JEREMY W STARK, Employee
3246 LLC, Employer
On August 6, 2007, administrative law judge (ALJ) Frigo conducted a hearing in this matter. On August 10, 2007, he issued a decision on behalf the Division of Unemployment Insurance of the Department of Workforce Development. A timely petition for review was filed and a briefing schedule was requested. Upon conclusion of the briefing schedule, the commission considered the petition and the positions of the parties, and it reviewed the evidence submitted to ALJ Frigo.
On December 27, 2007, the commission ordered an additional hearing regarding the applicability of Wis. Stat. § 108.02(kL). The remand hearing was conducted by Administrative Law Judge Nick on February 4, 2008 and the matter was returned to the commission for further action.
The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to ALJ Frigo and ALJ Nick. Based upon this review, the commission makes the following:
The claimant performed handyman type services for pay for eight limited liability corporations (LLCs) named 3246, 303, 2671, Cramer, Little Lloyd, Terr, 802 and Carr. Lorenz and Ferris are the only members of the eight separate LLCs, which were originally created for the ownership and management of rental properties by Lorenz and Ferris. As of the time of the hearings, Ferris and Lorenz used Carr LLC and 802 LLC as personal residences; the remaining six were rental properties. Although Lorenz and Ferris maintain separate records for each LLC, no request had been made to have the Unemployment Insurance Division treat them as separate employing units.
The claimant began performing services for the LLCs in December 2004 and ceased his services as of June 2006. His handyman services included painting, siding, moving and repair work. Departmental records reflect that the claimant initiated a claim for unemployment insurance benefits on December 13, 2006. Given that initiation date, the base period for determining the claimant's unemployment eligibility consists of the third and fourth quarters of 2005 and the first and second quarters of 2006. See Wis. Stat. § 108.02(4).
Wisconsin Statute § 108.02(12)(4m)(a) defines "base period wages" as:
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.
Necessary to determining whether the monies paid to the employee are to be used to compute his unemployment benefit entitlement are the statutory provisions dealing with "employee," "employer," "employing unit," and "employment."
Wis. Stat. § 108.02(12), states in part as follows,
(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). . .
Wis. Stat. § 108.02(14m) defines an "employing unit" as "any person who employs one or more individuals." Wis. Stat. § 108.02(15) defines "employment." The listed employment exclusions are not applicable to this matter, with the relevant "employment" definition as "any service, including service in interstate commerce, performed by an individual for pay." Wis. Stat. § 108.02(13) defines "employer," specifically paragraph (e) provides that
Any other employing unit, except a government unit, shall become an employer as of the beginning of any calendar year if the employing unit:
1. Paid or incurred liability to pay wages for employment which totaled $1,500 or more during any quarter in either that year or the preceding calendar year; or
2. Employed at least one individual in some employment in each of 20 or more calendar weeks in either that year or the preceding calendar year, whether or not the same individual was in employment in each such week and whether or not such weeks were consecutive; except that
3. Wages and employment for agricultural labor which meets the conditions of par. (c) shall be counted under this paragraph, but wages and employment for domestic service (1) shall not be so counted except as par. (i) applies.
Consolidation of LLCs as one "Employer"
Wis. Stat. § 108.02(kL) provides,
"Employer" means all limited liability companies consisting of the same members except that "employer" means each limited liability company consisting of the same members if:
1. Each limited liability company maintains separate accounting records;
2. Each limited liability company otherwise qualifies as an "employer" under this subsection;
3. Each limited liability company files a written request with the department to be treated as an "employer"; and
4. The department approves the request.
In this case, the eight named LLCs, for which the claimant performed services have the same members, Lorenz and Ferris. The LLCs have not satisfied the third and fourth conditions listed above and, as such, they are treated as one "employer" for purposes of the above statutory provisions.
Monetary Amount in Base Period
At both the original and the remand hearing, the parties agreed as to the total amount set forth by the initial determination as paid to the claimant in the base period by the eight LLCs. This amount includes the value of services and items that the claimant received in lieu of monetary payment for his services, i.e. rent, groceries and transportation. Moreover, although Lorenz and Ferris claimed that the amounts "paid" to the claimant for his services at 802 LLC and Carr LLC should be excluded as that was their personal residence, there is no such exclusion within the statutes. The claimant performed services for pay for the eight LLCs (hereinafter to be referred to as the employer and/or the petitioner).
