SPENCER SIDING INC, Employer
An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued two decisions in this matter. A timely petition for review of both decisions 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 decisions of the ALJ, and it adopts the findings and conclusions in those decisions as its own, except that it makes the following modifications to the decision in Hearing No. S0300142GB:
That part of the FINDINGS OF FACT and CONCLUSIONS OF LAW section beginning with the heading "Condition 1" on page 3 and ending with the first full paragraph on page 7, is deleted and the following substituted:
(1) Employees or Independent Contractors
Briefly, Spencer Siding, Inc. (Spencer), during 2001 and 2002, entered into oral contracts with 34 individuals (workers) to perform roofing, siding, and framing services for various general contractors. Spencer essentially functioned as an expediter for these general contractors and, for his efforts, deducted 10-12.5 percent from the amount the general contractors paid to Spencer for the roofing, siding, and framing services provided by the workers.
Wisconsin Statutes § 108.02(12)(a) creates a presumption that persons who provide services for pay are employees and requires the entity for which the person is performing those services to bear the burden of proving that they are not. 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 review of this case is not limited to those aspects of the administrative law judge's decision challenged in the petition.
Spencer failed to establish, in regard to condition 1., that seven of the workers (1) actually submitted an application for, or held, an identification number with the federal internal revenue service during the relevant time period. The 1099 forms for these seven workers either did not state an identification number, or stated what appears to be a social security number. Use of a social security number does not satisfy condition 1. See, Rabe v. William K. Tatge, UI Hearing No. 05003125MD (LIRC Nov. 10, 2005); Huckstep v. J & JH Co., UI Hearing No. 02006946MD (LIRC May 28, 2003); Angel Care, Inc., UI Hearing No. S0200141MD (LIRC Dec. 30, 2004); Oil Equipment Co., Inc., UI Hearing No. S0300057MD (LIRC Dec. 30, 2004). Condition 1. was, however, satisfied as to the remaining workers.
In regard to condition 2., Spencer failed to establish that any of the workers filed business or self-employment income tax returns with the federal internal revenue service for services performed for Spencer for the years at issue. Contrary to Spencer's contention, condition 2. is not satisfied simply because the employer considers a worker to be an independent contractor and issues a 1099 form to him. See, Gamble v. American Benefit Ltd., UI Hearing No. 04004847MD (LIRC Feb. 15, 2005).
Spencer argues that it is unduly burdensome to require a putative employer to prove each of his workers filed business or self-employment returns for the years at issue. However, there are mechanisms which have been successfully employed to minimize this burden, e.g., prehearing stipulations based upon audit or other documents, or agreements that hearing testimony elicited from one or more workers would represent the testimony of all similarly situated workers. As the commission noted in T-N-T Express LLC v. Stanley E. Tate, UI Hearing No. S9700385MD (LIRC Feb. 22, 2000):
It is undeniable that a standard operating procedure of obtaining testimony from, e.g., a hundred individuals in one case, fifty in another, etc., would not be feasible in a high-volume administrative process like unemployment compensation hearings. However, the argument ignores the fact that ALJs have discretion to utilize practical means of avoiding such a dramatic waste of resources, while preserving thoroughness and fairness. As already discussed, the employer's attorney could have sought a stipulation with the other parties, and/or a ruling regarding representative testimony from the ALJ, prior to the hearing. He could also have attempted either of those approaches during the preliminary discussion before the hearing was opened. He could have requested, during the hearing, or at its conclusion, that the hearing be held open, basing such request on a specific offer of proof. He may or may not have succeeded with one or more of those approaches, depending upon, e.g., his pre-hearing diligence. The point, however, is that apparently none of the listed possible actions was attempted (there is no claim to the contrary in the brief filed in behalf of the employers).
Here, Spencer, who was represented by counsel throughout these proceedings, apparently did not pursue these or other mechanisms.
Condition 2. was not satisfied.
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); Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005); 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. Although the record shows that the workers generally used at least some of their own equipment, it does not show that the workers were actually engaged in a separate business with an office devoted to that purpose. Spencer testified that all of the workers used business names. However, simply creating a business name, without more, does not satisfy this condition. See, Gary R. Gilbert, UI Hearing No. S0200083DB (LIRC July 21, 2005). Spencer further testified that he believed most of the workers performed services for others; he was not aware if they advertised their services; he assumed, but did not know for a fact, that most of them had offices in their homes; and certain unspecified workers had their own employees and owned their own equipment. The lack of proper foundation, and the indefinite nature of this testimony, is insufficient to sustain Spencer's burden in regard to condition 3.
To satisfy condition 4., it must be established that the workers operate under contracts to perform specific services for specific amounts of money, and that, under these contracts, they control the means and method of performing the services. The workers here exercised enough independence and discretion in carrying out their construction 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 he has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship, and that he 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. There was no specific evidence as to the existence of contracts between any of the workers and entities other than Spencer. The contracts under which the workers performed services for Spencer in 2001 and 2002 were project-specific oral contracts in which Spencer essentially established a piecework rate for roofing, siding, and framing work based upon what the project's general contractor was willing to pay.
These contracts do not satisfy the requirement of having been negotiated at arms length. The "bids" submitted to Spencer by the workers appear to have served no practical purpose, i.e., the actual piecework rate for a project was established by increasing or decreasing a worker's "bid" based upon the amount the general contractor was willing to pay for roofing, siding, or framing services for the project, not by arms length negotiations between Spencer and the workers.
