STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)
THOMAS GRONNA, Employer
THE FLOOR GUYS
UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Account No. 045818, Hearing No. S9900063WU
An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued an appeal tribunal decision (ATD) in this matter. A timely petition for review was filed by Thomas Gronna.
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:
FINDINGS OF FACT AND CONCLUSIONS OF LAW
An initial determination issued on December 3, 1998, held that beginning in 1997, Ryan
Gronna, Philip Lewis and Terry Osmanski performed paid services consisting of the
installation of carpet and wall coverings for Thomas Gronna as his employes, within the
meaning of Wis. Stat. § 108.02(12).
A second initial determination issued on March 8, 1999, held that Thomas Gronna was liable for Unemployment Insurance (U.I.) taxes, interest and penalties in the amount of $1,592.22, computed to that date. These contributions were based on wages paid to Ryan Gronna, Philip Lewis and Terry Osmanski for services performed in 1997, and wages paid to Ryan Gronna for services performed in 1998.
Thomas Gronna timely appealed the determination that had been issued on March 8, 1999, but did not timely appeal the first determination.
Thomas Gronna and his wife testified that they had not received the first determination, issued on December 3, 1998. The ALJ considered their testimony credible and noted that the Gronnas had promptly appealed the second determination. The department's attorney did not object to the first determination being considered at the hearing, even though it had not been on the hearing notice. Accordingly, the ALJ took testimony regarding the merits of both determinations and subsequently found that the late appeal of the first determination was for a reason beyond the appellant's control, within the meaning of Wis. Stat. § 108.09(4)(c) and Wis. Adm. Code Ch. 140. The commission has not been asked to review that procedural ruling and sees no reason for taking it up under the commission's own discretionary authority.
Accordingly, there are two substantive issues to be resolved by the commission.
The first issue is whether, beginning in 1997, Ryan Gronna, Philip Lewis and Terry Osmanski performed paid services consisting of the installation of carpet and wall coverings for Thomas Gronna as his employes, within the meaning of the applicable language of Wis. Stat. § 108.02(12). Ryan Gronna is Thomas Gronna's son.
The second issue to be resolved by the commission is whether Thomas Gronna was liable for U.I. contributions (taxes), interest and penalties based on wages paid to Ryan Gronna, Philip Lewis and Terry Osmanski for services performed in 1997, and wages paid to Ryan Gronna for services performed in 1998 and, if so, how those liabilities are to be computed.
Thomas Gronna conceded that the individuals in issue performed services for him and received remuneration for those services from him. He asserted that they were independent contractors and that they had signed agreements to that effect.
On the conceded facts, the presumption of employe status under Wis. Stat. § 108.02(12)(a) applies, subject to proof as to whether the "independent contractor exception" is applicable.
Applicability of the "independent contractor exception" is determined under a two- part test prescribed by Wis. Stat. § § 108.02(12)(b)1. and 2.
The "FEIN or tax return" test. The first or "threshold" test for independent contractor status under Wis. Stat. § § 108.02(12)(b)1. may be met by either of two alternative means.
The putative employer may show that each individual whose status is in issue held or had applied for a Federal Employer Identification Number (FEIN) in each year in issue as to that individual.
Alternatively, the putative employer may show that, as to each year in issue, each individual whose status in that year is in issue had, in the previous year, filed a business or self-employment federal income tax return based on the services in issue. The statutory phrase, "the previous year" means the year immediately preceding each year as to which the individual's employment status is in issue.
Thomas Gronna acknowledged in his testimony that he did not know whether any of the three individuals in issue held, or had applied for, a FEIN in 1997 or 1998.
As to tax returns, Thomas Gronna testified that he did not know whether Philip Lewis or Terry Osmanski had filed business tax returns for 1996 (the relevant year as to them, because they only performed services for Gronna in 1997).
Regarding his son Ryan's tax returns, Thomas Gronna testified that he "knew" his son Ryan Gronna had filed business tax returns in 1996 and 1997 (these would be the relevant years as to Ryan Gronna, because he performed services for his father both in 1997 and 1998). Thomas Gronna had no evidence at the hearing to corroborate his hearsay testimony as to his son's tax returns.
In his petition for commission review, Thomas Gronna enclosed copies of two tax returns filed by his son and one filed by Philip Lewis. The ALJ had not held the hearing record open for the purpose of receiving tax returns; accordingly, the returns are an unauthorized attempt to augment the hearing record. The commission notes that the department's attorney requested, and the ALJ ordered, that the hearing be held open for a few weeks for a different purpose. That purpose was to permit Thomas Gronna to provide additional document of remuneration paid to all three individuals in issue for services performed in 1997 and 1998). That hold-open order had, of course, expired by the time the ATD was issued and therefore before Thomas Gronna submitted the tax returns to the commission.
