FRANK J SALVI, Claimant/Petitioner

CULLEN, WESTON,
PINES & BACH LLP, Employing Unit/Respondent

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 second sentence of the first paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW.

2. Add the following two sentences to the end of the third full paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW:

The claimant had expenses associated with performing his services, including maintenance of his computer and the cost of writing materials, board certification fees of about $100/year with recertification every 10 years in the amount of several hundred dollars, medical license fees, and continuing education costs of between $500 and $1,000 per year. He had performed similar services in the past for Cullen, Weston, Pines & Bach and for another law firm.

3. Delete the phrase "or 'any person who employs one or more individuals,' " in the fourth paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW, and add that phrase to footnote 1, designating the statutory definition of an "employing unit."

4. Replace the second sentence of the paragraph related to condition 2.b. of the FINDINGS OF FACT and CONCLUSIONS OF LAW with the following:

The claimant performed his medical record review services in a location of his choice, and used his own equipment and materials in doing so.

5. Replace the third sentence of the paragraph relating to condition 2.e. of the FINDINGS OF FACT and CONCLUSIONS OF LAW with the following:

If his report contained multiple grammatical or typographical errors, he would be required to correct it without receiving additional compensation.

/s/ Ann L. Crump, Commissioner

/s/ Laurie R. McCallum, Commissioner

The claimant, a rehabilitation physician (physiatrist) worked during several weeks in January 2012 reviewing medical records and preparing a medical report for Cullen, Weston, Pines & Bach, LLP, a law firm (hereinafter "C, W, P & B" or "the law firm").  The department's determination found that the claimant performed services for C, W, P & B as an employee during this period of time, and C, W, P & B appealed that determination.  After a hearing, an ALJ reversed the department's determination, and found that the claimant did not work for C, W, P, & B as an employee, and had been overpaid $4,356 in unemployment benefits that he was required to repay to the department.  The claimant has petitioned for commission review of the ALJ's decision.

In his petition for commission review, the claimant does not assert that he performed services for C, W, P & B as an employee, but states that he worked as a consultant for the law firm. He disputes that he told the department he was laid off, noting that he did not file unemployment benefit claims while performing his services for C, W, P & B. He stresses certain facts that he also testified about during the hearing, and objects to the ALJ's $4,356 overpayment finding, noting that he still had emergency unemployment compensation (EUC) funds available to him when he filed his benefit claims.

The commission has modified the ALJ's decision to delete the finding that the claimant reported that he was laid off, and notes that the department, for unemployment purposes, utilizes certain phrases such as "layoff" for consistent implementation of its decisions. The commission has added several other material factual findings that are reflected in the record.

The commission also notes that the overpayment finding in the ALJ's decision relates to the department's conclusion that the claimant had been overpaid "regular" unemployment benefits based on its initial inclusion of his earnings from C, W, P & B in the calculation of his base period wages for his benefit claim. However, when those wages were removed from his base period wages after the ALJ found that the claimant was not an employee (and his earnings could not be used as base period wages for his unemployment claim), the claimant became eligible for the same amount of benefits under the EUC program. Department records indicate that he continues to receive EUC benefits and, for practical purposes, the overpayment has been "paid off" through his eligibility for EUC benefits.

Applicable law

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. The claimant's base period includes the first calendar quarter of 2012, when he was performing services for C, W, P & B. Therefore, the analysis of the claimant's employment status while performing services for C, W, P & B uses the 2011 law.

The commission notes that, in its interpretation of the 2011 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⁾ 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 provisions in Wisconsin Stat. § 108.02 relating to base period wages that are cited below:

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;

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 new 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 entrepreneurial 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 Quality Communications Specialists Inc., UI Dec. Hearing Nos. S0000094MW and S0000095MW (LIRC July 30, 2001), and cases cited therein.

Therefore, since the record shows that the claimant performed services for C, W, P & B in 2012 for pay, there is a presumption that he did so as a statutory employee. To overcome that presumption, evidence must be presented that the claimant operated free from C, W, P & B's control or direction and that the claimant met 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 control or direction 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. The claimant received no instructions from the law firm concerning how to perform his medical review services. 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. The claimant received no training from the law firm with respect to the medical services he performed. This factor is met.

c. Personal performance - This factor looks at whether the individual is free from the requirement of personal performance of the services. Although there was testimony that the claimant could hire an assistant to help him with the work, the commission is not persuaded that the claimant could delegate the substance of the work to others. He had the skills and training to perform the substantive work, i.e., the review of the medical records and the formulation of his expert medical opinion from that review, and he was specifically chosen to perform the services for that reason. This factor is not 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 claimant was not required to perfom his services at specific times or in a particular order or sequence. This factor is met.

e. Oral or written reports - This condition looks at whether the individual is free from the requirement of making oral or written reports to the employing unit on a regular basis. Other than his medical report and invoice, neither of which is considered a report on a regular basis, the claimant was not required to make any oral or written reports to the law firm. This factor is met.

No other factors were raised by either party on the issue of whether the claimant was free from control or direction by C, W, P & B, and the commission does not note any other relevant factors. Given that four of the five factors have been met, the commission finds that the claimant performed his services free from control or direction by C, W, P & B.

Accordingly, 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 it has been 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 prior 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.

