Summary
In Price County Telephone Co. v. Lord, 47 Wis.2d 704, 177 N.W.2d 904 (1970), the issue was whether the contractor was liable for the unemployment benefits for individuals hired by the contractor.
Summary of this case from Robert Hansen Trucking, Inc. v. Labor & Industry Review CommissionOpinion
No. 319.
Argued June 4, 1970. —
Decided June 26, 1970.
APPEAL from a judgment of the circuit court for Dane county: W.L. JACKMAN, Circuit Judge. Affirmed.
For the appellant Department of Industry, Labor Human Relations there was a brief by Arnold J. Spencer, chief counsel, and W. H. Putnam of Madison, and oral argument by Mr. Putnam.
For the respondent there was a brief by Petersen, Axley, Brynelson Herrick of Madison, and oral argument by Floyd E. Brynelson.
This is an unemployment compensation case. The facts involved are for the most part undisputed. In March of 1965, Wisconsin Telephone Company sold its Prentice telephone exchange to plaintiff-respondent, Price County Telephone Company, which is a Wisconsin corporation and public utility engaged in providing telephone service pursuant to state and federal laws and regulations. At the time of this sale, it was general knowledge that the local operation at the Prentice exchange would eventually be converted to a dial system and thus the need for a switching service would be terminated. When the plaintiff purchased the real estate and physical assets of the Prentice exchange from the Wisconsin Telephone Company, the latter continued to operate the exchange for which the plaintiff paid a monthly fee. There was no interruption in service or change in the method of operation and employees of Wisconsin Telephone continued to operate the exchange manually. Eventually in December of 1965, Wisconsin Telephone moved its toll center which had been located at the Prentice exchange to Ashland and totally discontinued its operation at Prentice.
In order to comply with state and federal laws and regulations of various regulatory agencies, the plaintiff had to continue manual service at the Prentice exchange. The continuation of this service was an essential and mandatory obligation of Price County Telephone Company. In order to insure a continuation of this service, the plaintiff and Virgil Lord, d/b/a Prentice Switching Service, entered into an agreement on December 15, 1965, whereby in essence Lord agreed to provide the switching service for the plaintiff. The actual negotiations leading to the contract had been carried on between plaintiff and Mary Ann Fischer and her sister, Betty Lord, wife of defendant Virgil Lord. Both Mrs. Fischer and Mrs. Lord had previously been employed as telephone operators at the Prentice exchange by Wisconsin Telephone. Virgil Lord had had no prior experience in switching operation and had a full-time job as a personnel director at another concern. The plaintiff, Price County Telephone Company, owned all the real and personal property of the exchange. Lord had no ownership of any of the physical assets of the Prentice exchange. The name Prentice Switching Service was picked arbitrarily for use in the written agreement which was signed by a representative of the plaintiff and Virgil Lord on December 15, 1965. This agreement provided:
"THIS AGREEMENT, made this 15th day of December, 1965, by and between Price County Telephone Co. of Wisconsin, a corporation organized and existing under the laws of the state of Wisconsin (hereinafter referred to as the `Telephone Company'), and Prentice Switching Service of Prentice, county of Price, state of Wisconsin (hereinafter referred to as the `Contractor'),
"WITNESSETH:
"WHEREAS, the Telephone Company intends to maintain a telephone central office at Prentice, county of Price, state of Wisconsin, which premises are owned by the Telephone Company; and
"WHEREAS, the Telephone Company desires to arrange with the Contractor for the operation of the said exchange and the furnishing of telephone service thereat;
"NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions herein contained, it is agreed by and between the parties hereto as follows:
"1. The Contractor during the term of this agreement will, at his own cost and expense, provide the necessary persons to operate said central office at all hours of the day and night, Sundays and holidays included, and during such hours will faithfully operate, or supervise the operation of, and will promptly report all trouble discovered to the appropriate personnel designated by the Telephone Company to receive same. The Contractor will also make such tickets on local and trunk connections, and will make such records and will provide such reports, as the rules and regulations of the Telephone Company may from time to time require.
