SHELLY L GABRIS, Claimant/Petitioner

PWR TRANSPORT LLC,
Employing Unit/Respondent

Pursuant to authority granted in Wis. Stat. § 108.09(6)(b) the commission sets aside and reinstates its modified decision issued on August 22, 2014 as follows:

An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued an appeal tribunal 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:

In 2007, the claimant created a website for PWR Transport LLC (PWR) and other related businesses owned by the claimant's father, for purposes of advertising the businesses and for communicating with customers and drivers. She graduated from Herzing University in 2011 with a degree in information technology (IT), and provided services relating to computer repair and website work for friends and family during this time.

The claimant maintained the website and performed other IT services for the related businesses without charge until August 2013, when she and her father agreed that she should be paid for her services at the rate of $10 per hour. Her services include general maintenance of the website, as well as making changes to the website as PWR and the other businesses request, including postings that enable drivers to retrieve fliers for fuel discounts and products. If customers have support issues with the website, she works on the site to resolve those issues. In addition, she posts advertisements for the businesses on Facebook and on craigslist. On one occasion, she also picked up computers that PWR had purchased at an auction close to her home, and she delivered them to PWR's location.

The claimant performs her website services at a location of her choosing, typically at her home or at another location with access to the internet, and at times and in the order she chooses. She needs no instructions from PWR as to how to perform the work, nor has she received training from PWR with respect to the services she performs. She is not required to make any reports to PWR about her services.

The claimant incurs expenses relating to her laptop computer, internet connection, and her cell phone, as well as office expenses. She also attends computer classes to maintain her competencies. She had previously purchased the license for the website now used by the employer, and PWR pays her the monthly hosting fee of $24.95. The claimant's father is listed as the co-owner of the website, however the claimant possesses the password and maintains the website.

The claimant filed a Schedule C federal income tax return reporting her expenses and income as an IT Website consultant in 2013. She reported that she spent $1,259.00 in expenses, earning income of $1,245.00.(1) She has advertised her services on craigslist, and currently performs such services for other people and businesses. She considers herself to be a self-employed independent contractor, and is listed on PWR's website as an independent contractor with her own email address, doing website development work for PWR and the related businesses.

As a result of a claim for unemployment benefits that the claimant filed, the department undertook an investigation to determine her eligibility for benefits, and issued a determination on April 26, 2014 finding that the claimant's services for PWR were performed as an employee, as defined by Wis. Stat. § 108.02(12)(a) and (bm), and that she was required to report her wages from those services on her weekly claims. The department also held that these wages could be used to determine future benefit entitlement.

The claimant appealed, and a hearing was held on the issue of whether the claimant's services for PWR were performed as an employee, under the applicable unemployment insurance law. The ALJ affirmed the department's determination.

In her petition for review, the claimant argues that she is an independent contractor and that she meets a sufficient number of the statutory factors and conditions to be considered an independent contractor. The commission agrees, noting that much of her testimony and that of her father is not conflicting, and that she provided an income tax return and copies of advertising postings she has made in the past in support of her arguments.

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. Since the period of time at issue begins in August 2013, the analysis of the claimant's employment status will use the new law.

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(2) dated June 25, 2009, by the committee appointed to study and to suggest changes to the definition of "employee" under § 108.02(12).(3) 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 W. Printing & Lithographing Co. v. Indus. Comm'n, 260 Wis. 124, 130, 50 N.W.2d 410 (1951).

Wisconsin Stat. § 108.02(12)(a) defines an "employee" as "any individual who is or has been performing services for pay for an employing unit,(4) whether or not the individual is paid directly by the employing unit, except as provided in par. (bm),(5) (c), (d), (dm) or (dn)." This provision creates a presumption that a person who provides services for pay is an employee, and it requires the entity for which the person is performing those services to bear the burden of proving that the person is not an employee. See Quality Commc'n Specialists Inc., UI Dec. Hearing Nos. S0000094MW, S0000095MW (LIRC July 30, 2001), and cases cited therein.

Since there is no dispute that the claimant performed services for PWR for pay, PWR has the burden to rebut the presumption that she did so as an employee, as defined in the statute.

At the outset, the commission notes that the parties entered into a verbal agreement when they modified their working arrangement to include payment for services, and they understood that the claimant would be performing her services as an independent contractor, and not as an employee. However, it has been a longstanding tenet of unemployment law in Wisconsin that the claimant's status as an independent contractor or a statutory employee is determined by statute, and not by the terms of a private agreement. Roberts v. Indus. Comm'n, 2 Wis. 2d 399, 86 N.W.2d 406 (1957). See also Knops v. Integrity Project Mgmt., UI Dec. Hearing No. 06400323AP (LIRC May 12, 2006).

