BARBARA A YOCHEM, Employee
UNIVERSAL STRAP INC, 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:
On October 11, 2001, the claimant signed an "Independent Contractor Agreement" with the petitioner, a manufacturer of woven products and started to perform sewing services for it. She is paid for these services pursuant to an addendum drafted by the petitioner setting the rate payment. The petitioner also sets the deadline for completion of the services.
After picking up the materials to be sewn from the petitioner's business, the claimant performs her services in a special corner of her home sewing room. Equipment in the corner area is solely for her services for the petitioner and consists of a sewing machine, a light, and a table made by her husband. The table material cost between $50.00 to $75.00 and her light cost $169.00. She also purchases bobbins and needles for the performance of her services and uses a pair of $14.99 scissors. The claimant also purchased an invoice booklet to submit job invoices to the petitioner pursuant to its contract with her. She purchased her sewing machine through the petitioner's business and made regular $20.00 monthly payments deducted from each paycheck she received from the petitioner until the total $240.00 cost was paid off. Every one to two years, she takes her sewing machine for maintenance at an approximate cost of $40.00. Any thread, buckles and luggage tags for the petitioner's projects are provided by the petitioner.
The claimant does not perform sewing services for any other businesses, does not carry liability insurance for the work and does not advertise her services. She does not employ any individuals to assist her in the performance of her services but her husband does occasionally help her clip threads. If the claimant's services for the petitioner cease, she would not have any continuing business expenses.
For 2003, the claimant filed a Schedule C tax form, reporting income of $783.00 and expenses of $43.00. The claimant has a Federal Employer Identification Number. She does not take a deduction for the space that she uses in her home to perform the sewing services.
Until the claimant signed a new "Independent Contractor Agreement" presented to her by the petitioner on October 24, 2004, the employee was paid per piece under the terms of the previously set forth agreement. The petitioner set the per piece price and, under the new agreement, it set up payment based upon lot size of product sewn. The claimant does not negotiate rates and receives new work when she completes her prior assignments. Additionally, at times, the petitioner limits the amount of work she receives in order to balance its workload among the other individuals it considers independent contractors.
On July 30, 2004, departmental records reflect that the claimant initiated a claim for unemployment insurance benefits. The initial determination was issued, finding that the claimant's services were performed as a statutory employee and, as such, the monies paid to her by the petitioner in her base period, the second quarter of 2003 through the first quarter of 2004, could be used to determine her benefit eligibility. (1)
Wis. Stat. § 108.02(12)(bm) provides
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 non profit 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.
The issue before the commission is whether the claimant performed the base period services as an employee or as an independent contractor of the petitioner.
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 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). Additionally,
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. Dane County Hockey Officials, UI Hearing No. S9800101MD (LIRC Feb. 22, 2000).
As such, the commission will not limit its review to the points challenged by the petitioner. See, Diane Egan/Health Exams Plus, Inc., UI Contribution Liability Dec. Hearing No. S0300071JV (LIRC April 15, 2005), Gary Gilbert, UI Contribution Liability Dec. Hearing No. S0200083DB (LIRC July 21, 2005), Prouty v. Books Are Fun Ltd., UI Dec. Hearing No. 046010806MW (LIRC August 3, 2005).
In analyzing the employee/independent contractor issue, "the commission does not rely solely upon assertions contained in a written contract in determining whether an individual has provided services as an independent contractor, but looks at the evidence in the record overall."
Wagner v. Medquist Transcriptions Ltd., UI Dec. Hearing No. 02003982BO (LIRC January 15, 2003).
Condition 1 and Condition 2
The record establishes that both have been met; the claimant has a federal employer identification number and has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year.
Condition 3
Both the petitioner and the employee contended that the third condition was met by the employee's office, equipment and materials, even though she did not maintain a "separate business" relationship with any other entities.
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. Diane Egan/Health Exams Plus, Inc., UI Contribution Liability Dec. Hearing No. S0300071JV (LIRC April 15, 2005).
The fact that a worker performs services for only one entity is also inconsistent with the existence of a separate business. See, Prince Cable, Inc., UI Contribution Liability Dec. Hearing No. S9900227MW (LIRC Feb. 23, 2001). While the commission recently found that the third condition was met in a one entity "home office" situation where that type of facility was consistent with the nature of the business in which the claimant was engaged, the commission considered that claimant's recent entry into the enterprise together with her ability and agreement with the employer to contract with other entities to perform similar circumstances minimized the one entity factor. Prouty v. Books Are Fun Ltd., UI Dec. Hearing No. 046010806MW (LIRC August 3, 2005). Unlike the circumstances in Prouty, the claimant has been performing services solely for the petitioner since 2001 and has not actively sought out other customers/entities to provide similar services for even though she conceded that those entities exist. Therefore, this condition is not met.
Condition 4
For the fourth condition to be satisfied, the petitioner must establish both that the claimant operates under contracts to perform specific services for specific amounts of money, and that the claimant operates under contracts under which they control the means and method of performing the services. Quality Communications Specialists, Inc., UI Contribution Liability Dec. Hearing No. S0000094MW and S0000095MW (LIRC July 30, 2001).
