Worker's Compensation - Worker Classification

Nine Requirements Test - Independent Contractor

Requirement Four - Responsible For Main Expenses (Case Studies)

The individual incurs the main expenses related to the service or work that he or she performs under contract

Case Studies Relevant to Requirement Four

Wis. LIRC WC Decision: Floerchinger - August 15, 2001

Donald Floerchinger, the applicant, was the owner/operator of a Kenworth semi-tractor. He began hauling freight for Nestle Transportation Company in September of 1995. At that time, he signed a "Contractor Operating Agreement" with Nestle agreeing to provide his personal driving services and the exclusive use of his tractor to Nestle.

Nestle paid the applicant 85 cents per mile for all except infrequent short hauls paid on a different basis. The 85 cents per mile was based on the most direct route as calculated by Nestle, leaving the applicant to sustain the loss should he for some reason choose or be required to take a different route. From this 85 cents per mile, the applicant was responsible for his tractor financing payments, fuel, highway use taxes, maintenance and repairs, insurance, meals and lodging, and license fees.

Nestle also required the applicant to install a satellite tracking and communication device in his tractor cab. Nestle paid for this device and for its installation, but charged the applicant a rental fee for it. The applicant also purchased liability insurance through Nestle, whereby his exposure to loss was limited to $1,000.00. The Contractor Operating Agreement required the applicant to purchase his own worker's compensation insurance policy and thereby hold Nestle harmless for any injury, but he failed to purchase such policy. His claim is for an injury which occurred on or about May 13, 1998.

LIRC found that the applicant paid for virtually every expense related to the services he performed under contract with Nestle. His agreement with Nestle provided for this fact, and that was the actual practice with the exception of road tolls. The agreement provided that tolls were the applicant's responsibility, but in practice, Nestle paid most of those. Nevertheless, there is no question that the applicant incurred the main expenses related to his services for Nestle.

The commission concluded that the conditions of Requirement Four were satisfied.

Wis. LIRC WC Decision: Shilling, Michael - February 7, 2001

Michael Shilling, the applicant, was injured on November 20, 1998, when he was electrocuted while painting a building, and fell 20 to 30 feet to the ground. He suffered electrical burns, and dislocated his hip. As a result, he sustained considerable disability and incurred considerable medical expense.

The applicant performed the painting job on which he injured as part of an ongoing relationship with Richard S. Schaefer, a/k/a Scott Schaefer. On appeal to the commission, the primary issue is whether the applicant was an employee of Mr. Schaefer's when injured, or an independent contractor excluded from the definition of "employee" for the purposes of workers compensation laws.

In 1997 and 1998, Scott Schaefer operated a painting business under the trade name Premium Co. (a/k/a Premium Coatings Co.) Mr. Schaefer himself did some painting in this business; he also hired painters as employees and, he asserts, as independent contractors.

In 1997, the applicant began painting buildings for Mr. Schaefer as an employee. That arrangement changed in 1998, when at Schaefer's insistence, the applicant started his own business. The applicant adopted his own trade name "MGPC." The applicant continued to paint buildings for Mr. Schaefer after this conversation. The applicant worked on several projects in calendar year 1998 before his injury on November 20, 1998.

Upon completion of a job, the two men would normally execute "Independent Contracting Agreements," using their trade names. These documents, naming "Premium Co." as the contracting party and "MGPC" as the independent contractor, specified a dollar amount to be paid. The dollar amount was derived by some portion of the profits, depending on the amount of work the applicant did; the percentage varied from job to job.

Signing the contracts at the end of the job was evidently Mr. Schaefer's standard operating procedure because he paid the applicant a percentage of the amount remaining after deduction of expenses, and that could not be determined until the job was done.

The applicant normally used Mr. Schaefer's equipment, though he may have used a brush or two of his own on occasion. Mr. Schaefer testified that the applicant had his own ladder, but could not say if the applicant ever used it in any of the projects he and the applicant contracted for. Mr. Schaefer admitted giving the applicant an extension pole, and that the applicant was injured while standing on his (Schaefer's) father's ladder. He did testify that the applicant used his own equipment, but his testimony on this point is vague.

Everyone agreed that Mr. Schaefer supplied the paint the applicant used on the various jobs. Indeed, Mr. Schaefer testified he always provided the paint, but "not always" the brushes. The paint comprised between 5 and 25 percent of the expense of doing the work; the labor expense was much greater.

To satisfy the fourth requirement, the worker must incur the main expenses related to the service or work that he or she performs under contract. Separating out the labor expense, the main expense of the painting jobs the applicant performed was the cost of the paint, and Mr. Schaefer bore this expense. Schaefer argued that the services performed under the contract were just that, services; that labor was the main component of those services; and that consequently the applicant, who provided the labor, bore the main expense. Even if the labor cost was discounted from the equation, the Schaefer argued travel would be the main expense, and the applicant bore that expense.

However, the commission found that similar reasoning would apply whenever the employer supplied the materials and arranged for someone to perform services to apply the material. Of course, having procured the materials, the only real expense left under the contract is the performance of services, and of course the person providing the services bears the burden or expense of providing the services. But persons providing services only, who do not obtain or supply any of the materials necessary to perform those services, seem more like employees and less like independent trade persons.

Further, the statutory criteria refers to the main expense "related to the service or work that [the asserted independent contractor] performs under the contract." The use of the words "related to" implies that the statutory test is not meant to be confined to the actual labor expenses of a service contract, and in fact may be meant to exclude them. For example, when someone contracts to have his house painted, the main expense related to the performance of the service contract will usually be the paint, brushes and rollers.

The commission concluded that the conditions of Requirement Four were not satisfied.