Wis.LIRC UC Decision: Rocky Rococo - May 12, 1989 - ER 460 - Identification of liable employer, ER 464 - Liability of several employers, ER 470.05 - Successor in interest; business transferred - Corporation formed by pizza restaurants to handle their payroll functions was not a successor to the accounts of those restaurants because it has not 'continued or resumed the business' of the transferors, that business being making and selling pizza - only activity transferred was personnel function - persons performing services in the restaurants were not performing those services 'for' the payroll-function corporation under 108.02(12)(a) and are thus not its employees

In the matter of the contribution liability,
or status, under Chapter 108, Stats., of

Pursuant to the timely petition for review filed in the above-captioned matter, the Commission has considered the petition and all relief requested. The Commission has reviewed the applicable records and finds that the Appeal Tribunal's Findings of Fact and Conclusions of Law are supported thereby. The Commission therefore adopts the findings and conclusions of the Appeal Tribunal as its own, except as herewith modified:

Delete the second sentence of the eighth paragraph of the FINDINGS OF FACT AND CONCLUSIONS OF LAW, and replace it with the following:

The Appeal Tribunal Decision is modified to conform with the foregoing and, as modified, is affirmed.

In order for a business to demonstrate that it is a voluntary successor to the unemployment compensation account or accounts of some other employer or employers, that business must demonstrate the applicability of the provisions of section 108.16 (8)(b)1. and 2., Stats., which provides:

Assuming for the sake of discussion that there has been a transfer of an asset or an activity from Rocky Rococo Corporation to Rocky Rococo Payroll Clearing Corporation and from Quality Pizza Corporation to Rocky Rococo Payroll Clearing Corporation, the Commission nevertheless concludes that Rocky Rococo Payroll Clearing Corporation has not "continued or resumed the business of" the transferors. The business of the transferors is the operation of pizza restaurants. A small aspect of that business -- an "activity" -- is the operation of a personnel function adequate to provide staffing, but this by no means constitutes anything approaching the "business" of the transferor.

The record also fails to establish that the transferee in this case, Rocky Rococo Payroll Clearing Corporation, employs substantially the same employes as those employed with the transferor in connection with the business transferred. As the Administrative Law Judge noted, section 108.02 (12), Stats., provides the basis for determining whether a person is an employe of a particular employer. Section 108.02 (12)(a) provides that the word "employe" means any individual who is or has been "performing services for an employing unit, in an employment, whether or not the individual is paid directly by such employing unit" with further exceptions not relevant here. The employes of the tranferors in this case, who perform services for Rocky Rococo Corporation and Quality Pizza Corporation, making and serving pizzas and otherwise working in the restaurants, are not performing services for Rocky Rococo Payroll Clearing Corporation, within the meaning of section 108.02 (12)(a), Stats., and Rocky Rococo Payroll Clearing Corporation cannot therefore claim that these persons are its "employes". The only persons performing services for Rocky Rococo Payroll Clearing Corporation are the people performing the payroll and personnel functions which that company does, and which is "the business transferred." There has been no showing that most of these same people did that work for the transferors.

The only circumstances under which Rocky Rococo Payroll Clearing Corporation could claim that the persons providing services to Quality Pizza Corporation and Rocky Rococo Corporation are its employes, would be if it could bring itself within the definition of an "employe service company", as defined in section 108.02 (12)(m), Stats. Section 108.065, Stats., provides that an employe service company is the employer of an individual who is engaged in employment performing services for a client or customer of the employe service company if the employe service company is taxed under the Federal Unemployment Tax Act on the basis of that employment. Since the legislature has expressly provided, in section 108.065 and section 108.02 (12)(m), Stats., a limited circumstance in which an entity may claim to be and may be treated as the employer of persons who are actually performing services for another, the Commission concludes that, where those limited circumstances do not apply, an entity may not make the same claim; i.e., that persons who are actually performing services for some other employer are nevertheless "employes" of that entity. Rocky Rococo Payroll Clearing Corporation does not meet the definition of an employe service company contained in section 108.02 (12)(m), Stats. It does not set the rate of pay for individuals who perform the services; on the contrary, the restaurant companies provide Rocky Rococo Payroll Clearing Corporation with specifications as to what the compensation of employes shall be. In other respects as well, it does not appear that there is any actual negotiation between Rocky Rococo Payroll Clearing Corporation and the restaurant entities over matters such as those described in section 108.02 (12)(m)(a), Stats. Rather, Rocky Rococo Payroll Clearing Corporation simply carries out the directives of the restaurant entities.

For these reasons, the Commission concludes that the requirements of section 108.16 (8)(b)1., Stats., are not met in this case. Rocky Rococo Payroll Clearing Corporation has not "continued or resumed" the businesses of the transferors, and it has not employed substantially the same employes as those employed by the transferors in connection with the business transferred.

