STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

LAKESHORE MENTAL HEALTH INC, Employer

UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Account No. 113877, Hearing No. S0600162AP


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 reverses the ALJ's decision as it relates to associate Huber, but affirms the ALJ's decision as it relates to the remaining individuals with the following modification:

The following is substituted for the FINDINGS OF FACT and CONCLUSIONS OF LAW section of the ALJ's decision:

The putative employer (Lakeshore) ceased doing business in or around June of 2006. The time period relevant to this matter includes the calendar years 2003 and 2004.

Lakeshore was created prior to 2000 as a state-certified mental health clinic by two mental health therapists (Lukach and Eggener). Mental health professionals were required to provide services under the auspices of a state-certified mental health clinic in order to qualify for third-party reimbursement.

Lakeshore never operated at a profit.

Lakeshore's informational brochure characterized its clinic as a "multidisciplinary team of professionals" providing "comprehensive and timely services that ensure continuity of care."

Lakeshore leased a facility for each of its three clinic locations. These locations included a patient/client waiting area and group therapy rooms as well as individual offices for its mental health professionals.

The published and advertised phone number for each facility was a central number, and calls to individual associates would be transferred from that number to the associate's office.

Lakeshore employed staff to perform receptionist, scheduling, transcription, record-keeping, billing, and collection functions, and purchased office furniture, equipment, and materials necessary for the performance of these functions.

Mental health professionals would contact Lakeshore to express interest in associating with it. There was a vetting process, including the review of an application/resume, and consideration of a professional's specialty area, for selecting mental health professionals for association with Lakeshore.

Each of the nine mental health professionals who were associated with Lakeshore during the relevant time period (associates) (1)  signed a single continuing contract with Lakeshore. This contract provided that, to cover administrative costs, each associate would pay to Lakeshore a specified percentage of the client/patient fees he or she generated. This percentage was generally 30% for physicians (Druker, Eggener, Huber, and Perzacki) and averaged 40% for non-physicians. This contract also provided that, if an associate failed to generate any fees during a month, he or she was required to pay Lakeshore $200.

$200 was significantly less than the fair market value of the leased space assigned to each associate.

As a part of the contracting process, Lakeshore asked each associate to enter into a non-compete agreement. Certain of the associates did so and certain did not.

Each contract required the associate to obtain professional malpractice insurance, and Lakeshore enforced that requirement.

Patient/client fees were paid directly to Lakeshore and, after deducting the proper percentage/amount, Lakeshore would remit the remainder to the associate.

Each associate paid for his or her own office furniture, continuing education, licensure, malpractice insurance, and health insurance. Each associate was assigned to a particular office(s) in Lakeshore's facilities, but his or her office could be used by another associate as a courtesy, e.g., if a ground floor office was required to accommodate a disabled patient/client.

Associates would establish their own hourly fees and select their own patients/clients.

Lakeshore was required to comply with certain state regulatory requirements in order to maintain its clinic license. These requirements set standards for individual associates. If an associate failed to meet such standards, consistent with his or her contract with Lakeshore, the relationship could be terminated upon 30 days' notice.

During 2003 and 2004, certain associates [Druker, Eggener, Knier, Woythal] performed mental health services for other entities.

Beck and Huber each possessed a federal employer identification number (FEIN).

Lakeshore provided 1099's to each of the associates at the end of the calendar year.

Lakeshore also utilized the services of a transcriptionist (Grabinski) and an accountant (Corbielle).

The issue is whether Lakeshore is liable for contributions based upon the services performed by the nine associates, Grabinski, or Corbielle.

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

(11) Eligibility. An employee shall be deemed "eligible" for benefits for any given week of the employee's unemployment unless the employee is disqualified by a specific provision of this chapter from receiving benefits for such week of unemployment, and shall be deemed "ineligible" for any week to which such a disqualification applies.

(12) Employee.

(a) "Employee" means any individual who is or has been performing services for an employing unit, in an employment, whether or not the individual is paid directly by such 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.

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.

Lakeshore contends that it cannot be a covered employer because the associates did not perform services for Lakeshore, as required by Wis. Stat. § 108.02(12)(a), but instead, Lakeshore performed services for the associates as set forth in the relevant contracts.

