SUZETTE M BEAU, 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 on page 6 of the ALJ's decision, which discusses condition 8., is deleted and the following substituted:

Condition 8. requires that Beau/First Class prove there is a realistic possibility that an escort could sustain a business loss over the entire term of her agreement with Beau. Although the record shows that Bardwell sustained a loss during the first months of her association with Beau, she testified at hearing that there was no way she could sustain a loss over the "long run" of her relationship with Beau. Condition 8. is not satisfied.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, the putative employer is subject to Chapter 108 of the Wisconsin Statutes effective January 1, 2002. The putative employer is liable for certain unemployment insurance contributions, together with interest, for calendar years 2002, 2003, and the first, second, and third quarters of 2004, in the amount of $4,911.96.

Dated and mailed December 7, 2007
beausuz . smd : 115 : 1  ER 460 EE 410  EE 410.04a

/s/ James T. Flynn, Chairman

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

Beau/First Class contends that it cannot be a covered employer because the escorts did not perform services for Beau/First Class, as required by Wis. Stat. § 108.02(12)(a), but instead, Beau/First Class performed referral services for the escorts.

The ALJ did not accept this characterization of the relationship between Beau/First Class and the escorts. The commission agrees.

The factors which support this conclusion include the following:

a. Beau/First Class was paid not by the referral but instead by the number of hours of service provided by an escort. If Beau/First Class was in fact simply a referral agency, its referral fee would be keyed to completion of the referral, not completion of the service.

b. If the referral was accepted but the service not completed or payment not rendered, the referral fee was not payable even though the referral had been completed.

c. Beau/First Class was typically involved in negotiating the time/place of the meeting with the client, and in monitoring the escort's safe arrival and departure.

d. The written agreement between Beau/First Class and the escorts (exhibit #1) states that it was in effect while the escort was "working for First Class."

e. Beau's ad in an entertainment publication (exhibit #2) states that First Class was "now hiring."

Although Beau/First Class asserts in its reply brief that the referral fee was $100 regardless of the number of hours of service provide by an escort during a single "show," this is contrary to the testimony provided by witness Lynn Bardwell (see page 23 of synopsis), the only competent evidence offered on this point.

Since the escorts performed services for Beau/First Class in an employment within the meaning of Wis. Stat. § § 108.02(12)(a) and (15), a presumption that they did so as employees is created which may be rebutted by showing that the escorts' 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).

Beau/First Class argues that the ten statutory conditions ignore the manner in which business is conducted, and otherwise should not be applied here. However, it is the commission's charge to apply the statutes as written, and it has no authority or discretion to modify or ignore the statutory language.

The record shows that only escort Jody Zak held or applied for a federal employer identification number (FEIN,) as required by condition 1.

The parties stipulated that certain of the escorts satisfied condition 2. during certain years, and no reason exists to reject this stipulation.

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.

The only competent evidence offered in regard to this condition relates to escort Lynn Bardwell. Although Bardwell uses space in her home for record-keeping, the record does not show that she has a separate space in her home devoted to a business purpose, which would be required to satisfy this condition. Instead, the record shows that she uses this space in her home, a vehicle, and a cell phone for personal and for business purposes. Although Bardwell does have some materials she uses for business, (lingerie and massage oils), and some equipment (credit card imprint machine), these would not be sufficient alone to satisfy condition 3. It should also be noted that Bardwell has not performed escort services for any entity other than Beau/First Class, a circumstance generally inconsistent with the existence of a separate business. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001). Condition 3. is not met.

To satisfy condition 4., it must be established that the escorts 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 record shows that each escort controlled the means and method of delivering services to her clients.

However, condition 4. 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/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 an escort performed services for Beau/First Class was a single contract, with both written and oral components, and with terms that did not vary over time or by event. 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).

Beau/First Class asserts that each time an escort accepts a client referred by Beau/First Class, and provides services to this client, a separate contract is created. The commission accepted such an assertion in regard to a somewhat similar fact situation in Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004), although it noted in its decision that it was a close question. However, in Quale, the fact that the individual craftsworker not only negotiated with a client a separate written contract for each service, but was also individually liable for the unsatisfactory completion of services rendered under this contract distinguishes the circumstances here from those in Quale, i.e., establishes the greater autonomy and responsibility of the craftsworkers, and their more direct relationship with clients, under these agreements. As a result, even though it is again a close question, the proper agreement to be analyzed in regard to this condition is the escort's agreement with Beau/First Class, not the separate agreements with clients.

The record does not show that any of the escorts had escort contracts with entities other than Beau/First Class during the relevant time period.

Condition 4. is not met.

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, Beau/First Class or the escorts, bears the larger total expense.

Beau/First Class paid for advertising ($300-800 per month), business cell phone ($100-400 per month), and credit card validation ($25-30 per month).

The escorts paid for transportation ($45-300 per month), lingerie and massage oils (one-time $100 expense), credit card equipment (one-time $50 expense), and the credit card transaction fee, which is a small percentage of the total transaction.

The record shows that Beau/First Class bore the larger expense, and condition 5. is not satisfied as a result.

In order to satisfy condition 6., the escorts are required to have been responsible for the satisfactory completion of the services they performed, and liable for any failure to satisfactorily complete them. Evidence establishing, for example, a penalty for unsatisfactory work, could satisfy this condition. Here, there was no consequence to the escort if the client was not satisfied with the service performed, and, as a result, this condition is not met.

The fact that the escorts were paid on a per-job basis satisfies condition 7.

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 an escort of more in payments than she was required to spend performing services for Beau/First Class could constitute "realiz[ing] a profit...under contracts to perform services."

However, the record does not show that there was a realistic possibility that an escort could incur an operating loss over the term of her contract with Beau/First Class. The only evidence in this regard is the testimony of Lynn Bardwell to the effect that, although she actually incurred a small loss in 2002, this was an aberration, and, over the "long run" of her relationship with Beau/First Class, "there was no way" she could sustain a loss. (see page 14 of synopsis). This seems reasonable, given an escort's few expenses, and the range of almost certain payment she receives for one hour of service ($25-700). Condition 8. is not satisfied.

Condition 9. requires proof of a cost of doing business which an escort would incur even during a period of time she was not performing work through the Beau/First Class, such as the cost of an office lease, professional fees, or professional liability insurance. There is no evidence that the escorts had any such continuing obligations, and condition 9. is not satisfied as a result.

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 the escorts put any significant investment at risk, and, as a result, condition 10. is not satisfied.

In summary, only condition 7. is satisfied as to all escorts; condition 1. as to escort Zak; and condition 2. as to escorts Zak, Aschenbren, Bardwell (2002, 2004), Derusha (2002), and Litkey (2002, 2003). No escort satisfies more than 3 conditions. 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 or fewer of the ten conditions compels the conclusion that the escorts performed services for Beau/First Class as employees, not as independent contractors, during the time period at issue.

Beau/First Class also attempts in its arguments to the commission to draw parallels between the escort services at issue here and services provided by trucking owner/operators. However, not only are the facts relied upon in making this comparison not a matter of record, but truckers are subject to different statutory requirements (Wis. Stat. § § 108.02(25e), 108.02(12)(c)) for determining their status as employees/independent contractors, and not all owner/operators have been held to be independent contractors (see, e.g., Courchaine v. Panther II, Inc., UI Hearing No. 07400881AP (LIRC Oct. 19, 2007).

cc:
Gerald J. Lesmonde, CPA
Attorney Peter W. Zeeh

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