Wisconsin Labor and Industry Review Commission --
Summary of Wisconsin Court Decision relating to Unemployment Insurance

Subject: Gary Gilbert, d/b/a Gary Gilbert Construction  v. LIRC and DWD-UI Division, Case No. 05 CV 405 (Wis. Cir. Ct., Grant Co., Sep. 14, 2006)

Digest Codes:   ET 495   EE 410

Plaintiff Gilbert was a sole proprietor operating a construction business, a Wisconsin Corporation with its office located in Hazel Green, Wisconsin.  Prior to 1997, Gilbert was an employer with numerous employees. In 1997 a meeting was held involving Gilbert and some employees in which verbal agreement was reached whereby these individuals would no longer be considered employees. Gilbert thereafter discontinued its WC coverage and UI tax payments for the workers, reduced its fleet of trucks, and began issuing 1099’s rather than W2’s.

One issue presented was whether the services performed by the individuals in question was “localized” (within the meaning of sec. 108.02(15)(d)) in Wisconsin, rather than in Illinois where a majority of the houses were constructed. LIRC's decision  found the services were not localized in either place, because of Gilbert’s regular rotation of major projects between Wisconsin and Illinois. 

The other issue was whether the persons performed their services in employment or as independent contractors.  LIRC found that the only statutory conditions met by the individuals were that they filed self-employment/business tax returns, incurred the main expenses connected with their services, had recurring business liabilities or obligations, and were responsible for the satisfactory completion of their work.  The employer appealed

Held:  The court opined that the most difficult issue concerned the localization of work. The court agreed with LIRC that the services were not localized in either Illinois or Wisconsin.  In this, LIRC properly relied upon Iverson Construction v. Dept. of  Employment Svcs., 449 N.W. 356 (Iowa 1989).  The court also cited to Heller v. International Transp., Inc., 94 Idaho 91, 481 P.2d 602 (1971), which defined a base of operations as “the place of a more or less permanent nature from which the claimant commences his work and to which he customarily returns in order to receive instructions and communications.”  The court noted that here, Gilbert was based in Hazel Green, Wisconsin, but the workers in question commuted from their homes in Wisconsin to the various work sites. Although they occasionally received phone calls from Hazel Green, the majority of directions were received on site where Gilbert kept a construction trailer. All of the materials would be delivered to the construction site.  LIRC concluded that the workers’ base of operations would be considered the project sites and that the existence of multiple projects in different states prevented it from concluding that the workers had a base of operation. The court opined that LIRC’s discussion on this issue was extensive and convincing. Addressing the question of whether the workers’ services were directed or controlled from Wisconsin, the court noted that  Gilbert was headquartered in Hazel Green. While LIRC may have "presumed too much" in presuming that it was from the office there that the projects were selected, negotiated, and scheduled,  there was little in the record to support a finding that Gilbert did much more out of the construction trailer than relay any changes requested by the owner. In fact, according to the workers, Gilbert provided very little by way of direction or control even after construction had commenced. LIRC thus reached a logical conclusion based upon the reasonable inferences flowing from the available evidence.

With regard to the employee/independent contractor issue, the court applied the middle "due weight" deference standard to LIRC's interpretation and application of sec. 108.02(12) given its limited experience with the issue. 

Regarding the  "maintains a separate business with his or her own office, equipment, materials and other facilities" condition [condition 3 under § 108.02(12)(bm)], the court noted that two of the individuals in question testified that they maintained offices in their homes and had business cards and/or letterhead printed. LIRC had found this inadequate in light of the evidence that the individuals performed no work for any other entity and, therefore, did not use either the office or the printed material to generate business. The court concluded that this was not an unreasonable conclusion, and to the extent it represents a finding of fact, could not be set aside.

Regarding the "operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and method of performing the services" condition [condition 4 under § 108.02(12)(bm)], Gilbert had argued that each contractor has agreed either to bid on each job or to be paid by the hour. Individual subcontractors, it argued, determined how the job is to be performed, not Gilbert.  LIRC and DWD argued that the workers in question worked under one annual contract for all work during the year, for an hourly rate of pay, except roofing was bid per “square”, drywall was bid per sheet, and electrical was bid per “opening;” they thus argued that there was really only one contract per year and the contracts covered all jobs, not any specific building project.  LIRC acknowledged the uncontradicted evidence that the subcontractors were not performing specific services under Gilbert’s control;   it was entitled, however, to find that Gilbert had not established the existence of separate contracts. Each witness testified to a variation of the same arrangement. Gilbert contracted to build different homes, but had the same workers perform essentially the same jobs for an understood amount of compensation. The record did not establish that Gilbert had to negotiate every building project with the workers. On the contrary, Gilbert would bid on projects knowing how much per hour, per square, per piece and per opening he would have to pay.

