Tak Communications v. South Dakota Unemployment Insurance Division

#24343-a-BJORKMAN, Circuit Judge
2007 SD 68

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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TAK COMMUNICATIONS, Appellant,

v.

SOUTH DAKOTA UNEMPLOYMENT
INSURANCE DIVISION, Appellee.

* * * *
APPEAL FROM THE CIRCUIT COURT
OF THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA

* * * *

HONORABLE WILLIAM J. SRSTKA, Jr.
Judge

* * * *
CRAIG A. PFEIFLE of
Lynn, Jackson, Shultz & Lebrun
Rapid City, South Dakota

A. STEVENSON BOGUE of
McGrath, North, Mullin & Kratz
Omaha, Nebraska Attorneys for appellant.

SHANNON GEORGE-LARSON
South Dakota Department of Labor
Pierre, South Dakota

ROBERT B. ANDERSON of
May, Adam, Gerdes & Thompson
Pierre, South Dakota Attorneys for appellee.

* * * *
CONSIDERED ON BRIEFS
ON MAY 22, 2007

OPINION FILED 7/11/07
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BJORKMAN, Circuit Judge

[¶1.] TAK Communications (TAK) appeals from the circuit court's judgment

affirming the Administrative Law Judge's (ALJ) decision that Diana Dillman

(Dillman) and others similarly situated were employees of TAK, rendering TAK

liable for contributions to the unemployment compensation fund based on their

wages. We affirm.

FACTS

[¶2.] TAK is a South Dakota corporation which contracts with cable

companies across the United States to perform their sales campaigns. In South

Dakota TAK's only client is Midcontinent Communications (Midco). Dillman began

working for TAK in June 2004 after signing an Independent Contractor Agreement

(Agreement) which TAK drafted. Prior to her work with TAK, Dillman, educated

through the tenth grade, had always acted as an employee of others, never having

owned or operated her own business. She came to TAK with no prior sales

experience.

[¶3.] The Agreement, which Dillman contended she did not fully

comprehend, provided that Dillman "is not and will not be considered an employee

of TAK Communications, Inc. and that the relationship between [sic] and [Dillman]

is on [sic] of principal-independent contractor rater [sic] than employer-employee."

In the Agreement, Dillman represented that as contractor she was "properly

organized and validly existing under the laws of the State of South Dakota.

Attached as Exhibit A is a copy of Contract's [sic] certificate of organization or

registration." Despite this language, no Exhibit A was attached to the Agreement,
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Dillman established no such organization, and she executed the Agreement solely in

her own name.

[¶4.] According to the Agreement, Dillman was to supply her own materials,

provide her own insurance, set her own hours, and bear the risk of not earning any

commission due to lack of sales. TAK provided Dillman with forms and sales

materials to allow her to sell Midco products. It also provided her with a shirt and

identification tag with Midco's name on them, although Dillman was not required to

wear either item. Dillman's training consisted of accompanying other sales

personnel to learn how to sell the product and she was provided guidance from a

TAK representative on sales techniques. She was responsible for her own

transportation, was to purchase her own peddler's license for each municipality in

which she sold, and was provided with "turf sheets" indicating areas in which to

market the products.

[¶5.] While TAK allows its sales associates to operate other businesses

independent of their relationship with TAK, and some of its sales associates did so,

Dillman was not among them. Dillman had never obtained a sales tax license,

either before, during, or after the time she sold for TAK. Apart from her

relationship with TAK, Dillman had no sales experience prior to, during, or after

the conclusion of her relationship with TAK. During the time Dillman sold for TAK

she never used a business name, did not advertise the sale of other products, and

had no separate business premises. Dillman had no peddler's license before TAK's

representative, Pam Boyden, ordered her to stop selling until she obtained one.

When Dillman paid the fee and obtained the required license, it listed TAK

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Communications above Dillman's name and contained TAK's address rather than

Dillman's.

[¶6.] In 2005 Dillman ceased selling for TAK. After her relationship with

TAK ended, she eventually returned to work full time as an employee for another

business. Following an investigation, the South Dakota Unemployment Insurance

Division (Division) issued a determination notice concluding that Dillman was

TAK's employee, and that services she and others similarly situated provided to

TAK were subject to the unemployment insurance laws. TAK appealed Division's

determination. The ALJ concluded that Dillman was free from TAK's control in the

performance of her service, however, she was not customarily engaged in an

independently established trade, occupation, profession, or business, thus rendering

her, and others similarly situated, TAK employees under SDCL 61-1-11. TAK

appealed the ALJ's decision to the circuit court.

