TODD J BORGHEЅANІ, Employee
VІRTUAL HEROEЅ 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:
Vіrtual Heroeѕ is a software developer and marketer specializing in "serious games," i.e., computer programs, simulations and such intended for training and education purposes. The issue for decision in this case is whether UI benefit claimant Todd J. Borgheѕanі performed services for Vіrtual Heroeѕ as an independent contractor or as an employee. (1)
Prior to the time he performed services for Vіrtual Heroeѕ, Borgheѕanі had work experience in business consulting and sales, including marketing of computer software, both with a company he founded and as a consultant for other companies. Most recently he had worked as a director of special projects for a West Virginia university operating a National Aeronautics and Space Administration funded training facility. The work involved video game technologies to create virtual training programs for NASA.
Because of Borgheѕanі's contacts and associations with individuals in NASA, in May 2005 Borgheѕanі contacted Vіrtual Heroeѕ regarding providing his services as a developer of new business for Vіrtual Heroeѕ. Vіrtual Heroeѕ told him that he would be offered a consulting contract for his services in helping its president create a mid-June power point sales presentation to NASA for a virtual training program. Initially, he performed the work at his Milwaukee residence, primarily communicating with Vіrtual Heroeѕ by e-mail. He attended the presentation with Vіrtual Heroeѕ. After the presentation on July 5, 2005 Vіrtual Heroeѕ paid him $3000 for his assistance plus reimbursed him for travel expenses. He did not receive a consulting contract.
Following the presentation in late June 2005 Borgheѕanі advised Vіrtual Heroeѕ that he could not continue to work for that amount. Vіrtual Heroeѕ agreed to pay him $5500 a month, beginning with July 2005. At this point he switched his e-mail address over to Vіrtual Heroeѕ' provider. Although he continued to work and reside in Milwaukee, with some trips to Vіrtual Heroeѕ' main office in North Carolina, he was contacting his sources within government regarding Vіrtual Heroeѕ' capabilities in creating and providing virtual training programs. On or before September 30, 2005 Vіrtual Heroeѕ paid him $5500, without any portion withheld for income taxes, for July and $5500 for August 2005 and reimbursed him for travel expenses incurred. It paid him $5500 for September and October 2005 during the fourth calendar quarter of 2005.
In October 2005 Borgheѕanі sent Vіrtual Heroeѕ a written employment agreement that defined their employment relationship and the services that he would provide to it. Upon review of this proposed agreement in early November 2005 Vіrtual Heroeѕ advised him that it was not interested in employing him as a vice-president or in any other capacity. He then switched his e-mail account back to his former provider.
This case is governed by Wis. Stat. § 108.02(12), which provides in relevant part:
(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 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.
This provision creates a presumption that a person who provides services for pay is an employee, and it requires the entity for which that person performed those services to bear the burden of proving that they are not employees. See, Dane County Hockey Officials (LIRC Feb. 22, 2000), Quality Communications Specialists, Inc. (LIRC July 30, 2001). The threshold question under this provision is thus whether Borgheѕanі provided services for Vіrtual Heroeѕ within the meaning of Wis. Stat. § 108.02(12)(a). If he did, then Vіrtual Heroeѕ has the burden of proof to show that at least seven of the conditions described in Wis. Stat. § 108.02(12)(bm) are satisfied, so as to establish that Borgheѕanі provided his services as an independent contractor rather than as an employee.
It is implicit in the ALJ's decision that he found that Borgheѕanі was providing services to Vіrtual Heroeѕ within the meaning of Wis. Stat. § 108.02(12)(a). Vіrtual Heroeѕ does not challenge this aspect of the decision in its brief, instead focusing entirely on the question of whether the evidence showed that certain of the conditions stated in § 108.02(12)(bm) were satisfied. For this reason, and because the commission agrees that the record clearly establishes that Borgheѕanі performed services for Vіrtual Heroeѕ within the meaning of Wis. Stat. § 108.02(12)(a), it turns to the question of whether Vіrtual Heroeѕ established that at least seven of the ten conditions stated in § 108.02(12)(bm) were satisfied with respect to Borgheѕanі.
