MARV MEWS & SONS 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:

That part of the decision beginning with the third full paragraph of the FINDINGS OF FACT and CONCLUSION OF LAW section, and continuing through the fifth full paragraph on the final page of the decision (not including the signature page), is deleted and the following substituted:

The record shows that Ted Mews, whose relationship with the putative employer satisfied conditions 1., 2., 4., 6., and 8. of Wis. Stat. § 108.02(12)(bm); and Kurt Mews, whose relationship satisfied conditions 3., 4., 6., 7., and 8., performed services for Marv Mews & Sons, Inc., as employees, not independent contractors, during the time period at issue.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, Marv Mews & Sons, Inc., owes past due and delinquent unemployment insurance taxes together with interest as set forth in the department determination.

Dated and mailed March 24, 2009
marvmew . smd : 115 : 1  EE 405  EE 410  EE 410.01  EE 410.05 

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

Effective March 31, 2006, Marv Mews & Sons, Inc., was incorporated. Certain of the assets of Marvin Mews Company, Inc., were transferred to Marv Mews & Sons, Inc.

In a determination issued on September 20, 2007 (exhibit #1), the department held that, for unemployment insurance purposes, a partial transfer between the corporations had been effected March 31, 2006, and that successorship was mandatory under Wis. Stat. § 108.16(8)(c), (d), or (e). As a result, Marv Mews & Sons, Inc., became a subject employer effective March 31, 2006.

Marvin Mews challenges this successorship determination, but that issue is not before the commission. It was the subject of a separate determination and, according to department records, Marvin Mews' appeal of this determination was withdrawn.

Marvin Mews' sons, Ted and Kurt, performed services for both corporations. During part of 2007, they performed these services as acknowledged employees. In 2006 and in 2007, Ted and Kurt entered into an agreement (exhibit #2) with Marvin Mews & Sons, Inc., denominated as a "joint venture and trade partner agreement," intended to govern the relationship during the time that Ted and Kurt were not performing services as acknowledged employees. Under the terms of this agreement, any profit or loss of Marvin Mews & Sons, Inc., would be shared equally by Marvin, Ted, and Kurt Mews.

Officer Exclusion

Wisconsin Statutes § 108.025 states as follows, as relevant here:

108.025 Coverage of certain corporate officers and limited liability company members.

...(2) If an employer is organized as a corporation, the employer has no annual payroll for the calendar year preceding an election or has an annual payroll of less than the amount specified in s. 108.18 (9) which establishes separate solvency contribution rates for the calendar year preceding an election, and the employer files a notice of election, in the manner prescribed by the department, to exclude the service of all of its principal officers who have a direct or indirect substantial ownership interest in the corporation..., employment does not include the service of those officers.

...(5) To be effective for any calendar year, a notice of election or reelection must be received by the department no later than March 31 except that in the case of an employing unit which becomes an employer during a calendar year, notice of election must be received by the department no later than the date on which the initial contributions of the employer become payable under s. 108.17 (1m), ... (emphasis added)

Marvin Mews elected to exclude the value of the services he performed for Marvin Mews Company, Inc., within the meaning of Wis. Stat. § 108.025(2), and provided timely notice of this election to the department for the relevant years.

After Marv Mews & Sons, Inc., became a mandatory successor to Marvin Mews Company, Inc., Marvin Mews did not file a notice of election for exclusion of coverage of his services.

Marvin Mews argues that he reasonably assumed that his election for exclusion of coverage of his services for Marvin Mews Company, Inc., would carry over to the successor corporation. However, given the language of Wis. Stat. § 108.025(5), and, given that an election for exclusion of coverage is not one of the elements of a predecessor corporation which transfers automatically by operation of Wis. Adm. Code § DWD 115.10 to a successor, such a carryover did not occur.

As a result, amounts paid to Marvin Mews for services he performed for Marv Mews & Sons, Inc., should be included in the amount upon which contribution liability is computed. 
 

Employees or Independent Contractors

The remaining issue is whether Kurt and Ted Mews performed services for Marv Mews & Sons, Inc., as employees or as independent contractors.

There were originally three individuals at issue, Kurt, Ted, and Elizabeth Mews. However, at hearing, Marvin Mews stipulated that Elizabeth Mews performed services as an employee.

Wisconsin Statutes § § 108.02(12)(a) and (bm) state as follows, as relevant here:

(a) "Employee" means any individual who is or has been performing services for an employing unit, 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 4-year period beginning on January 1, 2000, with respect to contribution requirements, ...par. (a) does not apply to an individual performing services for an employing unit...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 method of performing the 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 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.

Wisconsin Statutes § 108.02(12)(a) creates a presumption that a person who provides services for pay is an employee, and it requires the entity for which the person is performing those services to bear the burden of proving that the person is not an employee. 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).

Since it is undisputed that Ted and Kurt Mews performed services for pay for Marv Mews & Sons, Inc. (MMSI), during 2007, it is MMSI's burden to rebut the presumption that they did so as employees.

