STEPHANIE A PROUTY, Employee

BOOKS ARE FUN LTD, 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 makes the following:

The claimant began performing services for Books Are Fun Ltd. (Books) in June of 2004. At that time, she was employed by a printing company. The claimant initiated a claim for unemployment benefits in week 45 of 2004 after her layoff from the printing company. The base period applicable to this claim consisted of the third and fourth quarters of 2003 and the first and second quarters of 2002.

The issue is whether the claimant's earnings from Books are required to be included in the base period wages upon which the amount of the claimant's benefit is computed because she functioned during this base period as an employee of Books, within the meaning of Wis. Stat. § 108.02(12)(a).

The commission would first like to clarify the actual impact on the parties' respective interests of the issue under consideration here. In regard to the claimant's interests, the reversal of the department's determination/decision means that an amount totaling $410 will no longer be included in the base period wages upon which her benefit is computed. As far as Books' interests are concerned, as the department explained in its determination, the issue here relates solely to the level of benefits for which the claimant is eligible, and not to Books' liability for contributions.

Wisconsin Statutes § 108.02, states as follows, as relevant here:

(11) Eligibility. An employee shall be deemed "eligible" for benefits for any given week of the employee's unemployment unless the employee is disqualified by a specific provision of this chapter from receiving benefits for such week of unemployment, and shall be deemed "ineligible" for any week to which such a disqualification applies.

(12) Employee.

(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), (d), (dm), or (dn)...

(bm) During the period beginning on January 1, 2000, with respect to contribution requirements, and during the period beginning on April 2, 2000, with respect to benefit eligibility, par. (a) does not apply to an individual performing services for an employing unit other than a government unit or nonprofit organization in a capacity other than as a logger or trucker, 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 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.

15) Employment.

(a) "Employment", subject to the other provisions of this subsection means any service, including service in interstate commerce, performed by an individual for pay.
...
(k) "Employment" as applied to work for a given employer other than a government unit or nonprofit organization, except as such employer duly elects otherwise with the department's approval, does not include service:...

4. As an individual selling or distributing newspapers or magazines on the street or from house to house;
...
16. By an individual whose remuneration consists solely of commissions, overrides, bonuses or differentials directly related to sales or other output derived from in-person sales to or solicitation of orders from ultimate consumers, primarily in the home;...

Books first argues that the claimant did not perform services for Books in an "employment" within the meaning of Wis. Stat. § 108.02(15), and as required by Wis. Stat. § 108.02.12(a). Specifically, Books contends that the exception stated in Wis. Stat. § 108.02(15)(k) would apply.

The facts of record establish that the claimant's remuneration consisted solely of commissions directly related to sales derived from in-person sales to consumers. However, the record also establishes that these direct sales took place at businesses at which consumers were present as workers or visitors, not at consumers' homes.

Books essentially offers two arguments in this regard. The first of these is that, in response to privacy concerns and the realities of the modern family, the business setting has taken the place of the home in the direct sales industry. However, even if this characterization of the evolving marketplace is accurately stated by Books, the Legislature has not seen fit to acknowledge it by modifying the unambiguous language in Wis. Stat. § 108.02(15)(k)16 requiring that, in order to qualify for the statutory exception, direct sales must occur "primarily in the home." As a result, the commission does not find this argument persuasive.

Books' second argument relies on the holding in National Safety Associates, Inc. v. LIRC and DILHR, 199 Wis. 2d 106, 543 N.W. 2d 584 (Ct. App. 1995). In that decision, the court turned to extrinsic aids, including a parallel federal statute and Wisconsin legislative history, to interpret the ambiguous "directly related to sales or other output derived from" language of Wis. Stat. § 108.02(15)(k)16. In concluding that this language was ambiguous, the court specifically cited two conflicting but reasonable interpretations offered by the parties. Here, however, the language "primarily in the home" is not susceptible to multiple reasonable interpretations. Moreover, unlike the statutory language at issue in National Safety Associates, which was interpreted by the court to be an abbreviated version of the parallel language in the federal statute, the language at issue here is clearly distinguishable from its parallel in the federal statute. Specifically, the language under consideration here is "primarily in the home," while the parallel federal language is "in the home or otherwise than in a permanent retail establishment."

