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

DAVID ALAN WESTPHAL, Applicant

PLEASANT VALLEY CONSTRUCTION, Employer

WIS WC UEF, Insurer

WORKER'S COMPENSATION DECISION
Claim No. 1998-065924

Pleasant Valley Construction/Scott Pahos and the Wisconsin Worker's Compensation Uninsured Employers Fund (collectively the respondents) submitted a petition for commission review alleging error in the administrative law judge's Findings and Interlocutory Order issued in this matter on November 13, 2000. The applicant submitted an answer and briefs were submitted by the parties. The applicant sustained a conceded injury to his ankles while working for Pleasant Valley Construction on December 9, 1996. At issue is whether Pleasant Valley Construction was Scott Pahos' individual business or a partnership between Pahos and the applicant, and if the former, whether Scott Pahos was the employer of the applicant under the Act. Also at issue are average weekly wage, nature and extent of disability, and liability for medical expense.

The commission has carefully reviewed the entire record in this matter and hereby affirms in part and reverses in part the administrative law judge's Findings and Interlocutory Order. The commission makes the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

BACKGROUND

The applicant and Scott Pahos are employed full-time by a company (Louisiana Pacific) which is not a party to this proceeding. The issues of partnership and employment for worker's compensation purposes arise out of construction work which these two individuals performed together.

In the fall of 1995, the applicant helped Pahos build his house, and Pahos gave him a used lawnmower as a "thank you" for his work. Subsequently, Pahos' wife's boss, Jack Link, asked Pahos if he would be interested in performing some minor construction jobs at Link's cabin. Pahos agreed to do the work but asked the applicant to assist him. Pahos and the applicant agreed to an even split of the work and the money Link paid for it.

In the early fall of 1996, one of Link's acquaintances, Dave Springer, asked Pahos to give him a bid for construction of a pole barn. Pahos had previously constructed two pole barns for his own use, but had never been hired to build one. Springer had already purchased the material for the barn, so all he needed from Pahos was an estimate for the cost of labor. Pahos discussed the matter with the applicant, knowing that he and the applicant worked well together, and that the applicant was familiar with the area where the barn was to be constructed. In their conversation, Pahos and the applicant agreed that after paying the other workers who would be needed, and miscellaneous expenses, they should each be able to make about $4,000.00 from the project.

Pahos submitted a bid to Springer, who accepted it sometime in October of 1996. Pahos and the applicant came up with the name Pleasant Valley Construction as a business name for insurance purposes. Pahos and the applicant then went out and viewed the construction site, and looked at the blueprints for the barn. Construction began with both Pahos and the applicant performing the work, together with several other individuals whom the applicant had referred to Pahos, and whom Pahos had then hired. The applicant made these referrals because Pahos did not know people in the area. The individuals who were hired believed that Pahos was their employer and the applicant was "like a foreman."

The applicant contacted a relative who knew of a subcontractor who could set the poles for the barn, but when that subcontractor came out to the site to do the work he met with Pahos. The subcontractor who brought his crane to the site to set the trusses only had contact with Pahos, and was eventually was paid with a check written by Pahos. Pahos received the scheduled payouts directly from Springer, and passed some of the money on to the applicant for distribution to the other workers. Pahos regulated how much was paid out at any particular time, and on one occasion the applicant paid money out of his own pocket to a worker whose wages were past due. The applicant was a friend of this individual and considered it to be a personal loan.

On December 9, 1996, the applicant slid off the roof while working on the barn and landed on his heels. He fractured both heels, underwent surgery, and was off work until March 27, 1997. His treating physician ultimately assessed 25 percent permanent partial disability at each ankle.

During the construction of the barn, Pahos paid the applicant approximately $1600.00. In August of 1997, the applicant filed a civil complaint against Pahos, as an individual, for an additional $2400.00. The applicant claimed that this was the balance due him under a verbal contract with Pahos for his labor as an "independent contractor or as an employee." Pahos contested the applicant's right to the additional money, but eventually agreed to settle the lawsuit by paying the claimed amount. However, a default judgement was subsequently entered because Pahos was unable to come up with the cash needed for the payment.

No tax returns were filed by anyone on behalf of Pleasant Valley Construction, except for an "extension" Pahos filed in his own name on an unspecified date. Nor was an employer identification number ever obtained for the business, or a checking account established for it. Prior to the beginning of the construction, Pahos had indicated to the applicant that he had "insurance" on the project, and the applicant believed that this included worker's compensation insurance. In fact, Pahos had purchased a liability insurance policy but no worker's compensation insurance.

