MATTHEW G FRAZER, 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:

1. The "Appearances" sections of the face sheets of both appeal tribunal decisions should be modified to indicate that the employer appeared at the hearing personally and by counsel.

2. That part of the FINDINGS OF FACT and CONCLUSIONS OF LAW section under the heading "I. The 'employee' question" is deleted and the following substituted:

The putative employer (Frazer) performed sales services for his parent's funeral products business. Frazer earned a sales commission of 40% on new sales and 20% on repeat sales.

Effective January 2, 2003, Frazer entered into an agreement with Andrew Weiss. This agreement (exhibit #2), reduced to writing in March of 2003, provided that Weiss would perform sales consultant services for Frazer as an independent contactor, and would earn sales commissions of 35% on new sales of funeral products and 15% on repeat sales. This agreement also provided that Weiss was "[s]ubject to the supervision...and orders, advice, and direction of" Frazer in performing his sales duties; and "shall devote all of his time, attention, knowledge, and skill solely and exclusively to the business and interests of" Frazer.

Frazer entered into similar agreements with Marc Welsch beginning in March of 2003, and Laurel Kent beginning in May of 2003.

For services performed under these agreements, Frazer paid Weiss $2,743.66 and Welsch $600 during the first quarter of 2003; and paid Weiss $6,321.48, Welsch $600, and Kent $200 during the second quarter of 2003.

The first issue (Hearing No. S0500122MD) is whether Weiss, Welsch, and Kent performed services for Frazer as employees or independent contractors.

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....(bm),...

(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...

It appears to be undisputed that, since Weiss, Welsch, and Kent (sales consultants) performed services for Frazer for pay, they did so in an "employment," within the meaning of Wis. Stat. § § 108.02(12)(a) and (15). As a result, a presumption that they did so as employees is created which Frazer has the burden to rebut by showing that the sales consultants' employment satisfied at least seven of the ten conditions set forth in Wis. Stat. § 108.02(12)(bm). 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).

The record does not show that the sales consultants held or applied for a federal employer identification number (FEIN) as required by condition 1. Frazer argues in his petition that, since the Internal Revenue Service does not require a FEIN in circumstances such as those under consideration here, the possession of a social security number should satisfy this condition. However, the commission has consistently held that possession of a social security number does not satisfy condition 1. See, e.g., Angel Care, UI Hearing No. S0200141MW (LIRC Dec. 30, 2004); Rabe v. Tatge, UI Hearing No. 05003125 (LIRC Nov. 10, 2005); Oil Equipment Co., Inc., UI Hearing No. S0300057MW (LIRC Dec. 30, 2004).

The record does not show, as required by condition 2., that any of the sales consultants filed business or self-employment income tax returns for the time period relevant here based on services performed for Frazer. Contrary to Frazer'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 Siding, Inc., UI Hearing Nos. S0300142GB, etc. (LIRC June 2, 2006).

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. Although the record shows that the sales consultants used their own equipment, e.g., vehicles, cell phones, and laptop computers, it does not show that any of them maintained a separate office. Moreover, the fact that the governing agreement required the sales consultants to devote all of their time, attention, knowledge, and skill solely and exclusively to the putative employer's interests militates against the existence of a business enterprise existing separate and apart from their relationships with Frazer. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001) (fact that worker performs services only for putative employer generally inconsistent with existence of separate business).

To satisfy condition 4., it must be established that the sales consultants 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.

Condition 4. 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/she has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship, and that he/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 sales consultants performed services for Frazer was a single contract with terms that did not vary over time or by event, and which were dictated, apparently without negotiation, by Frazer. This single contract did not satisfy the multiple contracts requirement of condition 4. See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002); Dane Co. Hockey Officials, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000); Gary R. Gilbert, UI Hearing No. S0200083DB (LIRC July 21, 2005).

Moreover, the sales consultants do not control the means and method of performing services for Frazer, i.e., their contract with Frazer specifically states that they were "[s]ubject to the supervision...and orders, advice, and direction of" Frazer in performing their sales duties. Frazer testified that he followed the terms of this contract in his dealings with the sales consultants.

Frazer did not sustain his burden to show that either requirement of condition 4. is 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, 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 sales consultant or Frazer, bears the larger total expense.

Although Frazer testified that the sales consultants paid their own transportation, hotel, travel meal, cell phone, and computer expenses, neither these expenses, nor the frequency of required travel or cell phone and computer use, were quantified in the record. Frazer paid the costs of maintaining his office in his apartment, processing sales orders, billing customers, and keeping records, including records of earnings by the sales consultants. In the absence of quantification of the expenses borne by the sales consultants, and given that it is not obvious that the expenses they bore would necessarily exceed those borne by Frazer, Frazer failed to sustain his burden to show that condition 5. is satisfied.

In order to sustain his burden to show that the requirements of condition 6. are satisfied, Frazer would have to show that the sales consultants were responsible for the satisfactory completion of the services they performed, and liable for any failure to satisfactorily complete them. In the sales context, such a failure could include, for example, mistakes in preparing or transmitting a customer order; or in communicating cost, product features, or availability to a customer. Although the administrative law judge concluded that customers "could look to [the sales consultants] as potentially liable for sales errors or product problems," the record does not establish this. Condition 6. is not satisfied.

The sales consultants were 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). It is arguable, as the commission concluded in Quality Communications Specialists, Inc., supra., that the receipt by the sales consultants of more in commissions than they were required to spend performing sales services for Frazer would constitute "realiz[ing] a profit...under contracts to perform services." In addition, since the sales consultants are paid only if they complete a sale, it is possible that their expenditures on travel and other costs could exceed their commissions and they could realize a loss. Condition 8. is satisfied.

Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time he was not performing work through the putative employer, such as the cost of an office lease, professional fees, or liability insurance. The record does not show that the sales consultants had such continuing costs. Frazer argues that the costs to the consultants of maintaining a vehicle, and other travel expenses such as those for fuel, hotel stays, and meals, satisfy this condition. However, since it was not shown that any of the sales consultants acquired and maintained a vehicle solely for business purposes, their vehicle costs would not qualify as recurring business liabilities or obligations within the meaning of condition 9. In addition, it is obvious that the sales consultants would not be incurring expenses for fuel, hotel stays, and travel meals during a period of time they were not making sales calls for Frazer. Condition 9. is not satisfied.

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. The record does not show that any of the sales consultants put a significant investment, or, in fact, any investment, at risk. Condition 10. is not satisfied.

In summary, only conditions 7., and 8. are satisfied. 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 two of the ten conditions compels the conclusion that the sales consultants performed services for Frazer as employees, not independent contractors, during the time period at issue.

Frazer argues that the sales consultants should be regarded as independent contractors, not employees, because that is what their contracts with Frazer specified. However, the sales consultants' status is determined by statute, not by the terms of a private agreement. Roberts v. Industrial Comm., 2 Wis. 2d 399 (1957). See, also, Knops v. Integrity Project Management, UI Hearing No. 06400323AP (LIRC May 12, 2006).

The decisions of the administrative law judge, as modified, are affirmed. Accordingly, based on its employment of Weiss, Welsch, and Kent during the period at issue, the employer is liable, effective January 1, 2003, for contributions to the Unemployment Reserve Fund and related interest, as more particularly set forth in the relevant department determination.

Dated and mailed June 14, 2007
frazema . smd : 115 : 1  EE 410  EE 410.03

/s/ James T. Flynn, Chairman

/s/ Robert Glaser, Commissioner

Ann L. Crump, Commissioner

cc:
Attorney Richard C. Glesner
Attorney Jorge L. Fuentes

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