Sound Cities Gas & Oil Co., Inc. v. Ryan

• Decision Date: 05 May 1942
• Docket Number: 28380.
• Citation: 13 Wn.2d 457,125 P.2d 246
• Court: Washington Supreme Court
• Parties: SOUND CITIES GAS & OIL CO., Inc., v. RYAN, Sup'r, et al.

125 P.2d 246

13 Wn.2d 457

SOUND CITIES GAS & OIL CO., Inc., v. RYAN, Sup'r, et al.

No. 28380.

Supreme Court of Washington, En Banc.

May 5, 1942

Action by Sound Cities Gas & Oil Company, Incorporated, against Frank Ryan. Supervisor, Jack E. Bates, Commissioner, and the State of Washington, for a refund of unemployment compensation taxes on commissions of salesmen selling capital stock of plaintiff, wherein defendants cross-complained to prevent plaintiff from questioning status of salesman drawing benefits. From a judgment for plaintiff, defendants appeal.

Reversed with direction to dismiss.

STEINERT J., dissenting.

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Smith Troy and William J. Millard, Jr., both of Olympia, for appellants.

Peyser & Bailey and John D. Cartano, all of Seattle, amici curiae.

Little Leader, LeSourd & Palmer, of Seattle, for respondent.

SIMPSON Justice.

This action was instituted to secure a refund of unemployment compensation taxes paid to the state for the years 1937 and 1938 on commissions of salesmen selling the capital stock of plaintiff corporation.

It was alleged in the complaint that certain payments of taxes for unemployment compensation had been paid to the state of Washington upon commissions paid to the salesmen who were selling stock of the corporation; that other taxes, yet unpaid, had been assessed for the same purpose; that the tax was illegally collected and assessed for the reason that the salesmen were not employees of plaintiff corporation.

It was further alleged that on or about March 22, 1940, there was a hearing Before the commissioner of unemployment compensation to determine whether the salesmen were employees or independent contractors, and that, as a result of the hearing, the commissioner made findings of fact and a written decision that the salesmen were employees of plaintiff corporation.

The amended answer and cross-complaint filed by defendant alleged that certain allowances for benefits had been made to salesmen who were working for the plaintiff corporation; that the plaintiff had been advised of the determination and allowance; that no request for rehearing or protest was ever filed; and that plaintiff was thereby precluded from raising any question as to the status of the salesmen and paying to them the benefits.

The case was tried to the court and a judgment entered which determined that plaintiff should recover a refund of all money paid on account of unemployment compensation taxes for the years 1937 and 1938, except the amounts which had been paid to the salesmen on account of their unemployment, and that the unpaid charges should be canceled. The state has appealed.

Appellant makes the following assignments of error that the court erred in substituting its discretion for that of the commissioner of unemployment compensation and placement; in holding the stock salesmen of respondent to be independent contractors in holding that the former administrative determination was not res judicata of the question of the status of respondent's stock salesman; and in entering judgment for plaintiff.

The facts are: Respondent corporation is engaged in conducting drilling operations for the discovery of gas and oil. It is also extensively engaged in selling to the public shares of its capital stock for the purpose of raising funds to finance its operations. It employs a large number of salesmen to sell its stock, and these salesmen work upon a commission basis.

March 22, 1940, a hearing was had Before Frank Ryan, supervisor of the division of unemployment compensation, the purpose of which was to ascertain whether or not respondent's salesmen were employees or independent contractors, and to have refunded the payments already made.

