Worker's Compensation - Worker Classification

Nine Requirements Test - Independent Contractor

Requirement Nine - Relationship of Business Receipts to Expenditures (Case Studies)

The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures.

Case Studies Relevant to Requirement Nine

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. This contract included a stipulation that the applicant perform his services under Nestle's Federal Motor Carrier operating authority, which required him to prominently affix Nestle's name to his tractor. The agreement further provided Nestle with exclusive possession and control of the applicant's tractor during its term, and the applicant was not free to haul freight for any other entity. The agreement was subject to immediate termination by either party, with or without cause, upon receipt by the other party of written notice of termination, either sent through the mail or delivered in person.

The agreement contemplated that the applicant would provide his services as an independent contractor who would be "free . . . to determine the means and methods of performance of all transportation services undertaken . . . ." In practice, the applicant was free to refuse to haul loads offered to him; however, when he did so Nestle would place his name at the bottom of the dispatch list, or on occasion offer him shorter, less desirable trips for his next dispatch. Nevertheless, the reasonable inference from the applicant's testimony is that he refused loads for various reasons, and that Nestle regularly offered him trips of sufficient distance to satisfy his economic needs and motivate him to continue his contractual relationship with 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. Nestle owned the trailers used for hauling. If the applicant broke down on a trip, he would be paid at his regular rate for the number of miles driven up to the point of breakdown, and would be paid at a lesser rate if he had to "deadhead" or "bobtail" to another location before picking up another load.

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.

The applicant contracted with Nestle to perform specific transportation services for specific amounts of money. While the contractual terms for each long-haul delivery the applicant made did not vary, if the applicant was not content with these terms he was free to sever the contract at any time. He informed the dispatcher of the type of deliveries he needed in order to maintain a profitable business, and was assigned such deliveries. On occasion, he agreed to perform short haul deliveries for Nestle at different rates of reimbursement.

One of the requirements that Nestle had to satisfy to demonstrate that Floerchinger was an independent contractor was that the success or failure of his business depended on the relationship of business receipts to expenditures.

The commission determined that the success or failure of Floerchinger's trucking business did depend on the relationship of his receipts from Nestle compared with the expenditures he made in operating and maintaining his trucking service. Floerchinger's Schedule C tax returns attest to this fact. In 1997 his trucking business made a net profit of $2,632.35, but in 1996 the trucking business sustained a net loss of $1,153.14

The commission concluded that the conditions of Requirement Nine 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 was 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 admits giving the applicant an extension pole, and that the applicant was injured while standing on his (Schaefer's) father's ladder. He testified that the applicant used his own equipment, but his testimony on this point was 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.

The ninth requirement is that the success or failure of the worker's business must depend on the relationship of business receipts to expenditures. The commission found that the applicant had no business expenditures, again except for the minor expenses related to a few brushes, and the everyday employment cost a worker incurs in getting himself to work. Those expenses cannot be said to play a role in the success or failure of the applicant's business.

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