GARY R GILBERT, 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 four paragraphs of the FINDINGS OF FACT and CONCLUSIONS OF LAW section beginning on page 4 of the ALJ's decision immediately after the statutory citation and continuing onto page 5 are deleted and the following substituted to more accurately reflect the commission's decision rationale:
The issue presented is whether the services performed for Gilbert by the workers from 1999 through 2001 (1) constituted "employment" in Wisconsin within the meaning of Wis. Stat. § 108.02(15). If so, the employer would be liable to Wisconsin for unemployment insurance contributions and interest for the reporting periods at issue.
The statutory provisions cited above are derived from a uniform law, the provisions of which have been adopted in most states. See, Broyhill Furniture Industries, UI Hearing No. S0100223MD (LIRC Oct. 24, 2003), aff'd sub nom. Broyhill Furniture Industries, Inc. v. Jim Haugen, LIRC, and DWD, Case No. 03-CV-3585 (Wis. Cir. Ct., Dane Co., March 24, 2005). This uniform law, including the version adopted in Wisconsin, specified the following tests, to be applied consecutively, in the indicated order of preference, (2) to determine the state with which the employment had the most substantial contacts:
(1) the place where the work is "localized;"
(2) the situs of the "base of operations;"
(3) the situs of the "place from which such service is directed or controlled;"
(4) the situs of the employee's residence.
The first question then is whether the services performed for Gilbert by the workers were "localized" in Wisconsin or in Illinois, the two states in which all but one small project was carried out during the relevant three-year time period.
The test articulated in Wis. Stat. § 108.02(15)(d), is whether the services performed by an individual outside a particular state are incidental to those performed within such state, e.g., are temporary or transitory in nature or consist of isolated transactions.
In Iverson Construction v. Dept. of Employment Svcs., 449 N.W. 356 (Iowa 1989), the Iowa Supreme Court, quoting Claim of Mallia, 299 N.Y. 232, 86 N.E.2d 577 (N.Y. Ct. App. 1949), and Heller v. International Transp., Inc., 94 Idaho 91, 481 P.2d 602 (1971), held that services that are a major, regular, enduring, and frequent part of the services performed for the employer are not incidental. In Iverson, the claimants worked for a Wisconsin construction company and rotated between projects in Iowa and projects in Wisconsin. The court concluded that the services of these claimants were not localized in Wisconsin or in Iowa.
In Baker v. County of Marquette, UI Hearing No. 01003754BO (LIRC Dec. 20, 2001), aff'd sub nom. County of Marquette v. LIRC and Baker et al., Case No. 02 CV 7 (Wis. Cir. Ct., Marquette Co., 2002), the commission, in interpreting the term "temporary" in another section of Wis. Stat. § 108.02(15), i.e., 108.02(15)(f)(5), held that "temporary" is not the same as "intermittent" or "irregular."
Considering the guidance provided by these decisions and Broyhill, supra., Gilbert's regular rotation of major projects between Wisconsin and Illinois would support a conclusion that the services at issue here were not localized in either state, even though it is conceded that only 10% or less of the work was performed in Wisconsin in 1999 and 2001, and 25% in 2000.
The next question then is whether the workers' "base of operations" was in Wisconsin.
In Heller, supra., the court defined base of operations as "the place of a more or less permanent nature from which the claimant commences his work and to which he customarily returns in order to receive instructions and communications;" and concluded that factors such as "the place of beginning the service for which compensation is being paid, the place of re-supply of materials needed in the service, the place of repair of the machinery used in the service, the source of orders or directions for the services rendered, and the permanency of any of these places if they exist" should be considered in determining if there is a base of operations and where it is located. The court in Heller determined that, although the claimant's residence was in Idaho, the fact that only 5% of the loads he hauled originated in Idaho and only 3% terminated in Idaho, that he received his instructions from the employer when he reached his destination, and that he hauled loads all over the country, led to the conclusion that the claimant did not have a base of operations in Idaho.
