HARLAN MROCHINSKI, Employer

An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

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 agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own.

The decision of the administrative law judge is affirmed. Accordingly, the appellant is subject to the contribution provisions of the Wisconsin Unemployment Insurance law as of January 1, 1999.

Dated and mailed July 15, 2004
mrochha . ssd : 150 : 3   EE 410  EE 410.03  EE 410.08

/s/ James T. Flynn, Chairman

/s/ David B. Falstad, Commissioner

/s/ Robert Glaser, Commissioner

The petitioner argues that the three named individuals, Glen Allen, Eric Lathrop and Kasey Voss, performed services for it as independent contractors, not statutory employees (hereinafter to be referred to as employees), for the relevant period and, as such, argues that the appeal tribunal decision should be reversed.

In addition to these arguments, the petition offers facts not presented at the hearing. The commission's rules provide, at Wis. Admin. Code § LIRC 1.04 that review by the commission is on the record of the case including the synopsis or summary of the testimony or other evidence presented at the hearing. Although the commission does have the discretion to order the taking of additional evidence, that authority is only exercised in a few exceptional circumstances that have not been established to exist in this matter. For these reasons, no additional hearing will be scheduled and the commission cannot consider and will not address the factual assertions made in the petition for review, which are not supported by the record.

The petitioner does not dispute that the individuals performed services for pay. As such, there is a presumption that the individuals are employees. It is the petitioner's burden to prove that the necessary criteria are met under Wis. Stat. § 108.02(12)(b) for exclusion from treatment as employees. The issue of the petitioner's Wis. Stat. Chapter 108 subject status starts in 1999. In 1999, Wis. Stat. § 108.02(12)(b) provided that an individual would not be an employee if:

1. The individual:

a. Holds or has applied for an employer identification number with the federal internal revenue service; or

b. Has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year; and

2. The individual meets 6 or more of the following conditions:

a. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.

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.

c. The individual incurs the main expenses related to the services that he or she performs under contract.

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.

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.

f. The individual may realize a profit or suffer a loss under contracts to perform services.

g. The individual has recurring business liabilities or obligations.

h. The success or failure of the individual's business depends on the relationship of business receipts to expenditures.

In 2000, Wis. Stat. § 108.02(12)(b) was modified. The modification required that the petitioner establish that seven of the following ten tests were met for each individual:

1. The individual holds or has applied for an identification number with the federal internal revenue service.

2. The individual has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year or, in the case of a new business, in the year in which such services were first performed.

3. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.

4. The individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and methods of performing such services.

5. The individual incurs the main expenses related to the services that he or she performs under contract.

6. 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.

7. 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.

8. The individual may realize a profit or suffer a loss under contracts to perform such services.

9. The individual has recurring business liabilities or obligations.

10. The success or failure of the individual's business depends on the relationship of business receipts to expenditures.

As there is much overlap between the 1999 and 2000 Wis. Stat. § 108.02(12)(b) criteria, the commission will address the factors in a manner to avoid repetition.

First, for 1999, the petitioner was required to establish that one of the two mandatory and six of the eight permissive criteria were met for each worker. With respect to Eric Lathrop (Lathrop) and Glen Allen (Allen), the petitioner failed to prove at the hearing, that either had a federal employer identification number or filed business or self-employment tax returns based on such services in 1998. Each is therefore a statutory employee. On the other hand, Kasey Voss (Voss) testified that he had a federal employer identification number and had filed self-employment taxes since 1997. Because Voss met the mandatory requirement, the commission must determine whether he met six of the eight remaining criteria.

For 2000, it was not established that Lathrop held or applied for a federal employer identification number or that he had filed self-employment taxes based on such services in the previous year or, in the case of a new business in the year in which such services were first performed. Allen admitted that he had filed self-employment taxes starting in 1999 and, thus, met one of the first two criteria. Again, Voss testified to meeting both of the criteria.

For both 1999 and 2000, the next test is whether the individual maintains a separate business with his or her own office, equipment, materials and other facilities. The commission considers that all parts of the test must be considered in determining whether it is met. Quality Communication Specialists, Inc., UI Dec. Hearing No. S0000094MW and S0000095MW (LIRC July 30, 2001). While the three individuals did apparently have some of their own tools, there is no evidence that any of the three took an office deduction. While the petitioner asserted that it did not supply the materials needed to perform the work, this assertion is contrary to the evidence presented at the hearing that the petitioner provided the materials. Further, as an aside, even if the homeowners did provide the materials as the petition argued, since the individuals did not supply their own materials, the test fails. Without competent evidence of a separate business office, materials and other facilities, the commission finds this test has not been met.