This contention is not persuasive for the following reasons:

a. Lakeshore held itself out to the public as a clinic, not as a provider of administrative services, and did not provide such administrative services to other professionals/entities.

b. The associates did not use Lakeshore to perform billing/collection or other administrative services for mental health services they provided outside Lakeshore clinics.

c. If, in fact, Lakeshore was functioning as a provider of administrative services to individual professionals, associates would have been paying fair market value for such services each month, i.e., the minimum monthly rent payment would have significantly exceeded the $200 set forth in the contracts.

d. Lakeshore apparently engaged in a vetting process to select mental health professionals for association, at least in part to achieve a balance of specialties in the clinic, a process which would presumably not be followed by an entity contracted to provide administrative services for professionals functioning independently of each other as Lakeshore asserts here.

e. Lakeshore sought and received state certification as a clinic so that the associates would be eligible for third-party reimbursement of their fees. For Lakeshore to maintain such certification, its associates were required to satisfy certain professional standards, (2)  and, if they failed to do so, Lakeshore was entitled to terminate its contract with them. This would not be the type of oversight performed by an entity whose sole function was to provide administrative services for professionals functioning independently of each other. See, Goldberg et al. v. DILHR and LIRC, 168 Wis.2d 621, 484 N.W.2d 568 (Ct. App. 1992).

f. Certain associates signed non-compete agreements as part of their contract with Lakeshore. If the associates were in fact engaged in private practices independent of each other, and Lakeshore existed solely as a provider of administrative services to such separate and independent practices, these agreements not to compete with Lakeshore after an associate's relationship with it ceased, would appear to make no sense. Such agreements would only make sense if the associates were performing services for Lakeshore.

The record establishes that the associates performed services for Lakeshore in an employment within the meaning of Wis. Stat. § § 108.02(12)(a) and (15). As a result, a presumption that they did so as employees is created which may be rebutted by showing that the associates' employment satisfied at least seven of the ten conditions set forth in Wis. Stat. § 108.02(12)(bm). 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).

The record shows that only Huber and Beck held or applied for a federal employer identification number (FEIN,) as required by condition 1.

The parties stipulated that each of the associates 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); 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.

Lakeshore argues that because each associate paid a share of clinic administrative costs, as well as the cost of furnishing an office and of professional fees and insurance, condition 3. is satisfied. However, Lakeshore did not prove that any of the practices were maintained with the associate's own resources, primarily because the record shows that, to an extent, Lakeshore subsidized these practices. For example, if an associate truly had a separate practice, he or she would be expected to pay the fair market value of administrative expenses each month regardless of the amount of fees generated. Instead, each associate was charged only $200 for a month he or she generated no fees. This is obviously significantly less than the value of an associate's proportionate monthly share of lease, staffing, or other administrative costs. Moreover, the record shows that Lakeshore never made a profit, further evidence that the associates were not paying the fair market value of the administrative services provided by Lakeshore which they were utilizing to maintain their practices. Condition 3. is not satisfied.

To satisfy condition 4., it must be established that the associates 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 that each associate controlled the means and method of delivering therapy and other mental health services to their clients/patients.

However, condition 4. 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 contract under which an associate performed services for Lakeshare was a single contract with terms that did not vary over time or by event. This single contract did not satisfy the multiple contracts requirement of condition 4. See, Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002); Dane Co. Hockey Officials, supra.; Thomas Gronna, The Floor Guys, UI Hearing No. S9900063WU (LIRC Feb. 22, 2000); Gary R. Gilbert, UI Hearing No. S0200083DB (LIRC July 21, 2005).

Lakeshore argues that each time an associate accepts a client/patient, and provides therapy or other mental health services to this client/patient, a separate contract is created. However, although, under certain circumstances, it is appropriate in analyzing condition 4. to consider service contracts negotiated by workers with individual customers under the auspices of the putative employer, such an analysis is not apt here. See, Quale & Associates, Inc., d/b/a Handyman Connection, UI Hearing No. S0200201MW (LIRC Nov. 19, 2004); Matthew G. Frazer, UI Hearing Nos. S0600184MD, etc., (LIRC June 14, 2007).

The record shows that, during the relevant time period, certain associates (Druker, Eggener, Knier, Woythal) contracted with entities other than Lakeshore to provide mental health services. The multiple contracts requirement of condition 4. is satisfied only as to these four associates.