In Claim of Normyle, 550 N.Y.S.2d 118 (N.Y. Ct. App. 1989), the claimant worked as a sales representative for the employer, and would travel from her home for up to a week or two at a time, calling on retail stores in her territory, which included all or part of several states; the employee's home was not in New York and New York was not part of her sales territory; the employer would fix her schedule and send samples, display units, and promotional materials directly to the retailers; the claimant had no office and kept no "tools of the trade" at her home; sales orders would be forwarded directly from the retailer to the employer's New York corporate office; and the claimant sold no goods in New York but would come to New York City approximately three or four times a year to attend training programs and informal meetings with sales executives. The court held that a "base of operations" must involve something more than the place where an employee starts and finishes a business trip and receives occasional telephone calls from her employer and concluded, as a result, that neither New York nor the claimant's state of residence was her "base of operations."
In Iverson, supra., the court, citing Heller, supra., Claim of Mallia, supra., and Walco Leasing v. Bilich, 383 N.W.2d 374 (Ct. App. Minn. 1986), clarified that the focus of the term "base of operations" is upon the employee, not the employer, and that the test is operative only if a single base of operation for the entire service of the employee is within a state where some of that service is performed. The court went on to conclude, citing Claim of Mallia, supra., that the employees at issue had bases of operation in both Wisconsin and Minnesota, i.e., the sites of the construction projects on which they had worked during the reporting periods; had not, as a result, satisfied the single "base of operations" test; and the analysis would have to proceed to the next statutory test.
The commission relied upon the guidance provided by these cases in Broyhill, supra.
The workers here commuted to the construction project sites from their homes each day, and received occasional phone calls from Gilbert at home. However, the workers generally received communications from Gilbert at the project site, the construction materials were located there, and they rendered the services for which they were paid there. As a result, the workers' base of operations would properly be considered these project sites, not their homes, and the existence of multiple project sites in different states during each reporting period at issue supports a conclusion that the workers did not have a single base of operations in either Wisconsin or in Illinois, and the analysis, as a result, must proceed to the next statutory test. See, Iverson, supra.
The next question then is whether the workers' services were directed and controlled from Wisconsin.
The focus of this test is upon the place from which the entire service of the worker during the reporting period is directed or controlled, and not upon the place from which any particular project is directed or controlled. See, Iverson, supra.; Claim of Mallia, supra. In addition, the statute refers to a single source of direction or control for the entire service.
From his headquarters in Hazel Green, Wisconsin, Gilbert, among other activities, presumably selected and negotiated the terms of the construction projects on which the workers performed the subject services, scheduled these projects, determined the type and quantity of materials required for these projects, communicated with Heartbilt and his other clients as to construction specifications, prepared his annual contracts with the workers, received billing statements from the workers and from vendors of other goods and services and prepared the resulting payments, and maintained business records.
The type of direction and control Gilbert exercised over the entire service of the workers, as opposed to the type of direction and control he exercised over their service on a particular project, consisted of activities such as the selection of the projects, the scheduling of the projects, the negotiation and preparation of the workers' annual contracts, and the preparation of biweekly payments to them. This supports a conclusion that the direction and control of the workers' entire service, during the reporting periods at issue, within the meaning of Wis. Stat. § 108.02(15)(b)1., was in Wisconsin. As a result, Gilbert would be liable to Wisconsin for unemployment insurance contributions and interest for the subject workers for 1999 and for the first two quarters of 2000 and 2001, except as noted in footnote 2 in regard to Sheldon in 1999 and Hilby in 2001.
(2). In the statutory citation on page 7, the statement of condition 7. is deleted from the end of the citation and inserted between the statements of conditions 6. and 8.
(3). The discussions under the "2000-2001 Services" and "1999 Services" headings in the FINDINGS OF FACT and CONCLUSIONS OF LAW section, beginning on page 7 and continuing through page 9, are deleted and the following substituted in order to more accurately and completely reflect the commission's decision rationale:
Employee or independent contractor - 2000 and 2001 reporting periods
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 they are not employees. 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).
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 has not limited its review of this case to those aspects of the administrative law judge's decision challenged in the petition.
Gilbert failed to establish, in regard to condition 1., that any of the workers actually submitted an application for, or held, an identification number with the federal internal revenue service during the relevant time period. Simply making inquiry as to the necessity of obtaining such a number, as the workers here apparently did, or completing but not submitting an application, is not sufficient to satisfy this condition. See, Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).
In regard to condition 2., Gilbert successfully established that the workers filed business or self-employment income tax returns with the federal internal revenue service for services each performed for Gilbert for the years at issue.
