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

TERRENCE ROBRAN, Applicant

LIFETIME ASSOCIATES INC, Employer

AETNA CASUALTY & SURETY CO, Insurer

WORKER'S COMPENSATION DECISION
Claim No. 94045457

The administrative law judge issued her findings of fact and interlocutory order in this case on November 7, 1996, following a hearing on June 5, 1996. The named employer and the insurer (collectively, the respondent) have submitted a petition for commission review of the administrative law judge's findings and order. Thereafter, both the respondent and the applicant submitted briefs.

The sole issue addressed at the hearing before the ALJ, and now at issue before the commission, is whether the applicant was a statutory employe of the named employer on October 28, 1993.

The commission has carefully reviewed the entire record in this case, including the briefs submitted by the parties. After consulting the administrative law judge concerning the credibility and demeanor of the witnesses, the commission hereby sets aside her findings of fact and interlocutory order and substitutes the following therefor:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The applicant claims an occupational back injury in October 1993 for which he has undergone a spinal fusion surgery. He claims the injury arose out of his employment with Lifetime Associates, Inc. (Lifetime Associates). Lifetime Associates, on the other hand, claims the applicant is not an employe, so his injury is not covered.

The applicant was born in 1959. He began working for the employer in 1988 or 1989. The applicant worked in Lifetime Associate's warehouse in the winter and was paid by the hour for that work. During the rest of the year he built garages on site for the employer and was paid by the job.

Lifetime Associates would tell the applicant where to build the garage, provide a plan, and provided for the delivery of most of the material. What material the applicant bought, he charged directly to Lifetime Associates. Lifetime Associates also set the rate of compensation, and inspected his work. If his work did not pass inspection, Lifetime Associates required the applicant to do repair work, sometimes for no additional pay. He testified he did no side jobs or other construction work.

Lifetime Associates introduced into the record the applicant's tax return for 1992. It shows no "wages," but "business income" in the sum of $17,836. Consequently, his return included a schedule C entitled "Profit or loss from business (sole proprietorship)." This lists "construction" as the applicant's principal business and shows gross receipts of $44,501. After various deductions, the applicant was left with the net profit of $17,836, which accounted for all of his income for federal income tax purposes for 1992.

Among the deductions listed by the applicant on his schedule C is $6,000 for "sub contract." The applicant testified he has no idea what this deduction was for, and that he never paid anyone to help him in 1992, with the exception of a neighbor to whom he gave a case of beer. He went on to testify that the neighbor in fact performed no services for him at all.

The term "employe" as used in the worker's compensation statutes is broadly defined to include "every person in the service of another under any contract of hire, express or implied . . ., but not including . . . any person whose employment is not in the course of a trade, business, profession or occupation of the employer." Wisconsin Statutes § 102.07 (4), Stats. Even an independent contractor is an "employe" of any employer for whom he provides services in the course of the trade or business of that employer, except under certain specified conditions. Wisconsin Statutes § 102.07 (8).

In this case, the applicant was providing services to Lifetime Associates in the course of its trade or business: its business is building garages and he rough-framed garages for it. In addition, the record indicates that Lifetime Associates controlled the details of the applicant's work, exercised control over the performance of his duties, and decided the method of payment. These factors all indicate an employer-employe relationship. Kress Packing Co. v. Kottwitz, 61 Wis. 2d 175, 181 (1973).

On this record, then, the commission concludes that the applicant has established that he was in the service of Lifetime Associates at the time of his alleged injury. Accordingly, he is rebuttably presumed to be its employe unless evidence to the contrary is adduced, Revels v. Industrial Commission, 36 Wis. 2d 395, 402 (1967), or unless an express exception in the law applies. Lifetime Associates contends the applicant meets two exceptions to the definition of the term "employe," citing Wis. Stat. § 102.07 (8) and (8m).

Under Wis. Stat. § 102.07 (8), an independent contractor is presumed to be the employe of any employer for whom he or she provides services, unless certain specified criteria indicative of a truly independent business apply. While the applicant may well be an independent contractor, he does not meet all of the specified criteria under Wis. Stat. § 102.07 (8)(b). Specifically, he has not applied for a federal employer identification number. Moreover the success of his business does not depend on the relationship of receipts to expenditures (1) and he apparently had no risk of a loss on his jobs. Consequently, the exception under Wis. Stat. § 102.07 (8), Stats., does not apply.