A threshold issue here is whether all ten conditions are appropriately considered to be in dispute before the commission. This issue arises because of the manner in which the ALJ decided the case and because of certain assumptions made by Vіrtual Heroeѕ in arguing in support of its petition for review.
The ALJ did not clearly decide whether all of the conditions listed in § 108.02(12)(bm) were or were not met. His decision does very roughly track those conditions in terms of their order and their language, and it contains some statements which can be taken to reflect the ALJ's views on whether some conditions are satisfied, but it does not contain any express statements finding that particular conditions are or are not met until a closing paragraph where it states:
Of the conditions set forth in the above provision of the Wisconsin Unemployment Insurance Law, the employer did not establish that the services provided by Todd Borgheѕanі to the employer, Vіrtual Heroeѕ, Inc., met conditions 1, 4, 6, 7, 8 or 10.
Vіrtual Heroeѕ appears to take the ALJ's express listing of certain conditions he found were not satisfied, as indicating that he found that the other conditions were satisfied. Thus, Vіrtual Heroeѕ simply asserts in conclusory fashion that the ALJ found that conditions 2, 3, 5 and 9 were met, and it then restricts its arguments to the other conditions which the ALJ expressly referred to in his closing paragraph.
Vіrtual Heroeѕ' approach is not reasonable. Consideration of the rest of the ALJ's decision strongly suggests that he in fact did not believe that conditions 3 or 9 were met. More important, Vіrtual Heroeѕ errs in assuming that if an ALJ finds that some (but not enough) conditions were met, a petition for review only brings before the commission the question of whether the ALJ was correct in his decisions that the other conditions were not met. The commission has never taken that view. On the contrary, the commission has repeatedly noted that its review of a decision of an ALJ is not appellate in nature, but is instead a de novo decision-making process, and that the filing of any petition for commission review from any party gives the commission plenary authority to review the entire case. Dane Co. Hockey Officials Assoc. (LIRC, Feb. 22, 2000).
While the commission has determined as a matter of policy that it will generally not exercise its plenary review authority to address an issue that has not been at least implicitly raised by a petition for review, see, e.g., Robert J Sanders v. Krukowski Construction Inc. (LIRC, 2/3/99), this policy primarily concerns the commission's approach to arguments made by non-petitioning parties who, in response to another party's petition, seek modification or partial reversal of the ALJ's decision. Cases arising under Wis. Stat. § 108.02(12) present a different situation. Because of the structure of that section, in which the outcome depends on whether any seven of ten conditions are met, deciding an issue of whether a person is an employee or an independent contractor of a putative employer necessarily requires looking at all of the relevant conditions. Therefore, when a petition for review asserts that an ALJ made an incorrect decision on whether an individual was providing services as an employee under § 108.02(12), that petition does "implicitly raise" the applicability of each of the statutory conditions as an issue. As a result, commission review in such cases is not limited to those aspects of the administrative law judge's decision challenged in the petition. Donald Christopherson (LIRC, Sep. 13, 2006).
In some status cases where the department participated in the hearing and expressly conceded that certain conditions are met, and the ALJ made findings as to those conditions based on such stipulations, the commission has effectively limited its review to the remaining conditions as to which the parties have a dispute. See, e.g., Results Plus, Inc. (LIRC, November 8, 2006), Ronald Smith d/b/a Smith Field Service (LIRC, March 29, 2006). However, this has occurred not because of the fact that the ALJ's specific finding was not disputed by the petitioning employer, but because it was expressly stipulated to by the department. Here, there has been no stipulation by the department that any of the relevant conditions are satisfied. It is therefore appropriate for the commission to consider all of them.
