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Unemployment Insurance - Worker Classification
Prior to January 1, 2011
Condition Four - Contracts (Case Studies)
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 services.
Case Studies Relevant to Condition Four
John A. Lozon had been doing business for 12 years as J. Lozon Remodeling, a sole proprietorship. At the end of 1995 Mr. Lozon informed his employees that they would become independent contractors as of January 1, 1996.
The commission found that Condition Four can be met by either multiple serial contracts or multiple contemporaneous contracts in existence during the time in issue. All such multiple contracts can be considered, whether the other party contracting with the individual whose employment status is in issue is the employer or some other business or individual.
Mr. Asher, one of Lozon's workers, had multiple contracts to perform specific services for specific amounts of money for a total of five clients or customers in 1997. He also controlled the means and method by which he performed his services under the multiple contracts. The commission determined that, as an experienced worker, Asher would have been able to perform his services by appropriate means and methods without direction or control from anyone else even in an acknowledged employee-employer relationship.
The commission found that this condition has been met.
Spencer Siding, Inc. (Spencer), during 2001 and 2002, entered into oral contracts with 34 individuals (workers) to perform roofing, siding, and framing services for various general contractors. Spencer essentially functioned as an expediter for these general contractors and, for his efforts, deducted 10-12.5 percent from the amount the general contractors paid to Spencer for the roofing, siding, and framing services provided by the workers.
Spencer must establish that the workers operate under contracts to perform specific services for specific amounts of money, and that, under these contracts, the workers control the means and method of performing the services. The workers here exercised enough independence and discretion in carrying out their construction responsibilities to satisfy the second part of the test.
This condition also requires multiple contracts. These may take the form of multiple contracts with separate entities, or multiple serial contracts with the employer if the 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 legitimate 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 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. There was no specific evidence as to the existence of contracts between any of the workers and entities other than Spencer. The contracts under which the workers performed services for Spencer in 2001 and 2002 were project-specific oral contracts in which Spencer essentially established a piecework rate for roofing, siding, and framing work based upon what the project's general contractor was willing to pay.
These contracts do not satisfy the requirement of having been negotiated at arms length. The "bids" submitted to Spencer by the workers appear to have served no practical purpose, i.e., the actual piecework rate for a project was established by increasing or decreasing a worker's "bid" based upon the amount the general contractor was willing to pay for roofing, siding, or framing services for the project, not by arms length negotiations between Spencer and the workers.
The commission found that this test was not met.
Quality Communication Specialists, Inc. ("QCS") is a Wisconsin corporation which is engaged in business as a low voltage wiring contractor. QCS was incorporated in 1996.
While QCS does a small amount of work for private builders and individuals, wiring homes for telephone cables and speakers, 95% or more of its business is done with one company, Time Warner Cable ("TW"), a cable television provider. QCS provides "tap audit" services for TW, which consists of connecting, disconnecting, servicing and checking the connections between cable television lines and individual cable television subscribers' homes.
QCS enters into arrangements with individuals to perform the tap audit services which it contracts with TW to provide. These individuals are paid by QCS for performing those tap audit services. The issue for decision in this case is whether five such individuals who performed tap audit services for QCS in a number of calendar quarters in 1997 through 1999, did so as employees or as independent contractors.
One of the conditions that QCS had to satisfy to show that the individuals providing tap audit services were independent contractors was that they operated under contracts to perform specific services for specific amounts of money and under which those individuals controlled the means and method of performing the services.
This test has two distinct components. For it to be satisfied, it must be established both that the individual operates under contracts to perform specific services for specific amounts of money, and that the individual operates under contracts under which they control the means and method of performing the services.
The existence of multiple contracts tends to show that an individual is not dependent upon a single, continuing relationship subject to conditions dictated by an employer. The threshold requirement of multiple contracts can be satisfied either by multiple serial contracts or multiple contemporaneous contracts. Multiple contracts that an individual enters into with multiple business entities are most indicative of that individual's economic independence from a particular employer. However, multiple serial or contemporaneous contracts with a particular employer may satisfy the criterion if the contracts are shown to have been negotiated "at arm's length." In genuine independent contractor relationships, negotiation will typically result in terms that will vary over time and will vary depending on the specific services covered by a contract.