"2. The Contractor will receive and promptly transmit to the Telephone Company all applications for telephone service, orders for moving telephones and discontinuance of service, and attend to such other matters as may be referred to him by the Telephone Company.
"3. The Telephone Company will furnish all the telephone equipment and apparatus required to properly maintain and operate said central office and the wires and instruments of the customers connected therewith.
"4. This agreement shall take effect as of the 19th day of December, 1965 and shall remain in full force until terminated by thirty (30) days' previous written notice given by either party to the other of the intention so to do. Upon such termination, the Contractor will immediately quit and surrender said premises and appurtenances in as good state and condition as reasonable use and wear will permit.
"5. It is understood and agreed that if the Contractor shall fail or refuse to do and perform any of the acts or things herein agreed to be performed by him, the Telephone Company shall have the right to cancel this agreement as provided herein, and if the Telephone Company fails to make payment to the Contractor of any moneys provided herein within ten (10) days after the same shall become due and payable, then and in that event the Contractor shall have the right to terminate this agreement.
"6. The Telephone Company shall have or retain the right of ingress to and egress from said premises at all hours of the day and night, Sundays and holidays included, as in its judgment it may deem necessary or advisable in the conduct of its telephone business.
"7. The Contractor will make no alterations or additions in or to said premises, or any part thereof, without first obtaining the written consent of the Telephone Company. In any event, the Contractor shall make no change of any kind in the central office exchange located in the said premises or in the telephone equipment therein or connected therewith without the prior written consent of the Telephone Company, and the Contractor shall not use the said premises or permit the same to be used for any purpose or in any manner which will subject the said premises to unusual hazard on account of fire or otherwise.
"8. The Contractor shall take good care of the premises and appurtenances thereto and shall make good any injury or breakage therein, damage by the elements or from ordinary use and wear excepted.
"9. It is mutually understood and agreed that any person or persons whom the Contractor may deem it necessary to employ in order to furnish the telephone service hereinbefore specified shall be employed and paid by the Contractor in accordance with the minimum wage requirements of the Fair Labor Standards Act, as amended, and the orders of any commission or other regulatory body having jurisdiction, and the Telephone Company shall have no control or supervision over their employment, payment, discharge, rates of pay, working conditions or working hours, and the Contractor shall at the time of hiring any such person inform him or her of the provisions of this paragraph. The Contractor further agrees to comply with all applicable federal and state Jaws relating to wages, hours and working conditions of women and minors, and discrimination.
"10. The Contractor shall discharge his duties hereunder as an independent contractor and shall not contract, create or incur any liability or obligation for or in the name of the Company, except as authorized in writing by the Company, and the Contractor agrees to indemnify the Company against any liability for or on account of any unauthorized act or wrongful omission or default of the Contractor or of the Contractor's agents or employees.
"11. The Telephone Company agrees to pay the Contractor the sum of Thirteen Hundred Dollars ($1300.00) per month, payable on the first day of the month.
"12. It is understood and agreed that if the Telephone Company at any time during the term of this agreement shall dispose of the said premises, either by sale or otherwise, or if the same shall be destroyed, then and in that event this agreement shall terminate without notice and without liability of any kind or character accruing.
"13. The Contractor shall not assign, transfer or sublet this agreement without the prior written consent of the Telephone Company.
"14. No use of the central office and other equipment provided by the Telephone Company hereunder, however extended, shall create or vest in the Contractor any ownership or property right in the said equipment.
"15. Failure to enforce or insist upon compliance with any of the terms or conditions of this agreement shall not constitute a general waiver or relinquishment of any such terms or conditions, but the same shall be and remain at all times in full force and effect.
"16. Any written notices which are required to be provided by this agreement shall be sent to the Telephone Company at Phillips, Wisconsin, or at such other address as the Telephone Company shall furnish in writing, and to the Contractor at Prentice, Wisconsin.
"IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of the date first above written."
