Carpetland v. Dept. of Employment Security

• Decision Date: 20 June 2002
• Docket Number: No. 91564.,91564.
• Parties: CARPETLAND U.S.A., INC., Appellee, v. The ILLINOIS DEPARTMENT OF EMPLOYMENT SECURITY et al., Appellants.
• Court: Illinois Supreme Court

776 N.E.2d 166

201 Ill.2d 351

267 Ill.Dec. 29

CARPETLAND U.S.A., INC., Appellee, v. The ILLINOIS DEPARTMENT OF EMPLOYMENT SECURITY et al., Appellants.

No. 91564.

Supreme Court of Illinois.

June 20, 2002.

Rehearing Denied August 29, 2002.

James E. Ryan, Attorney General, Springfield (Joel D. Bertocchi, Solicitor General, Darryl B. Simko, John P. Schmidt, Assistant Attorneys General, Chicago, of counsel), for appellants.

Richard L. Marcus, Ellen P. Zivitz, of Sonnenschein, Nath & Rosenthal, Chicago, for appellee.

Justice GARMAN delivered the opinion of the court:

Carpetland U.S.A., Inc. (Carpetland), sought administrative review in the circuit court of Cook County of a decision by Lynn Quigley Doherty, Director of Employment Security, which adopted the report and proposed decision of a representative of the Department of Employment Security (Department) before whom a hearing had been held. The Director determined that floor measurers and floorcovering installers whose services were utilized by Carpetland were employees rather than independent contractors and, therefore, were not exempt under section 212 of the Unemployment Insurance Act (Act) (820 ILCS 405/212 (West 2000)). The Director further found that Carpetland owed $38,977.17, plus interest and penalties, in unpaid unemployment insurance contributions for 1991. The circuit court confirmed the Director's decision. On appeal, a divided court reversed, finding the Director's decision clearly erroneous. We granted the Department's petition for leave to appeal (see 177 Ill.2d R. 315). We agree with the appellate court that the agency decision as to the installers was clearly erroneous and, therefore, affirm in part. Because we do not find clear error in the agency decision as to the measurers, we reverse in part.

Under the Act, an employer's liability for making contributions and an employee's eligibility for benefits are dependent, in part, on the existence of an employment relationship between them. The statutory definition of employment, rather than common law principles of master and servant or independent contractor, governs this determination. AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill.2d 380, 396-97, 261 Ill.Dec. 302, 763 N.E.2d 272 (2001). The Act defines "employment," in relevant part, as "any service * * * performed by an individual for an employing unit." 820 ILCS 405/206 (West 2000). Carpetland, a corporation "which has or * * * had in its employ one or more individuals performing services for it within this State" (820 ILCS 405/204 (West 2000)), is an employing unit. At issue is whether 12 measurers and 259 installers whose services were utilized by Carpetland during the relevant time period were employees, on whose behalf Carpetland was required to make unemployment insurance contributions, or independent contractors, for whom the Act carves out an exemption:

"Service performed by an individual for an employing unit, whether or not such individual employs others in connection with the performance of such services, shall be deemed to be employment unless and until it is proven in any proceeding where such issue is involved 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 of service and in fact; and

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 engaged in an independently established trade, occupation, profession, or business." 820 ILCS 405/212 (West 2000).

Because these conditions are stated in the conjunctive, all three must be satisfied for the independent contractor exception to apply. Jack Bradley, Inc. v. Department of Employment Security, 146 Ill.2d 61, 75, 165 Ill.Dec. 727, 585 N.E.2d 123 (1991). The burden of proof is on the presumptive employer, who is claiming the benefit of the exemption. Thus, the terminology used by the parties to describe their relationship is not controlling. The determination must be made, instead, based on the facts relevant to the three conditions. Jack Bradley, 146 Ill.2d at 75 76,165 Ill.Dec. 727,585 N.E.2d 123. In addition, because the Act was passed with the public welfare in mind, its terms should be liberally construed in favor of inclusion. Jack Bradley, 146 Ill.2d at 75,165 Ill.Dec. 727,585 N.E.2d 123.