Further, although Lorenz and Ferris argued that the two witnesses, for whom the claimant performed individual jobs, should also be investigated by the department the commission will not issue such a remand; it is highly unlikely either individual would meet the employer criteria set forth in Wis. Stat. § 108.02(13).
At this point, the commission believes it is necessary to explain the nature of the issue before the commission. In particular, the ultimate issue in this case is not to establish employer liability based upon the amounts paid to the claimant but instead to determine whether the amounts paid for services performed should be used to compute the claimant's benefit eligibility.
The issue of liability for unemployment insurance contributions is not before the commission and this decision has no effect on it. Instead, the employer's unemployment insurance liability is governed by two other determinations, dated February 14 and March 14, 2007. Departmental records reflect that although those determinations were originally appealed, the appeals were withdrawn.
Employee/Independent Contractor Issue for determination of the claimant's benefit amount.
In analyzing the employee/independent contractor issue,
the commission does not rely solely upon assertions contained in a written contract in determining whether an individual has provided services as an independent contractor, but looks at the evidence in the record overall. Wagner v. Medquist Transcriptions Ltd., UI Dec. Hearing No. 02003982BO (LIRC January 15, 2003).
Under Wis. Stat. § 108.02(12), if an individual performs services for pay for an employing unit, he or she is presumed to be an employee for UI tax purposes (rather than an independent contractor) unless the employing unit can establish that at least 7 out of the 10 conditions stated in § 108.02(12)(bm) are satisfied; those 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.
The petitioner failed to establish that the claimant had a federal employer identification number and, therefore, Condition 1 was not met.
The claimant filed a self-employment tax return for the 2005 tax year. Thus, Condition 2 has been met.
Condition 3 focuses on
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. Diane Egan/Health Exams Plus, Inc., UI Contribution Liability Dec. Hearing No. S0300071JV (LIRC April 15, 2005).
The commission agrees with the ALJ that the mere existence of some hand tools and two computers in a room of the apartment the claimant rented from the employer fails to establish a separate business. The claimant did not have business insurance, did not advertise and did not even have a vehicle to drive. Therefore, Condition 3 was not met.
For Condition 4 to be satisfied, the petitioner must establish both that the claimant operates under contracts to perform specific services for specific amounts of money, and that the claimant operates under contracts under which they control the means and method of performing the services. The commission explained in T & D Coils, Inc., UI Contribution Liability Dec. Hearing No. S9800147MW (LIRC December 15, 1999).
The threshold requirement of multiple contracts can be satisfied, in the view of the commission, either by multiple serial contracts or multiple contemporaneous contracts. Multiple contracts that an individual enters into with multiple business entities are most indicative of that individual's economic independence from a particular putative employer. However, multiple serial or contemporaneous contracts with a particular putative employer may satisfy the criterion if the contracts are shown to have been negotiated "at arm's length." In genuine independent contractor relationships, negotiation will typically result in terms that will vary over time and will vary depending on the specific services covered by a contract.
In Yochem v. Universal Strap Inc., UI Dec. Hearing No. 04005157FL (LIRC November 4, 2005), the commission, citing Quality Communications Specialists, Inc., UI Contribution Liability Dec. Hearing No. S0000094MW and S0000095MW (LIRC July 30, 2001) citing Dane Co. Hockey Officials Association Inc., UI Contribution Liability Dec. Hearing No. S9800101 (LIRC, February 22, 2000), explained that
This condition is not met in cases where the individual, in the course of a continuing relationship, provides the same services for one entity without negotiation or renegotiation of rates and, instead, accepts what is given as the going rate for the services.
In this case, the record fails to establish the claimant ever engaged in multiple contracts contemporaneously with multiple business entities. The only business entity with whom he "contracted" in the applicable period was the employer. While the claimant performed multiple assignments for the employer, the commission does not find that these assignments were negotiated at "arm's length." Instead, the parties testified that the "bids" were drafted by Lorenz after the work was complete and after the employee submitted his hourly log for which he was generally paid $9.00 per hour. Thus, the record fails to establish that Condition 4 has been met.