Testimony taken at the hearing developed the following facts: No written contract is entered into between respondent and its salesmen. The prospective salesman fills out an application containing his name, address, experience, and references, and then makes application to the state department of licenses for an agent's license for which he pays a five dollar fee. He also pays the cost of renewal. The application form, prescribed by the state department of licenses, requires an endorsement by respondent appointing the salesman as its agent to represent and act for it in negotiating for the sale of the stock. The salesman is then given a letter by respondent showing he has a state license. When the salesman starts work, he is furnished with information concerning respondent's business which will enable him to inform prospective purchasers of the stock. The information consists principally of a prospectus of the company and other printed items contained in a kit given to each salesman. The salesman operates entirely on his own capital. He is told that there is only one rule and that is to tell the truth and follow the prospectus of the company, and that the stock is a speculation and not an investment. There is no definite period of employment and the relationship may be terminated at any time. No requirement of any particular volume of sales is made in order for the salesman to remain as an agent of the company, or that the salesman shall devote all or any portion of his time to the business of selling stock The salesman may sell stock any place in the state of Washington, but may not sell outside of the limits of the state, nor is he allowed to make sales through the mail. Once each week a meeting is held at the office of the company to which the salesmen, are asked, but not required, to attend. About twenty-five per cent of the salesmen attend the meetings. Orders for stock are taken on subscription blanks furnished by respondent. The subscriptions are not valid until accepted by some officer of respondent. The salesman is paid strictly on a commission basis of twenty per cent of the money actually received by the respondent from his sales of respondent's stock. He has no drawing account and must pay all of his own expenses. Respondent furnishes blank business cards to the salesman, but he must place his own name thereon. He is only permitted to use the company's telephone for local calls.

If the salesmen employ others to work for them, respondent is not notified or informed of that fact. When prospects come into respondent's office desiring to buy stock, and they have not been brought in by a salesman for that purpose, they are sold the stock by regular employees of respondent.

Based upon the facts which we have just related, the supervisor made the following findings of fact and conclusion, and recommended their adoption by the commissioner: 'Findings of Fact

'(1) Sound Cities Gas & Oil Company, Inc., is a corporation organized and operating in the State of Washington for the purpose of locating and developing oil or gas-producing wells and in selling stock to finance these operations.

'(2) Various individuals are engaged by the Company for the purpose of selling its stock. These salesmen have no written contract with the company. The salesmen are licensed by the State of Washington to sell stock and their only activity by which a livelihood is produced is the selling of this stock. The activities of these salesmen are restricted to the State of Washington.

'(3) The salesmen attend sales meetings held by the Company at which they receive instructions and information as members of an organized selling force. These sales meetings are presided over by the manager of the Company. The salesmen are furnished kits and all information necessary for completing sales for the Company. The general manager of the Company hires all salesmen. The salesmen are granted authority by the State of Washington to sell stock. This authority is retained by the Company which in turn issues a letter of authorization to the salesmen verifying the fact that the salesmen have been licensed to sell stock for the Sound Cities Gas & Oil Company.

'(4) The salesmen are not registered with the State Tax Commission as being in business. The salesmen do not pay a business and occupational tax. All monies collected by the salesmen must be turned in to the Company.

'(5) The salesmen are not free from control of the Sound Cities Gas & Oil Company in several important details of their work. The salesmen must limit their sales talks within the provisions of the prospectus prepared by the Company. The salesmen cannot negotiate any sales by mail, a restriction laid down by the Company. The salesmen cannot negotiate any sales outside the State of Washington. The salesmen are instructed by the Company that purchase of the stock is a speculation and not an investment.

'(6) The salesmen carry on the business of the Sound Cities Gas & Oil Company. The salesmen are bonded by the Company. They conduct this business in the office of the Company and use facilities in that office for the purpose of promoting its business. The salesmen have no place of business of their own. They are not required to make any investment in the Company or to have any capital at the time they begin selling stock for the Company. The salesmen are not allowed to put out any advertising in writing of their own but must use the Company's literature entirely.

'(7) All business transacted by the salesmen can be accomplished only on forms furnished by the Company. The salesmen cannot vary any terms of this contract, a definite rule established by the Company. In negotiating the sale of stock all checks received by the salesmen are made out to the Sound Cities Gas & Oil Company and not to the salesmen.

'(8) The salesmen are required to fill out application blanks Before going to work for the Company. The salesmen may terminate their relationship with the Company...