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


WILLIAM J STETTER JR & ROBERT D RAWSKI
SIGNATURE BINDERY, Employer

HORIZON GRAPHICS INC, Employer

UNEMPLOYMENT COMPENSATION CONTRIBUTION LIABILITY DECISION
Hearing No. S9600386MW, Account Nos. 644120 and 520820


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

Horizon is a printing and graphics supply business. Horizon was incorporated in May or June of 1993. William Stetter has been president of Horizon for 4 years. Mr. Stetter has been a 50% shareholder in Horizon as of January 1, 1994. As of January 1, 1994, Horizon's business was located at W136 N5239 Campbell Court in Menomonee Falls. Horizon became an employer for state UI tax purposes in 1993.

Signature was originally a partnership beginning in 1993. Mr. Stetter was an equal partner in Signature, with Robert Rawski, from the end of 1993, and in 1994 and 1995. On April 31 or May 1, 1996, Signature converted to a corporation. Mr. Stetter is a shareholder in Signature. Mr. Rawski, has been president of Signature since May 1, 1996, and was a partner in Signature prior to that date. Mr. Rawski is also a shareholder in Horizon. Signature provides binding and finishing services. Beginning in January 1, 1994, Signature's business was located at the same address as Horizon's business. The businesses are now at different locations as Signature moved to a new location in Glendale in June of 1996.

In 1994 and 1995 all individuals who performed services for Signature were leased from Horizon. Those same individuals also provided services for Horizon. Horizon's UI tax rate in 1994 and 1995 was significantly lower than Signature's rate in both years. In 1994, 4-5 individuals were hired and leased, and in 1995 the number of leased employes increased to about 10. Notwithstanding the number of workers leased, those individuals in total would have been paid at least $6,000 in wages in 1994. Signature paid Horizon according to the amount of hours worked on Signature jobs. The lease arrangement between Signature and Horizon was the subject of a written agreement, dated July 1, 1993, signed by Robert Rawski, as partner of Signature, and William Stetter, as president of Horizon, and provided:

This agreement concerns the leasing of employees by Signature Bindery (a partnership) from Horizon Graphics (a corporation). Pertinent conditions are as follows:

1. All employees involved are Horizon employees. Horizon is responsible for all payroll taxes and fringe benefits relating to these employees.

2. The hourly rate to be charged to Signature will vary dependent on the skill level of the employees involved.

3. Payment will be made within 30 days from the closed (sic) of each month

Horizon had the final say as far as establishing wages, and what would be negotiated. Horizon wrote out the paychecks. Horizon had the authority to hire and fire the workers. The aforementioned matters were negotiated among Mr. Stetter, as president of Horizon, Mr. Rawski, representing Signature, and Mr. Kurzer, a third party chosen as a mediator. Mr. Kurzer had no ownership interest in the corporation in 1994 and 1995. Mr. Kurzer was compensated by both entities for providing accounting and consulting services to both organizations. He was compensated 50% by each entity for his mediating services.

Mr. Kurzer assisted in the negotiation of changes with respect to the price of services and type of work performed. Mr. Stetter, as president of Horizon, retained the right to reassign and redirect employes, and exercised such right during meetings where Mr. Stetter represented Horizon. Mr. Stetter set the rate of pay with respect to increases or decreases in discussions with Mr. Rawski who represented Signature. Horizon had the right to hire and terminate individuals performing services for Signature.

At all times relevant to such negotiations, Mr. Stetter was a partner in Signature, however, during the negotiations he represented Horizon. Negotiations included discussions regarding reassignment, i.e. whether the worker would be working on a Horizon job or a Signature job, and where the resources needed to be allocated. The parties agreed that Horizon jobs would have precedence over Signature jobs. If there was a disagreement as to the terms and conditions under which the leased workers would perform services, Horizon would have final say or the matter would be directed to Mr. Kurzer.

Horizon paid FUTA taxes on the wages paid to the leased workers both in 1994 and 1995. The lease agreement terminated prior to the incorporation of Signature, or in the first quarter of 1996. The agreement terminated because both Horizon and Signature agreed that due to Signature's need for an increasing number of workers, Horizon could no longer lease workers to Signature. Workers claimed as employes of Signature in the first quarter of 1996 were previously considered to be leased employes in 1994 and 1995. Signature paid FUTA taxes on the individuals previously considered leased employes.

