No. 87-397
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
ZIMMER-JACKSON ASSOCIATES, INC.,
Plaintiff and Appellant,
DEPARTMENT OF LABOR AND INDUSTRY,
and SAM AUSTIN,
Defendants and Respondents.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Thomas C. Honzel, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Stephen R. McCue, Harrison, Loendorf and Poston, P.C.,
Helena, Montana
For Respondent :
David Scott, Helena, Montana, (Department of Labor)
William J. O'Connor, 11, Dunaway, O'Connor and Moe
Billings, Montana, (Sam Austin)
Submitted on Briefs: March 11, 1988
Decided: April 13, 1988
Filed: ' A ~ R 1988
Clerk
Mr. Justice William E. Hunt, Sr., delivered the Opinion of the
Court.
This is an appeal from the Order of the District Court,
First Judicial District, County of Lewis and Clark affirming
the decision of the Board of Labor Appeals which held that
the defendant/respondent was an employee of
plaintiff/appellant for purposes of unemployment insurance.
We affirm.
The issues on appeal, restated, are:
1. Did the District Court err when it affirmed the
Board's decision holding that respondent's commissions from
appellant were wages for purposes of unemployment insurance
tax?
2. Did the District Court err when it affirmed the
Board's decision holding that respondent's relationship with
appellant satisfied the test pursuant to S 39-51-203(4), MCA,
(1983), sometimes referred to as the ABC test, therefore
classifying him as an employee for purposes of unemployment
insurance tax?
By letter of January 31, 1986, the Montana Department of
Labor and Industry, Unemployment Insurance Division,
determined that Zimmer-Jackson Associates, Inc. (ZJ) must
report Austin's services to the Division and must pay
unemployment insurance tax on those services. A hearing was
held before an appeals referee of the Department who made
findings of fact and concluded that Austin was an employee
and not an independent contractor for purposes of the
unemployment insurance tax. On appeal the Board of Labor
Appeals adopted the findings of fact and decision of the
referee as its own. Upon petition for judicial review the
District Court affirmed the decision of the Board.
The appellant, ZJI is a distributor of medical equipment
in seven western states including Montana. It is an
independent agent of Zimmer USA (Zimmer) which manufactures
medical equipment. From 1 9 7 7 to 1 9 8 5 , respondent Austin was
a sales associate for ZJ based in Billings and covering most
of Montana. Austin was responsible for selling ZJ goods to
various hospitals and clients in his area. The selling
procedure for ZJ sales associates is uncomplicated. When an
associate makes a sale, the order is sent to ZJ who then
sends it to Zimmer. The equipment is sent to the customer
who pays Zimmer directly. Both ZJ and the associate receive
a percentage from the sale. The sales associate's commission
is based upon a percentage of the associate's total sales as
payment is received by Zimmer.
Austin maintained a Billing's office where he employed a
secretary. As with all ZJ associates, a base rent was paid
by ZJ on the office and phone. Basic office equipment was
also provided by ZJ. The base amount is determined by the ZJ
Board of Directors. Any expenses above that amount are the
responsibility of the associate. An associate can hire
support personnel such as a secretary providing that the
position is approved by ZJ. The particular person hired is
not required to be approved. While the salary is negotiated
between the associate, ZJ and the secretary, ZJ pays that
salary.
The territory covered by any one associate is set by ZJ.
Modifications may be made at the associate's request. This
was done in Austin's case when he complained about the
geographical size of his Montana territory. Consequently ZJ
allowed him to give up a portion of this territory for which
he was compensated $ 8 , 0 0 0 . 0 0 in exchange for his part in
developing the territory and for the loss of possible future
commissions from that portion of the territory.
An associate usually must comply with any contracts
directly between his or her client and ZJ or Zimmer. An
associate is allowed to sell below the contract price but may
not sell above it. An associate is also allowed to make
separate contracts with his or her clients. Any contract of
this type had to be sent to Zimmer for approval. A contract
that conflicted with Zimmer contracts was sent back to be
redone by the associate. Efforts were always made to resolve
the conflict.
Austin did a limited business with other companies for
instrument sharpening. ZJ discouraged working for
competitive companies but tolerated it as long as Austin's
sales goals were met. Appellant disputes the finding by the
referee that if an associate failed to meet his goals he
would be fired unless he agreed to give up selling
competitive products.