Regarding the "receives compensation for services performed under a contract on a commission or per-job or competitive-bid basis and not on any other basis" condition [condition 7 under § 108.02(12)(bm)],  Gilbert alleged that individual bids were established by each subcontractor.  LIRC found that all workers were compensated, at least in part, on an hourly basis. LIRC apparently felt that despite a majority of electrical, drywalling and roofing being compensated on a “per-job” basis, the fact that some work was per hour was determinative. That conclusion, as it pertains to these jobs, is inconsistent with LIRC's application of the statute on the other factors and therefore, unreasonable. In considering the other factors, LIRC looked at the overall arrangement. For example, it found that employees printing business cards and claiming to have home offices was inadequate given the total picture indicated that these efforts were not reflective of the actual way this business was operated. Likewise, the fact that individuals may have been on occasion, compensated per hour, is not reflective of the overall arrangement which was that these individuals were primarily engaged in jobs that were compensated at a per unit rate.

Regarding the "may realize a profit or suffer a loss under contracts to perform services" condition [condition 8 under § 108.02(12)(bm)], Gilbert indicated that each subcontractor was responsible for his or her own tools and equipment, insurance, vehicles and maintenance. If Gilbert was not paid for a job, contracts would not be honored. LIRC pointed to the testimony of several workers that they could not lose money out of their own pockets unless they did not work or they had their tools stolen. There was a question if Gilbert did not get paid for a project whether that would have any effect on the subcontractors/employees getting paid.  The court concluded that the record supported the conclusion that there was no “realistic” prospect for the individuals to lose money.  The fact a roofer might be able to install a “square” more quickly than expected, or a drywaller finish ahead of schedule, is a benefit, but not the “profit” contemplated by the statute. It was Gilbert who stood to profit if the hourly workers were quicker than estimated, and Gilbert who would have to pay extra if its bid underestimated the number of drywall sheets required. The court concluded that LIRC’s interpretation of this testimony and the application of the relevant facts to the statutory criteria cannot be said to be unreasonable or erroneous.

Regarding the "success or failure of the individual’s business depends on the relationship of business receipts to expenditures" condition [condition 10 under § 108.02(12)(bm)], Gilbert argued that this criteria was dependant upon the answers provided in connection with sections sub. d, f and g, and  that if an individual was liable for failure to satisfactorily complete services, could realize profit or suffer loss on their contracts to perform services, and had recurring business liabilities or obligations, then the success or failure of the workers’ activities would depend in part on receipts and expenditures.  LIRC, however, argued that the workers had very little risk of not getting paid by Gilbert or losing money out of their pocket. Because the workers worked primarily for Gilbert, the primary factor in determining success or failure was retaining the relationship with Gilbert. LIRC concluded that none of these workers assumed the type of entrepreneurial risk contemplated by the statute. Having already sustained most of LIRC’s determination, and remembering that it is LIRC’s role to determine how much weight to give to particular fact, and what inferences to be drawn from those facts, the court opined that it follows that LIRC’s determination on this issue is likewise not unreasonable and not erroneous.

In conclusion, the court decided that while LIRC may have erred in applying the "receives compensation . . .on a commission or per-job or competitive-bid basis and not on any other basis" condition,  its ultimate conclusion was correct. Gilbert undoubtedly intended to reorganize and establish a relationship that did not qualify as employer/employee; however, LIRC was well within its bounds to look beyond form and to the substance of the relationship, and to conclude that not a lot of substance had changed between these parties after the 1997 reorganization.

Appealed to Court of Appeals. Affirmed, November 26, 2008, sub nom. Gary Gilbert v. LIRC and DWD, 2008 WI App 173, __ Wis. 2d __, 762 N.W.2d. 761 . [Note: The Ct. App. reached a different result from the Cir. Ct. on condition 7, and it did not discuss or decide condition 8]

Please note that this is a summary prepared by staff of the commission, not a verbatim reproduction of the court decision.

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