Under Wis. Stat. § 102.07 (8m), a person who is himself an employer under the workers compensation act is not the employe of a second employer for whom the person performs services in the course of the second employer's trade or business. In this case, the applicant's $6,000 business deduction for "sub contract" reported in schedule C of his 1992 federal tax return strongly supports the inference that he hired subcontractors in that year. As discussed above, in most cases an independent contractor hired by a principal to perform services in the principal's trade or business is deemed to be an employe of the principal. If the applicant hired subcontractors and paid them $6,000 in a year, then presumably he would have at least one employe (the subcontractor) whom he paid at least $500 in a calendar quarter. (2) The applicant himself would be a subject employer, at least through 1993, unless some exception applied. Wisconsin Statutes §§ 102.04 (1)(b) and 102.05, Stats. If the applicant himself were a subject employer, he could not be an employe of Lifetime Associates under sec. 102.07 (8m), Stats. In that case, his application should be dismissed.

Thus, resolution of this case depends largely on the credibility of the applicant's testimony that he was unaware of what the basis of the $6,000 "sub contract" deduction was, and that he never hired anyone to perform services for him. While the commission can conclude the applicant might not have known how his tax returns were prepared, the commission cannot accept his testimony that he never paid anyone to work for him. This assertion is directly contradicted by his tax return (and to a lesser degree by his conflicting testimony about whether he gave his neighbor a case of beer in exchange for services.)

Nor is the commission persuaded that the applicant may rely on his ignorance of his business affairs or his lack of education. If applicant's sole proprietorship files a tax return claiming a deduction, it is not unreasonable to hold him to the most reasonable inference that may be drawn from the deduction, absent a more convincing explanation than he does not know or remember what the deduction was for. Indeed, his claim that he is not fully aware of the financial aspects of his business indicates that he may in fact have hired employes without recognizing them as such.

The commission is satisfied the employer has offered sufficient evidence to show that the exception under Wis. Stat. § 102.07 (8m) applies. Based on his 1992 tax return, the most logical conclusion is that the applicant hired subcontractors to perform services in the course of his construction sole proprietorship. As explained above, he is therefore presumed to be an employer, and cannot be the employe of Lifetime Associates. At the very least this record establishes legitimate doubt on the issue of whether the applicant was the employe of Lifetime Associates. (3)    Consequently, his application must be dismissed.

ORDER

The findings and order of the administrative law judge are reversed.

Dated and mailed May 30, 1997
robrate.wrr : 101 : 5  ND § 2.13

Pamela I. Anderson, Chairman

David B. Falstad, Commissioner

MEMORANDUM OPINION

The commission conferred about witness credibility and demeanor with the administrative law judge who presided at the hearing. Transamerica Ins. Co. v. ILHR Department, 54 Wis. 2d 272, 283-84 (1972). The administrative law judge found the applicant to be a credible witness. She felt he truly did not know what was on his income tax returns, and was extremely truthful in his testimony that he did not employ other people.

The commission cannot agree. First, the applicant's testimony is directly contradicted by his 1992 tax return. Moreover, the applicant testified that he never paid anyone in 1992 to help him out, then that he gave an individual named Kelly a case of beer for doing work for him, then that Kelly in fact did no work for him. The commission appreciates that the applicant may not have understood he paid Kelly by giving him a case of beer, but the conflicting testimony about whether Kelly worked for him at all undercuts the applicant's overall credibility.

While the commission recognizes that the applicant's 1992 income tax return does not prove conclusively that the applicant was an "employer" under the worker's compensation statutes, the commission is persuaded that Lifetime Associates offered sufficient evidence to shift the burden of proof back to the applicant. Thus, the commission cannot affirm based on Lifetime Associate's failure to subpoena the applicant's tax accountant to testify.

cc: ATTORNEY STEVEN G KMIEC
KMIEC LAW OFFICES

ATTORNEY JEFFREY R MUNSON
SPINDLER ROITBURD SCHWEMER AND MUNSON

Appealed to Circuit Court. Reversed by Circuit Court, March 24, 1998.  Circuit Court decision reversed and LIRC decision reinstated by unpublished per curiam decision of Ct. of Appeals, Dist. I, August 17, 1999.

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Footnotes:

(1)( Back ) At least his business with Lifetime Associates does not, and there is no evidence he performed significant work as an independent contractor for anyone else.

(2)( Back ) Or else he would have to have three or more employes.

(3)( Back ) The commission concludes it is appropriate to use the legitimate doubt standard against the applicant here. Under Revels, once he proved he performed services for the employer, the burden shifted to Lifetime Associates to prove he was not an employe. The employer met that burden by providing sufficient evidence from which it is most reasonably inferred the applicant himself is an employer under secs. 102.04 (1)(b) and 102.07 (4) and (8), Stats. The burden then shifts back to the applicant to rebut this showing, and that the evidence he offers fails to establish he is not an employer in light of his tax return.