TERRY L SUBBERT, Applicant

TREEBUS CONSTRUCTIONS, Employer

TREEBUS CONSTRUCTIONS, Insurer

Respondents Matthew Zei and Kim Subbert submitted petitions for commission review alleging error in the administrative law judge's Findings and Interlocutory Order issued in this matter on December 4, 2009. Briefs were submitted by counsel for Matthew Zei and by counsel for respondent Wisconsin Worker's Compensation Uninsured Employers Fund. The threshold issue before the administrative law judge was whether or not an employer-employee relationship existed between the applicant and Matthew Zei and/or Kim Subbert, pursuant to Wis. Stat. §§ 102.04(1) and 102.07(4). Assuming an employer-employee relationship, additional issues presented were the applicant's average weekly wage, the nature and extent of disability attributable to the injury, and liability for medical expense.

The only issue petitioned to the commission by both respondents was the threshold issue of whether or not an employer-employee relationship existed between the applicant and Matthew Zei and/or Kim Subbert.

The commission has carefully reviewed the entire record in this matter and hereby affirms the administrative law judge's Findings and Interlocutory Order, except as herewith modified:

Delete the two paragraphs that each begin on page 7 of the administrative law judge's decision, and substitute the following paragraphs and footnotes therefor:

"Matthew Zei (Zei) entered into a written contract with two homeowners on May 2, 2003, to perform the labor necessary for the construction of the homeowners' log home. The homeowners had purchased the materials for the home from another company, Wilderness Log Homes. Zei signed the contract as representative of "Matt Zeis Construction," which the facts demonstrate at that time constituted Zei's sole proprietorship. Zei had been convicted of theft from a contractor and had spent two-and-one-half years in prison for this offense, being released in August of 2002. Two conditions of his parole were: (1) that he was allowed to work in the construction business only as an employee; and (2) that all money in such business was to be handled only by his employer. When Zei signed the business contract with the homeowners on May 2, 2003, he received down payment money from them, and was therefore in violation of both parole conditions.

At the time Zei entered into the contract he was living with Kim Subbert (Subbert). They became engaged in July 2003 but are no longer engaged. Zei approached Subbert about establishing a construction corporation with her as president, with the idea that the corporation would take over the log home project and thereby circumvent Zei's parole restrictions. This idea surfaced after Zei had entered into the contract with the homeowners, received money from them, and established a bank account under the name of Zei Construction. Subbert agreed to the plan and began completing paperwork for a corporation to be named Treebus Construction, Inc. Simultaneously, she assumed various duties relative to the construction project. In July 2003, she obtained a federal employer identification number for Treebus Construction, Inc., and also in July, the checking account name was changed from Zei Construction to Treebus Construction. Both Zei's and Subbert's names were placed on the Treebus bank account, and Subbert signed the payroll checks for the workers who were hired to help with the log home project. Zei received additional payment from the homeowners for the work performed, and he kept an unspecified amount of this money for himself while depositing the balance in the Treebus account. Zei also received an hourly wage from the Treebus account for his carpentry work on the project.

Subbert told her brother, the applicant, that Zei was looking for laborers to help with the project. The applicant went to the jobsite where Zei agreed to hire him as a laborer, and established his starting wage at $9 per hour. The applicant was regularly given direction at the jobsite by another worker, Rick Gengler, but also received direction from Zei when Zei was onsite.

The applicant was originally paid in cash by Subbert, with the deliberate purpose of allowing him to continue to receive unemployment benefits while also receiving these cash wages. Zei objected to this fraudulent arrangement, but Subbert imposed her will to go ahead with it. The applicant subsequently arranged to repay the fraudulently-received unemployment benefits. Subbert received $15 per hour for her services in this venture, but no payroll deductions were taken out of what she received, and she reported this money as nonemployee compensation on a Form 1099 for the tax year 2003. Payroll deductions were taken out of the wages Zei received for his carpentry work on the project, but these wages were separate from the direct payment money Zei took from the homeowners. Applicant's Exhibit H is a payroll log that shows a payment to Zei of $7,055 in cash that is listed under "additional labor." No deductions were taken out of this payment, which is inferred to represent an additional contract payment that Zei took from the homeowners.

It has been asserted that Zei and Subbert actually formed a partnership to operate Treebus Construction, but the facts demonstrate that no legal partnership was ever formed.(1) Zei's operation of his sole proprietorship ran into a roadblock with the parole restrictions, and he attempted to circumvent those restrictions by enlisting Subbert to agree to form a corporation. Subbert did agree with this plan, but after a period of operating the venture together, Zei and Subbert abandoned the idea of forming a corporation. Subbert used her position in the venture to her brother's short-term advantage by paying him cash without any payroll deductions. However, she never contributed any capital to the company and never intended to form a partnership. Neither was there any evidence that Zei ever intended to form a partnership.

