JOHN H COLE, Employee

HANDYMAN CONNECTION, 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, except that it makes the following modifications:

The final two paragraphs of the "FACTS" section, and the "CONCLUSIONS OF LAW" section are deleted and the following substituted:

Wisconsin Statutes § § 108.02(12)(a) and (bm) state as follows, as relevant here:

(a) "Employee" means any individual who is or has been performing services for an employing unit, in an employment, whether or not the individual is paid directly by such employing unit; except as provided in par. (b), (bm), (c), or (d).

(bm) ...during the period beginning on April 2, 2004, and ending on April 3, 2004, with respect to benefit eligibility, par. (a) does not apply to an individual performing services for an employing unit...if the employing unit satisfies the department that the individual meets 7 or more of the following conditions by contract and in fact:

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 method of performing the 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 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.

Wisconsin Statutes § 108.02(12)(a) creates a presumption that a person who provides services for pay is an employee, and it requires the entity paying them for those services to bear the burden of proving that they are not employees. See, Dane County Hockey Officials, UI Hearing No. S9800101MD (LIRC Feb. 22, 2000); Quality Communications Specialists, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001).

In regard to conditions 1., 2., and 3., Handyman Connection (HC) failed to establish that the claimant applied for or held an identification number with the federal internal revenue service, filed a business or self-employment tax return, or had a separate business. It should be noted in regard to condition 1. that evidence that the claimant completed an application for this type of number, or that HC required that each of the individuals to whom it referred customers complete such an application, does not establish that the claimant actually made application.

To satisfy condition 4., HC is required to establish that the claimant operated under contracts to perform specific services for specific amounts of money, and that, under these contracts, he controlled the means and method of performing the services. The fact situation here presents a hybrid which is difficult to categorize in regard to the first requirement. The record shows that the claimant entered into a standard "independent contractor" agreement with HC, as well as individual contracts which he negotiated with customers referred to him by HC. Multiple serial contracts such as these may satisfy condition 4. if it is shown that they were negotiated "at arm's length, " with terms that will vary over time and that will vary depending on the nature of the covered services. Thomas Gronna (The Floor Guys), UI Hearing No. S9900063WU (LIRC Feb. 22, 2000); Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004). Here, the terms of such contracts would apparently vary depending on the type of service required by the customer and the claimant's assessment of the time and skill needed to provide the service. This would satisfy the first requirement of condition 4. even though the claimant determined his hourly rate under such contracts according to a fee schedule developed by HC. In regard to the second requirement, the record shows that the claimant generally determined the means and method of performing the service. The commission concludes as a result that HC sustained its burden to show that condition 4. is satisfied here.

Applying condition 5. requires a determination of what services are performed under the contract, what expenses are related to the performance of those services, which of those expenses are borne by the person whose status is at issue, and whether those expenses constitute the main expense. Lozon Remodeling, UI Hearing No. S9000079HA (LIRC Sept. 24, 2999); Quality Communications Specialists, Inc., supra. This inquiry requires quantification of these expenses, and, under the circumstances present here, a determination of which entity, the claimant or HC, bears the larger total expense.

The services performed under the contracts at issue include providing craftsworker labor, but not materials, to building owners.

The record shows that the claimant provided his own equipment, tools, and transportation. As the commission explained in Quality Communications Specialists, Inc., supra, proper quantification of an equipment/tool expense requires determination of the annual depreciation expense, i.e., the purchase price divided by the number of years of anticipated useful life. There is no evidence in the hearing record as to the original cost of the claimant's equipment/tools or their useful life. Although the claimant used his own transportation, the record does not show what part of the vehicle's depreciated purchase cost, or of the cost of operating and maintaining his vehicle, would be properly apportioned to the claimant's work for HC. In addition, there is no evidence in the record, for example, as to the cost to HC of advertising its craftsworker services, creating the forms used by its craftsworkers, maintaining warranty records and performing warranty work not completed by its craftsworkers, keeping job records, and receiving payments from customers and making payments to craftsworkers. HC, as a result, failed to present sufficient evidence to sustain its burden to prove that the claimant incurred the main expenses related to the services he provided under the subject contracts.

