Worker's Compensation - Worker Classification

Nine Requirements Test - Independent Contractor

Requirement One - Maintain a Separate Business (Case Studies)

The individual maintains a separate business with his or her own office, equipment, materials and other facilities.

Case Studies Relevant to Requirement One

Jarrett v. LIRC and B & D Motors, Inc. and Regent Ins. Co.

On December 15, 1994, while driving a semi-truck, Jarrett was rear-ended by another semi and sustained injuries to his back and shoulder. At the time of the accident, Jarrett was working under contract for B & D, a trucking firm. Jarrett began his relationship with B & D in 1992 under a lease agreement. At that time, he owned his truck and contracted to be paid 75% of the gross receipts on the routes he drove. Jarrett paid his own fuel, maintenance, road repair costs and other expenses. He had his own federal tax identification number. Jarrett made the truck repairs he was able to do himself, and he kept his records at home. Although B & D controlled where Jarrett would pick up his load, Jarrett generally decided which routes he would take. Jarrett had the right to turn down a load. He also carried his own worker's compensation policy, but excluded himself from its coverage.

In June 1993, Jarrett executed an "Independent Contractor Contract" with B & D. The contract provided he "shall be and remain an independent contractor." It further provided that Jarrett "has and at all times shall retain the management of the Equipment for the duration of this Contract and shall have the exclusive right to control and direct the methods and means of performing Contractor's obligations under this Contract." Jarrett was also responsible for his various costs of doing business, including taxes, worker's compensation insurance, and the costs and expenses incident to performing the contract.

In 1993, Jarrett purchased a new semi-truck tractor and put the title in B & D's name. Jarrett did so to prevent the Internal Revenue Service from filing a lien upon the truck for taxes Jarrett owed. B & D made installment payments for the tractor, but deducted the payments from Jarrett's checks until it was paid for and then transferred the title to him. Jarrett continued to be responsible for the maintenance, repairs and other upkeep on the truck. If B & D serviced or repaired the truck, Jarrett was billed for the work. He generally kept the truck at his house.

After his accident, Jarrett applied for worker's compensation benefits from B & D. LIRC determined that the nine criteria of Section 102.07(8) (b), Wis. Stats, constituted the sole test for independent contractor status under the Act and that because Jarrett met those criteria he was an independent contractor and not entitled to benefits. Jarrett appealed to the circuit court, which reversed and remanded the case to LIRC for further findings. LIRC appealed the circuit court's judgment to the Court of Appeals.

The Court of Appeals found that that Jarrett met all nine requirements in the statute for independent contractor status. Specifically as to the first requirement, that being whether Jarrett maintained a separate business, the court held that the requirement was met because Jarrett supplied his own truck and was responsible for its maintenance and upkeep. He was paid, pursuant to contract, 75% of the gross receipts for the freight he hauled and he paid for his expenses on the road. Jarrett's records and truck were kept at his home. He paid for his truck and its repairs. He also had his own federal tax identification number and worker's compensation policy.

The Court of Appeals also held that the nine requirements of Section 101.07 (8) (b), Wis. Stats supplant the old common law test and provide the sole test to determine independent contractor status.

Wis. LIRC Decision: James - July 28, 2000

The applicant, Stanley James, was a drywall hanger. He occasionally did carpentry or remodeling work; in early 1999 he did some remodeling work for a tavern. His primary source of income, however, was from drywall hanging, which he did for several businesses or individuals over the last several years.

The applicant was injured when he fell into a basement on a construction site on September 1, 1999. At the time, he was hanging drywall for B & P Drywall, a business owned by Bruce Pecore. Pecore, in turn, had gotten the job from Verhagen Drywall (hereafter Verhagen). Verhagen did drywall subcontracting and employed his own drywall finishers and tapers, but hired out the drywall hanging.