Horizon did not lease employes to any entity other than Signature in 1994 and 1995. According to Mr. Stetter, when the arrangement ended between Horizon and Signature the individuals continued to provide services to both entities, and if an individual performed services subsequent to the termination of the agreement, that individual was an employee of Signature, even if that individual continued to perform services for the corporation because Signature billed Horizon for those bindery and finishing services. Mr. Stetter considered that after the agreement ended, Signature was leasing employes to the corporation. Mr. Rawski testified, contrary to Mr. Stetter's testimony, that when the arrangement between Horizon and Signature ended, Signature did not lease employes back to Horizon. Rather, in the first quarter of 1996 Signature took over the employment of Horizon's workers and performed work for Horizon and billed Horizon for work performed for it.

Under chapter 108, if an entity is an employe service company as defined in Wis. Stat. § 108.02 (12m), and the employe service company is taxed under FUTA for services of individuals it leases to customers or clients (Wis. Stat. § 108.065(a)), then the employe service company, not the customers/clients, is the employer of the individuals it leases to the customers/clients. The issue here is whether Horizon Graphics Inc., meets the definition of an employe service company. If it does, it is conceded that it paid FUTA taxes on the wages of the leased employes. If Horizon is not the employer, then the client, Signature Bindery, a partnership, is the employer.

Wis. Stat. § 108.02 (12m) provides:

(12m) EMPLOYE SERVICE COMPANY. "Employe service company" means a leasing company or temporary help service which contracts with clients or customers to supply individuals to perform services for the client or customer and which, both under contract and in fact:

(a) Negotiates with clients or customers for such matters as time, place, type of work, working conditions, quality, and price of the services;

(b) Determines assignments or reassignments of individuals to its clients or customers, even if the individuals retain the right to refuse specific assignments;

(c) Sets the rate of pay of the individuals, whether or not through negotiation;

(d) Pays the individuals from its account or accounts; and

(e) Hires and terminates individuals who perform services for the clients or customers.

The administrative law judge found that Horizon did not establish that it negotiated with clients or customers for such matters as time, place, type of work, working conditions, and price of services, or that they determined assignments or reassignments of individuals to its clients or customers, even if the individuals retained the right to refuse specific assignments. The administrative law judge found that Wis. Stat. § 108.02(12m)(a), (b), and (e), uses the words "clients" or "customers" in the plural, which clearly implies having more than one client or customer. The administrative law judge concluded that because Horizon was not an employe service company, it could not properly report the payroll of workers performing services for Signature, conceded to be over $6,000 in 1994. Rather, Signature was required to report the wages of the workers under its own account, and therefore became a subject employer retroactive to January 1, 1994, within the meaning of Wis. Stat. § 108.02 (13)(e)(1). (1)

The initial inquiry is whether Wis. Stat. § 108.02 (12m), requires that an entity seeking to be designated an employe service company have more than one client/customer. The department and the administrative law judge agree that it does. The commission does not. The mere fact that the plural is used cannot be read as a prerequisite to finding the entity to be an employe service company. Wis. Stat. § 990.001, provides that "In construing Wisconsin laws the following rules shall be observed unless construction in accordance with a rule would produce a result inconsistent with the manifest intent of the legislature: (1) SINGULAR AND PLURAL. The singular includes the plural, and the plural includes the singular."

The commission cannot conclude that construing Wis. Stat. § 108.02 (12m) to include both the singular and the plural would produce a result inconsistent with the manifest intent of the legislature. Wis. Stat. § 108.02 (12m) was enacted, in part, because clients/customers were being found to be the employers largely due to the direction and control test of the independent contractor law. (2) The leasing industry desired to be considered the employer because it wanted to sell itself to clients as providing complete personnel and payroll services, including the payment of UI taxes. Wis. Stat. § 108.02 (12m) was also enacted to prevent situations where a company with a high UI tax rate created a leasing arrangement with a company which had a low UI tax rate and designated the company with the high rate as the leasing company. While requiring more than one client may make it less likely that the arrangement is an attempt to avoid UI taxes, it is not manifest that the legislature used the plural an attempt to prevent such arrangements.