Condition 1 (individual holds or has applied for an identification number with the federal internal revenue service) -- The ALJ found that this condition was not met; Vіrtual Heroeѕ argues that it was. Its argument is based on Borgheѕanі's testimony about an application for an FEIN made in 2000 in connection with another activity. Vіrtual Heroeѕ points to a finding by the ALJ that "[i]n 2000 the claimant had applied for a Federal Employer Identification Number (FEIN) for a since-dissolved business," and to an entry in the "worker Status Questionnaire" Borgheѕanі completed (Ex. 10) in which he answered the question, "If you do not have a FEIN, have you ever APPLIED for a FEIN with IRS" by checking the "Yes" box and writing in explanation, "2000 for a now-dissolved start-up". However, Borgheѕanі's testimony was that in 2000 he was involved in starting "a company" with some other individuals and that the company had an FEIN but that he did not have an FEIN assigned to him personally. The reasonable inference from this testimony is that the "company" was a corporate entity and that it was that entity, rather than Borgheѕanі, which applied for the FEIN. Borgheѕanі himself never applied for an FEIN but was merely one of the individuals involved in creating a corporation which did so. This does not satisfy this condition.
Condition 2 (individual has filed business or self-employment income tax returns) -- Copies of Borgheѕanі's Schedule C forms for 2004 and 2005 received into the record as Exs. 3 and 4 are sufficient to establish that this condition was met.
Condition 3 (individual maintains a separate business with his or her own office, equipment, materials and other facilities) -- The focus of this condition 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, Diane Egan/Health Exams Plus, Inc., (LIRC April 15, 2005); Lozon Remodeling, (LIRC Sept. 24, 1999). In Quality Communications Specialists, Inc., (LIRC, July 30, 2001), the commission clarified that all parts of the test articulated in condition 3 must be met in order for this condition to be considered estasblished.
As noted above, the ALJ did not mention this condition in his express listing of conditions which he found were not satisfied, and Vіrtual Heroeѕ argues from this that the ALJ found that this condition was met. While it is not clear why the ALJ did not include this in his final listing of conditions not satisfied, it is clear that he did not think it was. The ALJ expressly stated in the course of his decision:
People operating viable businesses have more to sell than just personal services. There is nothing special about his ownership of a computer, printer or subscription to an Internet service. His ownership did not amount to the operation of a separate business. (emphasis added).
Based on its review of the record, the commission agrees that it was not established that Borgheѕanі maintained a separate business, in the sense of an enterprise created and existing separate and apart from his relationship with Vіrtual Heroeѕ. Borgheѕanі testified that he did not provide business development or sales services to any other entity during the time he worked for Vіrtual Heroeѕ, and that his only other sources of income in that year were from employment (with Wheeling Jesuit University) and unemployment insurance payments. A clear indication that Borgheѕanі had no "business" apart from what he did for (and received from) Vіrtual Heroeѕ is the fact that the entire amount he reported as the income from his "business" on his Schedule C form for 2005 is accounted for by the amount he received from Vіrtual Heroeѕ (as indicated on the 1099-MISC which it provided him). Other indications of the lack of a real separate business are the fact that Borgheѕanі used an e-mail address of "todd@virtualheroes.com" and an e-mail signature of "Todd Borgheѕanі, Business Development, Vіrtual Heroeѕ," and that he also had Vіrtual Heroeѕ business cards identifying himself as associated with Vіrtual Heroeѕ. This condition was not met.
Condition 4 (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) -- To satisfy this condition it must be established that the individual operates under contracts to perform specific services for specific amounts of money, and that, under these contracts, he controls the means and method of performing the services. This condition 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.
While Vіrtual Heroeѕ argues that the ALJ made a finding that it did not direct or control any aspect of the manner in which Borgheѕanі performed his services, the commission is satisfied that this sentence in the ALJ's decision was not intended as a finding at all but was merely a description by the ALJ of a contention being made by Vіrtual Heroeѕ -- a contention which other parts of the ALJ's decision show clearly he did not agree with.
In any event, the commission is persuaded that this condition was not shown to have been met because it was not established that Borgheѕanі performed his services under multiple contracts. Borgheѕanі performed his services pursuant to a single initial agreement calling for him to be paid a fixed amount per month -- in other words, he was salaried. Thereafter, he performed servces pursuant to this agreement. The "invoices" which Borgheѕanі prepared and sent to Vіrtual Heroeѕ were simply reports by Borgheѕanі about what he had done during the previous month, not successive new contracts. There was no evidence that at the beginning of any of these invoice periods there was negotiation and agreement that he would perform the specified tasks that then ended up on the invoice later. This was simply a salaried employee regularly reporting back to his employer to describe what he had worked on during the previous pay period. These were no more the kind of multiple contracts contemplated by condition 4, than an hourly employee's daily or weekly time sheets would be.
