SCOTT G LYNCH, Claimant

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 fifth full paragraph on page 4 of the decision is deleted and the following substituted:

The record does not establish that the claimant engaged in a wage concealment.

The decision of the administrative law judge, as modified, is affirmed. Accordingly, in the weeks at issue, the claimant is eligible for partial unemployment benefits. The claimant is required to repay the sum of $3,088 to the Unemployment Reserve Fund.

Dated and Mailed March 11, 2011

BY THE COMMISSION:

/s/ Robert Glaser, Chairperson

/s/ Ann L. Crump, Commissioner

In reporting his earnings from Sports Media when filing his claims for the weeks at issue, the claimant reported the net amount, deducting the amount of his expenses from the amount of his commissions, rather than the gross amount of his commissions.

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....

(20) Partial unemployment. An employee is "partially unemployed" in any week for which he or she earns some wages and is eligible for some benefits under s. 108.05 (3).

(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....

As relevant here, Wis. Stat. § 108.05, states as follows:

(3) Benefits for partial unemployment.

(a) Except as provided in pars. (b), (c), and (d), if an eligible employee earns wages in a given week, the first $30 of the wages shall be disregarded and the employee's applicable weekly benefit payment shall be reduced by 67% of the remaining amount, except that no such employee is eligible for benefits if the employee's benefit payment would be less than $5 for any week....

Wage Reporting-Statutory Employee

In order to be considered wages required to be reported when filing a weekly claim, payments for services, pursuant to Wis. Stat. § 108.05(3), are those made to an "eligible employee." The definition of employee in Wis. Stat. § 108.02(12), as relevant here, includes "any individual who is or has been performing services for pay for an employing unit...except as provided in par....(bm).

As a result, Lynch is required to report payments he received for services performed for Sports Media during the weeks under consideration here unless he satisfies the exception to the definition of employee stated in Wis. Stat. § 108.02(12)(bm), i.e., unless he satisfies at least seven of the ten statutory conditions.

The record does not show that Lynch applied for, or was issued, a FEIN, as required to satisfy condition 1.

Condition 1. is not satisfied.

The record establishes that Lynch filed a business or self-employment income tax return for the services he performed for Media Sports in 2009, as required to satisfy condition 2.

Condition 2. is satisfied.

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); Gilbert v. LIRC and DWD, 2008 WI App 173, 315 Wis. 2d 726, 762 N.W.2d 671 (Ct. App. 2008). 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.

Although the record shows that Lynch utilized certain of his own equipment to perform services for Media Sports, and had a separate space in his home devoted primarily to a business purpose, it does not show that he had an advertising sales enterprise separate from his relationship with Media Sports. See, Christman v. Cybrcollect, Inc., UI Hearing No. 06201682EC (LIRC Feb. 9, 2007); Ronald Smith, UI Hearing No. S0300197MD (LIRC March 29, 2006)(even though separate office, equipment, and materials requirements satisfied, must also show existence of enterprise separate from that of putative employer.

Condition 3. is not satisfied.

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.

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 record shows that Lynch performed services for Media Sports under the terms of a single agreement, and does not show that he performed similar services under agreements with other entities.

The multiple contracts requirement is not met, and condition 4. is not satisfied as a result.

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., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004), aff'd., Quale & Associates, Inc., d/b/a Handyman Connection v. LIRC and DWD, Case No. 04-CV-10648 (Wis. Cir. Ct., Milwaukee Co., May 24, 2005).

Lynch is responsible for equipment, office, and travel expenses, including the increased cost of his vehicle insurance. Media Sports would necessarily be responsible for certain administrative expenses related to contracting with and compensating Lynch.

Since it is obvious that Lynch's expenses would necessarily exceed Media Sports', condition 5. is satisfied.

Condition 6. requires that Lynch be responsible for the satisfactory completion of the services he contracted to perform and liable for a failure to satisfactorily complete them. The record shows only that, if Lynch were untruthful to a customer, he could lose the commission he had earned if the sale to that customer was then cancelled. This does not constitute a sufficient penalty to satisfy this condition. See, Preferred Financial of Wisconsin, Inc., UI Hearing No. S0600240MW (LIRC Oct. 23, 2008)(risk of non-payment for unsatisfactory work does not establish responsibility for satisfactory completion of services).

Condition 6. is not satisfied.

