STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)
KAREN Y STANGE-CRASS, Claimant
UNIVERSAL STRAP INC, Respondent
UNEMPLOYMENT INSURANCE DECISION
Hearing No. 98605542WB
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 the applicable law, records and evidence in this case, the commission makes the following:
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The claimant performed services as a power sewing machine operator for the respondent, a manufacturer of webbing and straps used in sporting events. She was paid on a piece work basis. She began work in May of 1997 and her last day of work was in December of 1997 or January of 1998. The claimant did not appear at the hearing. The respondent was represented by its product coordinator, Mr. Chrobak.
Mr. Chrobak testified that the claimant was one of 50 to 60 independent contractors engaged by the respondent. "Independent contractors" are solicited using ads in a newspaper. The claimant rented a sewing machine from the respondent at a fee of $10 per month. After one year of payments the sewing machine would belong to the claimant. If the claimant ceased working before the one year is up she would be required to return the sewing machine to the respondent. If the claimant refused to return the machine she would be sent a letter indicating there was a charge of $250 for the machine if it was not returned. A contractor could use her own machine but it would have to have the exact stitch the respondent needed.
The respondent also provided the claimant with slides, threads, and bands. If, for example, a light bulb or a needle needed to be replaced the claimant would have to replace it. However, if a mechanical problem arose the respondent would have the machine fixed.
The claimant had a federal employer identification number. The respondent had the claimant fill out the SS-4 form in December of 1997.
Mr. Chrobak did not know where the claimant did her work, but assumed that she did it out of her home. The respondent showed the claimant how to do the job. The claimant was allowed to determine the manner in which she completed the job and the order in which she completed projects. She only had to complete straps to the respondent's satisfaction. The respondent could reject straps that it found unsatisfactory and the claimant would not be paid for those straps. If the claimant discontinued doing work for the respondent, as she did, she would not be liable to the respondent for any sort of breach of contract action. If the claimant did not perform work in a month, she would still be charged the $10 machine rental. The respondent was not aware of whether the claimant did the same type of work for anyone else.
A two-step analysis is used to determine whether an individual is an employe. Goldberg v. DILHR, 168 Wis. 2d 621, 625 (Ct. App. 1992). The first step is to determine whether the individual has been performing services for an employing unit, in an employment. Wis. Stat. § 108.02 (12)(a). An "employment" is "any service . . . performed . . . for pay." Wis. Stat. § 108.02 (15)(a). If this test is met, then (with exceptions not applicable here) the burden shifts to the employer to satisfy the department that the individual is excepted from employe status under Wis. Stat. § 108.02(12)(b). There is no dispute that the claimant performed services for the respondent for which she received compensation.
Wis. Stat. § 108.02(12)(b), provides that Wis. Stat. § 108.02(12)(a) does not apply to an individual performing services if the employing unit satisfies the department that:
1. The individual:
a. Holds or has applied for an employer identification number with the federal internal revenue service; or
b. Has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year; and
2. The individual meets 6 or more of the following conditions:
a. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.
b. The individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and method of performing the services.
c. The individual incurs the main expenses related to the services that he or she performs under contract.
d. 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.
e. The individual receives compensation for services performed under a contract on a commission or per-job or competitive-bid basis and not on any other basis.
f. The individual may realize a profit or suffer a loss under contracts to perform services.
g. The individual has recurring business liabilities or obligations.
h. The success or failure of the individual's business depends on the relationship of business receipts to expenditures.
The mandatory condition has been satisfied as the claimant applied for and obtained a federal employer identification number. The question therefore becomes whether the respondent has established that the claimant's services satisfied 6 of 8 of the conditions set forth in Wis. Stat. § 108.02(12)(b)2.
Condition a. has not been satisfied. There is absolutely no evidence that the claimant had her own office, equipment, materials and other facilities. Indeed the claimant did not even own the only piece of equipment necessary to perform the work-- the sewing machine. The respondent offered no evidence that the claimant had her own office or facility.
Condition b. has been satisfied. The claimant was paid on a piece-work basis and was free from the respondent's direction and control.