Condition 5 (individual incurs the main expenses related to the services that he or she performs under contract) -- The ALJ did not expressly mention this condition in his listing of conditions which were not satisfied, and Vіrtual Heroeѕ argues from this that the ALJ found that this condition was met. The most that can be said with respect to this, is that the ALJ did not directly address this condition at all in his decision. He did make findings, however, that Borgheѕanі incurred all of the expenses in the nature of costs of rent for his in-home office, office equipment, and internet and telephone costs, while Vіrtual Heroeѕ paid for all of Borgheѕanі's travel expenses. The evidence in the record, including Borgheѕanі's testimony that Vіrtual Heroeѕ either booked his travel directly or reimbursed him for travel expenses he incurred, clearly supports the finding that Vіrtual Heroeѕ paid all of Borgheѕanі's travel expenses, as does the testimony of Vіrtual Heroeѕ' witness that they paid for Borgheѕanі's travel. Considering the nature of the services Borgheѕanі performed, travel expenses were clearly among "the main expenses related to the services" he performed. Because they were paid for by Vіrtual Heroeѕ, it cannot be found that Borgheѕanі incurred the main expenses related to the services that he performed under contract. This condition was thus not met.
Condition 6 (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) -- When an individual is doing sales or "business development," the only thing that could really be considered a "failure to satisfactorily complete" such services would be a failure to make sales or develop business. There is no evidence in the record that Borgheѕanі had any kind of "liability" for not producing any particular amount of business.
Vіrtual Heroeѕ argues that the record is "replete" with testimony that Borgheѕanі had to re-provide, with no further charge, any services that Vіrtual Heroeѕ found deficient, and that because this would cause Borgheѕanі to lose time he would otherwise have available for other purposes this established potential liability for unsatisfactory completion of services. The commission does not find this to be established in the record. More important, the mere obligation to do re-do unsatisfactorily done work without additional pay does not satisfy this condition. Quality Communications Specialists, Inc. (LIRC, July 30, 2001). "Liab[ility] for a failure to satisfactorily complete the services" can be understood as meaning that the consequences provided by the contract for the failure to do such re-work to put things right are greater than merely not being paid for the work not put right. This might be evidenced by such things as a liquidated damages clause, or a contract provision allowing the other party to contract with someone else to do (or re-do) work not satisfactorily completed and to recover the costs of the third party's services from the original contractor even if the costs are higher than the original contractor agreed to. Id. There was no evidence of anything like that here. Furthermore, the fact that Borgheѕanі was effectively salaried (by being paid a fixed amount per month without regard to what specific duties he performed) means that he would be paid the same amount whether he re-did work or not. There was thus neither any contractual provision requiring him to re-do unsatisfactory work, nor any need for him to do so in order to receive his regular pay. This condition was not met.
Condition 7 (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) -- The ALJ expressly found that this condition was not satisfied. The commission agrees. While it is undisputed that around $6000 of the approximately $33,000 which Borgheѕanі received from Vіrtual Heroeѕ for his services, was a commission, the balance of the money paid to him was clearly paid as a regular salary: it was a fixed amount paid for all services rendered within recurring, fixed periods of time ($5,500 per month). Vіrtual Heroeѕ' argument that Borgheѕanі was paid set amounts for specific services is without merit. The invoices Borgheѕanі submitted did not reflect prospective agreements that Borgheѕanі would perform certain specific tasks for certain defined sums; rather, they were after-the-fact descriptions of what he had done in the month being "invoiced." It is notable that, with the exception of the first one, the "invoices" did not assign particular amounts to the 4 or 5 described activities listed on each one but merely showed the "bottom line" -- which was always the same $5,500 figure. This condition was not met.
