BRIAN K GUSTAVSON, Employee

CARPENTERS 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 first two sentences of the second paragraph on page 3 of the decision are deleted.

In the quoted statutory definition of "employee" on page 3 of the decision (Wis. Stat. § 108.02(12)(a), the words "in an employment" are deleted.

The paragraph beginning on the bottom of page 4 of the decision and continuing onto page 5 is deleted and the following substituted:

The claimant maintains a separate business within the meaning of condition 3.

The first full paragraph on page 5 of the decision is deleted and the following substituted:

Since the claimant did not control the means and method of providing the services he performed for Carpenters, Inc., condition 4. is not satisfied.

The second full paragraph on page 5 of the decision is deleted and the following substituted:

Since most costs were not quantified in the record, and it is not possible to determine whether the claimant bore the main expense, condition 5. is not satisfied.

The second and third sentences of the third full paragraph on page 5 of the decision are deleted and the following substituted:

When the claimant damaged customer property, he was expected to, and did, pay for the repair.

The fifth full paragraph on page 5 of the decision is deleted and the following substituted:

The record does not show that a realistic possibility existed that the claimant could suffer a loss over the term of his relationship with Carpenters, Inc., since, for 95% of the projects on which he worked for Carpenters, Inc., the claimant was paid an hourly rate. As a result, condition 8. is not satisfied.

The penultimate sentence in the first full paragraph on page 6 of the decision is deleted.

The final paragraph of the FINDINGS OF FACT and CONCLUSIONS OF LAW section is modified to read as follows:

The appeal tribunal therefore finds that the claimant performed serives for the employer as a defined "employee."

The decision of the administrative law judge, as modified, is affirmed. Accordingly, the wages paid to the employee during the relevant base period shall be included in the department's computation of the employee's base period wages.  This matter is remanded to the department for recomputation of these base period wages.  Repayment of any overpayment of benefits resulting from this recomputation shall be waived.

Dated and mailed April 30, 2009
gustabr . umd : 115 : 5  EE 410  EE 410.04a  EE 410.04b  EE 410.08  EE 410.09

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

The issue is whether the wages Carpenters paid Gustavson for these services during the relevant calendar quarters should be considered base period wages.

It should first be noted that, although Carpenters is the petitioner here, this matter relates exclusively to the amount of benefits to be paid to Gustavson, not to Carpenters' liability for unemployment insurance contributions.

Wisconsin Statutes § 108.02 states as follows, as relevant here:

108.02 Definitions. As used in this chapter:

...

(4) Base period. "Base period" means the period that is used to compute an employee's benefit rights under s. 108.06...

(4m) Base period wages. "Base period wages" means:

(a) 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;...

(12) Employee.

(a) "Employee" means any individual who is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit, except as provided in par. (b), (bm), (c), (d), (dm) or (dn).

...

(bm) During the period beginning on January 1, 2000, with respect to contribution requirements, and during the period beginning on April 2, 2000, with respect to benefit eligibility, par. (a) does not apply to an individual performing services for an employing unit other than a government unit or nonprofit organization in a capacity other than as a logger or trucker, 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 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....

(e) This subsection shall be used in determining an employing unit's liability under the contribution provisions of this chapter, and shall likewise be used in determining the status of claimants under the benefit provisions of this chapter....

(14m) Employing unit. "Employing unit" means any person who employs one or more individuals.

(15) Employment.

(a) "Employment", subject to the other provisions of this subsection means any service, including service in interstate commerce, performed by an individual for pay....

(26) Wages. Unless the department otherwise specifies by rule:

(a) "Wages" means every form of remuneration payable, directly or indirectly, for a given period, or payable within a given period if this basis is permitted or prescribed by the department, by an employing unit to an individual for personal services....

Pursuant to Wis. Stat. § 108.02(4m), in order to be considered base period wages, earnings must be "paid to an employee during his or her base period as a result of employment for an employer..."

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 the record shows that Gustavson performed services for Carpenters for pay during the relevant base period, Carpenters has the burden to rebut the presumption that he did so as a statutory employee.

The record does not show that Gustavson held or applied for a federal employer identification number, as required by condition 1. Although Carpenters 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).

The record shows that Gustavson filed a business/self-employment income tax return for 2007 as required by 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. 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). In Quality Communications Specialists, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001), the commission clarified that each factor set forth in the statutory language governing this condition must be met in order for the condition to be satisfied.

Gustavson owned much of the equipment he used, and acquired it in order to perform carpentry-related services. He deducted the office he maintained in his home as a business expense on his income tax return which requires that this office be used exclusively for business purposes. He used certain of his own materials, including office supplies. Gustavson did not have a separate facility, but this is not unexpected given the type of work he did. See, Groeschl Forestry Consulting, Inc., UI Hearing No. S0000141HA (LIRC March 19, 2002)(lack of separate facilities, consistent with the nature of the business, not dispositive as to condition 3.). He performed similar services for at least one other entity, i.e., he built a porch/deck for customer Andrea Isaacs after he was no longer performing services for Carpenters. The record shows that Gustavson satisfied the required elements of condition 3.