The record shows that Ted possessed a FEIN, as required by condition 1., but that Kurt did not, using his social security number for tax purposes. Although MMSI argues that the possession of a social security number satisfies condition 1., it is well-settled that it does not. See, Angel Care, UI Hearing No. S0200141MW (LIRC Dec. 30, 2004); Rabe v. Tatge, UI Hearing No. 05003125 (LIRC Nov. 10, 2005). As a result, Ted satisfied condition 1. but Kurt did not.

The record shows that Kurt filed a business/self-employment tax return for 2007, and that Ted filed such a return for 2006 and 2007. The record also shows that Ted and Kurt first began in business during or before 2006. As a result, in order to satisfy condition 2. for 2007, the time period at issue, business/self-employment tax returns are required to have been filed for 2006. Consequently, only Ted satisfied condition 2.

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). See, also, Lozon Remodeling, UI Hearing No. S9000079HA (LIRC Sept. 24, 1999). In Quality Communications Specialists, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001), the commission clarified that all parts of the test articulated in condition 3. must be met. The record shows that Ted and Kurt used certain of their own equipment, e.g., smaller hand and power tools. However, the record shows that only Kurt maintained a separate office devoted to a business purpose. The record also shows that Kurt performed similar concrete services for other entities, a factor generally consistent, when paired with the satisfaction of the parts of the test relevant in the subject industry, with the existence of a separate business. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001). As a result, condition 3. is satisfied as to Kurt but not as to Ted.

To satisfy condition 4., it must be established that Ted and Kurt operated under contracts to perform specific services for specific amounts of money, and that, under these contracts, they controlled 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).

The contract under which Ted and Kurt performed services for MMSI was a single contract, and does not satisfy the multiple contracts requirement of condition 4. Ted and Kurt, however, also had contracts to perform concrete services for other entities. This would satisfy the multiple contracts requirement of condition 4. See, MSI Services, Inc., UI Hearing No. S0600129AP (LIRC Sept. 5, 2008).

Condition 4. also requires that the individual control the means and method of providing the services. Here, the record shows that, other than general expectations imposed by MMSI as to acting in a professional manner, Ted and Kurt determined the means and method of providing concrete services to MMSI customers.

Condition 4. is satisfied as to both Ted and Kurt.

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. See, Quality Communications Specialists, Inc., supra.

The record shows that, although Ted and Kurt provided certain smaller hand and power tools and equipment, MMSI provided the large equipment, and paid transportation and administrative expenses. In the absence of quantification of these expenses, and given that it appears from the record that the main expenses were borne by MMSI, not Ted or Kurt, condition 5. is not satisfied. Even if Ted and Kurt were considered to effectively share in paying the expenses borne by MMSI through their one-third share of corporate profits/losses, one-third of expenses do not constitute the main or majority expense. Neither Ted nor Kurt satisfies condition 5.

In order to show that the requirements of condition 6. are satisfied, the record would have to show that Ted and Kurt were responsible for the satisfactory completion of the services they performed, and liable for any failure to satisfactorily complete them. The record shows that Ted and Kurt were expected to re-do any unsatisfactory work, and the cost of re-doing this work was deducted from their share of the corporation's profit. The fact that Ted and Kurt, if they performed unsatisfactory work, were not only expected to re-do the work without additional compensation, but also suffered the penalty of having part of the cost of leasing equipment, hiring workers, and purchasing materials to do the re-work deducted from their share of corporate profits, satisfies condition 6.

Condition 7. requires that the individual be compensated on a commission, per-job, or competitive-bid basis, and not on any other basis.

Although the ALJ found that Ted and Kurt were paid on an hourly basis, this, with the exception stated below, is a misinterpretation of the evidence of record. Ted and Kurt were advanced funds by the corporation at the rate of $31 an hour. However, at the end of the corporation's fiscal year, the corporation's net profit or loss would be calculated, and, factoring in the advances paid to Ted and Kurt over the year, their share of the profit or loss determined. This is not payment on an hourly basis, but instead something more akin to payment by commission. See, Sure Value Auto Sales, Inc., UI Hearing No. S0500191MD (LIRC Feb. 12, 2007).

Ted, however, because he perceived that he was working more hours than his brother, requested and was paid for these additional hours at the rate of $31 an hour. As a result, Kurt satisfied condition 7., but Ted, because he was also paid on an hourly basis, did not. See, Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).

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). The receipt by Ted and Kurt of more in earnings then they were required to spend performing services for MMSI would constitute realizing a profit. In addition, over the course of Ted's and Kurt's contracts with MMSI, it was a realistic possibility that, in sharing in the corporation's losses, they could realize a loss. As a result, 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, certain professional fees, or liability insurance. The record does not show that Ted or Kurt had such continuing costs, and 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, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000). The record does not show that either Ted or Kurt put a significant investment at risk. Condition 10. is not satisfied.

In summary, both Ted and Kurt satisfied conditions 4., 6., and 8. In addition, Ted satisfied conditions 1. and 2. for a total of five conditions; and Kurt satisfied conditions 3., and 7., for a total of five 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 no more than six conditions compels the conclusion that Ted and Kurt performed services for MMSI during the relevant time period as employees, not independent contractors.

Marvin Mews argues that Ted and Kurt should be regarded as independent contractors, not employees, because that is what their contracts with MMSI specified. However, Ted's and Kurt'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).

cc: Attorney Peter W. Zeeh

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