Wisconsin Labor and Industry Review Commission --
Summary of Wisconsin Court Decision relating to Unemployment Insurance
Subject: Quale & Associates, Inc., d/b/a Handyman Connection v. LIRC and DWD, Case No. 04-CV-10648 (Wis. Cir. Ct., Milwaukee Co., May 24, 2005)
Digest Codes: EE 410, EE 410.05, EE 410.06, EE 410.08, EE 410.09
Facts: Quale provided repair services to residential homeowners, including plumbing, electrical, drywall, and carpentry services. Prospective customers who were interested in their services contacted Quale directly. After obtaining preliminary information about the nature of the services to be done, a worker was sent out to the job site to determine how long the job would take, the cost of the labor, and the materials that would be needed.
While at the job site, the worker would telephone Quale from the customer's home in front of the customer. The worker would describe the nature of the job and Quale would then ask the worker to estimate how long the job would take. If the worker estimated that the job would take more or fewer hours than what Quale initially quoted, the worker would decline the offer. Then the worker would be asked if the job would take more time. If the worker answered in the affirmative, the worker would be asked if it would take that certain amount of hours plus an additional hour or two. If the worker said "yes", then the worker would be given a price range to quote to the customer. If the worker thought the job would take more or less time, he would be asked more questions until both Quale and the worker arrived at an agreeable time that the worker thought the job would take.
Once a price range was agreed upon, the worker would then draft a proposal that contained a detailed description of the work, including the price range. This was done on a customer proposal and contract form that was provided by Quale. If the customer agreed to the proposal, the work would be performed as soon as possible, with the customer providing the necessary materials and supplies. (The customers either bought the necessary materials themselves or reimbursed the worker for those materials). However, not every proposal resulted in a contract and the workers spent their own time and bore their own transportation expenses in the estimation process.
When the work was completed, the worker provided the final price to the customer. Generally, this amount was within the price range originally quoted to the customer. The customer would then write a check payable to Quale. When the worker gave the check to Quale, it issued a check for one-half of that amount to the worker. If the customer did not pay for the services performed, then neither Quale nor the worker were paid.
Quale provided a one-year warranty to the customer on services performed. If the customer experienced a problem with the services while under the warranty period, the original worker was sent to make the necessary repairs for no additional compensation. If that particular worker was no longer available, Quale sent another worker to complete the repairs. In that situation, the worker was paid $20-$25 per hour. Quale then sought to collect that labor cost from the original worker by deducting that amount from their future pay or commencing a lawsuit against them.
Workers provided their own transportation both to and from the job site and their travel expenses were not reimbursed by Quale. While one individual purchased an automobile specifically for the worker's duties for Quale, most of the vehicles used by the workers were also for personal use. There was also no evidence to indicate that the worker's vehicles were specially equipped for the type of duties that Quale workers would have to complete.
While some workers purchased their own liability insurance, others did not. However, Quale carried liability insurance that covered the actions of all of its workers. Likewise, some of the workers had their own cell phones or pagers that were used occasionally for work purposes, but were purchased primarily for personal use. Finally, workers provided their own tools and equipment to be used in the repair projects. While some workers already owned the necessary equipment due to prior work experience, others used the equipment for their own personal use.
To obtain workers to complete its handyman projects, Quale advertised in newspapers. Once a prospective worker made contact with Quale, the worker then entered into a written contract. After they signed the contract, the workers would attend a short orientation meeting and undergo training. Most workers also completed an application for a Federal Employee Identification Number ("FEIN"). While some of the individuals who applied for federal identification numbers received them, there were other workers who never obtained their federal identification numbers.
Following an audit of Quale's
records, DWD issued an initial determination assessing Quale for additional
unemployment insurance taxes for the four calendar quarters of 2000 and the
first three calendar quarters of 2001, in the amount of $15,983.67.
Quale appealed the determination of the DWD. The ALJ ruled that Quale's
workers were not employees and were instead independent contractors. DWD
petitioned the LIRC to review the decision. On November 19, 2004, LIRC
issued its decision concluding that Quale's workers were
employees. Quale then filed this lawsuit seeking review of the LIRC's decision.
The LIRC's decision in this matter is entitled to great weight deference for several reasons. First, the LIRC has traditionally applied the factors set forth in Wis. Stat. § 108.02(12)(bm) to similar cases. Second, the LIRC used its expertise and specialized knowledge in making a final determination as to the status of Quale's workers. Third, there is a need for uniformity and consistency in the application of the relevant statutes, such that the LIRC's decision is entitled to great weight deference.
