START RENTING 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:

1. The first sentence in the fifth paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW section (the final paragraph on page 1 of the decision) is deleted.

2. The word "mile" at the end of the second sentence in the third full paragraph on page 3 of the decision is replaced by the word "drop."

3. That part of the decision beginning with the quotation of condition 3. on page 4 of the decision and continuing through the second full paragraph on page 8 of the decision is deleted and the following substituted:

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 the delivery drivers performed services for pay for Start Renting during the time period at issue, it is Start Renting's burden to rebut the presumption that they did so as statutory employees.

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, supra. As a result, the commission is not limited in its review of this case to those aspects of the administrative law judge's decision challenged in the petition. See, Metalor Technologies USA, UI Hearing No. S0800045MD (LIRC Nov. 25, 2008).

The parties stipulated to the identity of the drivers who satisfied condition 1. and condition 2., and this is accurately reflected in the ALJ's decision. The record does not show that any of the delivery drivers other than those who are the subject of this stipulation satisfied either of these conditions.

The parties also stipulated that the testimony of the three delivery driver witnesses would be considered representative of the testimony that would be provided by the 31 other delivery drivers as to conditions 5., 6., 7., and 8., and the control element, but not the multiple contracts element, of condition 4.

Start Renting argues that the testimony of the three delivery driver witnesses should also be considered representative testimony as to the remaining conditions, i.e., 3., 9., and 10., as well as the multiple contracts element of condition 4.

The commission has generally recognized, however, that the testimony of certain individual workers is not properly considered to represent the testimony of a larger group of workers in the absence of stipulation by the parties, or competent evidence, to that effect (see, MSI Services, Inc., UI Hearing No. S0600129AP (LIRC Sept. 5, 2008)), particularly when that testimony relates to conditions dependent upon highly individual facts.

Conditions 3., 9., and 10., and the multiple contracts element of condition 4., are conditions dependent upon highly individual facts, and the testimony of the three delivery driver witnesses should not be considered representative as to these conditions.

Moreover, as discussed below, since the record, including the testimony of the three delivery driver witnesses, does not support a conclusion that these conditions are satisfied, even if this testimony were considered representative, it would not change the result here.

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. 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., supra, the commission clarified that all parts of the test articulated in condition 3. must be met in order for the putative employer to satisfy its burden.

It is undisputed that the drivers used their own equipment, i.e., their own vehicles, to perform the subject services.

However, the only evidence as to the existence of separate offices was the testimony of delivery drivers Scott Radliff (Radliff), Josef Bieniek (Bienek), and Michael Melloch (Melloch).

Radliff testified that he had a file cabinet in his kitchen where he maintained records relating to the services he performed for Start Renting, and that he did not deduct space for an office on his Schedule C.

Bienek testified that he kept records relating to the services he performed for Start Renting "at home."

Melloch testified that he kept such records "at my house" and "on my home computer," and that he did not deduct space for an office on his Schedule C.

This testimony is insufficient to establish that Radliff, Bienek, or Melloch had separate offices or separate spaces in their homes devoted primarily to a business purpose. See, Campbell v. Speedmark, UI Hearing No. 08002536MD (LIRC April 27, 2009).

Condition 3. is not satisfied.

To satisfy condition 4., it must be established that the delivery drivers 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, and the department does not dispute, that the delivery drivers controlled the means and method of performing services for Start Renting.

Condition 4., however, 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 department argues that the contract between each delivery driver and Start Renting does not satisfy condition 4. because it does not specify the rate of compensation, i.e., it does not constitute a contract for "specific amounts of money." However, the record establishes that, although not in writing, there was agreement between each delivery driver and Start Renting as to the amount to be paid per drop. There is no requirement that a contract, or any of its provisions, be in writing in order to satisfy condition 4., and the agreement between each delivery driver and Start Renting, part written and part oral, is cognizable as a contract "to perform specific services for specific amounts of money" within the meaning of this condition.