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. The record shows that Lynch was compensated solely on a commission basis, and condition 7. is satisfied.

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 term of the contract between Lynch and Sports Media, there was a realistic possibility that Lynch 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 Lynch of more in pay for his services than he was required to spend could constitute "realiz[ing] a profit.under contracts to perform services." See, Quality Communications Specialists, Inc., supra. In addition, since Lynch was paid only if he completed a sale, it is possible that his expenditures on travel and other costs could exceed his commissions and he could realize a loss. See, Matthew G. Frazer, UI Hearing Nos. S0600184MD, S0500122MD (LIRC June 14, 2007).

Condition 8. is satisfied.

Condition 9. requires proof of a cost of doing business which Lynch would incur even during a period of time he was not performing work for Sports Media. Lynch's costs for his business cell phone, as well as his separate home office, would qualify as such costs, and condition 9. is satisfied.

Condition 10. is intended to examine the overall course of an individual's business, and 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. Gilbert, supra. See, also, Quality Communications Specialists, Inc., supra.; Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004). The record does not establish that Lynch ever put a significant business investment at risk, and condition 10. is not satisfied.

In summary, only conditions 2., 5., 7., 8., and 9. are satisfied. Since Wis. Stat. § 108.02(12)(bm) requires that seven conditions be satisfied in order for an individual to be considered an independent contractor, the satisfaction of only five of the ten conditions compels the conclusion that Lynch performed services for Sports Media as an employee, not an independent contractor, and was therefore required, in filing his weekly claims, to report his wages from Sports Media as they were earned.

Concealment

Wisconsin Statutes § 108.04(11) states as follows, as relevant here (emphasis in original):

(11) Fraudulent claims.

(a) If a claimant, in filing his or her application for benefits or claim for any week, conceals any material fact relating to his or her eligibility for benefits, the claimant shall forfeit benefits in accordance with par. (be).

(b) If a claimant, in filing a claim for any week, conceals any of his or her wages earned in or paid or payable for that week, the claimant shall forfeit benefits in accordance with par. (be). In addition, the claimant shall be denied benefits for that week....

(g) For purposes of this subsection, "conceal" means to intentionally mislead or defraud the department by withholding or hiding information or making a false statement or misrepresentation.

Lynch concedes that, in reporting his Sports Media wages, he reported only his net earnings, not his gross.

The only evidence as to Lynch's rationale for reporting his wages in the way he did is his unrebutted testimony that he called the department and followed the instructions he was given.

It is the department's burden to prove that the claimant concealed work and wages, within the meaning of Wis. Stat. § 108.02(11), by presenting clear, satisfactory, and convincing evidence of fraud. See, Joseph W. Hein, Jr., UI Hearing No. 00605374MW (LIRC Dec. 13, 2001).

In Hein, supra., the claimant, even though he had started his own business, failed to indicate on weekly claims that he was self-employed. The claimant asserted that he had contacted a department claims specialist who advised him that, since the employee had not yet earned any income from his business, he would not be considered self-employed, and the claimant had relied upon that advice in completing his weekly claims. The commission held that it was the department's burden to prove that the claimant had deliberately and knowingly misrepresented his employment status. The commission further held that, even though it was unlikely but possible that the claimant would have received erroneous advice from a department representative, the more plausible scenario was that the claimant had been given the correct information, but had misunderstood it, and under these circumstances, the record does not establish that the claimant had the requisite intent to conceal.

In Margaret A. Sutinen, UI Hearing No. 02000105MD (LIRC July 18, 2002), the claimant had contacted the department to seek advice regarding payments she had received for a report she had written for an employing unit. The commission held that, had the claimant intended to conceal these payments, she would not have raised a potential self-employment issue with the department.

The present circumstances have elements of both the Hein and Sutinen scenarios. The record shows that Lynch contacted the department to ask how his earnings from Media Sports should be reported. Consistent with Sutinen, it is unlikely that the claimant, if he had intended to conceal the amounts he had earned from Sports Media, would have reported this work and part of his wages to the department; and, as in Hein, it appears more plausible that Lynch had been given the correct information but had misinterpreted it when filing his claims.

As a result, the record does not establish that Lynch intentionally concealed part of the wages he had earned from Media Sports, and, although the amount of his benefit for the weeks at issue should be recalculated, a forfeiture of future benefits should not be imposed.

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