The commission has decided, in this particular case, to take administrative notice of the late-offered tax returns. The commission has done so because, as will be discussed below, the commission has concluded that the tax returns do not alter the ultimate result in this case, although Ryan Gronna's returns affect some of the findings as to his situation. Discussion of the tax returns will provide an explanation to the unrepresented employer, Thomas Gronna, and will not harm the interests of the other party, the department, under the particular circumstances of this case.
While Philip Lewis filed a federal income tax return for 1997 and claimed therein to be self-employed, the return doesn't help the putative employer, Thomas Gronna, in this case. Philip Lewis only worked for Thomas Gronna in 1997, and the tax return is not based on carpet or wall covering installation services performed by Philip Lewis for anyone in the previous year.
As to Thomas Gronna's son, Ryan Gronna, the attachments to the petition include copies of his tax returns for both 1997 and 1998. For both years, Ryan Gronna filed as a self-employed individual. As discussed above, the only relevant tax years as to Ryan were 1996 and 1997, because the years as to which Ryan's status was in issue were 1997 and 1998. Accordingly, only the return filed by Ryan for 1997 was for a year immediately preceding a year in issue (the 1997 return satisfies the requirement with respect to the 1998 year of issue).
The commission therefore finds that Thomas Gronna met his burden of showing that the first part of the two-part test for independent contractor status (the part prescribed by Wis. Stat. § 108.02(12)(b)1.) was met only as to Ryan Gronna's services performed in 1998. That first part of the test was not met as to Ryan Gronna's services performed in 1997, and it was not met as to services performed by Philip Lewis or Terry Osmanski in 1997.
The "eight-condition" test. The second part of the test for independent contractor status , set forth in Wis. Stat. § 108.02(12)(b)2., places the burden upon a putative employer such as Thomas Gronna to show that, in the year or years in issue, an individual whose employment status is in issue performed the services in issue under at least six out of eight conditions listed in that provision as a. through h.
The eight conditions, and their application to the three individuals here in issue, are set forth and discussed below.
a. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.
In J Lozon Remodeling, (LIRC, September 24, 1999), a case involving siding installers, the commission held that the focus of Condition a. is upon determining whether a separate business is being maintained with the individual's own resources.
The commission has also previously held that the mere presence or utilization of one type of resource; e.g., a home office, does not mandate a finding that a separate business is being maintained. Moreover, the list is not exclusive.
The expressly stated terms "office, equipment, and materials" are examples of kinds of resources that may be kept "at the ready" by an individual who is maintaining a business that is separate from the business of a putative employer of that individual. A putative employer may also be able to show that an individual is maintaining a separate business by means of "other facilities."
Condition a. does not expressly assign weight to the cost or monetary value of the resources that are kept "at the ready" by an individual who is allegedly maintaining a separate business. The commission considers, however, and has held, that such cost or value may reasonably be weighed in determining whether a separate business is in fact being maintained.
Here, there is no real evidence that any of the three individuals in issue maintained a carpet installation business separate from his relationship with Thomas Gronna. Thomas Gronna testified that in 1997 each of the individuals owned about $1,000 worth of tools, that he (Gronna) did not supply anything, and that the materials to be installed were supplied by the carpet store with which Thomas Gronna had a contractual arrangement.
There is no evidence in the record that any of the individuals in issue had a business office or business equipment related to office functions; e.g., a computer or business telephone number. There is also no evidence that any of them maintained a stock of materials, and there is no evidence of any other facilities that would be indicative of the existence and maintenance of a separate business. The individuals' personally--owned hand tools were not of such substantial value that their possession would indicate a separately maintained business in the absence of any other indicia. Acknowledged employes in various trades customarily supply and own hand tools of equal or greater value. Moreover, unlike such indicia as office rent or the maintenance of an inventory of materials, the occasional replacement of a hand tool does not represent a substantial and continuing outlay of funds to keep a business intact during periods when there may be no work and therefore no revenues. The tradesperson whose endeavor or "business" involves providing his or her own hand tools for use while performing paid services can lay those tools down when unemployed and incur little if any cost of maintaining those means of responding to the next opportunity to perform services for pay.
