Unemployment Insurance - Worker Classification

Part 2: Five 'Keeler' Factors - Government Units

Factor Three - Entrepreneurial Risk (Case Studies)

Whether the individual has assumed the financial risk of the business undertaking.

Case Studies Relevant to Factor Three

Wis. LIRC UC Decision: Katie Williams - November 21, 2007

The Milwaukee Teacher Education Center (MTEC), a nonprofit, offers a masters degree program in urban education. Williams was selected as an instructor by MTEC, which established the class schedule after consulting with Williams, and to which Williams submitted her syllabus/instruction plan. Williams instructed one of the core courses in this program during the fall of 2006 and the spring of 2007. Williams filed for unemployment benefits in October of 2006. MTEC appealed the decision of the administrative law judge to the Labor and Industry Review Commission (LIRC). MTEC claimed that Williams was an independent contractor, not an employee.

LIRC found that although the entrepreneurial financial risk required of Williams was small given the nature of the services she was providing, she did assume the only risk, that being she transported herself at her expense to the instruction locations. Although Williams did not bear the cost of the teaching facility or of books and other teaching materials, this was not the proper focus. The "business undertaking" at issue was not a school but instead the provision of professional instructional services. MTEC satisfied this factor.

Wis. LIRC UC Decision: Waedekin, Barbara - September 12, 2008

This case concerned a psychiatrist, Barbara Waedekin, who performed services for the Winnebago County Department of Social Services, in the form of providing psychiatric care to indigent residents of Winnebago County. The issue is whether Waedekin performed those services as an employee of the County, or as an independent contractor. One of the factors Winnebago County had to satisfy to show that Waedekin was an independent contractor and not an employee was "entrepreneurial risk."

Winnebago County argued that the existence of "entrepreneurial risk" was established by the provision in the contract between it and Waedekin requiring her to provide her own malpractice insurance and to hold the County harmless for any liability on her part. The commission agreed with Winnebago County and found it reasonable to infer that medical malpractice insurance coverage would have involved significant expense. In addition, the risk of exposure to claims exceeding the policy limits can also be inferred to be at least potentially significant. LIRC found that the "entrepreneurial risk" factor was satisfied.

Wis. LIRC UC Decision: Lopez, Daniel - January 15, 2010

Beginning in 2007, the Daniel Lopez began performing services as a Spanish interpreter for the Richland County government during out-of-court interactions between the sheriff's department and private individuals. Lopez earned wages for performing these services. The issue is whether Lopez performed his services for Richland County as an employee or an independent contractor. One of the factors Richland County had to satisfy to show that Lopez was an independent contractor and not an employee was "entrepreneurial risk".

The commission found Lopez had assumed little financial risk. Although he paid for his own transportation, he was compensated at the rate of $35 an hour and was effectively guaranteed payment if he completed the services. It is not a realistic possibility that his transportation costs would exceed his compensation. The "entrepreneurial risk" factor was not satisfied.

Thomson Newspapers (Wisconsin), Inc. v. LIRC and DILHR, No. 95-1355 (Wis. Ct. App. District 4 November 14, 1996)

Thomson Newspapers is a newspaper company, publishing newspapers in several Wisconsin cities. Thomson retained the services of bundle haulers as part of its distribution system. Bundle haulers distribute newspapers to various points, such street drops for foot and motor carriers, the residences of foot carriers, vending boxes, and commercial outlets. Bundle haulers pick up the newspapers at the employer's dock and then distribute them using their own vehicles. The bundle haulers can set their own order of distribution. They are expected to deliver the newspapers in good condition and on a timely basis. The bundle haulers are free to reject a particular delivery. The bundle haulers receive no fringe benefits and do not have taxes withheld from their pay. They are free to perform other delivery work, even for competitors.

The Court of Appeals upheld the LIRC decision that found the employer had not met its burden of establishing "entrepreneurial risk" on the part of the bundle haulers. There is little evidence of entrepreneurial risk in this case. The bundle haulers did not risk any capital investment. The commission has traditionally held that the potential of lost wages is insufficient to constitute "entrepreneurial risk" of a business undertaking.

Further Reading and Research

If you wish to read and research further LIRC, circuit court and court of appeals cases on Factor Two, please click on the following hyperlink from the LIRC Decision Digest: EE 410.00 multi-factor tests, generally

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