In addition, the statutory provision at issue, Wis. Stat. § 108.02(12)(bm), specifically states that an employing unit must meet the statutory criteria in the two subdivisions "by contract and in fact". In other words, a contract (or agreement) between the parties is not sufficient alone to establish that independent contractor criteria are met. A hearing in which questions are asked and employment circumstances described is the proper setting to determine the actual facts of the employment.

In sum, the claimant's status as an independent contractor or an employee for unemployment insurance purposes is determined by statute, and not by any agreement or understanding between the parties.

Statutory Analysis

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 her 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, the claimant had performed the same services previously, was familiar with the work to be done, and worked independently in performing the services. She received no instructions from PWR concerning how to maintain the website or to perform her IT services. Therefore, the commission finds that 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 no training from PWR related to the IT services she 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 no specific evidence relating to this factor, the commission notes that the claimant was chosen to perform this work because she had the requisite experience and training to perform the services. The commission believes that PWR expected that the claimant would personally perform the services. 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. In this case, the claimant was not required to perform her IT services at any particular time, or in any particular order or sequence. Accordingly, the commission finds that 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 make any oral or written reports to PWR on a regular basis. She submitted invoices on a regular basis, but those are not the kind of reports that are contemplated by this factor. See Rohland v. Go2 IT Group, UI Dec. Hearing No. 12202959EC (LIRC Feb. 14, 2013), aff'd sub nom. Career Connections Staffing Services, Inc. v. LIRC, No. 13-CV-179 (Wis. Cir. Ct. La Crosse Cnty. Oct. 23, 2013). Accordingly, this factor is met.

No other factors were raised on the issue of whether the claimant was free from PWR's control or direction, 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 her services free from control or direction by PWR. 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 previous law. 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, three of the conditions (conditions a., f., and i.) are the same or substantively similar to the current conditions in the "employee" test applicable to nonprofit 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.

This condition can be met if it is established that the individual is advertising her services, such as through business cards, posting notices in the newspaper or elsewhere regarding her services, or having an actual place of business. It can also be met if the individual is affirmatively holding herself out as being in business or performing particular services, by taking some kind of action to make the public, in particular those entities who would be interested in her services, aware of her availability to perform those services. See, e.g., Ziburski v. Castforce, Inc., UI Dec. Hearing No. 13202144EC (LIRC Nov. 22, 2013), and cases cited therein.

In this case, the claimant has advertised her IT services in the areas of computer repair, virus removal, and website work on craigslist. 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 her own office or choose where to perform her services, and that she use her own equipment or materials in performing the services.

The claimant typically chooses where to perform her IT services, and she uses her own equipment and materials in performing the services. 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. Therefore, cases analyzing the multiple contracts part of the old test are applicable under the new test.

As noted in In re Gronna, 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.

In this case, the claimant has entered into agreements with other individuals and businesses to perform IT services similar to the services she performs for PWR. Accordingly, 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, and cases analyzing condition 5 are applicable to this condition under the new 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 Fin. of Wis., Inc., UI Dec. Hearing No. S0600240MW (LIRC Oct. 23, 2008), and cases cited therein. 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 this condition has not been met. See, e.g., Gustavson v. Carpenters, Inc., UI Dec. Hearing No. 09400168AP (LIRC Apr. 30, 2009).

In this case, the claimant has quantified her expenses on her Schedule C income tax return, and they include office expenses, supplies, utilities, and laptop and cell phone expenses, totaling $1,259 for 2013. PWR's expenses consist of the monthly website hosting fee, totaling about $300 a year. Although PWR also has expenses associated with monitoring the claimant's work and paying her invoices, it is obvious that the claimant bears the main expenses related to the services she performs. Accordingly, the commission finds 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.

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 evidence supports a finding that the claimant is obligated to redo any unsatisfactory IT work. However, there is no evidence that she would not be paid her hourly rate for such work. In addition, there is no evidence that she would be subject to a monetary penalty for unsatisfactory work. Accordingly, the commission finds that this condition is not met.

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

This condition relates to the "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. Labor & Industry Review Commission, 154 Wis. 2d 626, 453 N.W.2d 902 (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.

The claimant's IT services are totally unrelated to PWR's business as a transportation company. Accordingly, 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). Therefore, cases analyzing condition 8 under the old test are applicable to this condition of the new test.

The test is whether, over the term of the agreement between the claimant and PWR, 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 2013, the claimant earned $1,245 from the two related businesses owned by her father. Her expenses for 2013 exceeded those earnings, resulting in a loss. However, the claimant's income was derived from only five months of paid work, beginning in August of 2013 when she requested that she begin receiving payment for her services to PWR and related businesses. She would clearly make a profit if the same time period was used for both income and expenses. The question, therefore, is whether it is realistically possible that she would incur a loss.