The commission also finds that the following test, whether 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 such services, was not met. In particular, none of the three individuals had written contracts with the petitioner's business. It appears that they were paid piece rate, per square foot, and this was not negotiated "at arms length." T & D Coils, Inc., UI Dec. Hearing No. S9800147MW (LIRC December 15, 1999). Specifically, the petitioner testified, "I set the rate" and "The price was not negotiable." The only bargaining power Allen, Lathrop or Voss had was to refuse the work. Additionally, the second part of this test was also not met. The petitioner required each worker to report to work at 7:00, to carry insurance and to be subject to quality inspections and rework demands.

In Quality Communication Specialists, Inc., UI Dec. Hearing No. S0000094MW and S0000095MW (LIRC July 30, 2001), the commission factored in equipment depreciation to reduce the actual business costs and held that materials were an important part of the cost comparison in determining whether an individual incurs the main expenses related to the services he or she performs under contract. Yet, at the hearing, the petitioner failed to present any testimony regarding material cost. Without this, the commission is unable to compare the material costs and Allen's, Lathrop's or Voss' equipment with depreciation. Accordingly, the petitioner has failed to meet its burden to prove that this criterion is met.

The petitioner did establish the Allen, Lathrop and Voss were responsible for the satisfactory completion of the services contracted to perform and were liable for a failure to satisfactorily complete the service. All three were required to perform rework if their work did not meet the petitioner's standard and this could involve additional time costs, as well as use of gas and equipment to get to and from the site.

As mentioned earlier, Allen, Lathrop and Voss did not negotiate compensation with the petitioner. They did not submit bids for their work and there was no evidence in the record that negotiation taking into account the particulars of a job took place. See Quality Communication Specialists, Inc. Not only were they paid a nonnegotiated, set rate per square foot of work done but the petitioner even conceded that if the individual were unable to finish the work, the petitioner would pay the individual for the work done, cutting against a "per job" payment method. Thus, the petitioner failed to establish that Allen, Lathrop or Voss received compensation for services performed under a contract on a commission or per job or competitive bid basis and not on any other basis.

The commission also finds that the petitioner failed to prove that Allen, Lathrop or Voss could realize a profit or suffer a loss under contracts to perform such services. After all, a loss would be highly unlikely given the petitioner's testimony that he would pay the three even if the client did not pay the petitioner for the work. In the same vein, while they might be required to do rework, which might reduce their profit, without any material costs, it is hard to see how they could actually sustain a loss. At worst, they might lose the cost of mileage to and from a job site or lose a tool. Additionally, by limiting the payment to the square foot of work done, the individuals also have no real opportunity to profit in an entrepreneurial sense (i.e. some jobs may have greater opportunity for profit than others may).

The petitioner arguably established that Allen, Lathrop and Voss had recurring business liabilities or obligations. While the evidence was limited, each was required to pay insurance and Voss admitted some additional business expenses related to meals.

The commission has expressed that final test, whether the success or failure of the individual's business depends upon the relationship of business receipts to expenditures, contemplates the existence of a genuine business endeavor; "in an entrepreneurial sense, a significant investment is put at risk and there is thus the potential for real success as the growth and value of the investment or real failure in the sense of actual loss of the investment." Dane County Hockey officials, Inc., UI Hearing No. S9800101MD (LIRC February 22, 2000). With respect to Lathrop, although it appears that he may be involved in a partnership, there is no firsthand evidence that the partnership actually does business in a genuine business endeavor. Next, there is no evidence that Allen ever performed services for other businesses during this period. Thus, the commission concludes that this test is not met for Lathrop or Allen. Voss did perform services for other businesses in 1999. He also only earned $837.00 in 2000 from the petitioner, apparently performing services primarily for someone else. While this typically might lead to the conclusion that he did operate his own business and had a new "favorite" client; at the hearing, Voss testified that he performed services for that other individual because "we were just friends." Such a characterization undermines the idea of his own business for profit and, without more than an insurance certificate and possible "word of mouth" advertising, the commission is reluctant to find that he had a genuine business endeavor.

In conclusion, in 1999, Voss only met two of the eight permissive criteria and is therefore a statutory employee along with Lathrop and Allen, who failed to meet either of the two mandatory criteria. In 2000, all are statutory employees, as none met seven of the ten criteria. Lathrop only met two, Allen met three and Voss met four. For these reasons, as well as those set forth by the administrative law judge, the appeal tribunal decision is affirmed.

cc:
Attorney David Worzalla
Attorney Peter Zeeh

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