Subsequently, Prentice Switching Service began operating the Prentice exchange for the plaintiff. There was no interruption of service and some of the operators who had been working for Wisconsin Telephone remained on the job and continued to perform the same duties with the same equipment on the same premises. Prentice Switching Service paid the wages of all personnel from the monthly service fee paid to it by the plaintiff. These checks were drawn on Prentice Switching Service's own account.
Virgil Lord had little to do with the switching operation but Mary Ann Fischer and Betty Lord actively participated and acted as supervisors and worked as operators. Price County Telephone Company did not charge Lord rent for the premises of the exchange.
On January 31, 1967, the plaintiff terminated its agreement with Prentice Switching Service because it converted its own facilities to a dial operation. At about the same time, Price County Telephone Company leased the physical facilities of the exchange to Ogema Telephone Company and Ogema entered into a similar contract with Prentice Switching to provide the manual service necessary to operate the exchange. Virgil Lord did not sign this contract but rather his wife did. Prentice Switching began providing its service for Ogema on February 1, 1967, and again there was no interruption of service and no change in any of the duties or working conditions of the operators. Prentice Switching continued to operate on this basis until August 15, 1967, when the operation of the exchange was converted from manual to dial, and there was no further need for its services.
Virgil Lord and his wife Betty filed a joint income tax return for the years 1965, 1966, and 1967, wherein they showed the income they received from the operation of Prentice Switching as a sole proprietorship and the expenses that they incurred.
After the termination of the Ogema contract several of the operators applied for unemployment compensation. A deputy of the Industry, Labor Human Relations Commission determined that Price County Telephone Company was liable for unemployment compensation contributions in the amount of $271.60 for the period from December 19, 1965, through January 31, 1967. Price County Telephone Company appealed from this determination and a hearing was held on November 27, 1968, before an appeal tribunal. The tribunal affirmed the deputy. Thereafter, Price County Telephone Company petitioned the commission for review of the tribunal's decision. The commission affirmed the tribunal. Subsequently, the Price County Telephone Company commenced an action in the circuit court for Dane county to determine its liability. The Honorable W.L. JACKMAN issued his decision wherein he reversed the department's determination and found as a matter of law on the undisputed evidence that Virgil Lord was an employer and hence that he, and not Price County Telephone Company, was liable for the $271.60 in unemployment compensation. Judgment was entered accordingly. The Department of Industry, Labor Human Relations appeals to this. court.
The sole issue presented by this appeal is whether Virgil Lord was an employer within the definition of ch. 108, Stats., so as to be liable, rather than Price County Telephone Company, for the duly determined amounts of unemployment compensation contribution.
We are not concerned with the status of Lord as a claimant for unemployment compensation benefits. We are concerned with his status as a paying employer subject to liability for unemployment compensation contribution.
Our first resort must be to the statute pertaining to the matter in controversy, namely, sec. 108.02(3), Stats., which provides:
"(3) EMPLOYE. (a) `Employe' means any individual who is or has been performing services for an employing unit, in an employment, whether or not he is paid directly by such employing unit; except as provided in par. (b). If a contractor performing services for an employing unit is an employe under this subsection and not an employer subject to the contribution provisions of this chapter, a person employed by the contractor in fulfilment of his contract with the employing unit shall be considered the employe of the employing unit.
"(b) Paragraph (a) shall not apply to an individual performing services for an employing unit if the employing unit satisfies the commission as to both the following conditions:
"1. That such individual has been and will continue to be free from the employing unit's control or direction over the performance of his services both under his contract and in fact; and
"2. That such services have been performed in an independently established trade, business or profession in which the individual is customarily engaged.
"(c) This subsection shall be used in determining an employing unit's liability under the contribution provisions of this chapter, and shall likewise be used in determining the status of claimants under the benefit provisions of this chapter.
"(d) Any individual who is, under this subsection, an `employe' of a given employing unit shall be deemed `employed' by that employing unit for the purposes of this chapter."