Although the claimant did not advertise his services as a medical consultant, it was clear in the medico-legal community of which he was a part that he was in the business of providing medical opinions, most usually in the form of WKC-16B forms, but also in the form of lengthier reports and independent medical examinations. He performed such services enough times that the commission concludes that he "affirmatively held himself out" as being in the business of performing these services. Accordingly, this condition is 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. In this case, the claimant, as a medical consultant reviewing medical records and writing medical reports based upon those records, performed his services in a location chosen by him. In addition, he used his own equipment and materials to prepare his report. Accordingly, the commission concludes that this condition is 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. 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). In addition, the commission has also held that the time period relevant to this inquiry is the time period that the individual has been performing the type of work at issue, and is not confined to the specific base period of the claim. See, e.g., Nature's Pathways LLC, UI Dec. Hearing No. S0800258AP (LIRC Feb. 5, 2010); Fisher v. WisPolitics.com, UI Dec. Hearing No. 06004206MD (LIRC April 24, 2007).

In this case, the claimant had performed similar services for C, W, P & B, for another law firm, and for various patients in the past, reviewing medical records and providing his medical opinion, whether in the form of WKC-16B forms, in longer reports, or as part of an independent medical examination. This condition is met.

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. Applying this condition 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, e.g., Preferred Financial of Wisconsin, Inc., cited previously, and cases cited therein.

The claimant bore all of the expenses of reviewing the medical records and preparing his written report. In addition, he had costs relating to maintaining his medical license required for the work, as well as his board certification and continuing education costs. Although C, W, P & B had minor expenses in contracting with and paying the claimant, it is obvious that the claimant's expenses exceeded those of the law firm. 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.

This condition replaces condition 6 of the old law that read - "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."

In this case, the "satisfactory completion of the services" involved would be the review of medical records and thepreparation of a medical report expressing the claimant's medical opinion. If the report contained multiple grammatical or typographical errors, the claimant would be required to correct the errors at his own expense and without additional compensation. The commission concludes that this obligation, albeit unlikely to occur, is sufficient to warrant a conclusion that this condition is met.

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

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, as a rehabilitation physician, performs medical services for the law firm, not legal services. Although these services assist the law firm in representing its clients, such services are not directly related to the business of the law firm. This condition is 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 test is whether, over the term of the agreement between the claimant and C, W, P & B, there is 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); Alsheski v. Codeworks, Inc., UI Dec. Hearing No. 09403672AP (LIRC Feb. 26, 2010) (proper test is whether there is a realistic possibility of loss if individual successfully completes services).

In this case, although the claimant might realize a profit by earning more than he had to spend in expenses, it is not likely that he would suffer a loss given that he was guaranteed an hourly rate. There was no "unpredictability inherent in the business enterprise," that risk of loss that exists in a real business, as described in Dane County Hockey Officials Association, Inc., UI Dec. Hearing No. S9800101MD (LIRC Feb. 22, 2000). Further, 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 services. This condition is not met.

h. The individual has recurring business liabilities or obligations.

This condition is identical to condition 9 under the old test. This test requires proof of a cost of doing business that the claimant would incur even during a period of time he was not performing work for C, W, P & B. The "recurring business liabilities and obligations" in this condition have been interpreted by the commission to involve overhead types of expenses, such as expenses for liability insurance, continuing education expenses, membership dues and other business costs that are of a continuing or recurring nature, regardless of whether a claimant is performing services at the time. See, e.g., Clear Choices Inc., UI Dec. Hearing Nos. 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).

In this case, the claimant does have recurring business expenses, specifically his medical licensing fees, his board certification fees, and his continuing education expenses. This condition is 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., Schumacher v. Spar Marketing Services, Inc., UI Dec. Hearing No. 11203182EC (LIRC March 21, 2012), and other cases cited therein. In four of those cases - involving, respectively, an instructor, an emergency preparedness workshop presenter, a percussionist, and a bassoonist - 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 contrast, 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., Schumacher v. Spar Marketing Services, Inc., cited previously, and cases cited therein involving, respectively, a Spanish interpreter, a caregiver, and a sports referee.⁽⁴⁾

Accordingly, in interpreting the new law, the commission has taken an approach that recognizes these various rationales. In this case, the claimant performed medical reviews and wrote medical reports based upon those review for other companies as a contract worker. Therefore, when his relationship with C, W, P & B ceased, it is likely that he would move on to perform these services independently for other entities, as he has done so in the past. Therefore, the commission concludes that this condition is met.

In sum, eight of the nine conditions in the second part of the new test are met. Therefore, since Wis. Stat. § 108.02(12)(bm) requires that, first, the claimant be free from the control and direction of C, W, P & B, and second, that at least six of the nine conditions in the second part of the test be met for the claimant to be considered an independent contractor, and both tests are met, the claimant must be considered an independent contractor, not an employee, and his earnings from C, W, P & B during the first quarter of 2012 shall not be included in the department's computation of his base period wages. As a consequence of the deletion of his earnings from his base period wages, he was overpaid regular unemployment benefits in the amount of $4,356 that must be repaid to the department.⁽⁵⁾

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(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 ) 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.

(5)( Back ) As noted previously, this overpayment has been repaid through the claimant's eligibility for equal weekly benefits under the EUC program.

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