MATTHEW K. KOESER, Employee
PINNACLE HEALTH & FITNESS INC., Employer
An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.
The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission makes the following:
A determination issued by the Department of Workforce Development held that Matthew K. Koeser performed services for Pinnacle Health & Fitness, Inc. ("Pinnacle") as an employee and that in Koeser's base period (consisting of the four calendar quarters of 2011) he was paid wages for those services totaling $2,189.75. As a result, those base period wages were included in the computation of Koeser's potential benefit eligibility. Pinnacle appealed the department's determination. Pursuant to notice, a hearing was held at which Pinnacle appeared by and presented evidence through its president, Michael McMahon. Thereafter, the administrative law judge who had presided at the hearing issued a decision affirming the department's determination. Pinnacle then filed a petition for commission review.
The issue to be decided is whether Koeser performed services for Pinnacle as an "employee," within the meaning of Wis. Stat. ยง 108.02(12), in the four calendar quarters of 2011. (1)
Pinnacle is a health club. It provides its members space and equipment for exercise, classes, programs, whirlpool, sauna, steam room, lap swimming pool, personal trainers, and child care.
One of the features of Pinnacle is the availability of on-site massage therapy. There are three massage therapists who provide massage therapy at Pinnacle, one of them being Koeser.
Pinnacle has written contracts with the two massage therapists other than Koeser who provide services there, but its agreement with Koeser is oral only.
The massage therapy available at Pinnacle is provided in a separate room there. That room is part of the space occupied by Pinnacle, for which Pinnacle pays rent to the owner of the building. The rental expense which Pinnacle incurs for the massage therapy room is approximately $1,300/year. The room is supplied by Pinnacle with a massage table, a counter, a sound system, a chair for customers, and a coat rack. Replacement cost for the furnishings provided in the room would be approximately $1,000. Pinnacle also provides the room with towels and a cover for the table; a set of such linens costs approximately $40 and lasts a year. Koeser bears the expense of lotions and other supplies he uses.
There is no evidence in the record that Koeser advertises or holds himself out as a provider of massage therapy. Pinnacle, however, promotes the services of Koeser and the other massage therapists in its printed literature and on its website.
Under the terms of his agreement with Pinnacle, Koeser is required to maintain licensure as a massage therapist, and he is required to carry a one million dollar liability insurance policy. There is no evidence in the record which would allow a finding as to how much Koeser was required to pay for that liability insurance or what the expenses of maintaining his licensure were.
Koeser is responsible for having customers complete an intake form, concerning the customer's health and other information. Koeser keeps that information in a file he maintains. Koeser generally performs his massage therapy services at Pinnacle between 3:30 p.m. and 8:00 p.m. He makes his own appointments and schedules the work at his discretion. He is not required to be present at Pinnacle at times when he does not have an appointment scheduled with a client.
For massage therapy services performed at Pinnacle, clients are charged a flat rate of $40 for a 30 minute session, $70 for 60 minutes, and $90 for 90 minutes. Koeser is responsible for collecting this payment from massage clients. Koeser is required to give Pinnacle 35% of what the clients are charged, and he is entitled to keep the remaining 65% of the clients' payment.
Customers may make payment either in cash or check, or by credit card. If the client uses a credit card, it has to be put through on Pinnacle's credit card machine because Koeser does not have one. Thus, when a customer makes a payment by cash or check, Koeser ends up holding some money (35%) which Pinnacle is entitled to, and when a customer makes a payment by credit card, Pinnacle ends up holding some money (65%) which Koeser is entitled to. Settlement of the "net" amounts due as between Koeser and Pinnacle is done on a monthly basis. This is done by having Koeser complete and submit a form identifying the services provided during the previous month, the length of the service, and the form of payment. If by virtue of cash or check payments from customers to him, Koeser has received more than the 65% of the clients' payments he is entitled to, he writes a check for the balance to Pinnacle for that month; if by virtue of credit card payments from clients, Pinnacle has received more than the 35% it is entitled to, it writes a check for the balance to Koeser for that month.
In calendar year 2011, the total amount which Koeser received for performing massage therapy services at Pinnacle, was $2,189.75. There is no evidence in the record which would allow a finding as to how much of that sum came to Koeser from clients in the form of cash or check, and how much of it came to Koeser in the form of checks from Pinnacle.