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 requires quantification of these expenses, and, under the circumstances present here, a determination of which entity, the associate or Lakeshore, bears the larger total expense.

The associates paid to furnish their individual offices, and for their malpractice and health insurance and their licensing and continuing education fees. None of these expenses was quantified in the record. The associates also paid a share of the clinic's administrative costs, but the record does not indicate the extent to which these payments covered the clinic's costs. Lakeshore failed to sustain its burden to show that the associates bore the larger total expense here.

In order to satisfy condition 6., the associates are required to have been responsible for the satisfactory completion of the services they performed, and liable for any failure to satisfactorily complete them. The associates were required in their relationship with Lakeshore to possess, and to pay for, professional malpractice insurance. This establishes the associates' liability for any failure to satisfactorily render the therapy and other mental health services provided to patients/clients, and satisfies condition 6. See, Care & Comfort Associates, UI Hearing No. S9700120MW (LIRC April 30, 1999); O'Brien v. Angel Adams, Inc., UI Hearing No. 07601554MW (LIRC July 9, 2007).

The parties stipulated that the fee reimbursement percentage specified in the associates' contracts with Lakeshore was in the nature of a commission, and satisfied condition 7. as a result.

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 an associate of more in payments than he or she was required to spend performing services for Lakeshore could constitute "realiz[ing] a profit...under contracts to perform services." Moreover, if an associate generated little or no business, it is possible to envision that the payment of the $200 monthly minimum as well as the continuing costs of licensure/continuing education/insurance could generate a loss. As a result, condition 8. is satisfied.

The parties stipulated that condition 9. is 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, supra. The record does not show that the associates put a significant investment at risk and, as a result, condition 10. is not satisfied.

Lakeshore argues that the cost of the associates' labor should be factored into the analysis of condition 10. However, the cost of labor provided under a contract has not been interpreted by the commission as a qualifying investment within the meaning of condition 10., i.e., since the associates do not pay for their labor, it would not represent an investment by them within the meaning of condition 10. See, O'Brien, supra.

In summary, conditions 2., 6., 7., 8., and 9. are satisfied as to all associates; condition 1. as to associates Huber and Beck; and condition 4. as to associates Druker, Eggener, Knier, and Woythal. No associate satisfies more than 6 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 only six of the ten conditions compels the conclusion that the associates performed services for Lakeshore as employees, not as independent contractors, during the time period at issue.

This case also addresses services provided to Lakeshore by a transcriptionist (Grabinski) and an accountant (Corbielle).

The ALJ decided that Grabinski provided transcription services to Lakeshore as an employee, satisfying only conditions 4. and 5., and, in its brief to the commission, Lakeshore concedes this issue.

The ALJ also decided that, although she was reluctant to find that Corbielle, who performed occasional accounting services for Lakeshore, was an employee, she was required to do so by the dearth of evidence relating to his relationship with Lakeshore. The commission agrees. Lakeshore, which was represented by counsel throughout this matter, had full and fair opportunity to offer such evidence but failed to do so.

The commission therefore finds that the nine associates, accountant Corbielle, and transcriptionist Grabinski, performed services for Lakeshore in the calendar quarters at issue as employees, and the amounts paid to them, as reflected in the department determination, were wages, within the meaning of Wis. Stat. § § 108.02(12)(a) and (bm) and 108.02(26).

DECISION

The decision of the administrative law judge is reversed in part and affirmed in part and, as affirmed, is modified. Accordingly, the nine associates, accountant Corbielle, and transcriptionist Grabinski are required to be reported as employees of Lakeshore for the calendar quarters in issue. This matter is remanded to the department for recomputation of Lakeshore's unemployment compensation contribution liability.

Dated and mailed November 30, 2007
lakesho . smd : 115 : 1 EE 400 ER 460  EE 409 EE 410 EE 410.03 EE 410.06

/s/ James T. Flynn, Chairman

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc: Attorney Michael J. Mathis



Appealed to Circuit Court.  Appeal dismissed, March 13, 2008. [Summary of Circuit Court decision]

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Footnotes:

(1)( Back ) Anne Beck, Robert Druker, Brian Eggener, Michael Huber, Cary Knier, Brian Lukach, Cheryl Matthias, Robert Perzacki, Constance Woythal.

(2)( Back ) Wis. Adm. Code HFS 61.91-61.98.

 


uploaded 2007/12/07