Condition c. has not been satisfied. First, as noted above, it is the respondent's responsibility to provide evidence satisfying 6 of the 8 conditions. Here, the only evidence as to expenses was that the rental for the sewing machine was $10 per month. Further, while the respondent believes it appropriate to look at the claimant's rental fee, it does not believe that it is relevant to consider that it actually incurred the expense of purchasing the sewing machine. There was no testimony regarding how much the respondent paid in expenses, such as for the thread, slides and bands. Further, there was no evidence about how much electricity was attributable to performing services for the respondent, even assuming the claimant worked out of her own home. The respondent argues that the claimant had expenses associated with travel to pick up and drop off work. However, the commission has previously held that travel expenses to and from the employer's facility do not indicate independent contractor status as virtually all employes are required to pay for their own travel to and from the workplace. Pony Inc. Queensway Laundry, UI Dec. Hearing No. S9700354MD (LIRC Jan. 30, 1998). (1)
Condition d. has been satisfied. While the respondent apparently could not sue the claimant for failing to perform services, the claimant would not be compensated for rework. She was liable in the sense that she was expected to perform services to the respondent's expectations or she had to redo the work without additional compensation. The commission has held that the ability to require an individual to do rework without additional compensation satisfies condition d. See Hauden & Scholl Builders Inc., UI Dec. Hearing No. S9700339MD (LIRC Aug. 31, 1998) (valid distinction between an employe and independent contractor is that an employe can be required to redo work but the employer must pay for the additional service and cannot deduct from an employe's wages for faulty workmanship).
Condition e. has been satisfied. The claimant was paid on a piece-work basis.
Condition f. has been satisfied. The claimant could sustain a profit as long as her compensation exceeded her expenses. Although the possibility and amount seem low, given the rental fee of $10 per month, she could lose money if she performed no services for pay in that month.
Condition g. has not been satisfied. Condition g. requires evidence showing that if the relationship with this particular entity no longer existed, or if the claimant had no clients/customer, there be on-going expenses/liabilities. In this case, the answer is no. Her only recurring expense was the monthly rental fee which would cease if her association with the respondent ended. There was no evidence of any recurring expenses that would continue absent clients or customers.
Condition h. has not been satisfied. The claimant's business depended on the respondent providing her with work, not with the relationship of receipts to expenses. The commission has also found that the condition is satisfied if the person was engaged in performing services to make money as opposed to, for example, someone performing services as a hobby. In the latter case, the individual might continue performing services even though the individual makes no profit. The respondent argues that the proper analysis looks at whether there are expenditures/costs showing that the claimant took the chance the business might result in a loss. However, such analysis would make h. virtually indistinguishable from f.
The evidence simply does not establish that the claimant had any business without the respondent. Since the claimant did not work for a year, she did not own and could not keep the sewing machine. Absent the respondent, the claimant had no materials and no equipment with which to continue the business. There is no evidence she was left with anything tangible or intangible that could survive the end of this relationship. Only four conditions -- b., d., e., and f. -- have been satisfied. Therefore the respondent did not meet its burden of establishing 6 of the 8 conditions necessary to find that the claimant performed services for the respondent as an independent contractor rather than an employe.
The commission therefore finds that the claimant was an employe of the respondent within the meaning of Wis. Stat. § 108.02(12).
The decision of the administrative law judge is reversed. Accordingly, the claimant was an employe of the respondent. Payments to her for services performed for the respondent must be reported by her as wages for unemployment insurance purposes. There is no overpayment with regard to this issue.
Dated and mailed: March 2, 1999
crasska.urr : 132 : 1 EE 410 EE 410.05 EE 410.06
/s/ David B. Falstad, Chairman
/s/ Pamela I. Anderson, Commissioner
/s/ James A. Rutkowski, Commissioner
The commission did not consult with the administrative law judge regarding witness credibility and demeanor. The commission's reversal of the administrative law judge's decision is not based on a differing impression of witness credibility. The commission reaches a different legal conclusion when applying the law to the facts.
The commission notes that it is not bound by any prior appeal tribunal decision involving the employer. The finding that a particular worker is an employe or an independent contractor does not bind the department or the commission in subsequent hearings and decisions. The most obvious reason is because such determination depends as much on an individual worker's circumstances, as the employer's circumstances.
cc: ATTORNEY MICHAEL HANRAHAN
FOX ONEIL & SHANNON SC
DIRECTOR GREGORY A FRIGO
BUREAU OF LEGAL AFFAIRS
Appealed to Circuit Court. Reversed September 23, 1999. [Circuit Court Decision summary]
[ Search UC Decisions ] - [ UC Digest - Main Index ] - [ UC Legal Resources ] - [ LIRC Home Page ]
(1)( Back ) The respondent argues that the hardware is not appropriately viewed as an expense as she was selling sewing services, not strap weaving services. The respondent argues that finding the hardware to be an expense, would be like considering the cost of lumber used by a carpenter to build a structure for another to be an expense. However, the commission has previously done just that. See Schroeder V. Southeastern Builders Inc., UI Dec. Hearing No. 98002066WT (LIRC Sep. 25, 1998) (main expense in performing siding application was material which was purchased by the home builder, not the siding applicator); Hauden & Scholl Builders Inc., UI Dec. Hearing No. S9700339MD (LIRC Aug. 31, 1998) (carpenter who purchased own building material, not the general contractor, incurred the main business expense).