When Verhagen had a house ready to have drywall hung, he contacted Pecore. There was no bidding process; Verhagen told Pecore what he would pay per square foot, using what Pecore described as an average standard rate per square foot of drywall hung.

Pecore then either did the work himself, or arranged for individuals like the applicant to do the work. Sometimes Pecore called the hangers, sometimes they called him looking for work. Pecore took two or three cents off the top of the payment he got from Verhagen, then gave the rest to the individuals who actually did the hanging.

The applicant testified that the workers would turn in their footage on Wednesday, and be paid on Friday. The checks were in gross amount (no deductions were made for taxes), and were drawn from B & P Drywall's account.

According to the applicant, when he arrived at a job site, he would sometimes hang the drywall with a fellow named Reynold Ketchenago (a/k/a Renne), who Pecore admitted was his statutory employee. On other occasions, the applicant would contact a fellow named Pete Otradovic to work with him. On other occasions, apparently, Pecore would contact Otradovic who would contact the applicant.

The applicant supplied his own hammers, T-squares, drywall knife, power cords, tape measure, and screw gun. He claimed he could fit all of his tools in a single five-gallon bucket. Sometimes he bought drywall screws for a job, though the applicant testified that Pecore normally supplied the nails. The applicant did not supply the drywall. According to Pecore, Verhagen or the general contractor supplied the drywall.

The hangers would also use ladders and scaffolding to hang drywall; often they would just find this lying around the jobsite left by the general contractor or other workers. The applicant himself did not supply ladders or scaffolding at a job site. The applicant testified that Pecore would supply scaffolding and, on rare occasions, a drywall lift. Pecore denied supplying them, however.

The applicant did not have a home office, a room in his home he used for business purposes, a business phone line, a business card, or any kind of contact list. He had no office equipment like a fax machine or computer. He had no regular business expenses such as utility or lease expense. He never dealt directly with general contractors. He did have some kind of insurance for part of 1999, but indicated that he got this at Pecore's behest and Pecore's company, B & P Drywall, is named in some capacity on the form.

The applicant hung drywall for several different outfits. Some issued him IRS form 1099s; others, like Town and Country issued W-2s. Town and Country issued both 1099s and W-2s, depending on whether it was a union job or not. The applicant has a federal employer identification number, for which he apparently applied when he contemplated starting a partnership that never materialized. He did file "Schedule C" statements of business income or loss form with his federal taxes.

The applicant testified that he received checks from Pecore in 1999 that were between $700 and $1,000 per week; he thought $900 was an average. Seven hundred dollars per week, of course, would work out to $35,000 per year-assuming the applicant could work year round. In 1999, the applicant's gross income was $16,791. In 1998, his gross income was about $22,000, half of which paid to Otradovic.

Pecore admitted paying the applicant by checks drawn from B & P Drywall's account, though it is not clear that he admitted paying the applicant $700 per week. Pecore went on to testify that the normal average for a drywall hanger was at most $450-500 per week. Indeed, Pecore testified that he paid his admitted employee, Ketchenago, $12.00 per hour and that union scale was $15 per hour. This would work out to $480 and $600 per week, respectively, assuming a 40-hour week. Pecore's observation was that the applicant generally worked less than a 40-hour week.

Requirement One of the independent contractor test requires the worker to "maintain a separate business with his or her own office, equipment, materials and other facilities." The phrase "office, equipment, materials and other facilities" is conjunctive, not disjunctive. The commission reads this to mean that, at a minimum the applicant must maintain some space somewhere that resembles an office or "facility." The commission has held in an earlier case that a formal office is not required for a truck driver who maintained his own truck, and who kept his records (including DOT logbooks) and the truck at his home.

In this case, however, LIRC found that the applicant simply kept some tools and drywall nails at his home. There was no evidence he maintained any records for anything other than income tax purposes (which even statutory employees must do.) If the first condition has any meaning, it would not make the applicant's home and tools into "a separate business with his own office, equipment, materials and other facilities" under these facts.

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