The Uninsured Employers Fund argues that the business arrangement between Zei and Subbert constituted a joint venture making both Zei and Subbert liable employers under the Act, and the credible evidence demonstrates that this is what actually occurred. In Bulgrin v. Madison Gas & Electric Co., 125 Wis. 2d 405, 373 N.W.2d 47 (1985), the court stated:

"A joint venture exists when two or more parties agree to contribute money or services in any proportion towards a common objective, exercise joint ownership and control and share profits but not necessarily losses. Sussmann v. Gleisner, 80 Wis. 2d 435, 444, 259 N.W.2d 114, 118 (1977).⁽²⁾ Control need not be shared equally between members of a joint venture but may be delegated to one member. House v. Mine Safety Appliances Co., 573 F.2d 609, 620 (9th Cir. 1978)." (Id. at 412).

Zei and Subbert together agreed to a plan to convert the business operation into a corporation, and together took steps to incorporate. The plan to incorporate was eventually abandoned, but Zei and Subbert together did operate the business. The facts demonstrate that for a substantial period of time leading up to and including the date of September 4, 2003, Zei and Subbert operated the business as a joint venture.

Zei and Subbert both provided services in conducting the venture of constructing the log home. Zei negotiated and secured the contract with the homeowners, received payments from them, and performed carpentry work on the log home. Subbert provided administrative, accounting, and payroll services. In providing their services, Zei and Subbert exercised shared control over the subject matter and employees of the venture, including Subbert's arrangement of a fraudulent method for paying the applicant's wages. Zei appears to have taken a much larger share of any profits that might have been realized from the homeowner's payments. However, Subbert also paid herself out of the payments from the homeowners, and elected to report what she received as business income without payroll tax deductions. Thus, both individuals shared in the profits of the venture. There was verbal agreement between Zei and Subbert to operate the venture as they did, and as it was operated it was a joint venture.

In addition, the credible evidence leads to the inference that both Zei and Subbert had the right to control the details of the applicant's work, and the work of the other employees on the project.(3) Zei and Subbert, acting as joint venturers, shared responsibility for hiring the applicant and controlling the details of his work. Zei's control was directed more towards the applicant's on-the-job tasks, and Subbert's control was directed more towards the administrative details of how and when he was to be paid. However, the most frequent on-the-job direction and control was effected through the personage of another employee of the joint venture, the de facto foreman, Rick Genger. Genger's testimony revealed that he was not certain whether it was Zei or Subbert who hired him after he found out about the job through Job Service. He also indicated he essentially appointed himself to give orders to the other employees because he "...knew what was going on more than anyone else." He credibly testified that he was aware of Zei's and Subbert's involvement in the venture but he did not know "...who the owner of the company really was." His testimony is consistent with the inference that both Zei and Subbert possessed the right to control the details of the work of the employees on the job, including the applicant. Actual exercise of that right is not necessary to establish the control factor. Insurance Company of North America v. DILHR, 45 Wis. 2d 361, 366, 173 N.W.2d 192 (1970).

Accordingly, acting as joint venturers, both Zei and Subbert were employers of the applicant when he was injured at work on September 4, 2003."

The rest and remainder of the administrative law judge's Findings and Interlocutory Order are affirmed and reiterated as if set forth herein.

NOW, THEREFORE, this

The Findings and Interlocutory Order of the administrative law judge are modified to conform with the foregoing, and as modified are affirmed. Jurisdiction is reserved for such further findings and orders as may be warranted.

Dated and mailed July 27, 2010
subbete : 185 : 5 ND6 2.7, 2.12

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc: Attorney Frank Doherty
Attorney Brian G. Weber
Attorney William Skemp
Attorney Jeffrey J. Strande

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(1)( Back ) The supreme court has explained that there are four elements necessary to create a partnership under ch. 178: (1) the parties must intend to form a partnership and accept the legal requirements and duties necessary to such a relationship; (2) there must be a community of interest in the capital employed by the partnership; (3) each partner must have an equal voice in the management of the partnership operation; and (4) the profits and losses of the corporation must be shared and distributed. Skaar v. DOR, 61 Wis. 2d 93, 98-99, 211 N.W.2d 642 (1973).

(2)( Back ) In Sessmann v. Gleisner (supra), the elements of a joint venture were described as follows:

"The elements which must be proved to establish a joint venture are the following: '(1) Contribution of money or services; (2) joint or mutual control; (3) an agreement to share profits although not necessarily the losses; and (4) a contract establishing the relationship.' Mortgage Associates v. Monona Shores, 47 Wis. 2d 171, 183, 177 N.W.2d 340 (1970)."

Id. at 444. 3

(3)( Back ) The primary test for determining if an employer-employee relationship exists is whether the alleged employer has a right to control the details of the work. Kress Packing Co. v. Kottwitz, 61 Wis. 2d 175, 182, 212 N.W.2d 97 (1973); Ace Refrigeration & Heating Co. v. Industrial Comm., 32 Wis. 2d 311, 315, 145 N.W.2d 777 (1966).

The fact that there were at least four employees of the joint venture at the worksite when the applicant was injured satisfies the test for covered employers found in Wis. Stat. 102.04(1)(b).

uploaded 2010/09/17