The standard of review the District Court must follow
derives from § 39-51-2410(5), MCA, which states:
In any judicial proceeding under 39-51-2406 through
39-51-2410, the findings of the board as to the
facts, if supported by evidence and in the absence
of fraud, shall be conclusive and the jurisdiction
of said court shall be confined to questions of
law. Such action and the questions so certified
shall be heard in a summary manner and shall be
given precedence over all other civil cases except
cases arising under the workers' compensation law
of this state.
The operation of this statute has been well discussed in
previous cases. When reviewing a decision of the Board of
Labor Appeals, the District Court must treat the findings of
the Board as conclusive if they are supported by substantial
evidence and are absent fraud. Gypsy Highview Gathering
System v. Stokes (Mont. 19861, 716 P.2d 620, 623, 43 St-Rep.
595, 598; Kirby Co. of Bozeman v. Employment Set. (1980), 189
Mont. 1, 5, 614 P.2d. 1040, 1042-3. This Court is held to
the same standard when reviewing a Board of Labor Appeals
decision. Gypsy Highview, 716 P.2d at 623. We must
determine whether the District Court committed an abuse of
discretion by affirming the Board's decision. Standard Chem.
Mfg. Co. v. Employment Sec. (1980), 185 Mont. 241, 247, 605
P.2d 610, 613.
The pertinent statute defining employment is §
.
39-51-203 (4), MCA (1983)
(4) Service performed by an individual for wages
is considered to be employment subject to this
chapter unless and until it is shown to the
satisfaction of the department that:
(a) such individual has been and will continue to
be free from control or direction over the
performance of such services, both under his
contract and in fact;
(b) such service is either outside the usual
course of the business for which such service is
performed or that such service is performed outside
of all the places of business of the enterprise for
which such service is performed; and
(c) such individual is customarily engaged in an
independently established trade, occupation,
profession, or business.
Appellant asserts as its first issue that Austin's
commissions did not constitute "wages" and, as such, his
services do not fall within the purview of the above statute.
Instead, appellant argues, Austin's commissions were netted
with his expenses to create "profits." Austin's
self-employed status, arguably, is bolstered by his tax
returns of 1982-85 showing he paid self-employment tax.
Wages, for the purpose of unemployment insurance, are
defined by $ 39-51-201(19) (a), MCA (1983), as meaning "all
remuneration payable for personal services, including
commissions and bonuses and the cash value of all
remuneration payable in any medium other than cash." This
Court had the opportunity to address this issue in St. Regis
Paper Co, Etc. v. Unemployment Comp. Com'n (1971), 157 Mont.
548, 487 P. 2d 524. There we cited with approval National
Trailer Convoy, Inc. v. Undercofler (Ga. 1964), 137 S.E.2d
328 in which the Georgia Supreme Court held, interpreting an
identical statute, that because of the obvious existence of
an independent contractor relationship between the parties no
"wages" existed and therefore the ABC test did not apply.
This Court also stated that although the statute is
discretionary, it should not be so distorted as to cover
relationships that are truly independent in nature. But,
there is no such distortion in this case. Although we
discuss it in greater depth below, we cannot say that there
is an obvious independent contractor relationship here and
therefore no wages as required by 39-51-203 (4), MCA.
Austin received commissions on all Zimmer goods he sold.
Section 39-51-203(4), MCA, plainly states that commissions
are wages. Therefore Austin was receiving wages as defined
in the statute and the ABC test must be applied. His tax
treatment of these wages is not relevant.
Appellant, next and lastly, contends that none of the
three tiers of the ABC test were met and specifically
complains that its rights were prejudiced because the
District Court failed to find facts which were requested. We
disagree.
In order for a service to be deemed employment all three
standards of S 39-51-203 (4), MCA, (1983) must be met. Pat
Griffin Co. v. Employment Security Com'n (1974), 163 Mont.
529, 533, 519 P.2d 147, 150 (Citing - Regis, 487 P.2d at
St.
525) ; Standard Chem., 605 P.2d at 612. As stated above the
statue must be applied reasonably. Standard Chem., 605 P.2d
at 612; - Regis, 487 P.2d at 525.
St.
Tier "A" of this three part test requires that an
individual be free from control over the performance of his
services. Section 39-51-203 (4)(a), MCA. We have recognized
that this is the most important factor in determining
employment relationships and have often used the common law
test for determining employment status in conjunction with
the statute on this point. See Kirby Co. of Bozeman, 614
P.2d 1040; Standard Chem., 605 P.2d 610. The right of
control figures most prominently in both tests. Standard
Chem., 605 P.2d at 613.