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); Diane Egan/Health Exams Plus, Inc., UI Hearing No. S0300071JV (LIRC April 15, 2005); 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. Although the record shows that the workers generally used their own equipment, it does not show that the workers were actually engaged in a separate business with an office devoted to that purpose. During the period of time the workers performed services for Gilbert, they performed services for no other entity, a circumstance generally inconsistent with the existence of a separate business. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001). In addition, only workers Sheldon and Gilbert testified that they maintained offices, but neither of them testified that they used these offices primarily for business purposes. Simply, as workers Gilbert, Sheldon, and Shireman established, creating a business name and having business cards printed, from which no business was generated, without more, is insufficient to satisfy this condition. See, also, Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004); Quale and Associates, Inc., UI Hearing No. S0200201MW (LIRC Nov. 19, 2004).
To satisfy condition 4., it must be established that the workers 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 workers exercised enough independence and discretion in carrying out their construction responsibilities to satisfy the second part of the test.
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 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 contracts under which the workers performed services for Gilbert were annual contracts in which Gilbert established an hourly rate for carpentry work and a piecework rate for electrical, roofing, and drywall work. These contracts are the type negotiated with employees, not independent contractors. See, 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); Dane Co. Hockey Officials, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000)(condition 4. not satisfied by single continuing contract with employer containing no provisions specific as to the time, place, price, or amount of services to be provided for any particular project).
The multiple contracts requirement of condition 4. was not satisfied here.
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, UI Hearing No. S9000079HA (LIRC Sept. 24, 2999); Quality Communications Specialists, Inc., supra. This inquiry requires quantification of these expenses, and, under the circumstances present here, a determination of which entity, the worker or the employer, bears the larger total expense.
The services performed under the contracts at issue here include roofing, carpentry, installing drywall, and electrical wiring.
A threshold question is whether the cost of the materials utilized by the worker, e.g., roofing shingles, lumber, drywall sheets, and electrical boxes/wire, should be considered an expense "related to" the performance of their services.
The commission has looked to the practice in the particular industry to answer this question (see, Hauden & Scholl Builders, Inc., UI Hearing No. S9700339MD (LIRC Aug. 31, 1998)), and has generally held that materials installed by workers in the construction trades, such as the workers here, should not be considered as a related expense. See, Hauden & Scholl, supra.; Lozon Remodeling, supra.; Thomas Gronna, supra.; Dibbles & Dibbles, Inc., UI Hearing No. S0300140RH (LIRC Jan. 12, 2005); Quale & Associates, Inc., supra.
Here, the workers generally provide their own tools, equipment, insurance, and transportation. Gilbert provides a home office where he presumably spends a portion of his ten hours a week on matters relating to the workers, and a cell phone which he uses in part to communicate with the workers. Given the substantial cost of the workers' equipment and tools, i.e., $3,000-$5,000; the substantial cost of their vehicles which the record shows are used primarily for business purposes; the cost of fuel for these vehicles; the cost of liability insurance ($400-600 annually); and the cost of their cell phones, despite the lack of evidence regarding the cost of Gilbert's home office and the depreciated value of the workers' equipment and vehicles (see, Quale & Associates, supra.), the record supports a conclusion that the workers' related expenses far exceed Gilbert's and condition 5. is satisfied.
In regard to condition 6., it is not simply the obligation to do re-work without additional pay which is 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). Evidence establishing, for example, not only an obligation to do such re-work but an expectation that it will be done, as well as a penalty for not doing so, would satisfy this condition. The evidence of record in this regard is that the workers were responsible for fixing any defects in their work on their own time, and expected to do so. This would satisfy condition 6. See, Quality Communications Specialists, Inc., supra.; Diane Egan/Health Exams Plus, Inc., supra.;
In regard to condition 7., the evidence of record shows that each of the workers were paid by the hour for certain of their work. This failed to satisfy the requirement of condition 7. that the workers not be paid on any basis other than commission, per-job, or competitive-bid. See, Quale & Associates, Inc., supra.
Condition 8. looks at 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). Assuming, as the commission did in Quality Communications Specialists, Inc., supra., that it is at least arguable that the receipt by the workers of more in pay for their services under the subject contracts than they are required to spend on the various expenses they incur in performing such services would constitute "realiz[ing] a profit...under contracts to perform services," the record does not support a conclusion that they could suffer a loss within the meaning of condition 8. There is no business risk to the workers under the subject contracts, i.e., no realistic possibility that a worker who did the work under the subject contracts would earn less than he expended. In fact, the record shows that Gilbert would pay the workers whether he had been paid by Heartbilt or the homeowners or not. As a result, the record does not support a conclusion that condition 8. was satisfied. See, also, Lozon Remodeling, supra.