The commission therefore finds that Thomas Gronna did not meet his burden of showing that any of the individuals in issue maintains a separate business with his own office, equipment, or materials, or with any other facilities, within the meaning of Wis. Stat. § 108.02(12)(b)2.a.
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.
One of the requirements under condition b. is that the means and method of performing the services must be controlled by the individual who is alleged to be an independent contractor. In this case, the nature of the services did not require close supervision. Thomas Gronna testified that he was sometimes present at the work site. He further testified that he retained, (in the contract), and exercised, the right to inspect work in progress. He had the authority to make the individuals re-do work for no additional compensation. It should be noted that while Mr. Gronna also testified that he seldom, if ever, actually required re-work, the statute is satisfied only where the individual "operates under contracts...under which the individual controls the means and method of performing the services."
The underlined phrases in the preceding paragraph arguably indicate that the individuals did not perform their services free from control, or the right of control by Thomas Gronna. On the other hand, it is also arguable that, in this case, the exercised right to inspect work in progress and the reserved right to reject work that doesn't meet contractual expectations (e.g., workmanlike installation quality), are not highly probative. They indicate little more than the degree of control that would be present in an acknowledged independent contractor situation.
The commission therefore finds that Thomas Gronna met his burden of showing that the "freedom from control over means and methods" requirement embodied in condition b. was met.
However, condition b. also looks for multiple contracts. This is sound legislative policy because the existence of multiple contracts 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 considers that unless the statutory language requiring multiple
contracts is given effect, the underlying policy or purpose of condition b. -- to determine
whether the individual in issue has a degree of economic independence similar to that
enjoyed by acknowledged independent contractors -- is similarly not given effect.
Multiple contracts may be present in the form of multiple serial contracts or multiple contemporaneous contracts. Multiple contracts that an individual enters into with multiple business entities are most indicative of that individual's economic independence from a particular putative employer. However, multiple serial or contemporaneous contracts with a particular putative employer may also satisfy the condition if the contracts are shown to have been negotiated "at arm's length." In genuine independent contractor relationships, negotiation will typically result in terms that will vary over time and will vary depending on the specific services covered by a contract.
Here, each individual in issue was shown to have entered a single, continuing contract with Thomas Gronna. None of the individuals were shown to have had multiple contracts to perform installation services for others. There was testimony by Thomas Gronna that he thought his son Ryan Gronna performed services for two other businesses in 1997. That testimony was not corroborated and, as discussed above, 1998 is the only year remaining in issue as to Ryan, because the "FEIN or tax return" test was not met as to Ryan for 1997.
Condition b. also requires that contracts be specific as to the services to be performed and the "amounts of money" to be paid for those services.
The contracts in this case contain no provisions that are specific as to the time,
place, price or amount of installation services for any particular installation. What the
individuals agreed to in the "independent contractor" contracts would be equally
applicable to the situations of many acknowledged employes; e.g., piece- rate workers.
The individuals here in issue did not perform their services under contracts that met the requirements of condition b, even though the "freedom from control over means and methods" requirement embodied in condition b. was met.
The commission therefore finds that Thomas Gronna did not meet his burden of showing that condition b. was met.
c. The individual incurs the main expenses related to the services that he or she performs under contract.
Condition c. requires a showing by the alleged employer that the individual alleged to be an independent contractor incurs the main expenses related to the services that he or she performs under contract. Condition c. clearly addresses expenses incurred by the individual worker, and not those incurred by the alleged employer.
Appropriate application of condition c. requires, first, a determination as to the specific services actually performed. Next, the expenses that were related to the performance of those services must be identified. A determination may then be made as to which of the related expenses were borne by the alleged independent contractor. Finally, based on those determinations, a determination can be made as to whether the main part of those related expenses was incurred by the alleged independent contractor, as required by condition c.
Here, the commission considers it reasonable to infer that the services in issue consisted of measuring, cutting, stretching, fitting, fastening and trimming floor and wall coverings using various hand tools owned by the individual. No tools or equipment belonging to the putative employer were used.
The cost of raw materials in this case was not identified, and there is no evidence that it was incurred, even temporarily, by the individuals in issue. Such cost clearly was incurred by another party, either by Thomas Gronna or, more likely, the carpet retailer with whom Thomas Gronna contracted. In J Lozon Remodeling, (LIRC, September 24, 1999), the commission held that the cost of siding supplied by the putative employer did not constitute an expense related to the siding installers' performance of their services, within the meaning of condition c.
