployment Insurance Advisory Council committee report states that "[f]or many years, economic independence has been acknowledged by the Commission and the courts as an important factor in the test applicable to government and nonprofit employers."

The economic dependence factor was addressed and interpreted in a published Court of Appeals decision, Larson v. LIRC, 184 Wis. 2d 378, 392, 516 N.W.2d 456 (Ct. App. 1994), as follows:

[E]conomic dependence is not a matter of how much money an individual makes from one source or another. Instead, it refers to the survival of the individual's independently established business if the relationship with the putative employer ceases to exist.

The commission has relied on that reasoning in numerous subsequent cases. See, e.g., Williams v. MTEC, UI Dec. Hearing No. 07604021MW (LIRC Nov. 21, 2007) (instructor); Eichman v. Wisconsin Technical College System Foundation, UI Dec. Hearing No. 06003528JV (LIRC Jan. 18, 2007) (emergency preparedness workshop presenter); Ristau v. Fox Valley Symphony Orchestra Association Inc., UI Dec. Hearing No. 06401057AP (LIRC Aug. 23, 2006) (percussionist); Seftar v. Waukesha Symphony Inc., UI Dec. Hearing No. 01609181WK (LIRC April 25, 2002) (bassoonist). In each of these cases, if the individual's relationship with the employing unit at issue ceased to exist, the individual's business would continue. The commission looked at the specialized skills and/or investment in equipment that the individual had, supporting an ability to perform specific services for others, as well as the fact that the individual did such work for others, demonstrating the independence of the individual's work from that of the employing unit at issue.

In addition, in other cases in which an individual has performed services for multiple entities, the commission has considered whether the individual performed such services as part of an independently established business rather than as an employee, recognizing that individuals may work as acknowledged employees, holding several part-time jobs, or a part-time job and a full-time job. See, e.g., Lopez v. County of Richland, UI Dec. Hearing No. 09003995MD (LIRC Jan. 15, 2010) (Spanish interpreter); Dexter-Dailey v. Independent Disability Services, UI Dec. Hearing No. 07002206JV (LIRC Nov. 2, 2007) (caregiver); County of Door, UI Dec. Hearing No. S0500025AP (LIRC March 28, 2007) (caregiver), Barman v. Madison Metropolitan School District, UI Dec. Hearing No. 01005639MD (LIRC Oct. 1, 2002) (sports referee).(9)

Accordingly, in interpreting the new law, the commission has taken an approach that recognizes these various rationales. For example, in Bentheimer v. Bankers Life & Casualty, cited previously, the claimant worked full-time for Bankers Life, an insurance company, and was clearly economically dependent on that business, as the commission found. Although she might move on to perform services for another insurance company if her relationship with Bankers Life ceased to exist, taking her skills and experience with her, she would not be doing so as an independently established business, but as an individual employee. See, e.g., Elie v. City Business USA LLC, UI Dec. Hearing No. 11608771MW (Mar. 28, 2012) (sufficient indicia of a viable independently established business); Schumacher v. Spar Marketing Services Inc., cited previously (if relationship with Spar were to cease, no evidence that individual would move on to perform the services independently for other entities).

The commission notes that analysis of this condition must be made on a case-by-case basis, taking into consideration each claimant's circumstances and whether there are the characteristic signs of a viable independently established business. In this case, there is no evidence in the record that the claimant performed cleaning services for any other businesses. In addition, there are no indicia of a viable independently established business being operated by the claimant, such that the claimant's alleged business would continue to operate even in the absence of work from Pro One. In fact, if his relationship with Pro One were to cease to exist, he would be subject to various limitations on his subsequent ability to compete for business. In such circumstances, there being no other businesses for whom he performs cleaning services, the commission concludes that this condition is not met.

In sum, only one of the nine conditions in the second part of the new test are met. Therefore, the second part of the test, requiring at least six of the nine conditions to be met for the claimant to be considered an independent contractor, is not met. The claimant must be considered an employee, not an independent contractor, and must continue to report his wages earned from Pro One on his weekly unemployment claims.