The department's position in construing the statute gives controlling weight to the test set forth in sec. 108.02(3) (b)1 and 2, Stats. The department argues that if Price County Telephone Company fails to satisfy the commission that Lord has been and will continue to be free from Price County Telephone Company control and that the services provided by Lord have been performed in an independently established trade, business or profession, in which he is customarily engaged, then Lord is not responsible for the compensation contributions but rather Price County Telephone Company is. According to the department, this test is stated in the conjunctive and both parts have to be met to the commission's satisfaction in order to avoid placing the responsibility on the Price County Telephone Company. In other words, if Price County satisfies the commission with respect to the two tests as to Lord, who was under a contract to perform service, then Lord becomes an independent contractor of a class less inclusive under the statutory definition than under a common-law definition. The department argues that Price County failed to satisfy the commission as to Lord's meeting these requirements; therefore, Lord was an employee of Price County and the unemployment claimants were by virtue of sec. 108.02(3)(a) also employees of Price County who should thus be responsible for the compensation contributions.
On the other hand, Price County argues that the statute cannot be construed this way. They point out that par. (a) of the above statute states:
". . . If a contractor performing services for an employing unit is an employe under this subsection and not an employer subject to the contribution provisions of this chapter, a person employed by the contractor in fulfilment of his contract with the employing unit shall be considered the employe of the employing unit." (Emphasis added by Price County.)
According to Price County, if Lord is an employer subject to the provisions of ch. 108, Stats., then the two tests found in par. (b) of the statute are immaterial and Lord is required to pay the compensation contribution. This was the reasoning adopted by the trial court and it determined that under the undisputed evidence Lord was an employer. We agree.
The statute seems clear on its face. As applied to the instant case, Price County does not have to pay; Virgil Lord does. We are not here concerned with establishing the right to compensation of the claimants or of Lord. The question is from whom are the claimants entitled to compensation.
In par. (a) the statute provides that if Lord is an employee and not an employer subject to the contribution provisions of the chapter, then Price County would be responsible for the unemployment compensation of the claimants. Thus, two methods are available to Price County to avoid this responsibility: (1) It must either prove to the commission's satisfaction that Lord is not its employee and therefore the claimants look only to him for compensation, or (2) that Lord is an employer subject to the contribution provisions of the chapter. The conjunctive tests of par. (b) would seem to apply only when the question presented is one of initial coverage, e.g., the tests would apply if Lord himself were claiming unemployment compensation from Price County. Then by establishing that he meets the two tests, Price County could avoid paying him compensation. The tests of par. (b) go to establishing the status of employee.
The department devotes the major part of its brief to arguing that Lord is an employee of Price County Telephone Company and that the circuit court was in error in not applying the conjunctive test found in par. (b). There is little doubt that under these two tests Lord was a statutory employee of Price County Telephone Company. It is apparent that the statutory concept of the employment relation includes individuals who were independent contractors at common law. The entire statutory scheme indicates a desire on the part of the legislature to extend the protection of these laws to those who might not be deemed employees under the legal concepts governing the liability of a master for the tortious acts of his servant.
See Note, 1941 Wis. L. Rev. 269, 274.
See Asia, Employment Relation: Common-Law Concept and Legislative Definition, 55 Yale L.J. (1945), 76, 83; Teple, The Employer-Employee Relationship, 10 Ohio State L.J. (1949), 153, 159; see also Zankel, Unemployment Insurance: The Definition of Employee, 42 St. John's L. Rev. (1967-1968), 508; Willcox, The Coverage of Unemployment Compensation Laws, 8 Vanderbilt L. Rev. (1955), 245.
However, a determination of who should be protected and covered by the unemployment compensation laws does not really answer the question presented by this case: Who pays?