In any event, in this case, the specific services the individuals were shown (by reasonable inference) to have performed were all performed with the individuals' own tools. On this record, the main expense related to the individuals' performance of their services was the cost of their tools, which was borne by the individuals with no reimbursement from Thomas Gronna. Accordingly, the individuals incurred the main expenses related to their performance of services under their contract with Thomas Gronna.
The commission therefore finds that Thomas Gronna met his burden of showing that condition c. was met as to all services performed for him by all three individuals in issue in 1997 and 1998.
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.
The contract between each individual and Thomas Gronna provided that the individual would be obligated to perform re-work without additional compensation and that if the individual did not perform the re-work, Thomas Gronna could withhold payment and pay someone else to fix the problem.
Thomas Gronna was not shown to have ever absorbed the cost of re-work performed because his customer (homeowner, etc) was dissatisfied with an installation. Clearly, the individual was held responsible for satisfactorily installing carpet and wall coverings.
While there is no specific evidence as to the consequences of a failure to complete an installation, the reasonable inference, based on the state of the record as discussed above, would be that the individual would be similarly liable in that situation.
The commission therefore finds that Thomas Gronna met his burden of showing that each of the individuals in issue bore the responsibility and liability described in condition d.
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.
As the commission has held in other installation cases where remuneration is computed "by the yard", the term "commission basis" in condition e. is inapplicable. That term would be applicable if; e.g., the installers whose employment status is in issue were paid a percentage of the overall amount paid to Thomas Gronna by Thomas Gronna's customer; e.g., a carpet store or a homeowner. Clearly, that was not the case here.
The term "per-job basis" is also inapplicable in this case. Thomas Gronna testified that he paid the installers by the yard; each assignment or "job," would entail a different number of yards.
Finally, as to condition e., the term "competitive-bid" basis therein is not applicable. It was not shown that the per-yard remuneration was subject to negotiation or competition, and no practice of submitting bids was shown. Thomas Gronna testified that paying on a per-yard basis is an "industry standard." However, so far as the record reflects, Thomas Gronna set the amount of per-yard remuneration regardless of his basis for setting the particular amount. The reality, for each installer, was that the installer could "take it or leave it."
The commission therefore finds that Thomas Gronna did not show that condition e. was met with respect to any of the individuals in issue.
f. The individual may realize a profit or suffer a loss under contracts to perform services.
The commission has previously held that the statutory language in condition f. does not look only to the possibility of realizing a profit or loss under a single contract, nor does it look only to contracts with a single business, such as the business of the putative employer. Instead, the condition appears to address the overall situation of an alleged independent contractor, including all contracts under which s/he may have performed services in the year in issue. The term "may" indicates that the condition looks to the alternative possibilities of profit or loss-and not necessarily an actual profit or loss.
Thomas Gronna testified that he did not see how there could be any way the individuals could have suffered a net loss on work performed for him. Mr. Gronna did not show that the individuals had a possibility of realizing a profit, as distinguished from the mere opportunity to earn agreed-upon remuneration for services, an opportunity enjoyed by; e.g., acknowledged employes who are paid on a piece-rate basis.
The commission therefore finds that condition f. was not satisfied as to any of the individuals in issue.
g. The individual has recurring business liabilities or obligations.
Some examples of recurring business liabilities or obligations that might satisfy condition g. would be such items as monthly rent for a place of business, or the necessary periodic lay-out of funds associated with a significant investment-such as outright ownership of expensive equipment that might, at times, be idle. The latter example would apply where the individual is liable for, and obliged to make, substantial monthly payments toward the financed purchase price of such equipment. It would also apply if there were a periodic substantial lay-out of funds to maintain the value of such equipment.
Where they exist, substantial installment payments, significant maintenance costs, and rent are all recurring in nature and they are all relatively unavoidable-- whether or not the endeavor or "business" is currently producing revenue--if the endeavor is to continue to be "maintained." The common denominators are regular recurrence and unavoidability. The term "business" is placed in quotation marks in this discussion of condition g. because an individual may be engaged in an endeavor that would not meet the test under condition a. as interpreted and applied by the commission.
As discussed above in connection with condition a., Thomas Gronna testified that each of his installers personally owned about $1,000 worth of tools. While it is reasonable to infer that a particular hand tool would need to be replaced eventually, there is no evidence as to the recurrence of the need, nor is there any evidence as to amount(s) actually or typically expended by the individuals in issue for tool replacement. Moreover, as also discussed above, the hand tools could presumably lie idle without any associated costs to the individual that could be reasonably characterized as recurring business liabilities or obligations. Finally, while the need to replace a hand tool would surely arise at some point, it would more reasonably be characterized as an occasional expense, rather than a regularly recurring business liability or obligation.