[¶7.] The circuit court affirmed both of the ALJ's determinations. TAK then

appealed to this Court. Division did not file a notice of review as to the ALJ's

conclusion that Dillman was free from TAK's control, leaving us with the sole issue

of whether the circuit court erred in affirming the ALJ's decision that Dillman was

not customarily engaged in an independently established trade, occupation,

profession, or business as provided in SDCL 61-1-11(2).

STANDARD OF REVIEW

[¶8.] Agency findings are subject to the same standard of review as circuit

court findings. This Court must decide, in light of all the evidence, whether the

findings are clearly erroneous. "If after careful review of the entire record we are

definitely and firmly convinced a mistake has been committed, only then will we

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reverse." Streeter v. Canton School Dist., 2004 SD 30, ¶14, 677 NW2d 221, 225.

Whether an individual is an employee or an independent contractor raises a mixed

question of law and fact; as such, it is fully reviewable by this Court." Egemo v.

Flores, 470 NW2d 817, 820 (SD 1991) (citing Appeal of Hendrickson's Health Care

Service, 462 NW2d 655, 658 (SD 1990)). We give no deference to the decision of

either the ALJ or the circuit court. Midland Atlas Co., Inc. v. South Dakota Dep't of

Labor, 538 NW2d 232, 235 (SD 1995).

DECISION

[¶9.] Resolution of this appeal is controlled by SDCL 61-1-11. That statute

provides:

Service performed by an individual for wages is
employment subject to this title unless and until it is
shown to the satisfaction of the Department of Labor that:

(1) The individual has been and will continue to
be free from control or direction over the
performance of the service, both under his
contract of service and in fact; and

(2) The individual is customarily engaged in an
independently established trade, occupation,
profession, or business.

SDCL 61-1-11. The burden initially lies with Division to prove that Dillman

provided services to TAK for wages. Midland Atlas Co. Inc., 538 NW2d at 235.

Wages are defined by SDCL 61-1-1(17) as: "all remuneration paid for services,

including commissions and bonuses."

[¶10.] TAK acknowledges that it paid Dillman wages in the form of

commissions. Thus, the burden shifts to TAK to prove that Dillman met both

elements of SDCL 61-1-11. Midland Atlas Co. Inc, 538 NW2d at 235.

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Because Division does not seek review of the determination that Dillman

was free from TAK's control over the performance of her work, the question of

Dillman's status turns on whether at the time in question she was

"customarily engaged in an independently established trade, occupation,

profession, or business" pursuant to SDCL 61-1-11(2).

[¶11.] We have previously defined the terms employed in this

provision:

The adverb 'independently' clearly modifies the word
'established', and must carry the meaning that the trade,
occupation, profession or business was established,
independently of the employer or the rendering of the
personal service forming the basis of the claim. The
present tense 'is' indicates the individual must be engaged
in such independent activity at the time of rendering the
service involved. 'Customarily' means usually, habitually,
regularly. The language used contemplates that one
engaged in an independently established trade,
occupation, profession or business has a proprietary
interest therein to the extent that he can operate it
without hindrance from any individual whatsoever. An
established business is one that is permanent, fixed,
stable and lasting.

South Dakota Dep't of Labor v. Tri State Insulation Co., 315 NW2d 315, 316 (SD

1982) (citing Vermont Securities v. Vermont Unemployment Comp. Comm'n, 104

A2d 915, 917 (Vt 1954) (internal citations omitted)).

[¶12.] We have addressed this issue in a variety of contexts, including

several actions involving salespersons. See, e.g., Moonlight Rose Co. v. South

Dakota Unemployment Ins. Div., 2003 SD 96, 668 NW2d 304 (affirming

circuit court's determination that rose salespersons were employees rather

than independent contractors); Lake Preston Housing Corp. v. South Dakota

Dep't of Labor, 1999 SD 5, 587 NW2d 736 (affirming circuit court's

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determination that a property manager was an employee rather than an

independent contractor); Unemployment Liability of Shoppers Guide v. South

Dakota Dep't of Labor, Unemployment Ins. Div., 1996 SD 92, 551 NW2d 584

(reversing circuit court's determination that newspaper carriers were

employees rather than independent contractors); Midland Atlas Co., Inc. 538

NW2d at 236 (reversing circuit court's determination that Atlas sales

representatives were employees rather than independent contractors); Appeal

of Hendrickson's Health Care Serv., 462 NW2d at 655 (affirming circuit

court's determination that nurses and nurse's aides who provided in-home

health care to business clients were employees); Miller Liquid Feeds v. South

Dakota Dep't of Labor, Unemployment Ins. Div., 340 NW2d 185 (SD

1983)(affirming circuit court's determination that a corporation's salesmen

were employees rather than independent contractors); Tri State Insulation

Co., 315 NW2d at 319 (affirming circuit court's determination that salesmen

were independent contractors rather than employees).