Koeser also does massage therapy at another business, Salon Escape du Monde, a beauty parlor located in the same building in which Pinnacle is located. There is no evidence in the record which would allow a finding as to whether Koeser provides those services as an employee of Salon Escape du Monde, or as an independent contractor. Koeser also works full time as a teacher aide with a school district.
Koeser did not appear at the hearing, so no tax information was submitted, other than a copy of a 2011 Form 1099-MISC, which shows that Koeser was paid $2,190.55 by Pinnacle for calendar year 2011, and that he uses his social security number and personal name for tax purposes.
Threshold Question: "Performing Services For Pay For An Employing Unit" - Determining whether an individual performed services as an "employee" under Wis. Stat. § 108.02(12) is a two step process. The first step is to determine if the evidence establishes that the individual "is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit," within the meaning of § 108.02(12)(a). If that is established, the question shifts to whether the evidence establishes that the individual is exempt under one of the subsections of § 108.02(12) that set out exceptions to the presumption of employee status. Gilbert v. LIRC and DWD, 2008 WI App 173, 33, 315 Wis. 2d 726, 762 N.W.2d. 671.
It is undisputed that Koeser was performing services as a massage therapist. It is also undisputed that he was being paid for performing those services. The question is, whether Koeser was performing his services "for" Pinnacle, within the meaning of Wis. Stat. § 108.02(12)(a). The commission believes that he was.
In Princess House v. DILHR, 111 Wis. 2d 46, 330 N.W.2d 169 (1982), discussing the question of whether individuals were providing services "for" the putative employer within the meaning of (12)(a), the court focused on the fact that the individuals' services benefited the putative employer. The court noted, "[s]ervice is, essentially, aiding the principal in the regular conduct of business." 111 Wis.2d at 64.
A business entity may act merely as a lessor, renting space or other assets to an individual who then uses it to operate a business. In such a case, the fact that the individual performs services in furtherance of their business does not necessarily mean that those services are performed "for" the landlord, even though the landlord benefits by receiving rent from the individual. That is because the lease agreement itself has no relationship to the performance of services, but is instead simply an agreement by the individual to pay the lessor a set amount per unit of time for the use of the lessor's asset. See, e.g., Fondren v. Dara Ice Cream Co Inc., UI Dec. Hearing No. 97600288MW (LIRC Aug. 14, 1997). "Such a lease arrangement where the claimant pays the appellant for the use of the vehicle cannot be viewed as performance of services by the claimant for which he is paid by the appellant, even indirectly." Ibid.
But here, Pinnacle is not simply acting as a landlord, renting space to Koeser. In this case, the contract between Pinnacle and Koeser does have a relationship to the performance of services: it relates specifically and directly to the massage therapist performing services for Pinnacle members who are their clients.
Koeser's performance of massage therapy services on-site for members of Pinnacle's health club provides a benefit to Pinnacle, which goes beyond merely providing Pinnacle with the 35% share of the clients' fees. It can be inferred that the availability of such services makes membership in Pinnacle more attractive. The fact that Pinnacle promotes the availability of the massage therapy services in its printed literature and on its web site, reflects its recognition that this is a "plus" for the business. The performance of such services thus "aid[s] [Pinnacle] in the regular conduct of business" as contemplated in Princess House.
A situation with some similarities to this case was presented in
Lakeshore Mental Health Inc., UI Dec. Hearing No. S0600162AP (LIRC Nov. 30, 2007). Lakeshore was a mental health clinic, and the case concerned the status of certain mental health professionals who provided services in the clinic. Lakeshore provided the facilities, support services, and furniture, equipment, and materials. The mental health professionals at issue had single continuing contracts with Lakeshore, providing that each would pay Lakeshore a specified percentage of the client/patient fees he or she generated from professional services they provided to clients there. Lakeshore argued that the mental health professionals were not providing services for Lakeshore, but rather that Lakeshore was performing a service for them, providing a facility and support services for which the professionals then paid Lakeshore a fee. The commission rejected this argument. It was found significant in Lakeshore that the putative employer specifically held itself out as a mental health clinic, not as a business engaged in leasing space to and providing administrative support services for others. Similarly here, Pinnacle does not hold itself out as a business engaged in providing leased facilities and support services to other businesses; rather, it holds itself out as a health club with a range of services connected with exercise and health. Its agreement with individuals (such as Koeser) that they will perform services connected with exercise and health on Pinnacle's premises, is more a matter of the individuals performing services for Pinnacle, than of Pinnacle providing a service to them.
