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Prior to January 1, 2011
Condition Ten - Success or Failure (Case Studies)
The success or failure of the individual's business depends on the relationship of business receipts to expenditures.
Case Studies Relevant to Condition Ten
Acute Care contracted with physicians to staff emergency rooms in rural hospitals. During 2004, the period at issue, Acute Care had a contract with Dr. Kahn. The issue is whether Khan performed services for Acute Care during 2004 as an employee or as an independent contractor.
One of the conditions Acute Care had to meet to show that Dr. Khan was independent contractor was that the success or failure of Dr. Kahn's business depended on the relationship of business receipts to expenditures.
The commission has interpreted Condition Ten as intending to examine the overall course of a person's business. Condition Ten 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. The record shows that Khan had an investment in an office and in equipment, as well as recurring expenditures which could not be readily discontinued if the flow of work he received through his contracts for emergency medical services ceased. This is the type of entrepreneurial risk contemplated by Condition Ten. LIRC found that Condition Ten was satisfied.
A group of individuals performed health related examinations of patients for Diane M. Eagan/Health Exams Plus. Without any supervision, the examiners took blood pressure readings, drew and processed blood samples, and apparently observed and assessed physical and mental abilities.
The issue is whether the examiners performed their services for Diane M. Eagan/Health Exams Plus as employees or as independent contractors. One of the conditions that Eagan/Health Exams Plus had to satisfy to show that the examiners were independent contractors and not employees was that the success or failure of their businesses depended on the relationship of business receipts to expenditures.
The commission has interpreted Condition Ten as intending to examine the overall course of a person's business. Condition Ten 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. The record supports a conclusion that the examiners had a relatively small investment in equipment, and their recurring expenditures could be readily discontinued if the flow of work they received through Egan ceased, so that they faced no realistic prospect of any significant period of time in which they would have to make expenditures without any receipts coming in. Condition Ten was not satisfied.
Kip Koth Co LLC ("KK"), a limited liability company owned by Kip Koth and his wife Christine, is a home builder. In 1999 and 2000 it used the services of a person named Fran (Francis) Moss, who painted and stained doors and trim. KK and Moss did not have a written agreement. Their practice was, that after a customer for whom KK was building a home made a decision on style, finish and color of doors and trim, KK would arrange to have its lumber supplier deliver the doors and trim to Moss at his shop, which was a garage adjacent to his home. Moss would also be provided with a sample of the paint or stain chosen by the customer. Moss would purchase the necessary paint or stain and complete the painting or staining. Moss provided the equipment used in his operation. After Moss completed the painting or staining, KK's lumber supplier would pick up the materials and deliver them to the building site. Moss would subsequently go to the building site to do any necessary touchup, which could include setting trim nails and filling nail holes. Moss would bill KK for his labor and materials, on invoices bearing the name "Moss Painting and Staining". Moss did not itemize his bills, and he might send several bills over the course of one house being built, sending a bill for each delivery of doors and trim to be stained.
The issue is whether Moss performed services for KK as an employee or as an independent contractor. One of the conditions KK had to meet to show that Moss was independent contractor was that the success or failure of Moss' business depended on the relationship of business receipts to expenditures.
The commission found that Moss had virtually no expenses other than painting supplies, and that he primarily was providing his labor for pay as does any employee, and that his success or failure in performing this work was therefore not dependent on him being paid more than his expenses to provide his services.
The commission held that Condition Ten contemplates the existence of a genuine business endeavor, noting that the test looked to whether a significant investment is put at risk and there is thus the potential for real "success'" in the sense of the growth of the value of the investment, or "failure", in the sense of the actual loss of the investment. The commission found that Moss had no significant business investment placed at risk, and that his primary activity was instead a matter of providing labor with a small expense component that carried no risk of generating any overall loss. The commission found that Condition Ten was not satisfied.
Further Reading and Research
If you wish to read and research further LIRC, circuit court and court of appeals cases on Condition Eight, please click on the following hyperlink from the LIRC Decision Digest:
EE 410.10 success or failure: relationship of receipts to expenditures.
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