If it can be conceded that Lord was a statutory employee of Price County Telephone Company, that does not necessarily mean that Price County is responsible to the instant claimants. There is nothing in the statute to preclude one from being an employee for purposes of his own unemployment compensation protection and at the same time being an employer subject to the contribution provision of the chapter for the protection of those who work for him. Under this statute these two conditions are not mutually exclusive. If it were impossible to be both at the same time then the phrase "not an employer subject to the contribution provisions of this chapter" in par. (a) would be superfluous. It is submitted that a correct interpretation of this statute is as follows:
Any individual who performs services for an employing unit in an employment is an employee except if he has been and will continue to be free from the employing unit's control over the performance of his services and if these services have been performed in an independently established trade, business or profession in which the individual is customarily engaged. If a contractor performing services for an employing unit is an employee according to the above definition and is not an employer within the provisions of this chapter, then people working for the contractor are considered the employees of the employing unit of the contractor. Under this interpretation Lord is an employee of Price County but the question remains: Is he an employer subject to the contribution provisions of this chapter? If he is, then the claimants are not considered employees of Price County. If Lord is not an employer subject to the contribution provisions of the chapter, then the claimants are considered employees of Price County.
Both sides rely on the case of National Guardian Life Ins. Co. v. Industrial Comm. as authority for their respective positions. That case involved a coverage question of whether a secretary in the office of a general agent of an insurance company was an employee of the insurance company so as to be eligible for unemployment compensation. The company denied she was an employee of the company. The commission and subsequently the circuit court found that the agent was an employee of the company and that the secretary was therefore an employee of the company.
(1965), 26 Wis.2d 198, 131 N.W.2d 896.
This court, on appeal, noted that the general agent was clearly an employee of the company within the statutory definition since the company exercised control over the performance of his services and there was no independently established trade or business. This court then considered the requirement that the contractor not be an employer subject to the contribution provisions and stated:
"The company is concededly an `employing unit.' Ciulla (and Beebe before him) were contractors, performing services for the company for pay. Neither of them were employers subject to the contribution provision. At least it has, not been claimed nor been found that they were so. subject. Mrs. Wessels was employed by them in fulfilment of their contracts with the company. Thus, under the definition, she was an employee of the company if they were its employees." (Emphasis added.)
Id. at page 208.
This italicized portion of the decision indicates the court was concerned with the "employers subject to the contribution provision" criterion but in that case it was not claimed that the agent was such an employer. Here the claim is made that Lord was an employer subject to the contribution provision. In other words, in that case the underlying issue was whether the claimant should receive compensation from the employer; here the question is wholly different: From which employer should the claimants receive compensation?
We now consider the crucial question of whether Lord was an employer subject to the contribution provisions of this chapter. The trial court concluded that he was.
It was stipulated that Virgil Lord, d/b/a Prentice Switching Service, had four employees on each of some twenty days during the taxable year, each day being in the different calendar week, counting the total number of individuals employed by him. Virgil Lord does meet the statutory definition of "employer" set forth in sec. 108.02(4) (d), Stats., which provides, in part:
"(d) Any other employer, who has employed as many as 4 individuals in `employment' on each of some 20 days during the taxable year, each day being in a different calendar week, counting the total number of individuals who were employed by him in employment for some portion of the day (whether or not at the same moment of time), effective after December 31, 1955, shall become an `employer' subject hereto as of the start of that calendar year in which such employment occurred."
Moreover, the evidence presented in this case indicates that Prentice Switching supervised the crew of operators who are now the claimants. It hired the operators. It determined the hours of work and compensation of the operators. It had the responsibility to supervise the work. It paid the operators with checks on its own account. It filed the W-2 forms.
Even if it is conceded that Prentice Switching Service barely fits the popular definition of an employer, the fact remains that it fits the statutory definition as found in sec. 108.02(4) (d), and as such was an employer subject to the provisions of this chapter. Statutory definitions should be applied in the construction of a statute of which they are a part.
Rossmiller v. State (1902), 114 Wis. 169, 89 N.W. 839.
The fundamental objective of unemployment compensation is to mitigate economic loss to the worker and his family. That purpose is not undermined by the statutory scheme recognizing that contractors hired by employing units who may themselves be employees, statutory or common law, may nevertheless be themselves employers subject to unemployment compensation contributions on behalf of their employees.
See Milwaukee Transformer Co. v. Industrial Comm. (1964), 22 Wis.2d 502, 126 N.W.2d 6; Salerno v. John Oster Mfg. Co. (1967), 37 Wis.2d 433, 155 N.W.2d 66.
By the Court. — Judgment affirmed.