The District Court relied upon the finding that Austin
was required to have his sales contracts reviewed and
approved by Zimmer and that ZJ determined the base amount
paid for Austin's office rent and phone charges and Austin's
secretary. It also relied upon the finding that Austin would
have been fired if he were selling competitive products and
his sales dropped below expected goals. ZJ contends that
this finding is clearly erroneous and not supported by
substantial evidence. The finding stems from the following
exchange at the hearing between the appeals referee and the
owner of ZJ concerning a sales associate who was selling
competitive products:
MARONICK: One question, Mr. Jackson. If he were
not to do that, if he continued to sell both,
Zimmer and the other, what action would you take,
what's the agreement?
JACKSON: The agreement is, if his sales fall below
a certain level then I would probably terminate his
relationship with us. If he could keep them at a
high level, I wouldn't cut my nose off to spite my
face.
The appeals referee found that:
... if the Associate were selling competitive
products and could maintain enough sales such
selling would be permitted. If however, the
competitive products were being sold and goals were
not met the Associate would be fired if he insisted
on continuing to sell the other products.
This Court fails to find any inconsistency between this
finding and the owner's statement. The finding flows
directly from the testimony given.
Appellant voices its dissatisfaction over the Board's
failure to make certain findings, specifically that Austin
was on the Board of Directors of ZJ; that Austin incurred
business expenses; that Austin has made a separate claim for
reimbursement of his expenses ; that Austin paid
self-employment tax from 1982 to 1985; that Austin's sales of
products and services for other companies was directly
competitive with ZJ's business; that Austin received no sales
technique training from ZS; and that Austin was not required
to make periodic sales reports aside from year-end letters
projecting expected sales for the coming year.
Although such findings would have made this issue a
closer case, the findings actually made are sufficient to
establish an employer-employee relationship. The evidence
need not be a preponderance but only substantial and it is
irrelevant that there may be substantial evidence for the
opposition. Gypsy Highview, 716 P.2d at 623, citing Jordan
v. Craighead (1943), 114 Mont. 337, 343, 136 P.2d 526, 528.
Therefore we agree with the District Court's conclusion that
ZJ had the right of control over Austin.
Part "B" of the ABC test requires that the nature of an
individual's services falls outside the usual course of the
employer's business or that the services be performed outside
the place where employer's business is carried on in order
for him to avoid the label of employee.
First the Court notes that this is a little discussed
provision that has been done away with by the 1987
legislature. See 5 39-51-203(4), MCA, (1987) in conjunction
with S 39-51-201 (14), MCA, (1987).
Appellant argues that the relationship between Austin
and ZJ can be analogized to automobile dealerships and fast
food restaurant franchises and that an affirmance of the
District Court on this point would result in classifying
owners of these dealerships and franchises as employees. The
District Court agreed with the appeals referee that:
Without a sales force, Associates, the employer
would have no units distributed upon which or from
which their income is generated. Not only is the
Associate in the normal course of the Employer's
business, distribution of medical products, it is
essential to that process.
The relationship in this case cannot be likened to that
of a franchisor and its franchisee because an individual who
works as a sales agent does not obtain the degree of license
or privilege that an individual who is given a franchise has.
A franchise is a property right that implies more of an
independence of business operations between the franchisee
and the main company than exists between a sales agent and
his supplier. We see no abuse of discretion in the District
Court's adoption of the appeal referee's finding.
The last element of the ABC test requires that the
individual be customarily engaged in an independently
established trade or occupation. In Standard Chem. we
adopted several criteria from other jurisdictions with
similar statutes to help us decide whether livestock product
sales agents were employees or independent contractors hired
by the manufacturer. See Stendard Chem., 605 P.2d at 614-15.
Some of the relevant criteria include: (1) worker's
authority to hire subordinates, (2) worker's ownership of
equipment, ( 3 ) liability for a preemptory termination of the
business relationship, ( 4 ) ability of worker to survive the
termination of a particular service relationship, and
( 5 ) worker's ability to engage in activity without
hinderance from anyone implying a "proprietary interest."
After review of the record we conclude that this test
was also met. Austin could not provide for a secretary
without ZJ's prior approval of the position. His office
equipment was owned by ZJ. Although he did some slight
business with other companies, Austin could not survive the
termination of his relationship to ZJ. As discussed above,
he was controlled by ZJ in many aspects of his activities.
There has been no finding regarding liability for
preemptory termination but in view of the other findings
above it is unnecessary.
There is sufficient evidence to find that all three
standards of the ARC test have been met. Accordingly, we
hold that the District Court did not abuse its discretion in
affirming the Board of Labor Appeal's determination that
Austin was an employee of ZJ. Affirmed.
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We Concur: #
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Chief Justice
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