PARTNERSHIP ISSUE

In Heck & Paetow Claim Service, Inc. v. Heck, 93 Wis.2d 349, 359-60, 286 N.W.2d 831 (1980), the Wisconsin Supreme Court described the elements of a partnership as follows:

"Wisconsin case law recites that a partnership is an association of two or more persons formed to carry on a business as co-owners for profit. Sec. 178.03(1), Stats. A partnership agreement, whether expressed or implied, may be in writing or proven by circumstantial evidence demonstrating that the conduct of the parties was of such a nature as to clearly express the mutual intent of the parties to enter into a contractual relationship. Sander v. Newman, 174 Wis. 321, 328, 181 N.W. 822 (1921); Hayton v. Appleton Machine Co., 179 Wis. 597, 601, 192 N.W. 168 (1923); Bartelt v. Smith, 145 Wis. 31, 35, 129 N.W. 782 (1911). Every partnership depends on the mutual consent and understanding of its members, and as a result, there must be a meeting of minds of the parties, and thus the intention of one party alone cannot create a partnership. The burden of proof of establishing a partnership relationship is on the party claiming that such a valid relationship exists. Morris v. Resnick, 268 Wis. 410, 415, 67 N.W.2d 848 (1955); Anderson v. Anderson, 54 Wis.2d 666, 669, 196 N.W.2d 727 (1972).

In Skaar v. Department of Revenue, 61 Wis.2d 93, 211 N.W.2d 642 (1973), the court held that the four elements necessary to create a partnership under ch. 178, Stats., are:

1. The contracting parties must intend to form a bona fide partnership and accept the legal requirements and duties necessary to such a relationship.

2. There must exist 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.

4. The profits and losses of the corporation must be shared and distributed. Id. At 98-99; Stern v. Department of Revenue, 63 Wis.2d 506, 509-10, 217 N.W.2d 326 (1974); In re Estate of Schaefer, 72 Wis.2d 600, 605, 241 N.W.2d 607 (1976).

The ultimate and controlling test as to the existence of a partnership is the parties' intention of carrying on a definite business as co-owners. Such intention may be determined from the terms of the parties' agreement or from their conduct under the circumstances of the case. Bartelt v. Smith, supra at 35."

The evidence does not support the inference that Pahos and the applicant mutually intended to form a bona fide partnership. Pahos and the applicant informally discussed the project before Pahos submitted a bid, and estimated that they could each make about $4,000.00 from their efforts. However, there is no credible evidence of the intention to accept the legal requirements and duties of a partnership. No evidence was presented that the term "partnership" was even discussed between Pahos and the applicant. No evidence was presented of a discussion concerning the federal or state tax filing requirements of a partnership. In fact, the applicant conceded that he never reported the income he received from the project; and when Pahos was asked whether he filed any taxes on behalf of Pleasant Valley Construction, he initially responded "Not really." Subsequently, he indicated that an "extension" had been filed on taxes for Pleasant Valley Construction, in his name only. A name was created for the enterprise only because the liability insurer required one, but there was a deliberate decision on Pahos' part to avoid the legal requirement of obtaining worker's compensation insurance. No checking account or other financial structure was created for a partnership. The federal requirement of obtaining an employer identification number for a business with multiple employees was ignored.

As to the second of the four elements required to form a partnership, there does not appear to have been any significant capital invested in a partnership. Pahos provided some tools and ladders, but for the most part each individual brought his own tools.

The third requirement is that each partner have an equal voice in the management of the partnership operation, and this was clearly not the case between Pahos and the applicant. Pahos individually secured the project from Springer and individually signed the construction contract. It is inferred from the evidence that Springer considered Pahos to be a self-employed individual for purposes of this project. Pahos controlled the cash received from the payouts which Springer made directly to him, and was seen by all the individuals who worked on the project as the individual in charge.

Finally, there was no evidence that the profits and losses of Pleasant Valley Construction were shared and distributed. Informally, Pahos and the applicant initially surmised that they could each make $4,000.00 from the project. But in reality, Pahos controlled the cash and attempted to pay the applicant in accordance with the labor he put into the project prior to his injury. Pahos was unwilling to pay the applicant anything more than $1600.00 until the applicant sued him on the basis of additional money due for alleged additional labor. There is no final accounting in the record from which distribution of profits and losses could be determined.

Accordingly, it has not been demonstrated that a legal partnership was formed between the applicant and Pahos.

