AFM Messenger Serv. v. Dept. of Employment Security

• Decision Date: 20 September 2001
• Docket Number: No. 89984.,89984.
• Citation: 763 N.E.2d 272,198 Ill.2d 380,261 Ill.Dec. 302
• Parties: AFM MESSENGER SERVICE, INC., Appellant, v. The DEPARTMENT OF EMPLOYMENT SECURITY et al., Appellees.
• Court: Illinois Supreme Court

763 N.E.2d 272

198 Ill.2d 380

261 Ill.Dec. 302

AFM MESSENGER SERVICE, INC., Appellant, v. The DEPARTMENT OF EMPLOYMENT SECURITY et al., Appellees.

No. 89984.

Supreme Court of Illinois.

September 20, 2001.

Rehearing Denied February 4, 2002.

Robert S. Brody, Chicago, for appellant.

James E. Ryan, Attorney General, Springfield (Joel D. Bertocchi, Solicitor General, Darryl B. Simko, Assistant Attorney General, Chicago, of counsel), for appellees.

Justice FITZGERALD delivered the opinion of the court:

In this appeal we consider whether delivery drivers for AFM Messenger Service, Inc. (AFM), were "independent contractors" within the meaning of section 212 of the Unemployment Insurance Act (820 ILCS 405/212 (West 2000)). In two separate administrative proceedings, the Department of Employment Security (Department) determined that the drivers were employees and not independent contractors. AFM was, therefore, liable for unemployment insurance contributions. On administrative review, the circuit court confirmed. The appellate court, in a consolidated appeal, held that the agency decisions were not clearly erroneous and affirmed. 315 Ill.App.3d 308, 248 Ill.Dec. 74, 733 N.E.2d 749. We granted AFM's petition for leave to appeal (see 177 Ill.2d R. 315) and now affirm the judgment of the appellate court.

BACKGROUND

1993 Agency Decision

In June 1990, a former clerical worker for AFM filed a claim for unemployment benefits, which triggered an audit of AFM by the Department. Among the individuals included in the audit were AFM's delivery drivers. The audit resulted in a determination and assessment against AFM for over $12,000 in unpaid unemployment insurance contributions for 1988 and 1989. AFM filed a protest and petition for hearing. AFM contended, in relevant part, that it was exempt from making unemployment contributions in connection with the drivers' services and compensation because the drivers were independent contractors under section 212. On January 26, 1993, a hearing was held before a representative of the Director of Employment Security (Director).

At the hearing, Susan Vitula, a co-owner of AFM, testified that AFM is a small-package same-day delivery service, which has been operating in the Chicago area since 1986. According to Vitula, all drivers must sign a contract, which AFM supplies. The brief, 10-line contract used by AFM during 1988 and 1989 provided that AFM and the named driver "agree to contract for the rendition of personal services as an independent broker/operator" and that "[i]t is understood [the driver] is acting as an independent contractor subject to all the necessary laws, procedures, etc., related to an independent contractor, including, but not limited to, Federal and State Income taxes on his net income and any Self Employment, Unemployment, Minimum or any other taxes normally paid by an independent contractor."

Vitula also testified that, in accordance with the rules and regulations of the Illinois Commerce Commission (ICC), all drivers were required to enter into an equipment lease with AFM. The form of the equipment lease was provided by the ICC, and the required $25 ICC filing fee was paid by AFM. Pursuant to the lease, the named driver agreed to lease his or her vehicle to AFM for a period not to exceed three years. The lease also provided that AFM would compensate the driver on a weekly basis. The compensation would be computed as a percentage of the total revenue derived from operation of the leased vehicle. Vitula explained that the drivers were paid a "commission" based on the price of each delivery they completed. Most drivers were paid a 50% commission when they started. In order to receive their commissions, which were paid on Friday, drivers were required to drop off or mail their delivery tickets to AFM. Finally, Vitula testified that the drivers did not wear uniforms, and that when AFM offered the drivers a company baseball cap, many of the drivers declined.