Whether an individual is an "employee" within Wis. Stat. § 108.12 is a mixed question of fact and law that requires the application of a statutory standard to findings of fact. See, Larson v LIRC, 184 Wis. 2d 378, 386, 516 NW2d 456 (Ct App 1994). Determining whether persons are employees for unemployment compensation purposes requires a two-step analysis. See, Keeler v. Labor & Industry Review Comm., 154 Wis.2d 626, 631, 453 N.W.2d 902. (Ct. App. 1990). Primarily, the LIRC has the burden of showing that the individuals performed services for an employing unit for pay. If that is established, the individuals are presumed to be employees for purposes of unemployment compensation. The burden then shifts to the employer to show that the workers should be exempt under the provisions of Wis. Stat. § 108.02 (12)(bm). This requires proof that seven of ten stated conditions are satsified.
Condition 1 addresses the individual's holding or application for an identification number with the federal internal revenue service. Most of Quale's workers either held or had applied for an FEIN number, fulfilling Wis. Stat. § 108.02(12)(bm)1.
Condition 2 deals with the individual's filing of business or self employment income tax returns with the federal internal revenue service. The LIRC determined that the employer successfully established that only some individuals had filed business or self-employment income tax returns during the time they performed services for Quale.
Condition 3 references the individual's maintenance of a separate business with their own office, materials, equipment, and other facilities. The LIRC determined that Quale failed to sustain its burden regarding sub. 3, except as to two individuals. Although Quale was able to present evidence indicating that all the workers used their own equipment and materials, only those two had businesses that were separate from Quale's and actually had their own offices.
Condition 4 addresses individuals who operate under contracts to perform specific services for specific amounts of compensation. Because the terms of the contract varied depending upon the type of service required by the customer and the initial assessment of the worker, the LIRC concluded that sub. 4 was partly satisfied. The LIRC also noted that because Quale made certain suggestions to the workers regarding their sales techniques and the completion of the necessary bid forms, the employer sustained its burden to show that sub. 4 was satisfied.
As to condition 5, the LIRC examined whether the individual worker has incurred the main expenses related to the services that they performed. Indeed, the workers included in the audit provided their own vehicles, equipment, and tools to use during their jobs. Some of the workers used their personal vehicles while doing work for Quale. Yet, the record did not demonstrate what part of the depreciated purchase costs would be properly apportioned to the individual's work for Quale. Moreover, Quale paid for liability insurance covering the work performed by the workers. All in all, the LIRC concluded that Quale failed to sustain its burden to demonstrate that the workers incurred the main expenses related to the services they provided.
As to condition 6, the LIRC considered whether the individual worker is responsible for the satisfactory completion of their services. The LIRC concluded that sub. 6 was satisfied because the worker was obligated to re-do a project without additional pay if the customer alleged a warranty violation. If the worker was not available to do the work, the cost of the repair was deducted from his future pay. If the worker was no longer affiliated with Quale, legal action was commenced to recover that amount.
Condition 7 addresses whether or not the individual receives compensation for services performed under the contract on a commission or per job basis. Most of the workers received compensation in the amount of one-half of the job price. Yet, the LIRC noted that the record suggested that some of the workers were hired to perform the warranty work of other workers who were no longer associated with Quale. Those workers were paid a flat hourly rate. Therefore, such a fee arrangement did not satisfy the requirements of sub. 7.
Condition 8 addresses the potentiality of the worker to realize a profit or suffer a loss under the contracts performed. Under sub. 8, the LIRC determined that there was no business risk to the workers under the contracts. Although both the workers and Quale shared the risk of not being paid for services already completed, the LIRC noted that this is not the type of risk contemplated by the statute. Instead, the statute refers to the potential profit or loss under contracts to perform services. Therefore, expenses incurred in seeking to obtain contracts were not considered relevant and the requirements of sub. 8 were not met.
Condition 9 has the LIRC consider whether the worker has recurring business liabilities or obligations. The Commission concluded that sub. 9 requires an indication of the costs of doing business which the worker would incur even when they were not performing any work for the employer. The LIRC concluded that only a few of the individuals had fixed business costs. These costs included business liability insurance, cost of work truck, business cell phone, rented storage facility, and a business pager. For the workers that used personal vehicles or personal cell phones, those were not considered as business liabilities or obligations under sub. 9.
Finally, condition 10 has the LIRC examine whether the success or failure of the individual's business depends upon the relationship of business receipts to expenditures. Under that condition, the LIRC determined that the workers had a relatively small investment in tools and expenses. Moreover, the worker's recurring expenditures were so minimal that they could be easily discontinued if they no longer received work through Quale. Therefore, the LIRC held that Quale failed to satisfy sub. 10.
In short, the LIRC concluded that Quale failed to sustain its burden of proof as to all its workers in regard to conditions 5, 7, 8, and 10. In other words, only six of the ten conditions were satisfied as to all of the workers. Since the statute requires fulfillment of seven of the ten conditions, the LIRC properly concluded that the workers were employees under Wis. Stat. § 108.02(12).
Because this court finds that the factual conclusions of the LIRC are supported by credible and substantial evidence in the record and legal conclusions of the LIRC are not contrary to the clear meaning of the applicable statutes, the decision of the LIRC is affirmed.
Please note that this is a summary prepared by staff of the commission, not a verbatim reproduction of the court decision.
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