SHANE M. ROTH, Employee
WORLD FINANCIAL GROUP 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 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 final three sentences of the second full paragraph on page 5 of the decision, analyzing condition 3., are deleted.
The first and second paragraphs on page 6 of the decision are deleted, and the following substituted:
The record does not establish that the claimant satisfies at least seven of the ten statutory conditions.
The decision of the administrative law judge, as modified, is affirmed. Accordingly, the base period wages paid to the claimant by the employer shall be included in the department's computation of the claimant's benefit entitlement.
Dated and mailed January 10, 2008
rothsha . umd : 115 : 8 ET 483.01, ET 483.07 EE
410 EE 410.03 EE 410.06 EE 410.08
James T. Flynn, Chairman
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
Roth filed a claim for benefits for one month in 2007 based upon the loss of his unrelated full-time employment as a bartender.
For purposes of this claim, Roth's base period consists of the four quarters of 2006.
The issue is whether the payments Roth received from WFG for services he performed in 2006 are base period wages to be included in computing the amount of his benefit. The issue does not relate to WFG's liability for contributions.
As defined in Wis. Stat. § 108.02(4m)(a), base period wages means, "All earnings for wage-earning service which are paid to an employee during his or her base period as a result of employment for an employer."
The first question is whether Roth was performing services for WFG in an employment. Subject to certain exceptions, an "employment" is defined by Wis. Stat. § 108.02(15)(a) as "any service...performed by an individual for pay." It is undisputed that Roth performed services for WFG for pay during the base period.
WFG argues, however, that the exceptions set forth in Wis. Stat. §§ 108.02(15)(k)6. and 16. are applicable here. These statutory provisions state as follows:
k) "Employment" as applied to work for a given employer...does not include service:
6. By an individual for a person as an insurance agent or an insurance solicitor, if all of the service performed as an insurance agent or solicitor by the individual for the person is performed for remuneration solely by way of commissions;...
16. By an individual whose remuneration consists solely of commissions, overrides, bonuses or differentials directly related to sales or other output derived from in-person sales to or solicitations of orders from ultimate consumers, primarily in the home;...
WFG argues that the language of Wis. Stat. § 108.02(15)(k)16. should not be interpreted literally because the practices of the sales industry have changed since this statutory exception was effected and are "increasingly mobile," citing National Safety Associates, Inc., v. LIRC and DILHR, 199 Wis.2d 106, 543 N.W.2d 584 (Ct. App. 1995) in support.
The commission, however, rejected this argument in Prouty v. Books Are Fun Ltd., UI Hearing No. 04610806MW (LIRC Aug. 3, 2005) in which it held as follows:
Books' second argument relies on the holding in National Safety Associates, Inc. v. LIRC and DILHR, 199 Wis. 2d 106, 543 N.W. 2d 584 (Ct. App. 1995). In that decision, the court turned to extrinsic aids, including a parallel federal statute and Wisconsin legislative history, to interpret the ambiguous "directly related to sales or other output derived from" language of Wis. Stat. § 108.02(15)(k)16. In concluding that this language was ambiguous, the court specifically cited two conflicting but reasonable interpretations offered by the parties. Here, however, the language "primarily in the home" is not susceptible to multiple reasonable interpretations. Moreover, unlike the statutory language at issue in National Safety Associates, which was interpreted by the court to be an abbreviated version of the parallel language in the federal statute, the language at issue here is clearly distinguishable from its parallel in the federal statute. Specifically, the language under consideration here is "primarily in the home," while the parallel federal language is "in the home or otherwise than in a permanent retail establishment."
Although Books offers decisions from other jurisdictions in support of its argument that decisions and regulations emanating from the federal statute should serve as authority here, these decisions, from Florida, Texas, and Illinois, rely upon statutory language which, unlike the Wisconsin language, essentially parrots the federal "in the home or otherwise than in a permanent retail establishment" language.
As a result, the exclusion stated in Wis. Stat. § 108.02(15)(k)16., is not applicable because the record does not show that Roth's sales to consumers were "primarily in the home."
The other exclusion claimed by WFG is set forth in Wis. Stat. § 108.02(15)(k)6. This exclusion states that, as applied to an individual's work for a particular entity, "employment" does not include services performed as an insurance agent or solicitor if all such services are remunerated solely by way of commissions.
The products offered by Roth to consumers as a part of WFG's sales force included insurance policies, annuities, and mutual funds. Roth was compensated solely on a commission basis for his sales of these products. Roth, consistent with his agreement with WFG, became licensed as an insurance agent. In order to comply with securities regulations, Roth was required by WFG to enter into an agreement with World Group Securities, Inc., (WGS) which acted as the broker/dealer for the sale by Roth of any variable life insurance policies, variable annuity contracts, and mutual fund shares.
