Glenn v. Standard Oil Co.

• Decision Date: 12 March 1945
• Docket Number: No. 9834.,9834.
• Citation: 148 F.2d 51
• Parties: GLENN, Collector of Internal Revenue, v. STANDARD OIL CO.
• Court: U.S. Court of Appeals — Sixth Circuit

148 F.2d 51 (1945)

GLENN, Collector of Internal Revenue, v. STANDARD OIL CO.

No. 9834.

Circuit Court of Appeals, Sixth Circuit.

March 12, 1945.

Lyle M. Turner, of Washington, D. C. (Samuel O. Clark, Jr., Sewall Key, and Lyle M. Turner, all of Washington, D. C., and Eli H. Brown, III, of Louisville, Ky., on the brief), for appellant.

Charles G. Middleton, of Louisville, Ky. (Charles G. Middleton, Hubert T. Willis, and Bullitt & Middleton, all of Louisville, Ky., on the brief), for appellee.

Before HICKS, HAMILTON, and McALLISTER, Circuit Judges.

McALLISTER, Circuit Judge.

The Standard Oil Company, a Kentucky corporation, filed action to recover from the Collector of Internal Revenue, certain taxes for the years 1936 to 1940, inclusive, claimed to have been erroneously assessed and collected under provisions of the Social Security Act, 42 U.S.C.A., §§ 1004 and 1101. The district court entered judgment for the Company, and the Collector appeals.

The issue is whether certain commission agents are independent contractors or employees of appellee company within the meaning of §§ 811(b) and 907(c) of the Social Security Act, 42 U.S.C.A. §§ 1011(b) and 1107(c), and §§ 1426(b) and 1607(c) of the Internal Revenue Code, 26 U.S.C.A., Int.Rev.Code §§ 1426(b) and 1607(c), which define "employment" as any service of whatever nature, performed within the United States, by an employee for his employer. It is agreed that if the commission agents in question are independent contractors, the company is not liable for the taxes; if they are employees, the company is so liable.

The Social Security Act recognizes the common-law definition of independent contract and excludes such relationship from the burden of the tax. United States v. Mutual Trucking Co., 6 Cir., 141 F.2d 655; Glenn v. Beard, 6 Cir., 141 F.2d 376, certiorari denied 323 U.S. ___, 65 S.Ct. 57; Texas Co. v. Higgins, 2 Cir., 118 F.2d 636. See also, Kentucky Cottage Industries v. Glenn, D.C., 39 F.Supp. 642.

It is the rule in general, that if an individual is subject to the control or direction of another, merely as to the result to be accomplished by the work, and not as to the means and method of accomplishing the result, he is an independent contractor and not an employee. Generally, when the person for whom the services are performed, has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that result is accomplished, such individual is an employee. Glenn v. Beard, supra. Treasury Regulations 90, Art. 205. The main question in all cases of this type is whether or not the one who is claimed to be an independent contractor has contracted to do the work according to his own methods, and without being subject to the control of his employer, except as to the result of his work. Singer Mfg. Co. v. Rahn, 132 U.S. 518, 10 S.Ct. 175, 33 L.Ed. 440; American Oil Co. v. Fly, 5 Cir., 135 F.2d 491; Indian Refining Co. v. Dallman, D.C., 31 F.Supp. 455, affirmed, 7 Cir., 119 F.2d 417; Ruth Bros. v. Stambaugh's Adm'r, 275 Ky. 677, 122 S.W.2d 501.

The character of the relation is to be determined by the rights and obligations assumed, as disclosed in the terms of the written contract, as well as in the actual practices of the parties in their dealings with each other; and in considering the questions presented, it is necessary to outline the pertinent circumstances of the case, as appear from the record and as found by the trial court.

Appellee carries on business in several states, distributing its products through commission agents in charge of its bulk distributing plants. The Company and such commission agents entered into written contracts, subject to immediate cancellation by either party, under which the agents agreed to act for the Company in the sale of its products on a commission basis, in designated areas, receiving as their entire compensation therefor, specified commissions on the sales.