Condition 8 (individual may realize a profit or suffer a loss under contracts to perform services) -- The ALJ expressly found that this condition was not satisfied. The commission agrees. This condition 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). Even assuming that Borgheѕanі's receipt of more in salary than he had to pay in work-related expenses could properly be viewed as business "profit", the record here does not support a conclusion that he could suffer a "loss" within the meaning of this condition. Borgheѕanі simply had no investment of any kind at risk in his "business." With his travel expenses being reimbursed, and with his compensation being a fixed amount per month not dependent on his completing specific tasks, Borgheѕanі had no significant possibility of receiving less than he expended in connection with the work.
Condition 9 (individual has recurring business liabilities or obligations) -- As noted above, the ALJ did not expressly mention this condition in his listing of conditions which were not satisfied, and Vіrtual Heroeѕ argues from this that the ALJ found that this condition was met, asserting in its brief that "[t]he ALJ did find that Mr. Borgheѕanі had recurring business liabilities and obligations." However, the ALJ expressly found that "[i]t was not established that Todd Borgheѕanі had any recurring business obligations, liabilities or expenses other than Internet subscription fees and telephone" (emphasis added) and that "[t]he expenses he paid are the same expenses that any employee incurs in traveling to work or who has a personal computer with an Internet hookup at home."
The commission finds that record does not establish that this condition was met. There is no evidence in the record that Borgheѕanі had a business phone line dedicated exclusively to his services for Vіrtual Heroeѕ or an internet line which he used exclusively for providing such services, and in fact his testimony indicates the contrary: Borgheѕanі's testimony was that his "personal phone line and personal internet were paid for" and that his internet and phone were "personal expenses".(2) The expense Borgheѕanі incurred for these personal communications connections cannot be considered a "recurring business liabilit[y] or obligation" within the meaning of this condition.
Condition 10 (success or failure of the individual's business depends on the relationship of business receipts to expenditures) -- The ALJ expressly found that this condition was not satisfied. The commission agrees. This condition is intended to examine the overall course of a worker's business. It requires that a significant investment have been put at risk in the business enterprise and that there be 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, The Floor Guys, (LIRC Feb. 22, 2000). This is clearly not the case here, where the individual in question had no investment of any kind at risk and the expenses incurred in connection with the services were, at most, incidental expenses for home computer equipment and internet/phone connections which were in any event not shown to have been exclusively dedicated to the business activity.
In summary, of the conditions set forth in Wis. Stat. § 108.02(12)(bm), Vіrtual Heroeѕ established only that Todd Borgheѕanі met condition 2, and it did not establish that he met any of conditions 1, 3, 4, 5, 6, 7, 8, 9 or 10.
The commission therefore finds that during the calendar quarters at issue Todd Borgheѕanі performed services for Vіrtual Heroeѕ as an employee within the meaning of sections 108.02(12)(a) and (bm) of the statutes.
The department's determination in this matter found that in Borgheѕanі's applicable base period of calendar quarter 4 of 2004 and calendar quarters 1 through 3 of 2005 he had total wages of $17,091.94, attributable to wages of $608.24 in calendar quarter 2 of 2005 and $16,483.70 in calendar quarter 3 of 2005. However, the evidence in the record shows that Borgheѕanі in fact had the following base period earnings from his employment with Vіrtual Heroeѕ:
QTR: 4/2004 $ 0.0
QTR: 1/2005 $ 0.0
QTR: 2/2005 $ 0.0
QTR: 3/2005 $ 14,000.0
The commission therefore finds that during Todd Borgheѕanі's applicable base period ending September 30, 2005, Vіrtual Heroeѕ paid him $14,000 in wages, and that Borgheѕanі therefore has base period wages of $14,000 usable to determine benefit entitlement based on work for Vіrtual Heroeѕ.
The Findings of Fact and Conclusions of Law of the administrative law judge are modified to conform with the foregoing and, as modified, the decision of the administrative law judge is affirmed. Accordingly, Borgheѕanі has base period wages of $14,000 usable to determine benefit entitlement based on work for Vіrtual Heroeѕ.
Dated and mailed December 27, 2006
borghes . urr : 110 : 1 PC 749 EE 410
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
cc: Atty. Michael C. Lord
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