Two drivers also testified on behalf of AFM. According to AFM's counsel, their testimony was representative of all AFM drivers during the years 1988 and 1989. Brian Lhotka testified that he learned about AFM through a friend, and in 1989 began making deliveries for AFM's customers. Typically, Lhotka would call AFM by 8 a.m. to let the dispatcher know that he was available for work. AFM could also reach him at home. According to Lhotka, he was not required to report to AFM every day, nor was he required to work a specific number of days or a specific number of hours per day. Lhotka, however, usually made himself available for work Monday through Friday; he also made himself available for night deliveries, when the rates were higher. AFM did not assign a territory to Lhotka or limit the area in which he could work. AFM imposed no time constraints in connection with the deliveries, but Lhotka worked within the time constraints imposed by AFM's customers. AFM did not specify what route Lhotka should take to make the deliveries, and he was free to decline any delivery. Lhotka further testified that AFM issued no rules or regulations, conducted no training courses or meetings, and required no uniform. When AFM offered him a baseball cap with the AFM insignia, Lhotka declined.

Lhotka signed the form contract that AFM supplied, under which he was paid a 60% commission on deliveries. In order to get paid, Lhotka would turn in his delivery tickets to the AFM office. He usually did this when he was in the area and it was convenient to do so. Lhotka would sometimes pick up his check from the AFM office on Friday, or from the business next door to AFM where the checks were left. Lhotka testified that he considered himself an independent contractor and could terminate his services for AFM at any time without reason. He received no paid vacation time, no paid sick days, and no pension benefits from AFM. He was not eligible for any compensation other than his commission, and AFM did not deduct taxes from his commissions. Each year he worked as a delivery driver, he received an Internal Revenue Service Form 1099 (miscellaneous income) from AFM. As part of his 1989 federal tax return, Lhotka filed a Schedule C (profit or loss from business), showing approximately $20,000 of income from his messenger service business. Lhotka testified that although he had the right to work for other messenger service companies, in 1989 he performed delivery work solely for AFM. Lhotka further testified that his investment in his business consisted of the vehicle he owned; the upkeep and maintenance on his vehicle, no part of which AFM paid; and the maps he purchased. AFM supplied Lhotka with a beeper and radio, for which he paid AFM a use fee. Although he had the right to hire, at his own expense, an assistant to help with deliveries, Lhotka never hired an assistant.

Lhotka also signed the required ICC lease with AFM. Pursuant to ICC regulations, Lhotka displayed two signs in his vehicle windows indicating that the vehicle was leased to AFM. When picking up packages and making deliveries, Lhotka indicated to the customer that he was with AFM.

Angelo Cisneros testified that he was a driver for AFM beginning in 1988. He learned about AFM through his brother, who also drove for AFM. Cisneros' testimony was generally consistent with Lhotka's testimony. Cisneros signed a contract with AFM, under which he was paid a 60% commission, and an ICC equipment lease. He considered himself an independent contractor. Cisneros testified that he was not required to report to AFM at any particular day or time, and that he was free to make his services available to AFM whenever he chose. Typically, services with AFM were initiated when AFM paged him, but Cisneros was free to refuse the pickup or delivery. According to Cisneros, AFM did not assign him a territory or limit the area in which he could work. AFM did not provide any rules or regulations. AFM did not require a uniform, and although AFM gave him a company baseball cap, he was not required to wear it. Cisneros displayed the required signs in his vehicle, indicating that it was leased to AFM, and he sometimes identified himself with AFM when making a pickup. AFM did not have the right to appoint or approve a helper for Cisneros.

On his income tax return, Cisneros reported that he was self-employed. Cisneros testified that his investment in his business was his automobile, on which he paid the insurance, gas, repairs and maintenance, without reimbursement from AFM. Cisneros had his own beeper, but rented a radio from AFM. During 1988 and 1989, Cisneros testified that he also worked for his father, although the income was probably too small to report. In 1990, Cisneros' entire income was from AFM. Although Cisneros worked for other messenger companies, he only worked for one company at a time.

Following the hearing, the Director's representative determined that AFM had failed to sustain its burden of proof that the drivers were independent contractors under section 212. According to the representative, AFM had not established that the drivers were free from AFM's control and direction, as required under section 212(A); that the drivers' services were performed outside of the usual course or places of AFM's business, as required under section 212(B); and that the drivers were engaged in independently established businesses, as required under section 212(C). See 820 ILCS 405/212 (West 2000). The representative concluded that AFM was liable for unpaid unemployment insurance contributions. Significantly, the representative accepted AFM's argument that any payments to the drivers should be allocated two-thirds to rental of the drivers' vehicles, and one-third to wages. This allocation reduced AFM's liability from approximately $12,800 to approximately $6,400.

Over AFM's objection, the Director adopted the decision of the representative. On administrative review, the circuit court of Cook County...