The commission therefore finds that Thomas Gronna did not meet his burden of showing that any of the individuals in issue had recurring business liabilities or obligations, within the meaning of condition g.
h. The success or failure of the individual's business depends on the relationship of business receipts to expenditures.
This statutory condition, like condition g., uses the term "business." The commission has held that in order to have business receipts and expenditures, there must be a business.
The commission considers that, on this record, the term "business" is reasonably interchangeable with the term "endeavor" utilized by the commission in its discussion, above, of condition g.
The individuals in the instant case had receipts in the form of piece-work remuneration, a fixed amount, set by Thomas Gronna, for each yard of material they installed. On this record, any expenditures by the individuals must be inferred from the fact that they each possessed about $1,000 worth of hand tools, the reasonable inference being that there would be some unknown amount of expenditures for maintaining or replacing those tools. Any such expenditures related to $1,000 worth of tools would be de minimis in comparison to the earnings shown in this record.
As discussed above in connection with condition f., Thomas Gronna testified that he did not see how there could be any way the individuals could have suffered a net loss on work performed for him. The commission agrees. Each of the individuals in issue were assured of receiving the remuneration to which they had agreed, for each yard of material they installed for Mr. Gronna. If they chose not to accept an assignment or installation "job" from Mr. Gronna, or if no such work was available at any given time, they would be unemployed. Their situation was not materially different from that of a carpenter who customarily works as an acknowledged employe for a building contractor, supplies his own tools and may be "off work" involuntarily or voluntarily at various times.
The success or failure of the individuals' "businesses" or endeavors was not dependent on an unpredictable relationship of business receipts to expenditures. Whenever they engaged in the endeavor of installing carpet and wall coverings, they were assured of payment at an assured rate. Any expenditures related to their endeavor were not shown to be anything more than minimal and would cease whenever they were not engaged in their endeavor. In short, if the individual was working, his success within the meaning of condition h. was assured and there was no quantifiable risk of his failure, within the meaning of condition h.
Mr. Gronna did not show that the success or failure of the individuals' business
depended on the relationship of business receipts to expenditures, within the meaning of
The commission therefore finds that Thomas Gronna met his burden of proof under Wis. Stat. § 108.02(12)(b)1. (the "FEIN or tax return" test) only as to his son Ryan Gronna, and only as to services performed by Ryan Gronna in 1998. Mr. Gronna did not meet his burden of proof under that test as to either Philip Lewis or Terry Osmanski for services performed by them in 1997 or 1998.
As to the "eight conditions" test under Wis. Stat. § 108.02(12)(b)2., Thomas Gronna did not show that his son Ryan performed his services under circumstances that met at least six of the eight conditions.
The commission further finds that even if the first statutory test had been met as to Philip Lewis and Terry Osmanski, and as to both 1997 and 1998, Thomas Gronna did not satisfy Wis. Stat. § 108.02(12)(b)2. (the "eight conditions" test) as to as to any of the services performed in 1997 or 1998 by either of those two individuals.
The commission therefore finds that all services performed for Thomas Gronna in 1997 and 1998 by Ryan Gronna, Philip Lewis and Terry Osmanski were performed as employes of Thomas Gronna, within the meaning of Wis. Stat. § 108.02(12). Thomas Gronna is therefore liable for unemployment compensation contributions or taxes based on all such services performed for him by those individuals in 1997 and 1998.
The appeal tribunal decision is modified to conform to the commission's findings and conclusions. As modified, the appeal tribunal decision is affirmed. Accordingly, in 1997, Ryan Gronna, Philip Lewis and Terry Osmanski performed services for Thomas Gronna as his employes, within the meaning of Wis. Stat. § 108.02(12). Ryan Gronna also performed services as Thomas Gronna's employe in 1998, within the meaning of Wis. Stat. § 108.02(12).
Thomas Gronna is required to pay Wisconsin Unemployment Insurance taxes on wages paid to Ryan Gronna, Philip Lewis and Terry Osmanski for services performed in 1997, and wages paid to Ryan Gronna for services performed in 1998.
The department's March 8, 1999 determination is remanded for such further investigation or action as may be necessary in light of the information in this record regarding wages paid to the individuals in issue.
Dated and mailed February 22, 2000
gronnatom.srr : 200 : 1 EE 410 EE 410.03 EE 410.05
/s/ David B. Falstad, Chairman
/s/ Pamela I. Anderson, Commissioner
/s/ James A. Rutkowski, Commissioner
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