As a result, the multiple contracts requirement of condition 4. was not satisfied here.
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, UI Hearing No. S9000079HA (LIRC Sept. 24, 1999); 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 contracts at issue here include providing roofing, siding, and framing labor, but not materials, to builders and homeowners.
A threshold question is whether the cost of the materials utilized by the worker, e.g., roofing shingles, siding, and lumber, should be considered an expense "related to" the performance of their services.
First of all, in this regard it should be noted that constructions materials are not a subject of the contracts at issue. Moreover, the commission has looked to the practice in the particular industry to answer this question (see, Hauden & Scholl Builders, Inc., UI Hearing No. S9700339MD (LIRC Aug. 31, 1998)), and has generally held that materials installed by workers in the construction trades, such as the workers here, should not be considered as a related expense. See, Gary R. Gilbert, supra.; Hauden & Scholl, supra.; Lozon Remodeling, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000); Dibbles & Dibbles, Inc., UI Hearing No. S0300140RH (LIRC Jan. 12, 2005); Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).
As a result, the cost of materials should not be factored into the apportionment of expenses for purposes of condition 5.
Here, the workers generally provided their own insurance and transportation, and certainly their own tools and equipment. Spencer provided a home office where he presumably spent at least a portion of his work week on matters relating to the workers. Given the lack of evidence specifically quantifying the cost of any of these items, the record does not support a conclusion that the workers bore the main expense related to the services they performed under their contracts with Spencer.
As a result, condition 5. was not satisfied.
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 piecework 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. The evidence of record in this regard is that the workers were expected to repair any defects in their work without additional compensation for time or materials, and were liable for the cost of such repairs if done by a third party. This satisfies condition 6. See, Quality Communications Specialists, Inc., supra.; Quale & Associates, Inc., supra.
Condition 7. requires that workers receive compensation for the services they perform under contract with Spencer on a commission, per-job, or competitive-bid basis and not on any other basis.
Spencer contends that he compensated the workers on a per-job basis. The evidence of record does not support this contention. The workers here were paid a set rate for each unit they actually completed. Compensation on a per-job basis, however, contemplates payment of an agreed total regardless of the number of units actually required to complete the job. In other words, if it were estimated that a job would require the completion of 25 units and a contract total developed based on that estimate, per-job compensation would entail paying the worker this contract total even if it actually required the completion of 30 units to finish the job. According to Spencer's testimony, however, under his contracts with the workers, they would have been paid, under this scenario, for the completion of 30 units at the rate he had set per unit. This is compensation on a piecework, not per-job, basis, and condition 7. was not satisfied as a result.
Condition 8. looks at 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). Assuming, as the commission did in Quality Communications Specialists, Inc., supra., that it is at least arguable that the receipt by the workers of more in pay for their services under the subject contracts than they are required to spend on the various expenses they incur in performing such services would constitute "realiz[ing] a profit...under contracts to perform services," the record does not support a conclusion that they could suffer a loss within the meaning of condition 8. The workers were paid based on the number of units they actually completed, not the number they had initially estimated. See, Lozon Remodeling, supra. (with an assured amount of remuneration per unit of work, claimant could not suffer a loss for purposes of condition 8.). The workers' most significant equipment costs and expediting fees were computed as a percentage of the amount paid for their services under each contract, and deducted by Spencer from the payments he received from the general contractors for these services. As a result, these costs could never exceed the amount the worker received under the contract. Other costs to the workers are not quantified in the record. Although Spencer points to the potential for workers to sustain a loss if they damage the property of others in the course of performing their services, it appears that any such losses would be insurable ones. As a result, the record simply does not establish that there was any business risk to the workers under the subject contracts, i.e., no realistic possibility that a worker who did the work under the contracts would earn less than he expended. The record therefore does not support a conclusion that condition 8. was satisfied. See, Dibbles Dibbles, Inc., supra.; Dane County Hockey Officials, supra.
Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time the employee was not performing work through the employer. The record shows that each of the workers carried their own liability insurance which would qualify as a recurring business liability for purposes of satisfying this condition. See, Quale & Associates, Inc., supra.; Gary R. Gilbert, supra.
Condition 9. was met.
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 have been 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 record fails to show that any of the workers had put a significant investment at risk. Moreover, the workers were paid a per-unit rate, there was no showing that they had a significant investment in tools or equipment, and their recurring expenses could be readily discontinued if the flow of work they were given by Spencer ceased. See, Gronna, supra. As a result, condition 10. was not satisfied.
To summarize, the employer sustained its burden of proof in regard to only conditions 1. (except as to the seven named workers), 6., and 9. Since Wis. Stat. § 108.02(12)(bm) requires that seven conditions be satisfied in order for a worker to be considered an independent contractor, the satisfaction of only three conditions compels the conclusion that the workers performed services for Spencer as employees, not independent contractors, during 2001 and 2002.
The decision of the administrative law judge in Hearing No. S0300142GB, as modified, is affirmed. Accordingly, the employer is liable for contributions to the Unemployment Reserve Fund for 2001 and 2002 in the amount of $14,125.13, as more particularly set forth in the department determination. The decision of the administrative law judge in Hearing No. S0300133GB is affirmed. Accordingly, the employer is liable for a tardy filing fee totaling $75.
Dated and mailed June 2, 2006
spencer . smd : 115 : 4 EE 407 EE 410 EE
410.04a EE 410.05
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
cc:
Attorney Richard E. Nell
Attorney Michael J. Mathis
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