The record shows that the delivery drivers performed services under a single contract with Start Renting, which was intended to be indefinite in duration, and the terms of which varied over time only in regard to the rate of compensation. See, Preferred Financial of Wisconsin, Inc., UI Hearing No. S0600240MW (LIRC Oct. 23, 2008); Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002) (condition 4. not satisfied by single contract with putative employer which was essentially renewed unchanged except for updated price structure).

Start Renting argues that a separate contract was created each time a delivery driver drove a route. This is not the approach the commission has taken in applying condition 4. Although, under certain limited circumstances, the commission, in analyzing condition 4., has considered contracts negotiated by workers with individual customers under the auspices of the putative employer (see, e.g., Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004), those circumstances are not present here because the delivery drivers did not negotiate agreements with individual customers.

Start Renting relies upon the circuit court decision in Evolution Technology Systems LLC v. LIRC, Case No. 07-CV-5825 (Wis. Cir. Ct. Milwaukee Co., March 6, 2008), to argue that "multiple contracts are not required" in order to satisfy condition 4. First, the circuit court decision does not state this. Instead, the court states on page 18 of its decision that, "The Commission reasonably interpreted this condition to require multiple contracts." Moreover, although the court held that the record established the existence of multiple contracts, the facts on which the court relied, i.e., that each job performed pursuant to the umbrella agreement with the putative employer was separately negotiated and based upon a distinct offer and acceptance, are not present here.

The record shows that only Radliff and Vern Black had delivery contracts with entities other than Start Renting during the relevant time period. This would meet the multiple contracts requirement of condition 4. As a result, condition 4. is satisfied only as to these two delivery drivers.

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 generally requires quantification of these expenses.

Given that the delivery drivers bear the cost of operating and maintaining the vehicles they use to make deliveries, it is apparent that the expenses they bear would necessarily exceed whatever administrative expenses were borne by Start Renting. See, Ziebell v. Cox Auto Trader, UI Hearing No. 07606213MW (LIRC Jan. 4, 2008). As a result, condition 5. is satisfied.

In order to satisfy condition 6., the delivery drivers are required to be responsible for the satisfactory completion of the services they perform, and liable for any failure to satisfactorily complete them.

The only evidence in the record relating to this condition is the testimony of Start Renting's distribution manager that, if a delivery driver failed to complete a route, Start Renting could initiate a legal action for damages for breach of contract.

Since this type of legal redress is available in any contractual relationship, if this were all that was required to satisfy condition 6., it would render this condition a legal nullity, a result inconsistent with the tenets of statutory construction.

Instead, the commission has considered, for example, whether there is an expectation that unsatisfactory or incomplete work will be remedied and a penalty if it is not, in determining whether condition 6. is satisfied.

Here, the record does not show that if, for example, a delivery driver missed a drop on his route, he was expected to remedy this by going back and making the drop himself or hiring another driver to do so. Since delivery drivers were apparently paid only for the drops they completed, it is implicit that the only penalty would be non-payment for the missed drop. This is insufficient to satisfy condition 6. since it is typical for employees, including piecework employees, not to receive pay for work they do not complete. Condition 6. is not satisfied.

Start Renting relies upon the commission's decision in a workers compensation case interpreting parallel statutory language, Floerchinger v. Nestle Transportation, WC Claim No. 2000-17699 (LIRC Aug. 15, 2001), to argue that the ability to sue for damages is sufficient to satisfy condition 6. However, even if a holding in a workers compensation case were considered persuasive in an unemployment insurance case, the facts are distinguishable. In Floerchinger, there was a specific provision in the contract between the claimant and Nestle specifying the claimant's liability for an incomplete delivery. There is no comparable provision in the contract between Start Renting and the delivery drivers here.

Condition 7. requires payment on a commission, per-job, or competitive-bid basis. It is undisputed that the delivery drivers are not paid on a commission or competitive-bid basis.
The per-drop basis upon which the delivery drivers are paid is more akin to payment on a piecework basis than to payment on a per-job basis. Although the delivery drivers in Zoromski v. Cox Auto Trader, UI Hearing No. 07000466MD (LIRC Aug. 31, 2007), and Ziebell, supra, were held to have been compensated on a per-job basis, those drivers, in contrast to the delivery drivers here, were paid by the route, not by the drop.