The claimant argues that she could suffer a loss if PWR did not pay her for her work, although she acknowledges that this possibility is unlikely given that PWR is owned by her father. However, even if there was a realistic possibility of non-payment, the risk of non-payment is not the kind of risk contemplated by this condition, as such a risk is also borne by individuals performing services as employees. See Gustavson v. Carpenters Inc., cited previously.

The claimant was paid an hourly rate for every hour she worked, and her expenses were relatively fixed. As noted by the commission in Quality Commc'n 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. In addition, as noted in Alsheski v Codeworks, Inc., cited above, 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." Given the circumstances of this case, the commission does not find it to be realistically possible that the claimant would suffer a loss under her contract with PWR. Accordingly, the commission finds that 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, and the cases analyzing that condition under the old law are applicable to this condition in the new law. This test requires proof of a cost of doing business that the claimant would incur even during a period of time that she was not performing work for PWR.

The commission has interpreted the "recurring business liabilities and obligations" in this condition 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, S0300203EC (LIRC Oct. 26, 2005) (expenses that are incurred regardless of the level of actual business activity).

The claimant argues that she must maintain an internet connection, a phone connection, and a home office to perform her IT services for her customers. She also asserts that she is responsible for any IT trainings, books, or software that she needs to perform the services, noting that she demonstrated those expenses on her Schedule C form.

The commission has consistently held that expenses under this condition must be for business purposes alone or they do not qualify as business liabilities or obligations. See, e.g., Start Renting, Inc., UI Dec. Hearing No. S0800059MD (LIRC May 15, 2009). It is not clear from the evidence whether the claimant's expenses for her laptop, cell phone, and internet connection are for business purposes alone, or if she also uses them for personal purposes. However, expenses for her home office and for computer classes would qualify as recurring business obligations. Therefore, the commission finds that 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 Mktg. Servs., Inc., UI Dec. Hearing No. 11203182EC (LIRC Mar. 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 Mktg. Servs., Inc., cited previously, and cases cited therein involving, respectively, a Spanish interpreter, a caregiver, and a sports referee.

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, the claimant filed a Schedule C income tax return for 2013, indicating business income and expenses; she advertised her services as an IT specialist; she performed services for individuals and businesses other than the employing unit; and she had IT experience and training, as well as maintaining her proficiency in IT work through attendance at computer classes. There is sufficient evidence of a viable independently established business to find that the claimant was not economically dependent upon PWR. If the employment relationship was to end with PWR, it is likely that the claimant would continue to offer her IT services as an independently established business. Accordingly, the commission finds that this condition is met.

In sum, seven of the nine conditions in the second part of the new test (conditions a, b, c, d, f, h, and i) are met. Therefore, since the claimant is free from PWR's control and direction, and meets at least six of the nine conditions in the second part of the statutory test, she is considered an independent contractor, and not an employee of PWR, for unemployment insurance purposes. Her services for PWR do not constitute wage-earning services, and she is not required to report her weekly earnings from these services to the department in her weekly benefit claims.

The decision of the administrative law judge is reversed. Accordingly, the moneys paid to the claimant by PWR(6) are not required to be reported to the department as they are earned and will not be used to determine future benefit entitlement.

Dated and mailed September 19, 2014

gabrish_urr . doc : 120 : EE 450 : EE 450.01 : EE450.01c : EE 450.02 : EE 450.02e

BY THE COMMISSION:

/s/ Laurie R. McCallum, Chairperson

/s/ C. William Jordahl, Commissioner

/s/ David B. Falstad, Commissioner

NOTE: The commission did not confer with the ALJ before reversing his decision because its reversal was not based upon a differing view as to the credibility of witnesses, but instead upon a differing conclusion as to what the hearing record in fact established and upon a differing interpretation of the relevant law. There was no conflicting testimony from which it was necessary to evaluate the credibility of the witnesses.

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(1)( Back ) The claimant was paid this amount by PWR and one of the related businesses, RNT-A-PWR LLC, also owned by her father. In two related decisions involving work performed and wages earned, the department has listed RNT-A-PWR as the "employer." The claimant petitioned the commission for review of those decisions, and based upon its conclusion in this case and the lack of a determination relating to the claimant's employment status with RNT-A-PWR, the commission has set aside those two decisions by the department and the ALJ, and has remanded the two cases to the department to investigate the claimant's employment status with RNT-A-PWR and to redetermine the work and wages issues.

(2)( 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).

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

(4)( Back ) An "employing unit" is defined as "any person who employs one or more individuals." Wis. Stat. § 108.02(14m).

(5)( Back ) This paragraph, (bm), applies to private businesses such as the petitioner's business, and is the paragraph that was changed by 2009 Wisconsin Act 287.

(6)( Back ) As noted in footnote 1, supra, the commission has set aside two separate appeal tribunal decisions (affirming two departmental determinations) relating to the issue of the claimant's work and wages, and remanded those cases to the department for a new investigation into the issue of whether the claimant worked and earned wages from a related business.