EMPLOYER-EMPLOYEE RELATIONSHIP

The next question is whether the applicant was an employee of Pahos when he was injured on December 9, 1996. The contractual relationship in the matter of the pole barn construction project was between Springer and Pahos. Pahos assumed the responsibilities for insurance, and for payment of subcontractors. As previously noted, he received the payouts from Springer and thus controlled all disbursements. Although he relied on the applicant to recruit workers for the project, he approved their hiring and oversaw the general operation of the project. He continued his business of constructing pole barns after the Springer project, without any involvement by the applicant. The reasonable inference from this evidence is that Pahos had the right to control the details of the applicant's and the other employees' work, including the right to terminate any of these employment relationships. The evidence is also clear that Pahos' construction business usually employed three or more employees, and thus he was an employer pursuant to Wis. Stat. § 102.04 (1)(d)1.

AVERAGE WEEKLY WAGE

The commission has found credible Pahos' testimony that he and the applicant each hoped to make $4,000.00 from the Springer project. The commission has further found that Pahos was the employer of the applicant, and it follows that the $4,000.00 the applicant expected to receive represented wages for the hours of labor it was projected he would devote to the project. The applicant's own testimony was that he averaged approximately the same number of hours each week working on the barn, and the credible inference is that he planned to continue to do that until the barn was completed. Accordingly, the most accurate estimate of his average weekly wage would be to divide $4,000.00 by the number of weeks it would have taken to construct the barn had the applicant not been injured. The record does not disclose how many weeks it actually took to build the barn, or whether anyone was hired to replace the applicant after he was injured. Therefore, the matter will be remanded for opportunity for further hearing with regard to the factual issue of the number of weeks it would have taken to construct the barn had the applicant not been injured. The applicant's average weekly wage shall thereafter be determined by dividing $4,000.00 by that number. The parties should be able to reach agreement on this number by reviewing the facts, but in case of dispute, opportunity for hearing will be available.

DISABILITY AND MEDICAL EXPENSE

As a result of the compensable injuries to his ankles, the applicant sustained 11 weeks and 3 days of temporary total disability. He also sustained 25 percent permanent partial disability at each ankle yielding 137.5 weeks of compensation. The exact amount of the awards due for temporary and permanent partial disability are dependent upon the average weekly wage to be determined on remand.

The commission further finds that the medical expenses submitted at the Applicant's Exhibit B were reasonable and necessary to cure and relieve the applicant from the effects of his work injuries. Accordingly, respondents are liable for reimbursement of these expenses to the applicant and the health insurance carriers as set forth in that exhibit.

The applicant's attorney, Theodore Franti, is entitled to a 20 percent fee to be assessed against the temporary total disability and permanent partial disability awards. He is also entitled to $948.27 in costs to be subtracted from those awards.

INTERLOCUTORY ORDER

The Findings and Order of the administrative law judge are affirmed in part and reversed in part. Within 30 days from this date, respondents shall pay to the applicant as reimbursement for medical expense the sum of two thousand twenty-two dollars and seventy-seven cents ($2,022.77); to United Health Care Insurance Company as reimbursement the sum of fifteen thousand two hundred thirty-five dollars and eighty-two cents ($15,235.82); and to Preferred One/CIGNA Health Care the sum of three hundred sixty-six dollars and five cents ($366.05).

The matter is remanded to the Worker's Compensation Division for determination of the applicant's average weekly wage, and the exact amounts due for temporary total disability, permanent partial disability, and attorney fees, in accordance with the above findings.

Jurisdiction is reserved only with respect to the issues specifically noted to be resolved on remand.

Dated and maile May 15, 2001
westpda . wsd : 185 : 8  ND § 2.2  § 2.7  § 2.11    § 4.5

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

MEMORANDUM OPINION

The only finding made by the administrative law judge which the commission reversed was the finding with regard to the applicant's average weekly wage. The administrative law judge indicated in his consultation with the commission that he did not have strong credibility impressions with regard to the issue of the wage arrangement between the applicant and Scott Pahos, but he accepted the applicant's testimony regarding an hourly wage because he found the applicant credible in all other respects. The commission also found the applicant to be generally credible, but not with regard to the wage arrangement. The applicant testified that he was supposed to earn $10.00 per hour, but he conceded that he did not keep track of how many hours he worked, and that on many days Pahos had "no idea" of the applicant's arrival time or of the days he actually worked when Pahos wasn't there. Accordingly, it is not credible that the wage arrangement called for an hourly wage, when the number of hours of work were not monitored by either the applicant or Pahos.

In addition, when the applicant sued Pahos for additional wages his complaint cited a "verbal contract" between himself and Pahos under which the applicant would be paid $4,000.00. This tracks with Pahos' credible testimony that the original agreement was that each of these two individuals would make $4,000.00 from their respective involvement in the construction of the pole barn.

cc:
Attorney Jeffrey J. Strande
Attorney Willem J. Noorlander

Appealed to Circuit Court.  Affirmed January 8, 2002. Appealed to Court of Appeals. Affirmed by Court of Appeals (summary disposition) October 17, 2002.

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