DONALD G CHRISTOPHERSON, 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 fifth paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW section is deleted.

The words "it is clear from the preceding paragraph that" are deleted from the sixth paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW section.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, based on its employment of Tom Christopherson and Tim Christopherson during the period at issue, the employer is liable, effective January 1, 1999, for contributions to the Unemployment Reserve Fund.

Dated and mailed September 13, 2006
chrisdo . smd : 115 : 1  EE 410

/s/ James T. Flynn, Chairman

/s/ David B. Falstad, Commissioner

/s/ Robert Glaser, Commissioner

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).

          (b) During the period beginning on January 1, 1996, and ending on December 31, 1999, with respect to contribution requirements,...par.(a) does not apply to an individual performing services for an employing unit ...if the employing unit satisfies the department that:

1. The individual:

a. Holds or has applied for an 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 methods 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 such 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....

(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: . . .

11. By an individual in the employ of the individual's son, daughter or spouse, and by an individual under the age of 18 for his or her parent.

Wisconsin Statutes § 108.02(12)(bm) sets forth the parallel requirements for the period beginning on January 1, 2000. In this statutory section, the ten conditions stated in Wis. Stat. § 108.02(12)(b) are restated as a single list, and, in order to qualify for exemption from Wis. Stat.§ 108.02(12)(a), the individual at issue is required to satisfy at least seven of these ten listed conditions.

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. 
  

Employment in 1999

Although neither Tim nor Tom held or applied for a federal employer identification number (FEIN), the record shows they filed self-employment income tax returns for 1998 and subsequent years. As a result, one of the two conditions of Wis. Stat. § 108.02(12)(b)1. was satisfied.

The next question then is whether at least six of the conditions stated in Wis. Stat. § 108.02(12)(b)2. were satisfied.

The focus of condition 2.a. 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., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001), the commission clarified that all parts of the statutory test must be met in order for the putative employer to satisfy its burden. Neither Tim nor Tom satisfied all parts of the test, i.e., both relied in significant part upon equipment provided by Christopherson, and only Tim had a separate space in his home devoted to business use. Moreover, during the time period at issue here, neither Tim nor Tom performed services for pay for any entity other than Christopherson, a circumstance generally inconsistent with the existence of a separate business. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001).

To satisfy condition 2.b., 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. Although the contracts under which Tim and Tom operated satisfied the first requirement of this condition, according to Christopherson, they did so, during the time period at issue, under his guidance and instruction, i.e., Tim and Tom did not control the means and method of performing the subject services.

Applying condition 2.c. 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 under consideration here, a determination of which entity, the worker or the employer, bears the larger total expense. Christopherson and each of his sons had equivalent investments in the equipment used by Tim and Tom. The contracts at issue were for Tim and Tom's labor, and the cost of construction materials, e.g., lumber and siding, with which Tim and Tom worked, would not be considered expenses under these contracts. See, Spencer Siding, Inc., UI Hearing No. S0300142GB (LIRC June 2, 2006)(cost of materials installed by workers in the construction trades under contracts for their labor not considered a related expense). The remaining expenses then would be the sons' expenses for transportation, and Christopherson's related office expenses, including those for maintaining records and for accounting. The record does not sufficiently quantify any of these expenses, and does not show that the sons' expenses necessarily would have exceeded those of Christopherson.

In regard to condition 2.d., 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 here shows that, although Tim and Tom were expected to do re-work without additional pay, Christopherson would bear the cost of any materials. Moreover, the record does not show that there would be any penalty to the sons for deficiencies in their work, e.g., a requirement that they pay for the cost of re-work done by a third party.

Condition 2.e. requires that workers receive compensation for the services they perform under contract on a commission, per-job, or competitive-bid basis and not on any other basis. The record shows that Tim and Tom were paid by the job based on estimates they provided to Christopherson. Condition 2.e. is satisfied.

Condition 2.f. 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). It is at least arguable that the receipt by Tim and Tom of more in pay for their services under the subject contracts than they were required to spend on the various expenses they incurred in performing such services would constitute "realiz[ing] a profit...under contracts to perform services." See, Spencer Siding, Inc., supra.; Quality Communications Specialists, Inc., supra. In addition, if the estimate upon which one of Tim's or Tom's individual contracts was based significantly underestimated the amount of time it would take to complete the job, it is possible that transportation expenses could exceed income under the contract. Condition 2.f. is satisfied as a result.

Condition 2.g. 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 here does not show that Tim or Tom carried liability insurance, or had any other qualifying continuing business expense.

The commission has interpreted condition 2.h. as intending to examine the overall course of a worker's business. See, Quality Communications Specialists, Inc., supra. Condition 2.h. 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, Spencer Siding, Inc., supra. The record fails to show that either Tim or Tom had put a significant investment at risk.

To summarize, only conditions 2.e. and 2.f. have been satisfied here. This does not meet the requirement that at least six of the eight stated conditions be satisfied. As a result, during 1999, Tim and Tom performed services for Christopherson as employees within the meaning of Wis. Stat. § 108.02(12)(b). 
 

Employment in 2000 and 2001 

As discussed above, Wis. Stat. § 108.02(12)(bm) incorporates and renumbers the same ten conditions stated in Wis. Stat. § 108.02(12)(b), but provides that, beginning on January 1, 2000, in order to be considered an independent contractor rather than an employee, a worker would have to satisfy at least seven of these ten conditions.

Applying this standard to the above analysis shows that only three of the ten conditions have been satisfied here. Clearly this does not satisfy the applicable seven-condition standard.

As a result, during 2000 and prior to March 1, 2001, Tim and Tom performed services for Christopherson as employees within the meaning of Wis. Stat. § 108.02(12)(bm). 
 

Additional issues

The employment of Tim and Tom would not be exempted from coverage by operation of Wis. Stat. § 108.02(15)(k)11. because, during the time period relevant here, even though they were working for a parent, they were over the age of 18.

In his petition to the commission, Christopherson asserts that Tim and Tom could not be his employees because they were his partners in a limited liability corporation (LLC). However, the record shows that this LLC did not come into existence until March 1, 2001, after the time period at issue.

cc: Attorney Peter W. Zeeh

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