The Director and the circuit court concluded that none of the three conditions of section 212 were met. The appellate court reached the opposite conclusion. 319 Ill. App.3d 1068, 253 Ill.Dec. 917, 746 N.E.2d 738.

BACKGROUND

Carpetland is a retailer of floor coverings, primarily carpeting. During 1991, Carpetland operated 17 stores in Illinois. Carpetland's retail price for its products does not include measuring the customer's floor to determine the dimensions needed or installation of the floor covering. However, the majority of Carpetland's sales, approximately 75%, are to customers who request that Carpetland arrange for installation of the floor covering by signing a sales agreement containing the following provision:

"INSTALLATION BY SUBCONTRACTOR

It is understood that Carpetland will not install said materials but that by the acceptance of this proposal you authorize Carpetland to contract with a subcontractor on [your] behalf to make the installation. You authorize Carpetland to issue to said subcontractor on [your] behalf an installation work order with these specifications. You agree to pay to Carpetland the amount specified herein which shall include the price of all materials and the installation charges which are payable to the subcontractor on your behalf."

At the agency hearing, Carpetland's vice president of operations, three installers, one measurer, and an employment consultant testified before the Department's representative.

Installers

Joseph H. Smith testified that he had been in the business of carpet installation for 27 to 28 years. He is. now self-employed with a company known as J. Smith Floors, Inc. During 1991, he was the selfemployed president of an Indiana corporation known as Tile Works, Inc., which sold and installed floor coverings. Smith estimated that about 75% of Tile Works' business consisted of performing installations for retail or commercial customers of Carpetland and other companies. About 25% consisted of in-house sales and installations. Of the portion of his business that involved installations for other companies, about 30% of the work was for Carpetland; the rest was for Builder's Square, Colortile, and other retailers who were competitors of Carpetland. At the time of the hearing, Smith continued to do work for Carpetland, under the same arrangement that existed in 1991.

When Carpetland has a job for Smith in Illinois, he is contacted directly by the salesperson and, after accepting the job, receives a work order via fax. The work order contains the name and contact information for the customer and a description of the work to be done, including a diagram for placement of the floor covering. Depending on the job, he might have to visit the site to evaluate it. He occasionally declines jobs if his schedule is full, the job is "too big or too small," or the job will not pay well.

Smith has a basic price for various types of jobs, which he adjusts up or down depending on the size and complexity of the job. He quotes a price to Carpetland and, if they reach an agreement, he takes the job. If not, the job will go to someone else. He includes in his quoted price any anticipated incidental expenses such as parking. If his costs are less than his original estimate, he retains the extra profit. If the job costs him more than his estimate, he suffers the loss.

The actual installation work is performed by Smith's employees. In general, he has 10 to 12 employees but increases that number to 25 or 30 during busy seasons. He uses subcontractors when he is short-handed. Carpetland is not involved in his staffing decisions, does not suggest or recommend that he increase or decrease staff, and does not refer potential employees to him. Any training needed is provided by Smith.

One of his employees picks up the carpeting or other material at Carpetland and transports it to the customer's site. Smith supervises the actual installation. Only rarely will someone from Carpetland be present during the installation.

Smith provides any materials or supplies needed for installation, such as adhesives for vinyl or tile, mortars and grouts for ceramic and marble, and seam tape, tack strips, and other materials for carpeting. When purchasing these supplies, Smith determines which suppliers he will use and deals directly with suppliers who sell only "to the trade." Smith also provides all of the necessary tools, in which he estimated he has invested $15,000 to $18,000. In addition, Smith owns three delivery trucks and maintains a 3,500 square foot warehouse and an office with a staff of four.

After completing a job for Carpetland, Smith submits an invoice on his company stationery, accompanied by a copy of the work order. Usually, he does this by mail. Carpetland pays him twice a month, with a check made out to his company. He estimated that his company does about one job per month for Carpetland.

Smith guarantees his work for one year from the date of installation. If the customer complains to Carpetland, the matter is referred to him for resolution. He does not receive complaints directly from Carpetland customers once his installers have left the customer's premises.

Smith testified that in 1991, he had an Illinois Department of Employment Security account number and a federal employer identification number. Tile Works filed a corporate tax return in 1991. Smith uses his own business cards, containing the name of his company...