The department argues that Wis. Stat. § 108.02 (12m), requires that the entity itself be a leasing company or temporary help service. The commission agrees. The statute on its face does not define an employe service company as "a company" which contracts with clients or customers to supply individuals to perform services for the client or customer. The statute qualifies the type of entity to which the term employe service company applies, namely to a leasing company or a temporary help service. The nature of Horizon's business is not providing services of individuals to customers/clients. Mr. Stetter testified that Horizon is a printing and graphic supply business. He did not testify that its primary business activity is leasing workers. Further, an entity in the business of leasing workers generally does not cease doing so due to an increased demand by its customer for leased workers. Finally, when the leasing arrangement between Horizon and Signature ended Horizon continued in the printing and graphics supply business.

In addition, as previously noted, Wis. Stat. § 108.02 (12m) was enacted to allow leasing companies and temporary help services to offer a full-service package to customers, including taking on the status and tax responsibilities of employer. The provision was drafted for entities whose business is leasing workers, not for businesses who may, on occasion, lease out workers. Finally, construing the statute as requiring the entity to be in the business of leasing workers also furthers the statute's attempt to prevent employing units from using leasing arrangements in order to shift contribution liability to the entity with the lower tax rate.

The commission therefore finds that Horizon Graphics, Inc., is not an employe service company, within the meaning of Wis. Stat. § 108.02 (12m).

The commission further finds that William J. Stetter, Jr., and Robert D. Rawski, Jr., d/b/a Signature Bindery are subject to the Wisconsin Unemployment Insurance Law dating retroactively to January 1, 1994, within the meaning of Wis. Stat. § 108.02 (13)(e)(1).

DECISION

The decision of the administrative law judge is modified and, as modified, is affirmed. Accordingly, Horizon Graphics, Inc., is not an employe service company in connection with the employment of individuals performing services for William J. Stetter, Jr. and Robert D. Rawski, Jr., d/b/a Signature Bindery, and William J. Stetter, Jr. and Robert D. Rawski, Jr., d/b/a Signature Bindery, must report the payroll incurred in the business they direct under their own UI account number (644120-1).

Dated and mailed September 29, 1997
stettwi.srr : 132 : 1   ER 460

/s/ Pamela I. Anderson, Chairman

/s/ David B. Falstad, Commissioner

MEMORANDUM OPINION

Horizon argues in the petition that the administrative law judge apparently disregarded its lengthy testimony as the cover sheet of the appeal tribunal decision indicates that it did not appear. There is absolutely nothing in the record to suggest that the administrative law judge who held the hearing was not aware that Horizon, by Mr. Stetter, appeared and offered testimony. The fact that Horizon is listed as not appearing is no doubt nothing more than a simple printing error. Horizon also states that it does not believe the administrative law judge considered the written evidence it presented. The commission disagrees. Rather, the administrative law judge found that because Horizon had only one customer it did not meet the definition of employe service company. While the commission does not agree with the administrative law judge's reasoning, it has affirmed his conclusion for reasons set forth in the body of this decision. In doing so, the commission was well aware that Horizon appeared at the hearing and considered all oral testimony and written evidence submitted at the hearing.

cc:
ATTORNEY MICHAEL MATHIS
ENFORCEMENTS SECTION


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Footnotes:

(1)( Back ) An employing unit becomes an employer under Wis. Stat. § 108.02 (13)(e)1., at the beginning of any calendar year if it paid or incurred liability to pay wages for employment which totaled $1,500 or more during any quarter in either that year or the preceding calendar year. Since it is conceded that individuals at issue were paid wages of at least $6,000 in 1994, wages must have totaled $1,500 in at least one quarter in 1994.

(2)( Back ) Wis. Stat. § 108.02 (12)(b)1., requires that an employing unit establish that an individual performing services "has been and will continue to be free from the employing unit's control or direction over the performance of his or her services both under his or her contract and in fact." Although that statutory provision has been recently amended, for contribution purposes, the old law would still apply to determine the status of workers who performed services before January 1, 1996.