Condition 9. requires proof of a cost of doing business which the worker would incur even during a period of time the employee was not performing work through the employer. The record shows that each of the workers carried their own liability insurance which would qualify as a recurring business liability for purposes of satisfying this condition. See, Quale & Associates, Inc., supra.; Barnett, supra.
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.; Mrochinski, supra. At all times relevant here, Gilbert accepted as much work as it could handle, and expected to continue to do so for the foreseeable future. During the period of time each worker had a business relationship with Gilbert, he worked for Gilbert exclusively, and was paid by Gilbert every other week regardless of whether Gilbert had been paid by Heartbilt or the other clients. The workers' recurring expenses could have been readily discontinued had work from Gilbert ceased at any time. The circumstances here do not support a conclusion that the workers assumed the type of entrepreneurial risk contemplated by condition 10.
To summarize, in regard to the years 2000 and 2001, the employer sustained its burden of proof in regard to only conditions 2., 5., 6., and 9. 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 four conditions compels the conclusion that all four workers performed services for Gilbert as employees, not independent contractors, during 2000 and, except for Hilby (3), during 2001.
Employee or independent contractor - 1999 reporting period
It should first be noted that Sheldon's status during 1999 is not at issue here because it is undisputed that he performed no services for Gilbert in Wisconsin that year. The remaining analysis, as a result, applies only to workers Gilbert, Hilby, and Shireman.
The first inquiry is whether these workers satisfied either of the conditions stated in Wis. Stat. § 108.02(12)(b)(1). The record shows that, although none of them applied for a federal employer identification number, they all filed business or self-employment income tax returns for 1999. (4)
The inquiry then turns to whether the record supports a conclusion that six of the eight conditions stated in Wis. Stat. § 108.02(12)(b)(2) were satisfied during 1999. These eight conditions are essentially identical to conditions 3. through 10. discussed above in regard to the 2000 and 2001 reporting periods. As concluded above, Gilbert satisfied its burden in regard to only three of these. As a result, workers Gilbert, Hilby, and Shireman performed services for Gilbert as employees, not independent contractors, during 1999.
The decision of the administrative law judge, as modified, is affirmed. Accordingly, Gary R. Gilbert d/b/a Gary Gilbert Construction is liable for past due and delinquent unemployment insurance contributions and interest for 1999 and for the first two quarters of 2000 and of 2001. This matter is remanded to the
department for the purpose of calculating the amount of these contributions and this interest consistent with this decision.
Dated and mailed July 21, 2005
gilbega . smd : 115 : 1 ET 495 EE 410 EE 410.04a
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
cc: Attorney Sheila Stuart Kelly
Appealed to Circuit Court. Affirmed September 14, 2006 [Summary of Circuit Court decision]. Appealed to Court of Appeals. Affirmed, November 26, 2008, sub nom. Gary Gilbert v. LIRC and DWD, 2008 WI App 173, __ Wis. 2d __, 762 N.W.2d. 761.
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(1)( Back ) It should be noted that worker Sheldon did not perform services for Gilbert in Wisconsin in 1999, and Hilby did not perform services for Gilbert in 2001, so Gilbert would not be liable for contributions for those workers in those years. It should also be noted that the entire 1999 reporting period is at issue here, but only the first two quarters of 2000 and the first two quarters of 2001. Finally, it was conceded by the department at hearing that Jeff Findley performed no services in Wisconsin during the time period relevant here.
(2)( Back ) Commonwealth ex rel. Division of Unemployment Ins. v. Goheen, 372 S.W.2d 782 (Ct. App. Ky. 1963); Vale v. Gaylords National Corp., 127 N.J. Super. 45, 316 A.2d 56 (Sup. Ct. N.J. 1974); Claim of Mallia, 299 N.Y. 232, 86 N.E.2d 577 (N.Y. Ct. App. 1949).
(3)( Back ) It is undisputed that Hilby did not perform services for Gilbert in 2001.
(4)( Back ) The ALJ concluded that, because Shireman did not file such a return in 1998, he did not satisfy this condition. However, 1998 is not one of the years at issue here.