Presumption of Employee Status Overcome? - Because Koeser is performing services for pay for Pinnacle, within the meaning of § 108.02(12)(a), a presumption of employee status arises. The burden is on Pinnacle to establish the applicability of the conditions sufficient to bring Koeser within an exception. The applicable exception here is subsection (12)(bm).
The first element of establishing that the (12)(bm) exception is applicable, is establishing that the individual performs his or her services free from control or direction by the employing unit. This was established by the record here. Of the five factors described in subs. (12)(bm)1. a. through e., only one (requirement to make regular oral or written reports) applies. Otherwise, the relevant factors indicate that Koeser is free from Pinnacle's direction and control in regards to how his services are performed.
The next element of establishing that the (12)(bm) exception is applicable, is establishing that the individual meets at least six of the nine conditions stated in (12)(bm)2. a. through i. These conditions are discussed below.
a. The individual advertises or otherwise affirmatively holds himself or herself out as being in business. Pinnacle makes no argument that this condition was met. The record contains no evidence that Koeser does any advertising or holds himself out in any manner as being engaged in a business. The evidence shows that the advertising and holding out which occurs with respect to Koeser's services, is done by Pinnacle, which promotes Koeser's services in its printed literature and on its website. Pinnacle did not establish that this condition was 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. Pinnacle makes no argument that this condition was met. The record contains no evidence that Koeser maintains an office, and it is clear that the choice of the location of the services is made by Pinnacle. Because the "choice of location" factor is essential in cases in which there is no office, it makes no difference that the claimant uses his own materials (lotions, etc.) in performing his services. Pinnacle did not establish that this condition was met.
c. The individual operates under multiple contracts with one or more employing units to perform specific services. Pinnacle makes no argument that this condition was met. The record contains no evidence of multiple contracts between Koeser and Pinnacle. It appears that at most, Koeser has a single, continuing contractual arrangement with Pinnacle which does not vary in its terms. While there was evidence that Koeser also performed massage therapy services for another entity ("Salon Escape Du Monde"), the record contains no evidence about that arrangement which would support a finding that it was one in which Koeser performed services as an independent contractor rather than as an employee. For this condition to be satisfied, there must be multiple contracts for services performed as an independent contractor, not merely as an employee. Pinnacle did not establish that this condition was met.
d. The individual incurs the main expenses related to the services that he or she performs under contract. 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.
Pinnacle asserts in its petition for review that this condition was met, based on an argument that the majority of the expense was the labor, which required education and training, and therefore "the lion's share [of expense] should go to th[e] individual." However, the commission has held that the cost of the labor provided under a contract is not one of the expenses contemplated under a statutory condition looking at whether an individual bears the main expenses related to the services they perform.
Fisher v. Wispolitics.com, UI Dec. Hearing No. 06004206MD (LIRC Apr. 24, 2007);
Quale & Associates Inc, UI Dec. Hearing No. S0200201MW (LIRC Nov. 19, 2004);
Quality Communications Specialists, Inc., UI Dec. Hearing No. S0000094MW (LIRC Jul. 30, 2001).
It is clear that of the relevant expenses, Pinnacle bears a great deal of them, including rental expense for the workplace and the expense of virtually all of the necessary furnishings. Even though Koeser bears an expense for providing lotions and presumably has certain licensure and insurance expenses, there was no evidence in the record establishing the actual amount of such expenses. Without a quantification of these expenses or an obvious conclusion as to the expenses borne by the respective parties, this condition cannot be met.