[¶13.] Our holdings in these cases demonstrate that: "In determining

whether an individual is an employee or an independent contractor, each case

must be determined on its own facts and all the features of the relationship

are to be considered." Egemo, 470 NW2d at 820. In Moonlight Rose Co., we

set forth a four prong test to determine whether a relationship fits within the

meaning of SDCL 61-1-11(2). Under that test, TAK must show that Dillman:

(1) was engaged in an enterprise that was
created and exists apart from her
relationship with TAK and that the
enterprise would survive the termination of
that relationship;

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(2) has a proprietary interest in the enterprise
to the extent that she can operate without
hindrance from any other individual;

(3) due to her skill, is engaged in an economic
enterprise such that she bears the risk of
unemployment; and

(4) remains employed as a function of market
forces and the demand for her skills, rather
than the response of an employer to similar
economic realities.

All four prongs of this test . . . require that the individual
have some relationship with an economic enterprise that
is independent of the relationship with the company that
is allegedly subject to unemployment insurance taxation.

Moonlight Rose Company, 2003 SD 96, ¶17, 668 NW2d at 310. Under the facts of

this case, Dillman was not customarily engaged in an enterprise independent of the

relationship with TAK, thus rendering her employment subject to this title.

Because we conclude that TAK has failed to meet the first prong of the test, we need

not address the others.

[¶14.] The ALJ's findings, which TAK does not dispute, indicate Dillman had

never been considered an independent contractor, nor had she owned or operated

her own business outside of her relationship with TAK. Dillman never obtained a

sales tax license. Outside of her relationship with TAK, Dillman had no sales

experience prior to, during, or after the conclusion of her relationship with TAK.

The record also indicates that during the time Dillman sold for TAK she never used

a business name, did not advertise for the sale of other products and had no

separate business premises. Dillman also had no peddler's license until TAK's

representative ordered her to stop selling until she obtained one. Even then, the

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license contained TAK's name above Dillman's own, and TAK's address rather than

Dillman's.

[¶15.] The facts of this case most closely resemble those in Appeal of

Hendrickson's Health Care Serv.; Lake Preston Housing Corp.; and Moonlight Rose

Co. In each case, none of the salespersons held themselves out as proprietors of an

independent business by having a sales tax license, business cards, a separate

business premises or phone listing. In each of those cases, no evidence existed

indicating that the salespersons sold products independently of the relationship in

question. Additionally, in Moonlight Rose Co., each peddler's license similarly listed

Moonlight Rose Company. 2003 SD 96, ¶20, 668 NW2d at 311. Lacking sales tax

and peddler's licenses in her own name, Dillman could not lawfully engage in sales

for others as an independent contractor.

[¶16.] TAK directs us to our decisions in Tri State Insulation Co. and

Midland Atlas Co. Inc., both cases involving salespersons, to support its position. It

points to our language in Tri State Insulation Co. that those in sales need "little

more than an automobile and a ballpoint pen" to operate as independent

contractors. 315 NW2d at 317. While true, the statement provides paltry aid in

resolving whether Dillman was customarily engaged in an enterprise independent

of her relationship with TAK. Unlike Tri State Insulation Co., where we concluded

that were the salesmen not "selling Tri State's products surely they would be

engaged in selling those of someone else," the facts here indicate the contrary - that

Dillman had never - either before, during or after her relationship with TAK -

similarly engaged herself, nor established a business entity through which to do so.

Id. at 318. In Midland Atlas Co., Inc., we reviewed the status of five sales

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representatives. 538 NW2d at 235. Four held themselves out as engaged in an

enterprise independent of Midland. Id. at 236. The fifth did not sell for other

companies. Id. There we noted that the fact the remaining sales representative

chose to sell only for Midland did not, in itself, mean he had no independently

established trade. Id. Our holding in Midland Atlas Co., Inc., did not, as TAK

suggests, prohibit the agency from concluding that some of its salespeople are

employees and others independent contractors. Our decision there merely reflected

our conclusion that the ALJ mistakenly applied facts concerning the issue of control

to the issue of independent calling.

[¶17.] In each case where wages are paid, the test is whether both elements

of SDCL 61-1-11 are met. Under the second element of the statute, the issue is not

whether TAK's salespersons generally were free under the terms of the agreement

to sell for others, but whether the individual in question actually was "customarily

engaged in an independently established trade, occupation or business." Under

these facts, TAK simply did not meet its burden to establish that Dillman and

others similarly situated were so engaged.

[¶18.] The decision of the trial court is affirmed.

[¶19.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER and

MEIERHENRY, Justices, concur.

[¶20.] BJORKMAN, Circuit Judge, for SABERS, Justice, disqualified.

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