To satisfy condition 4., it must be established that the individual 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.

There was a single contract between Gustavson and Carpenters which varied over time only as to the hourly rate of compensation. However, since Gustavson had at least one contract with another entity to perform carpentry-related services, the multiple contracts requirement of condition 4. is satisfied.

Condition 4. also requires, however, that Gustavon control the means and method of performing services. The record shows that Gustavson did not have any experience performing carpentry-related work prior to performing this work for Carpenters, and that Zimmer trained him and supervised his work on projects. This prevents a conclusion that Gustavson controlled the means and method of performing services for Carpenters, as required by condition 4.

Applying condition 5. requires a determination of what services are performed under a 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. See, Quality Communications Specialists, Inc., supra. This inquiry typically requires quantification of these expenses. See, Quale & Associates, Inc., UI Hearing No. S0200210MW (LIRC Nov. 19, 2004).

Gustavson incurred the cost of his equipment, both carpentry and office; transportation to the work sites; and liability insurance. Carpenters incurred the cost of certain equipment and materials used by Gustavson; and, presumably, certain office and record-keeping expenses, including invoicing, bookkeeping, and payroll. The cost of construction materials would not be a related expense here. See, Dibbles & Dibbles, Inc., UI Hearing No. S0300140RH (LIRC Jan. 12, 2005); Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004)(materials installed by workers in the construction trades generally not considered a related expense for purposes of condition 5.). Although many of Gustavson's costs were quantified in the record, Carpenters' were not. As a result, it is not possible to determine whether Gustavson bore the larger expense, and condition 5. is not satisfied. .

For purposes of condition 6., Gustavson's obligation to do re-work without additional pay is not the determining factor, because this obligation is typical as well of piece-work employees. See, T & D Coils, UI Hearing No. S9800147MW (LIRC Dec. 15, 1999); Quality Communications Specialist, Inc., supra.; Wisconsin Tennis Officials, Inc., UI Hearing Nos. S0200129MW, etc. (LIRC Feb. 28, 2005). However, the fact that Gustavson was expected to pay, and had paid, for the repair of improperly completed work satisfies condition 6.

Condition 7. requires that the individual receive compensation for his services on a commission, per-job, or competitive-bid basis and not on any other basis. Here, although Gustavson was paid for certain services on a commission basis, he was paid for other services on an hourly basis, i.e., on a basis other than commission, per-job, or competitive-bid. Condition 7. is not met as a result.

Condition 8. examines whether, under an individual contract for the claimant'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 test is whether, over the course of the contract between Gustavson and Carpenters, there was a realistic possibility that Gustavson could realize a profit or suffer a loss. See, Zoromski v. Cox Auto Trader, UI Hearing No. 07000466MD (LIRC Aug. 31, 2007). The receipt by Gustavson of more in pay for his carpentry-related services than he was required to spend could constitute "realiz[ing] a profit.under contracts to perform services." See, Quality Communications Specialists, Inc., supra. However, the fact that, for 95% of the projects on which he worked for Carpenters, Gustavson was paid an hourly rate, militates against a conclusion that Gustavson assumed any type of business risk for these projects and could realistically suffer a loss over the term of his relationship with Carpenters.

The ALJ held that, since Gustavon was not paid until Carpenters was paid, the risk of nonpayment by a customer created a realistic possibility that Gustavson could suffer a loss. First, the possibility of loss is analyzed over the course of the relationship between Gustavson and Carpenters, not over the course of a single project. Moreover, employees as well as independent contractors share the risk of not being paid for services they have rendered, and this risk is not the type of business risk contemplated by condition 8. See, Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).

Condition 9. requires proof of a cost of doing business which Gustavson would incur even during a period of time he was not performing work for Carpenters. Although liability insurance such as that Gustavson obtained in order to perform services for Carpenters has been held to qualify as such a cost, the record does not show that Gustavson had any intention of continuing this liability insurance after he was no longer performing services for Carpenters, or that he had been unable to readily cancel this insurance once his relationship with Carpenters ended. Condition 9. is not satisfied.

The commission has interpreted condition 10. as intending to examine the overall course of a person's business. See, Quality Communications Specialists, Inc., supra. See, Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004)(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). The only investments by Gustavson for strictly business purposes were those in carpentry tools and a fax machine. These are not the types of business investments with attendant entrepreneurial risk contemplated by condition 10., and it is not satisfied as a result.

In summary, only conditions 2., 3., and 6. 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 three of the ten conditions compels the conclusion that Gustavson performed services for Carpenters as an employee, not an independent contractor.

Ed. Note:  This decision is reproduced here as affected by a technical amendment issued on June 17, 2009.

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

uploaded 2009/06/30