See, e.g., Schumacher v. Spar Marketing Services, Inc., UI Dec. Hearing No. 11203182EC (LIRC Mar. 21, 2012). It is by no means "obvious" that Koeser's expenses for lotions, licensure and insurance are greater than Pinnacle's expenses, so given the absence of evidence as to the actual amounts, it must be concluded that Pinnacle did not establish that this condition was met.
e. The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work. It was established that Koeser was required to carry liability insurance. Such a requirement can satisfy this condition. Lakeshore Mental Health Inc., supra. On that basis, this condition was met.
f. The services performed by the individual do not directly relate to the employing unit retaining the services. This condition concerns the "integration" of the individual's services into the kind of activities engaged in by the putative employing unit, a concept explained in Keeler v. LIRC, 154 Wis. 2d 626, 631 (Ct. App. 1990). Pinnacle argued that health clubs usually do not offer massage therapy services and that such services are only an "adjunct" to what Pinnacle does. This argument is unpersuasive. Pinnacle's very name describes it as a health and fitness club. Massage therapy is a service related to health and fitness. The massage therapy services at issue here are directly related to Pinnacle's business. Therefore, Pinnacle did not establish that this condition was met.
g. The individual may realize a profit or suffer a loss under contracts to perform such services. This condition looks to whether there was a realistic possibility that an individual could realize a profit or suffer a loss over the term of a contract. 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. Koeser could only experience a loss if, over the long term, expenses he incurred exceeded the income he received. The only expenses which it was established that Koeser might incur and which would continue even if income-producing services were not being performed, were those for licensure and insurance. However, Pinnacle failed to offer evidence proving what the amount of those expenses was. It therefore cannot be considered to have been established, that there was a realistic possibility that Koeser could actually lose money over the long term. Therefore, Pinnacle did not establish that this condition was met.
h. The individual has recurring business liabilities or obligations. This condition requires proof of a cost of doing business that would recur even during a period of time when services were not being performed. However, even accepting that Koeser had recurring expenses connected to licensure and liability insurance, there is no evidence at all in the record as to the actual amount of any such expenses. This is important, because it is necessary, under this condition, to show the existence of significant recurring business expenses. See, Cortez-Robles v. Pro One Janitorial Inc, UI Dec. Hearing No. 11403642AP (LIRC, May 3, 2012). Where there is no evidence presented as to the amount of an individual's liability insurance, it is not possible to determine whether it is an amount sufficient to satisfy this condition, or is a de minimis amount that would not satisfy this condition. Ibid. For this reason, and since Pinnacle bore the burden of proof, this condition cannot be considered to have been established.
i. The individual is not economically dependent upon a particular employing unit with respect to the services being performed. The ALJ found that this condition was met based on the fact that Koeser performed similar services for Salon Escape Du Monde. However, economic 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. Larson v. LIRC, 184 Wis. 2d 378, 392, 516 N.W.2d 456 (Ct. App. 1994). The relevant question is whether, if the individual's relationship with the employing unit at issue ceased to exist, the individual's business would continue. See, Schumacher v. Spar Marketing Services Inc., UI Dec. Hearing No. 11203182EC (LIRC, March 21, 2012).
Where an individual has performed services for multiple entities, it is relevant whether they did so as part of an independently established business rather than as an employee. Schumacher, supra. The fact that an individual may perform similar services elsewhere as an employee does not show that this condition is met, since it is not indicative that the individual maintains an independently established business. Ibid. Here there was no evidence as whether Koeser's relationship with Salon Escape Du Monde was as an employee or as an independent contractor. Therefore, it was not shown that any independently established massage therapy business operated by Koeser would continue if the relationship with Pinnacle were to end. Pinnacle did not establish that this condition was met.
Conclusion - Koeser was performing services for pay for Pinnacle. This creates a presumption that he was doing so as an "employee" within the meaning of Wis. Stat. § 108.02(12). The burden was on Pinnacle to overcome that presumption by, among other things, establishing that Koeser met at least 6 of the 9 conditions stated in Wis. Stat. § 108.02(12)(bm)2. For the reasons stated above, Pinnacle failed to establish that. It is therefore found that Matthew K. Koeser performed services for Pinnacle Health and Fitness, Inc. as an employee, within the meaning of Wis. Stat. § 108.02(12).
The decision of the administrative law judge is modified to conform with the foregoing and as modified is affirmed. Accordingly, wages paid by the employer in the amount of $2,189.75 shall be included in the department's computation of the employee's base period wages for computing benefit eligibility.
Dated and mailed
November 16, 2012
koeserma . urr : 110 : EE
409 EE 450.02 EE 450.02f
BY THE COMMISSION:
/s/ Robert Glaser, Chairperson
/s/ Ann L. Crump, Commissioner
/s/ Laurie R. McCallum, Commissioner
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