 

 
cortesa : 120 : 1

cc: Attorney Christopher J. Harristhal


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Footnotes:

(1)( Back ) This advisory council exists as a part of the original unemployment compensation law enacted in Wisconsin in 1932. It is made up of an equal number of members of labor and management, with a nonvoting department representative as its chairperson. The council meets regularly, and is charged with submitting recommended changes in the unemployment insurance law to the Wisconsin legislature. See Wis. Stat. 15.227(3).

(2)( Back ) The committee's suggestions for changes to 108.02(12)(bm) were adopted in the new law.

(3)( Back ) The only change in its language is the omission of obsolete subparagraph (b).

(4)( Back ) The commission notes that there was no evidence presented that the claimant could negotiate or ever did negotiate the prices for his services.

(5)( Back ) The petitioner's reliance on a federal court case in California, Juarez v. Jani-King of California, Case No. 09-3495 SC (N.D. Cal. Jan. 23, 2012) is misplaced. Not only are the facts distinguishable, with the plaintiffs in that case operating their own cleaning services separate from Jani-King, soliciting their own clients, and employing their own employees to perform the cleaning work, but the law in California is different from the law in Wisconsin, and the California case did not involve the unemployment insurance law of that state.

(6)( Back ) There is evidence in the record that the claimant retained an employee to assist him with the cleaning services. The commission notes that, under Wis. Stat. 108.02(12)(d), the claimant would not be considered an employee of Pro One if he employed an individual for whom he was subject to the contribution or reimbursement provisions of the unemployment insurance law. The claimant would be subject to those provisions if, under Wis. Stat. 108.02(13)(e), he paid at least $1,500 to that employee during any calendar quarter of that or the preceding calendar year or he employed that individual in each of 20 or more calendar weeks in that year or the preceding calendar year. Since there is no evidence relating to the extent of that employee's work for the claimant, the provision is not applicable in this case. See Asencio v. Network Communications Inc., UI Dec. Hearing No. 04003286MD (LIRC Feb. 25, 2005).

(7)( Back ) The petitioner cites the commission decisions in Dane County Hockey Officials Ass'n, Inc., cited previously, and Bentheimer v. Bankers Life & Cas. Co., UI Dec. Hearing No. 10006546JV (LIRC Aug. 16, 2011) in support of this proposition. However, neither of these cases stands for the proposition that "a mere possibility" of loss is the test. In fact, in Dane County Hockey Officials Ass'n Inc., the commission found that the condition was not met in a case in which hockey officials knew what they would be paid and knew what their expenses were. They did not experience the inherent unpredictability that would be found in a genuine business enterprise. In contrast, the commission found this condition met in Bentheimer because Bentheimer was paid on a commission basis, and there was a realistic possibility that she could suffer a loss since she would not be paid for each sales call she made, but would be paid only if she sold an insurance product, a circumstance she could not predict.

(8)( Back ) In this case, the commission simply noted that the individual's insurance costs and cyclical advertising costs satisfied this condition.

(9)( Back ) In Wenzel v. School District of Stratford, UI Dec. Hearing No. 08202476EC (LIRC Mar. 26, 2009), the commission looked at the income earned by the individual from the employing unit at issue and compared it to income earned from his primary source of income in determining economic (in)dependence. The commission found that Wenzel had little or no economic dependence on the employer for the work he was engaged in because his pay as a referee was incidental to his primary source of income, and that this was more consistent with Wenzel being an independent contractor than an employee. This economic dependence analysis in Wenzel is at odds with the court of appeals' decision in Larson; however, this was harmless error as the commission ultimately found that Wenzel's work as a referee was as an employee and not as an independent contractor. The commission is bound by and follows Larson in its analysis of the economic dependence factor.

______________________

* Ed. note: In Co Leigh Co. LLC, the commission declared that it will no longer follow its interpretation of condition (h) in this case. There is no requirement that recurring business liabilities or obligations exceed a certain dollar amount or be substantial or significant. The condition does not involve a quantitative comparison.