In regard to condition 6., it is not simply the obligation to do re-work without additional pay which is the determining factor, because this obligation is typical as well of piece-work employees. See, T & D Coils, UI Hearing No. S9800147MW (LIRC Dec. 15, 1999). Evidence establishing, for example, not only an obligation to do such re-work but an expectation that it will be done, as well as a penalty for not doing so, would satisfy this condition. Here, the record establishes such an expectation, as well as the claimant's apparent liability for the cost of re-work if performed by a third party. The record supports a conclusion that condition 6. is satisfied here.

In regard to condition 7., the evidence of record supports a conclusion that the claimant was paid solely on a per-job basis, and, as a result, condition 7. is satisfied here.

Condition 8. examines whether, under an individual contract for services, there can be a profit (if the income received under that contract exceeds the expenses incurred in performing the contract), as well as whether there can be a loss under that contract (if the income received under that contract fails to cover the expenses incurred in performing the contract). Assuming, as the commission did in Quality Communications Specialists, Inc., supra., that it is at least arguable that the receipt by the claimant of more in pay for his services under the subject contracts than he was required to spend on the various expenses he incurred in performing such services would constitute "realiz[ing] a profit . . . under contracts to perform services," the record does not support a conclusion that he could suffer a loss within the meaning of condition 8. There is no business risk to the claimant under the subject contracts, i.e., no realistic possibility that he would earn less under such a contract than he expended. As a result, the record does not support a conclusion that condition 8. is satisfied. See, also, Lozon, supra. The administrative law judge concluded that the claimant could suffer a loss if "his tools broke down and had to be replaced." However, in the absence of testimony quantifying the cost of repairing or replacing such tools, the record would not support such a conclusion. HC's witness testified that the claimant could have suffered a loss if a customer did not pay for services in violation of the contract, or if the employee expended time and paid for operating his vehicle to bid jobs which were not awarded to him. However, employees as well as independent contractors share the risk of not being paid for services they have rendered, and this risk is not the type of business risk contemplated by condition 8. In addition, the language of the statute refers to potential profit or loss "under contracts to perform services," and, as a result, expenses incurred in seeking but failing to obtain such contracts would not be relevant. Condition 8. is not satisfied here.

Condition 9. requires proof of a cost of doing business which the claimant would incur even during a period of time he was not performing work through HC. HC offered no proof of fixed expenses incurred by the claimant, and it is concluded as a result that condition 9. is not satisfied here.

The commission has interpreted condition 10. as intending to examine the overall course of a claimant's business, and to require that a significant investment is put at risk and there is the potential for real success through the growth in the value of the investment and for real failure in the sense of actual loss of the investment. See, Quality Communications Specialists, Inc., supra.; Mrochinski, supra. The evidence of record does not support such a conclusion and condition 10., as a result, is not satisfied here.

To summarize, HC failed to prove that its relationship with the claimant satisfied conditions 1., 2., 3., 5., 8., 9., or 10. As a result, the record supports a conclusion that this relationship satisfied only 3 of the 10 statutory conditions, and that HC, as a result, failed to successfully rebut the presumption that the claimant performed services for HC as an employee during the relevant time period.

Finally, the commission notes that it is not clear why the employer has pursued this matter. As noted in the department determination:

This determination is issued under section 108.09 of the statutes and only resolves the current benefit eligibility issue. Under section 108.101 of the statutes, this decision is not binding for any other purpose and cannot be used to determine whether the employer is liable for contributions based on the services performed by the claimant.

In other words, the only issue under consideration relates to the claimant and his eligibility for benefits and need to report wages. The issue does not relate to, nor resolve, HC's liability for UI contributions.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, the claimant performed services for HC as an employee in 2002 within the meaning of Wis. Stat. § 108.02(12).

Dated and mailed February 11, 2005
colejoh . umd : 115 : 4 EE 410  EE 410.06 EE 410.08

/s/ James T. Flynn, Chairman

David B. Falstad, Commissioner

/s/ Robert Glaser, Commissioner

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