Although Books offers decisions from other jurisdictions in support of its argument that decisions and regulations emanating from the federal statute should serve as authority here, these decisions, from Florida, Texas, and Illinois, rely upon statutory language which, unlike the Wisconsin language, essentially parrots the federal "in the home or otherwise than in a permanent retail establishment" language.

As a result, the commission agrees with the ALJ that the exception stated in Wis. Stat. § 108.02(15)(k)16 would not apply, and the record supports a conclusion that the claimant performed services for Books in an employment.

The next issue then is whether the claimant performed these services as an employee or as an independent contractor.

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 for which the person is performing 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).

Commission review of a decision of an administrative law judge is not appellate in nature, but is instead a de novo decision-making process. Any petition for commission review from any party brings the entire case before the commission. See, Dane County Hockey Officials, supra. As a result, the commission is not limited in its review of this case to those aspects of the administrative law judge's decision challenged in the petition.

It is undisputed that the claimant does not hold, and has not applied to the internal revenue service for, a federal identification number. As a result, condition 1. is not satisfied.

Under the circumstances present here, condition 2. requires that the claimant "has filed business or self-employment income tax returns with the federal internal revenue services based on such services...in the year in which such services were first performed." Since the claimant first performed the subject services in 2004, the test would be whether she filed a business or self-employment income tax return based on these 2004 services. The hearing was held on January 12, 2005, and the claimant testified that she had not yet filed her 2004 income tax return and had until April 15, 2005, to do so, but that she intended to deduct the expenses she incurred in 2004 performing services for Books on that return. The ALJ concluded that, since the claimant, at the time of the hearing, had not yet filed a business or self-employment income tax return based on the services she performed for Books in 2004, condition 2. was not satisfied. In the commission's opinion, this places the claimant in a nearly impossible position. She could not have filed business tax returns for any year prior to 2004, because she had not performed services for Books prior to that year, and it would have been impracticable for her to have filed her 2004 return prior to January 12, 2005. Although the commission considered remanding this matter to the department for purposes of supplementing the hearing record, given that, consistent with the discussion below, resolving whether this condition has been satisfied would not affect the ultimate outcome here, it is unnecessary to do so.

The focus of condition 3. is upon determining whether a separate business, i.e., an enterprise created and existing separate and apart from the relationship with the putative employer, is being maintained with the individual's own resources. See, Princess House, Inc., v. DILHR, 111 Wis. 2d 46, 330 N.W. 2d 169 (1983); Larson v. LIRC, 184 Wis. 2d 378, 516 N.W. 2d 456 (Ct. App. 1994); Lozon Remodeling, UI Hearing No. S9000079HA (LIRC Sept. 24, 1999). In Quality Communications Specialists, Inc., supra, the commission clarified that all parts of the test articulated in condition 3. must be met in order for the employer to satisfy its burden. The record shows that the claimant used her own equipment and had an office, i.e., an area in her home where she maintained her business computer and processed related paperwork, and from which she ordered inventory and scheduled the fairs at which she sold Books' products. The lack of separate facilities, which would be consistent with the nature of the business in which the claimant was engaged, would not be dispositive here. See, Groeschl Forestry Consulting, Inc., UI Hearing No. S0000141HA (LIRC March 19, 2002); Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005). Although the fact that a worker, like the claimant here, performs services for only one entity, is generally inconsistent with the existence of a separate business (see, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001), the claimant's recent entry into the enterprise, considered in conjunction with her ability, consistent with the agreement with Books, to contract with other entities to perform similar services, minimizes the impact of this factor. As a result, the commission disagrees with the ALJ that condition 3. was not satisfied here. See, also, Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004); Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004). This conclusion, that the claimant maintains a separate business, is strengthened by the fact that she employs a worker to assist her in the sale of Books' products.

To satisfy condition 4., it must be established that the claimant operates under contracts to perform specific services for specific amounts of money, and that, under these contracts, she controls the means and method of performing the services. The claimant exercised enough independence and discretion in carrying out her sales responsibilities to satisfy the second part of the test.

