Wisconsin Labor and Industry Review Commission --
Summary of Wisconsin Court Decision relating to Unemployment Insurance


Subject: Evolution Technology Systems LLC v. LIRC, Case No. 07-CV-5825 (Wis. Cir. Ct., Milwaukee Co., March 6, 2008)

Digest Codes: EE 410 EE 410.03  EE 410.04  EE 410.08

An initial determination held that Todd Mailandt performed services for Evolution Technology Systems (ETS) in 2001 and 2002 as an employee for UI purposes, rather than as an independent contractor, and that ETS was required to report his services as those of an employee and was liable for UI tax contributions based on those services. An Appeal Tribunal affirmed the holding that Mailandt was an employee.

The commission's decision affirmed the Appeal Tribunal. It concluded that conditions 6 (liability for completion of services) and 7 (compensation basis) were satisfied, and that condition 2 (tax returns) was satisfied as to 2001 but not as to 2002, but that none of the remaining conditions were satisfied.

ETS appealed. It conceded that condition 1 (tax identification number) was not satisfied and that condition 2 was not satisfied as to 2001, but argued that the remaining conditions were satisfied.

Held: The commission’s decision is affirmed.

Initially, the court rejects ETS’ argument that its review should apply the “de novo” standard, and instead concludes that “great weight deference” is appropriate. The court first notes that the “de novo” standard had been applied in Larson v. LIRC, 184 Wis. 2d 378 (Ct. App. 1994) with the court there looking at what it called a lack of clear administrative precedent and 4 cases between 1982 and 1990 in which appellate courts had reversed LIRC’s application of 108.02(12). The court then notes that in Margoles v. LIRC, 221 Wis. 2d 260 (Ct. App. 1998), the court had applied a 4-part test for determining if “great weight” review was appropriate, concluding that it was. The Margoles court did not mention the reversals which had been considered in Larson or mention that decision’s “without challenge by governmental authorities and courts” language. The circuit court ultimately states:

I conclude that the “great weight” standard of deference applies in this case for two reasons. First, since 1996 the appellate courts have not applied the “without challenge by governmental authorities and courts” test in any opinion, whereas decisions have frequently applied the four-part test used in Margoles. Secondly, the four cases relied on by Larson are now all more than 17 years old, and Larson itself is 13 years old. Plaintiff has not provided more recent examples of cases in which the Commission has been reversed on the application of this statute. If these five reversals did not create a uniformity problem for the Margoles court in 1998, I do not see how they can create a uniformity problem for me in 2008.

(The court further notes that there was some support for the idea that the question of whether the agency’s interpretation is “one of long-standing” should be applied to each of the ten standards applicable here, but that this would be “a Herculean task” and would likely result in different standards of review for different phrases. The parties having not undertaken such a detailed analysis, the court states that it will not do so either).

After struggling with the question of how to give effect to the instruction of Princess House v. DILHR, 111 Wis. 2d 46 (1983) that the purpose of Chapter 108 is to be given “paramount consideration” -- noting that “one can choose a purpose that justifies either result in this case” -- the court opines that “the general purpose of the statute cannot trump the result that follows from the application of  [the ten statutory conditions in 108.02(12)(bm)]”.

The court notes, though, that “one important ‘purpose’ of subsection (bm) is surely to provide affected parties with helpful guidance as to who is in and who is out”. Pointing to the origin of the standards in 108.02(12)(bm) in the parallel provision in the WC Act, the court notes that the legislative history of that provision: helps point out the conceptual difficulty that arises when one tries to apply the broad legislative purposes of Chapter 108 to the ten specific factors at issue. The “independent contractor” exception was based entirely on two very subjective concepts: (1) the degree of “control” by the employer; and (2) the ‘independence” of the individual’s “business”. While both concepts are still found within the present paragraph (bm), the current exception is much more specific and at least somewhat more objective. None of the ten conditions is intended to accomplish any general legislative purpose by itself.

The court also observes:

To the extent that the language of a particular condition is unclear or ambiguous, these larger purposes must certainly be considered in attempting to determine the intended scope of that condition. It is not clear to me, however, that the legislature intended these conditions to be read narrowly simply in order to maximize the taxation of employers.

Turning to the six statutory conditions in dispute, the court agrees with the commission’s interpretation and application of condition 3, expressly noting that “the commission reasonably interprets this condition to require that [the individual’s] “business” must have all four of the specified items -- office, equipment, materials and other facilities. Simply using one’s home as an office or using one’s personal laptop in connection with work does not satisfy this condition. The fact that the putative employer did not provide him with these the things mentioned in this condition, is not the point: it requires that the individual maintained these things.

With respect to condition 4, the commission reasonably interprets it to require multiple contracts, but it erred in deciding that there was only a single contract here, where there were many jobs negotiated separately, involving different amounts of work, job locations or types of services, with distinct offer and acceptance. “Whether the standard terms of the relationship were stated in one agreement or included in separate written agreements each time Mailandt accepted a job is a matter of form, not substance, and should not affect whether this is viewed as one contract or a series of contracts”.

With respect to condition 5, the court rejects the commission’s rationale that it was not satisfied because the putative employer bore some of the costs of providing the services and it could not be held that Mailandt bore the “main” costs because his actual costs were not specified. Mailandt clearly bore the “main” costs of the services he provided.

With respect to condition 8, the commission reasonably interprets it to require both that there be a potential for “profit”, and that there be a potential for “loss”. The court also agrees that this condition links profit and loss to individual contracts, and reasons that the incremental expenses attendant to Mailandt’s individual contracts were so small that any “loss” involved if he were not paid for the job would be negligible and not such “losses” as were intended by the legislature to be covered by this condition.

With respect to condition 9, the commission reasonably interprets it to require “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”. The commission reasonably concluded that the few small continuing liabilities and obligations which Mailandt had, were not material recurring business liabilities.

Discussing condition 10, which the court describes as “the most perplexing” one, the court raises questions as to its meaning and effect and as to the correctness of the commission’s view that it requires “that a significant investment have been put at risk and [that] there is the potential for real success through the growth in value of the investment and for real failure in the sense of actual loss of the investment”, wondering how these concepts can be found in the simple words of the statute. Ultimately, the court neither interprets nor applies this standard, noting that given the “count” as to the other standards (four not having been met) the outcome on this one would not make a difference.

 

[LIRC decision]


Please note that this is a summary prepared by staff of the commission, not a verbatim reproduction of the court decision.

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