The Company owns all the real estate on which the distributing plants are located, as well as the tanks situate thereon, and the stations bear its name. All products delivered to the agent by the Company, were also its property, for which the agent was required to account at regular intervals, by inventory reports. Cash receipts were deposited daily by the agent in the local bank in the name of the Company, and the Company would thereafter remit the commissions to the agents at regular intervals. Certain customers approved by the Company could buy on credit. Agents who sold to other customers on credit assumed liability for their failure to pay their accounts. The agents were required to purchase their own delivery trucks, upon which the Company placed its own tanks, with its name painted thereon. In addition, the agents purchased, at their own expense, such office equipment and trucks as they considered necessary to operate properly; they also employed and paid all the truck drivers and other employees required to carry on the business. The Company had nothing to say about the persons so employed by the agents; it was not consulted and its approval was neither required nor obtained. Hours of work for such employees, vacation periods, compensation, right of discharge, and rules respecting their employment, were matters exclusively within the control of the commission agents.

For the most part, the agents advertised the business at their own expense, in newspapers, on the radio, and by means of calendars and novelties. The Company fixed the sales prices of its products and the agents generally conformed therewith. But in cases where, for any reason, they sold at prices lower than those fixed by the Company, they took a reduction in the amount of their commission. The Company furnished the agents with a rule book, entitled: "Rules for Operation of Bulk Plants," which detailed safety measures, provisions for the care of the Company's funds, repair and maintenance of its property, and methods for successful operation of the business. In addition, the Company mailed to the commission agents, from time to time, certain circular letters, dealing with the proper operation of the business and, on various occasions, held sales conferences, which the agents were asked to attend. Twice a year an auditor employed by the Company visited the stations and inspected the operations and methods of doing business, but gave no orders or instructions. The agents kept, at their own expense, the books relating to the operation of the plants, which were retained by them when the contract relationship with the Company was terminated.

The agents so selected, appointed, and contracted with by the Company were well-known men in their local communities, with good reputations and usually with substantial business interests in other lines of endeavor; and it appears that they were selected by the Company with the view that their financial backing and prestige would command business patronage. The agents had an investment in the business, according to the testimony, ranging from a minimum of $2,000 to a maximum of $60,000. Operations of the agents ranged from small commissions up to commissions of $31,000 per year. There was no requirement respecting the amount of time that the agents would give to the business. Some agents gave full time to the operation of the Company's bulk plants; others gave it merely supervisory attention, devoting not more than an hour, or even less, each day, and spent most of their time managing other businesses, or in other gainful occupations. Each agent operated the bulk plant in such a way as in his opinion would produce the greatest volume of sales, paying his own expenses, keeping his own books, hiring and discharging his own employees, and devoting as much or as little time to the business as was commensurate with its size and his other interests. The Company looked to each agent for a satisfactory volume of sales, and as long as the results were satisfactory, the contract between the Company and the agent was continued. But in securing the foregoing sought-for volume of sales the Company did not attempt to control the details and means by which the agent accomplished it; and it is remarkable that, in some instances, the commission agents sold and distributed commodities of other producers, competitive with the Company's products.

The Government contends that the written contracts between the Company and the commission agents evidence an employer-employee relationship; that the rules for the operation of the bulk plants which were issued by the Company to all agents — and the actual practices of the parties in their dealings with each other — established the Company's right to control the means and methods of conducting the business.

There are two types of contract in this case, one effective prior to December 31, 1937, and the other effective after that date. The Government emphasizes that in the contracts in effect prior to December 31, 1937, the agent agreed: (a) To unload, store, ship, sell, and deliver the Company's products at and from the plant into the area prescribed by the Company; (b) to diligently solicit business for the account of the Company, on all of the Company's products, as requested by it; (c) to be responsible for all goods and equipment entrusted to him and to account therefor; (d) to remit promptly all monies received from the sale of products belonging to the Company; and (e) to furnish, maintain, and operate sufficient delivery equipment and to employ sufficient assistants to properly handle the business as determined...