Condition 7. is not 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 delivery drivers of more in payments than they were required to spend performing services for Start Renting could constitute "realiz[ing] a profit...under contracts to perform services." However, since the drivers were essentially guaranteed payment if they performed the delivery services, it is difficult to envision how they could suffer a loss over the term of their contracts with Start Renting. See, Dane County Hockey Officials, supra.; Zoromski, supra.; Ziebell, supra.

Start Renting argues that a delivery driver could realize a loss on a particular day, or during a period of time when gas prices were high or he needed to pay for repair to his vehicle. However, the proper inquiry is whether there is a realistic possibility that a delivery driver could realize a loss over the term of his contract with Start Renting, not whether he could realize a loss for a particular day, week, or month. Since a delivery driver was guaranteed payment for every drop he completed, and, if his expenses became too high, could readily discontinue driving for Start Renting, there was not a realistic possibility that a delivery driver could suffer a loss.

Condition 8. is not 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 business liability insurance. The record does not show that any of the delivery drivers had such expenses.
Start Renting argues that the costs to the delivery drivers for operating and maintaining their vehicles, for vehicle insurance, and, at least by implication, for a driver's license, satisfy condition 9. Since the cost of operating a vehicle for business purposes will cease when the worker is no longer performing such services, such costs would not qualify as continuing business liabilities or obligations. In addition, since the record shows that the vehicles used by the delivery drivers were their personal vehicles, and they used their driver's license for personal as well as business purposes, the costs of maintaining and insuring such vehicles, as well as the driver's license fee, would not qualify as business obligations or liabilities within the meaning of condition 9. See, Kunst v. Energy Marketing Services, UI Hearing No. 08400750AP (LIRC July 31, 2008)(since individual did not acquire and maintain vehicle used to perform services solely for business purposes, vehicle costs would not qualify as recurring business liabilities or obligations within the meaning of condition 9.).

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 delivery drivers put a significant investment at risk, and, as a result, condition 10. is not satisfied.

Start Renting argues that the language of Wis. Stat. § 108.02(12)(bm), or the manner in which it has been interpreted by the department and the commission, unconstitutionally deprives entities utilizing the services of individuals with "simple business models" from the equal protection of the law. Start Renting's theory apparently is that, since individuals with "simple business models" will not be able, given the statutory language and the way in which it has been interpreted, to qualify as independent contractors, those utilizing their services are deprived of the equal protection of the law. Even if Start Renting's equal protection argument were cognizable here, it has failed to establish that individuals with "simple business models" will not be able to qualify as independent contractors. See, e.g., Prouty v. Books Are Fun Ltd., UI Hearing No. 04610806MW (LIRC Aug. 3, 2005); Metalor Technologies USA, supra.; Sure Value Auto Sales, Inc., UI Hearing Nos. S0500191MD, etc. (LIRC July 29, 2008); Acute Care, UI Hearing No. S0500090MD (LIRC Feb. 15, 2008). Simply because statutory language exists which causes some relationships to fall within its ambit and others to be excluded does not create a constitutional equal protection issue.

In summary, no delivery driver satisfied more than four conditions, i.e., Scott Radliff and Vern Black satisfied conditions 1., 2., 4., and 5., and the other delivery drivers satisfied three or fewer 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 four of the ten conditions compels the conclusion that the delivery drivers performed services for Start Renting as employees, not independent contractors, during the time period at issue.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, this matter is remanded to the department to calculate Starting Renting, Inc.'s liability for tax contributions and interest consistent with this decision.

Dated and mailed May 15, 2009
startre . smd : 115 : 1  EE 407  EE 410  EE 410.04a  EE 410.06  EE 410.08  EE 410.09

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc: Attorney Michael J. Mathis

Appealed to Circuit Court.  Affirmed October 29, 2009.   [Summary of Circuit Court decision]   Appealed to the Court of Appeals.  Affirmed, unpublished per curiam decision, December 30, 2010.

[ Search UC Decisions ] - [ UC Digest - Main Index ] - [ UC Legal Resources ] - [ LIRC Home Page ]

uploaded 2009/06/29