Additionally, the Commission considers that the requirements of section 108.16 (8)(b)2., Stats., have not been met. Determining if the requirements of this subsection have been met requires a comparison of the payroll experience assignable "to the portion of the business transferred" with the transferor's total payroll experience for the last four completed calendar quarters immediately preceding the date of the transfer. The "portion of the business transferred" from transferors to transferee in this case, is no more than the personnel functions which the transferors necessarily had to engage in in the course of operating restaurants. The record does not establish that at least 25 percent of the payroll of the transferor pizza restaurants was consumed in employing persons who were carrying out personnel functions. This section is intended to require that there be a transfer of a substantial portion of a business before successorship is found. The absence in this record of any indication that at least 25 percent of the transferor's total business, as measured by this section, was transferred, also requires a conclusion that Rocky Rococo Payroll Clearing Corporation is not a voluntary successor of Rocky Rococo Corporation or Quality Pizza Corporation.

The Appeal Tribunal Decision is reproduced here as modified by the commission's decision:

In the matter of the contribution liability,
or status, under Chapter 108, Wis. Stats, of:

QUALITY PIZZA CORPORATION,
Account No. 179557-4,

ROCKY ROCOCO PAYROLL CLEARING CORPORATION,
Account No. 373118-7,

ROCKY ROCOCO CORPORATION,
Account No. 014223-4

Hearing No.:

Administrative Law Judge:

Date Decision Issued & Mailed:

7720,S and 7721,S

Ronald I. Weisbrod

January 17, 1989

Based on the applicable records and evidence in this case, the appeal tribunal makes the following

The department issued two initial determinations the first of which that held because there was no transfer of assets or business activity Rocky Rococo Payroll Clearing Corporation was not a successor of Quality Pizza Corporation and the second which similarly held that it was not a successor of Rocky Rococo Corporation. Rocky Rococo Payroll Clearing Corporation (hereinafter referred to as Payroll) appealed.

Quality Pizza Corporation and Rocky Rococo Corporation (hereinafter referred to as RRC) and a number of partnerships all own pizza restaurants under the Rocky Rococo logo. Each business has separately reported its payroll to the department for unemployment compensation contribution purposes. As of March 31, 1987, Payroll was created. Its stated purpose was to hire, supervise and pay all of the restaurant workers employed by the corporations and partnerships that agreed to this arrangement. Payroll is considered a subsidiary of RRC.

Each restaurant has a three person management team that reports to an area supervisor who reports to the Vice President of Human Resources, an employe of RRC. Wages are paid by checks drawn on Payroll's account which is then reimbursed by the other businesses. Payroll receives its equipment and office space without charge from RRC. No fee is paid to it to perform its duties. As of March 31, 1987, there was no transfer of fixed assets or stock ownership to Payroll.

The issue presented is whether several corporations with related interests may create a separate corporation to act as a common paymaster with that new corporation then becoming the successor for unemployment compensation purposes.

Payroll contended that although there was no transfer of assets to it, the right to recruit select, hire, train, discharge and supervise all employes required for the operation of the restaurants constituted the transfer of a business activity to it so as to meet the conditions of the successorship provision of the statutes. That contention cannot be sustained. Payroll did not become a separate creation to whom supervisory authority over the restaurant worker's performance was assigned. It appears that nothing changed except the employer's name on the paychecks. This was strictly an internal company reorganization.

The payment of unemployment compensation benefits and the funding of the program is controlled by chapter 108 of the Wisconsin statutes. The unemployment compensation act is not a little internal revenue code but functions on its own for its own purposes. The contribution provisions were established to ensure that each employer is taxed according to its own experience of unemployment and to encourage each employer to act to retain levels of employment. The act does not provide an opportunity for one employer to shift its tax burden to the other employers in Wisconsin by unilaterally shifting "employes" from one employing unit to another. The system is designed to "induce and reward steady operations by each employer, since he is in a better position than any other agency to share in and to reduce the social cost of his own irregular employment." "Each employer's contribution rate should vary in accordance with his own unemployment costs, as shown by experience under this chapter." Each is to "be required to build up a limited reserve for unemployment, out of which benefits shall be paid to its eligible unemployment workers . . ." Section 108.01, Stats.

By permitting the employer to designate a common paymaster, the department would be permitting the employer to act contrary to law and the public policy declaration set out in section 108.01. In addition, section 108.02 (12), Stats., provides the basis for determining whether a person is an employe of an employing unit. If the employe performs services for pay, regardless of whether the individual is paid directly or indirectly by the given employing unit, then the employe performs services in employment, unless excluded by law. The only exception would be if an employer establishes that the services are performed free from the direction and control of the employer and as part of an independent business, an issue which has not been raised by this case. Par. (c) of section 108.02(12) provides that this subsection is to be used in determining an employer's liability for unemployment compensation contributions.

Payroll is not an employe-leasing business independent of RRC, nor are the three individuals, who perform the paycheck preparation duties, employed by an independent business.

The appeal tribunal therefore finds that Payroll is not a successor to Rocky Rococo Corporation or Quality Pizza Corporation, within the meaning of section 108.16(8)(a) of the statutes.