Condition 5 requires a determination of what services are performed under the contract, what expenses are related to the performance of those services, which of those expenses are borne by the person whose status is at issue, and whether those expenses constitute the main expense. Lozon Remodeling, UI Contribution Liability Hearing No. S9000079HA (LIRC Sept. 24, 1999). Similar to those performing services in Lozon, the expenses related to the claimant's performance of services are the expense of keeping a log record and maintaining the limited amount of hand tools he owned. He did not have a vehicle to maintain for performance of his services but instead paid the employer for transportation. The employer also provided materials, supplies and had more tools and equipment than the claimant some of which the claimant used in the performance of his services. Under these circumstances, the commission finds the employer failed to establish that the claimant incurred the "main expenses" and Condition 5 has not been met.
Condition 6 "requires more than the fact that the individual will not be paid for failing to satisfactorily complete services; the individual must incur some liability for such failure." Kae Development Corp., UI Contribution Liability Dec. Hearing No. S0400131AP (LIRC July 24, 2007).
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. Quality Communications Specialists Inc., UI Contribution Liability Dec. Hearing Nos. S0000094MW, S0000095MW (LIRC July 30, 2001).
If the claimant did not perform the services to the employer's satisfaction, he was required to perform rework without additional compensation. Additionally, the employer testified that the cost of rework had been taken out of the claimant's pay. The commission considers this to satisfy Condition 6.
Condition 7 requires that the claimant not receive compensation for the services performed under contract on any other basis than commission, per-job or competitive bid. The employer's payment for a majority of the claimant's work was hourly and, as such, Condition 7 is not met.
Condition 8 asks both whether the individual faces an actual possibility of making a profit and an actual possibility of suffering a loss. Simply put, if the individual's expenses exceed his income, he would have a loss and, if the income exceeded his costs, he would make a profit. In this case, the claimant was generally paid hourly. The record fails to establish any realistic opportunity for loss. Consequently, Condition 8 was not met.
Condition 9 requires proof of a cost which would be incurred even during a period when the claimant was not performing services for the petitioner; liability insurance which requires payment whether the individual has a customer or not satisfies this condition. See Dibbles & Dibbles, Inc., UI Contribution Liability Decision Hearing No. S0300140RH (LIRC January 12, 2005). As stated by the ALJ, the claimant did not have any fixed business expenses, such as liability insurance. Condition 9 has not been met.
Condition 10 contemplates the existence of a genuine business endeavor; "in an entrepreneurial sense, a significant investment is put at risk and there is thus the potential for real 'success', in the sense of growth of the value of the investment or 'failure', in the sense of the actual loss of the investment." Dane County Hockey Officials, UI Contribution Liability Dec. Hearing No. S9800101MD (LIRC, February 22, 2000). The focus is on business receipts and expenditures, as distinguished from wages; where the individual receives an hourly wage for all work performed, the individual "is not subject to the vagaries of changing receipts and expenditures." Lisko & Erspamer SC, UI Contribution Liability Dec. Hearing No. S0100035MW (LIRC February 24, 2004). The claimant did not have any significant investment at risk and this together with the fact that he was paid primarily by the hour foreclosed any opportunity for growth in value. For these reasons, Condition 10 has not been met.
The commission therefore finds that the eight related LLCs, for which the claimant performed services, constitute one employer within the meaning of Wis. Stat. § 108.02(kL).
The commission further finds that the petitioner has established that only three of the required ten conditions set forth in Wis. Stat. § 108.02(12)(bm) have been met and, thus, for benefit purposes, the claimant is a statutory employee and the amounts paid to him by the petitioner for his services constitute the base period wages, within the meaning of Wis. Stat. § 108.02(12)(4m)(a).
The decision of the administrative law judge, as modified, is affirmed. Accordingly, the monies paid to the claimant by the petitioner in the third and fourth quarters of 2005 and the first and second quarters of 2006 as set forth more specifically by the initial determination, shall be treated as base period wages usable to determine the claimant's benefit eligibility
Dated and mailed March 12, 2008
starkje2 . urr : 150 ER 453 EE 410
James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
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