The department did not apply the exclusion stated in Wis. Stat. § 108.02(15)(k)6. because the products Roth offered as a part of WFG's sales force were not limited solely to insurance products.
Although the language of Wis. Stat. § 108.02(15)(k)6. does not state that an individual must perform services for an entity solely as an insurance agent or solicitor in order for the exclusion to apply, it is a reasonable implication from this language that such services must at least be performed primarily as an insurance agent or solicitor. The record here does not show, however, what portion of the services Roth performed for WFG related to the sale of insurance products and what portion to investment products.
As a result, the exclusion stated in Wis. Stat. § 108.02(15)(k)6. does not apply, and Roth performed services for WFG in an employment in 2006.
The next question then is whether Roth performed such services as an employee.
The fact that Roth performed services for WFG in an employment creates a presumption that he did so as an employee. WFG may rebut this presumption by proving that at least seven of the ten conditions set forth in Wis. Stat. § 108.02(12)(bm) were satisfied. 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).
These ten statutory conditions are:
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.
Although the ALJ did not analyze each of the ten factors, and, as a result, WFG did not address each of the conditions in its argument, 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, UI Hearing No. S9800101MD (LIRC Feb. 22, 2000).
The record does not show that Roth held or applied for a federal employer identification number (FEIN) as required by condition 1.
The record shows, through Roth's testimony that, as required by condition 2., he filed business or self-employment income tax returns based on services performed for WFG.
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 Roth used certain of his own equipment, e.g., vehicle, cell phone, and laptop computer, it does not show that he maintained a separate office with his own resources. The record shows instead that Roth used an office leased, furnished, and staffed by more senior members of the WFG sales force for which he paid $30 per month, far below the $400+ fair market value.
Moreover, the fact that the governing agreement prevented Roth from performing insurance/securities sales work for entities other than WFG militates against the existence of a business enterprise existing separate and apart from his relationship with WFG. 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).
Condition 3. is not satisfied.
To satisfy condition 4., it must be established that Roth 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.
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 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.
The contract under which Roth performed services for WFG was a single contract with terms that did not vary over time or by event, and which were dictated, apparently without negotiation, by WFG. 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).
WFG argues that the agreements between Roth and his customers should be considered in analyzing condition 4. However, although, under certain circumstances, (1) it is appropriate in analyzing condition 4. to consider contracts negotiated by workers with individual customers under the auspices of the putative employer, such an analysis is not apt here. See, Matthew G. Frazer, UI Hearing Nos. S0600184MD, S0500122MD (LIRC June 14, 2007).
WFG also argues that the agreement between World Group Securities, Inc., and Roth should be considered a separate agreement. However, this agreement was required by WFG in order for Roth to sell certain investment products and would not qualify as a separate contract.
WFG did not sustain its burden to show that the multiple contracts 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.
Roth paid his own vehicle, cell phone, licensing, and errors and omission insurance expenses. All but a nominal part of the cost of the office used by Roth was paid by more senior members of the WFG sales force. It is presumed that WFG incurred certain administrative costs in entering into and overseeing its contract with Roth. In the absence of quantification of most of these expenses, and given that it is not obvious that the expenses borne by Roth necessarily exceeded those borne by others, WFG has failed to sustain its burden to show that condition 5. is satisfied.
The fact that Roth maintained errors and omissions insurance is sufficient to satisfy
condition 6. See, Care & Comfort Associates, UI Hearing No. S9700120MW (LIRC April 30, 1999);
O'Brien v. Angel Adams, Inc., UI Hearing No. 07601554MW (LIRC July 9, 2007).
Roth was 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 Roth of more in commissions than he was required to spend performing sales services for WFG would constitute "realiz[ing] a profit...under contracts to perform services." In addition, since Roth was paid only if he completed a sale, it is possible that his travel and other costs could exceed his commissions and he could realize a loss. See, Matthew G. Frazer, supra. 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. Roth's professional fees and his costs for continuing education and errors and omissions insurance satisfy this condition.
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 Roth put a significant investment at risk, and condition 10. is not satisfied as a result.
WFG argues that the cost of Roth's labor/time should be factored into the analysis of condition 10. However, the cost of labor/time provided under a contract has not been interpreted by the commission as an investment for purposes of applying condition 10., i.e., since Roth does not pay for his labor/time, it would not represent a significant investment on his part within the meaning of condition 10. See, O'Brien, supra.
In summary, only conditions 2., 6., 7., 8., and 9. 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 five of the ten conditions compels the conclusion that Roth performed services for WFG as an employee, not an independent contractor, during the time period at issue.
WFG appears to argue that Roth should be regarded as an independent contractor, not an employee, because that is what their contract specified. However, Roth's 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).
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World Financial Group, Inc. - Duluth, GA
Attorney Emily Burkhardt Vicente
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