In this case, the tap auditors provided services only to QCS. Furthermore, there were not "multiple serial contracts negotiated at arm's length" with QCS. According to a representative of QCS, all of the tap auditors were under "a verbal contract", and that testimony is consistent with the testimony of the tap auditors, which contains nothing to suggest that the terms of their relationship with QCS were ever changed. In fact, there is nothing that suggests that any negotiation about the terms of the relationship ever occurred at all, much less that there were periodic renegotiations as a result of which it could be considered that new contractual arrangements were entered into.
The administrative law judge in this case found that there were "periodic contracts for specific work". The commission disagrees. The only conceivable basis for this finding is the evidence that the contractors picked up "routes" from Time Warner about once a week. However, the mere fact that there are work assignments given out on a regular basis does not amount to multiple serial contracts. In this case, the tap auditors simply picked up route assignments from TW on a regular basis. This certainly could not be considered to constitute the negotiation and entry into of a new contract with QCS. It appears that the route assignments consisted simply of a list of addresses where the tap auditors would perform services on the same terms that they had originally agreed to when they commenced their relationship with QCS.
The commission concluded that the tap auditors in this case did not operate under contracts to perform specific services for specific amounts of money within the meaning of this test.
Control of means and methods -- The evidence is inconsistent with a conclusion that the tap auditors controlled the means and methods of providing services. A significant degree of outside control was asserted over the means and methods by which these tap auditors performed their services. They were required to carry certain insurance (specifying both type and coverage amount); they were required to carry and use special hand-held computers for keeping records of the work and also to follow other procedures for record-keeping; they were required to carry pagers so that they could be contacted to be sent out on repair calls; they were required to observe certain hours, not working on Sundays or after 5:00 P.M. in certain areas; they were required to use only certain parts and materials; they were required to carry photo identification badges and to place signs on their vehicles identifying them as Time-Warner contractors; they were required to attend certain meetings, and they were trained in and required to comply with standards of "workmanship" set by someone else. These facts all weigh against a finding that the tap auditors controlled the means and methods of providing their services. The fact that certain requirements as to means and methods of providing services originated with TW rather than QCS, is not relevant. The test does not ask whether the employer controls the means and method of performing the service; it asks whether the individual whose status is at issue controls the means and method of performing the service.
The commission concluded that the tap auditors are subject to so many outside requirements about how they do what they do, that it cannot be said that they control the means and method of performing the service within the meaning of the applicable test.
Therefore, QCS has not established that the persons whose status is at issue satisfied Condition Four.
Prior to August 2005, the individual at issue (Meyer) performed sales services as an employee of Metalor.
Effective August 19, 2005, Meyer and Metalor entered into an agreement modifying the terms under which Meyer performed sales services for Metalor.
The issue is whether, on and after August 19, 2005, Meyer performed sales services for Metalor as an employee or an independent contractor.
To satisfy Condition Four, it must be established that Meyer 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 Four requires multiple contracts. These may take the form of multiple contracts with separate entities, or multiple serial contracts with the 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 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. The contract under which Meyer performed services for Metalor was a single contract specifying the terms under which he would conduct sales of Metalor products. This single contract, with terms not intended to vary over time or by event, did not satisfy the multiple contracts requirement of Condition Four. However, Meyer not only had a contract to perform sales services for Metalor, but also a contract to perform similar services for Platinum Plating. This would satisfy the multiple contracts requirement of Condition Four.
Condition Four also requires that, under his contracts with Metalor and Platinum Plating, Meyer controlled the means and method of performing the contracted services. The ALJ held that Meyer did not exercise this control because Metalor provided him with product pricing information, product brochures, and business cards. The commission disagrees.
Under his contract with Metalor, Meyer was to solicit sales of products manufactured by Metalor to specifications, and at prices, determined by Metalor. Under this division of responsibilities, Metalor, not Meyer, would be expected to create the product pricing and description information. The record does not show that Metalor controlled the manner in which Meyer carried out the sales activities for which he was responsible under the contract, i.e., Meyer determined the manner in which the solicitation would be carried out. The fact that Metalor provided business cards for Meyer to use on his Metalor sales calls does not establish or even suggest that Metalor had any meaningful control over Meyer's sales strategies and techniques.
Condition Four is satisfied.
Further Reading and Research
If you want to read and research further LIRC and circuit court cases on Condition Four, please click on the following hyperlinks from the LIRC Decision Digest: