Unemployment Insurance - Worker Classification

Nonprofit Employers

Part 2: Independent Business - Five 'Keeler' Factors

The second part of the two part test to determine if a worker is an employee or an independent contractor is whether the worker's services were performed as an independently established trade or business in which the individual was customarily engaged.

The purpose of this part of the test is to determine if the worker is operating an independent business separate from that of the employer.

In determining whether the services of the worker were performed as an independently established trade or business in which the individual was customarily engaged, five interrelated factors must be examined. These five interrelated factors are described in Keeler v. LIRC, 154 Wis. 2d 626 (Ct. of App. 1990).

The five Keeler factors are not to be mechanically applied. Rather, the weight and importance of each factor varies according to the specific facts of each case. The five factors should be applied in a manner consistent with the purpose of the unemployment compensation statute: -- "to effect unemployment compensation coverage for workers who are economically dependent on others in respect to their wage-earning status." Larson v. LIRC, 184 Wis.2d 378, 391 (Ct. App. 1994).

The department has provided the following tools for each of the five Keeler factors to assist you with the analysis of each of the factors:

• An explanation of each of the five factors
• Cases studies relevant to each of the five factors based upon cases decided by the Labor and Industrial Review Commission (LIRC), Wisconsin Circuit Courts, and Wisconsin Appellate Courts
• A hyperlink to the LIRC Decision Digest for the five factors containing additional cases for your review.

1. Factor One - Integration

   Whether the services performed directly relate to the activities conducted by the company retaining those services.

   Explanation of Condition One

   The services provided to the employing unit by the worker must be substantially different from the employing unit's business.

   The services provided by the worker to the employing unit are not directly related to, or integrated into, the employing unit's business. The services provided are directly related to, or integrated into, the employing unit's business when the success or continuation of the employing unit depends upon the performance of those services.

   For example, where an employing unit that manufactures furniture engages a worker to fabricate upholstery for chairs that the employing unit sells, the worker's services performed to make or assemble the upholstery material for the chairs is directly related or integrated into the employing unit's product.

   On the other hand, where a worker is hired to paint the building in which the employing unit's manufacturing business is located, the painting work is not integrated into the business activity of the employing unit.

   Case Studies

   Case Studies, Further Reading and Research Relevant to Condition One

   
   

2. Factor Two - Advertising or Holding Out

   A truly independent contractor will advertise or hold out to the public or at least to a certain class of customers, the existence of its independent business.

   Explanation of Factor Two

   The individual must make the public aware that he/she is engaged in a business endeavor. This can be accomplished by some form of advertising, such as using business cards, posting notices regarding the services and/or having an actual place of business.

   Case Studies

   Case Studies, Further Reading and Research Relevant to Factor Two

   
   

3. Factor Three - Entrepreneurial Risk

   Whether the individual has assumed the financial risk of the business undertaking.

   Explanation of Factor Three

   Entrepreneurial risk is a risk that the entrepreneur will be unable to compete successfully in the market place, and as a result will lose capital investment or be unable to cover the cost of inventories, facilities, or other overhead expenses involved in operating the enterprise.

   Case Studies

   Case Studies, Further Reading and Research Relevant to Factor Three

   
   

4. Factor Four - Economic Dependence

   Whether the alleged employee is independent of the alleged employer, performs services and then moves on to perform similar services for another.

   Explanation of Factor Four

   If an examination of the economic relationship between the worker and the employer establishes that the worker is independent of the employer, performs services and then moves on to perform similar services for another, it is proof of an independent trade or business. On the other hand, if the economic relationship shows a strong dependence by the worker upon the employer, it is evidence that the worker is an employee.

   Case Studies

   Case Studies, Further Research and Reading Relevant to Factor Four

   
   

5. Factor Five - Proprietary Interest

   Whether the alleged employee owns various tools, equipment, or machinery necessary in performing the services involved, but also including whether the alleged employee has proprietary control, such as the ability to sell or give away some part of the business enterprise.

   Explanation of Factor Five

   The factor of whether the alleged employee has a proprietary interest in his business is used to determine whether the business was independently established. While the factor includes the ownership of the various tools, equipment, or machinery necessary in performing the services involved, it also includes the more sophisticated concept of proprietary control, such as the ability to sell or give away some part of the business enterprise.

   Case Studies

   Case Studies, Further Research and Reading Relevant to Factor Five