Condition 4., however, also requires multiple contracts. These may take the form of multiple contracts with separate entities, or multiple serial contracts with the putative employer if such contracts are shown to have been negotiated "at arm's length," with terms that will vary over time and will vary depending on the specific services covered by the contract. The existence of bona fide multiple contracts tends to show that the individual either has multiple customers, or that she has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship, and that she is not dependent upon a single, continuing relationship that is subject to conditions dictated by a single employing unit. See, T-N-T Express LLC, UI Hearing Nos. S9700385, etc. (LIRC Feb. 22, 2000); Dane Co. Hockey Officials, supra. The contract under which the claimant performed services for Books was a single contract specifying the terms under which she would conduct direct sales of Books merchandise at any event she organized for this purpose. This single contract, with terms not intended to vary over time or vary by event, did not satisfy the multiple contracts requirement of condition 4. See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002)(condition 4. not satisfied by single contract with putative employer which was essentially renewed unchanged except for updated price structure); Dane Co. Hockey Officials, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000)(condition 4. not satisfied by single continuing contract with employer containing no provisions specific as to the time, place, price, or amount of services to be provided for any particular project); Gary R. Gilbert, UI Hearing No. S0200083DB (LIRC July 21, 2005).

Applying condition 5. requires a determination of what services are performed under the contract, what expenses are related to the performance of these services, which of these expenses are borne by the person whose status is at issue, and whether these expenses constitute the main expense. Lozon Remodeling, supra.; Quality Communications Specialists, Inc., supra. This inquiry requires quantification of these expenses, and, under the circumstances present here, a determination of which entity, the worker or the employer, bears the larger total expense.

The services performed under the subject contract included scheduling sales events, publicizing these events, transporting and displaying the products to be sold at these events, processing sales, and preparing and maintaining sales records. Other than presumably paying the costs of shipping inventory to the claimant and reviewing sales reports to determine the amount of the claimant's commissions, these expenses, including the cost of a cash register, credit card machine, hand truck, display tables and shelving, van rental, inventory insurance, liability insurance, office supplies, promotional materials, personnel salaries, and inventory storage, are borne by the claimant. Despite the lack of evidence as to Books' shipping and commission computation costs, and as to the depreciated value of the claimant's equipment, (see, Quale & Associates, supra.), given the $7,000 in related costs borne by the claimant in 2004, the record supports a conclusion that the claimant's related expenses far exceed Books' and that condition 5. is satisfied as a result.

Any liability that does exist here, e.g., for replacing lost or damaged inventory, is borne by the claimant and, as a result, condition 6. is satisfied.

The claimant is compensated on a commission basis only and, therefore, condition 7. is satisfied.

Condition 8. examines whether, under an individual contract for a worker's 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). Here, the claimant would make a profit under the contract if her sales commissions exceeded her expenses. The commission disagrees with the ALJ that the claimant could not suffer a loss. The claimant incurred substantial start-up expenses. Moreover, she has ongoing operational expenses, and, for each event, incurs the costs of promoting the event, and leasing a van and purchasing fuel to transport inventory to the event. If she made insufficient sales to cover her expenses, she could incur a loss. This is the type of business risk contemplated by condition 8.

Certain of the claimant's expenses, including, for example, the $500 per year cost for liability insurance, is the type of recurring business liability which satisfies condition 9.

Finally, the commission has interpreted condition 10. as intending to examine the overall course of a worker's business. See, Quality Communications Specialists, Inc., supra. Condition 10. requires 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, Thomas Gronna, supra.; Mrochinski, supra. The claimant, who may not be able to cover her expenses if she makes insufficient sales at the events she organizes, has assumed the type of entrepreneurial risk contemplated by condition 10.

In summary, seven conditions, i.e., 3., 5., 6., 7., 8., 9., and 10., are satisfied here. Since Wis. Stat. § 108.02(12)(bm) provides that an individual will not be considered an employee if seven or more conditions are satisfied, the commission has reversed the ALJ's decision that the claimant was an employee of Books' during 2004.

The decision of the administrative law judge is reversed. Accordingly, the wages, totaling $410, paid to the claimant by Books during the base period at issue shall not be included in the department's computation of the claimant's based period wages.

Dated and mailed August 3, 2005
proutst . urr : 115 : 4  ET 483.091  EE 410  EE 410.03

/s/ James T. Flynn, Chairman

/s/ David B. Falstad, Commissioner

/s/ Robert Glaser, Commissioner

NOTE: The commission did not confer with the administrative law judge before reversing his decision, because its reversal was not based upon a differing view as to the credibility of witnesses, but instead upon a differing conclusion as to what the hearing record in fact established and upon a differing interpretation of the relevant law.

cc: Attorney Frank A. Gumina

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