The threshold requirement of multiple contracts can be satisfied, in the view of the commission, either by multiple serial contracts or multiple contemporaneous contracts. Multiple contracts that an individual enters into with multiple business entities are most indicative of that individual's economic independence from a particular putative employer. However, multiple serial or contemporaneous contracts with a particular putative employer may satisfy the criterion if the contracts are shown to have been negotiated "at arm's length." T & D Coils, Inc., UI Dec. Hearing No. S9800147MW (LIRC December 15, 1999).
This condition is not met in cases where the individual, in the course of a continuing relationship, provides the same services for one entity without negotiation or renegotiation of rates and, instead, accepts what is given as the going rate for the services. Quality Communications Specialists, Inc., UI Contribution Liability Dec. Hearing No. S0000094MW and S0000095MW (LIRC July 30, 2001) citing Dane Co. Hockey Officials Association Inc., UI Contribution Liability Dec. Hearing No. S9800101 (LIRC, February 22, 2000). In this case, the claimant provides the same type of sewing services for the petitioner without negotiation, using the rates set by the petitioner and attached to the general "Independent Contractor Agreement" drafted by the petitioner and signed by the employee. The fourth condition is not met.
Condition 5
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 Contribution Liability Hearing No. S9000079HA (LIRC Sept. 24, 1999). According to "Exhibit A" of the "Independent Contractor Agreement," marked and received as Exhibit 5, the claimant's services are "light assembly/sewing;" she does not pay for materials unless she damages them and the petitioner seeks damages. As far as expenses, the employee has occasional purchases (i.e. the light this year), sewing machine maintenance, bobbins and needles. The petitioner supplies the materials, i.e. the thread, buckles, luggage tags and lanyards. For 2003, the claimant reported income of $783.00, with $43.00 in expenses. While the petitioner has substantially more costs in materials than the claimant's costs, the material costs are not part of the claimant's contracted services. As such, the claimant incurs the main expenses related to her services.
Condition 6
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. Cole v. Handyman Connection, UI Dec. Hearing No. 04002664MD (LIRC February 11, 2005).
Even though a penalty has never been imposed against the claimant, the petitioner has such liability built into the agreement and, therefore, this condition is met.
Condition 7
In October 2004, the petitioner changed the manner of payment. However, at issue before the commission is the type of payment for the applicable base period, since it is those payments that will ultimately be included in her base period computation for purposes of her unemployment insurance benefit entitlement. During this applicable period, the claimant was paid "piece rate" compensation. As such, the seventh condition is not met.
Condition 8
The eighth condition asks both whether a business faces an actual possibility of making a profit and an actual possibility of suffering a loss. Simply put, if the employee's expenses exceed her income, she will have a loss and, if the income exceeds her costs, she will make a profit. This condition is met.
Condition 9
Recurring business expenses or liability requires proof of a cost which would be incurred even during a period of time when the claimant was not performing services for the petitioner. See Dibbles & Dibbles, Inc., UI Contribution Liability Decision Hearing No. S0300140RH (LIRC January 12, 2005). It encompasses "what is commonly referred to as 'overhead.'" Dane County Hockey Officials Inc., UI Contribution Liability Dec. Hearing No. S9800101MD (LIRC, February 22, 2000). While the petitioner references expenditures, which could be amortized and depreciated over time, the record is lacking any evidence of such treatment and the claimant clearly testified at the hearing that if her services for the petitioner ceased, she would no longer have recurring business expenses. Thus, this condition is not met.
Condition 10
In Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005), the commission explained that condition 10 intended
to examine the overall course of a person's business. See, Quality Communications Specialists, Inc., supra. Here, the record supports a conclusion that the examiners had a relatively small investment in equipment, (1) and their recurring expenditures could be readily discontinued if the flow of work they received through Egan ceased, so that they faced no realistic prospect of any significant period of time in which they would have to make expenditures without any receipts coming in. See, Thomas Gronna, UI Hearing No. S9900063WU (LIRC, Feb. 22, 2000); Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004) (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); Barnett v. Alternative Entertainment, UI Hearing No. 02003109WU (LIRC, Oct. 29, 2002); Dane County Hockey Officials, Inc., supra.
The petitioner failed to establish that the claimant placed any significant investment at risk or that there was a potential for real success in the capital growth or value of the investment. This and the fact that if her services for the petitioner ceased, so would her expenditures, leads to the commission's finding that this condition has not been met.
In summary, the petitioner has established that only five of the required seven conditions set forth in Wis. Stat. § 108.02(12)(bm) have been met and the commission therefore finds that for benefit purposes, the claimant is a statutory employee.
The decision of the administrative law judge, as modified, is affirmed. Accordingly, the monies paid to the employee by the petitioner in second quarter of 2003 through the first quarter of 2004, as set forth more specifically by the initial determination, shall be treated as base period wages usable to determine the claimant's benefit eligibility.
Dated and mailed November 4, 2005
yocheba . urr : 150 : 8 EE 410
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
cc: Attorney Michael Hanrahan
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