Standard Chemical Mfg. Co. v. Employment Sec. Division of Montana State Dept. of Labor and Industry

• Decision Date: 23 January 1980
• Docket Number: No. 14917,14917
• Citation: 605 P.2d 610,185 Mont. 241,37 St.Rep. 105
• Parties: STANDARD CHEMICAL MANUFACTURING COMPANY, a corporation, Plaintiff and Respondent, v. The EMPLOYMENT SECURITY DIVISION OF the MONTANA STATE DEPARTMENT OF LABOR AND INDUSTRY; The Board of Labor Appeals of the Montana State Department of Labor and Industry; Michael J. Whalen, James W. Murry, and Douglas R. Hansen, as members of the Board of Labor Appeals, Defendants and Appellants.
• Court: Montana Supreme Court

Page 610

605 P.2d 610

185 Mont. 241

STANDARD CHEMICAL MANUFACTURING COMPANY, a corporation Plaintiff and Respondent, v. The EMPLOYMENT SECURITY DIVISION OF the MONTANA STATE DEPARTMENT OF LABOR AND INDUSTRY; The Board of Labor Appeals of the Montana State Department of Labor and Industry Michael J. Whalen, James W. Murry, and Douglas R. Hansen, as members of the Board of Labor Appeals, Defendants and Appellants.

No. 14917.

Supreme Court of Montana.

Submitted on Briefs Nov. 7, 1979.

Decided Jan. 23, 1980.

Robert J. Cambpell, Helena, for defendants and appellants.

Scribner, Huss & Mulroney, Helena, for plaintiff and respondent.

HARRISON, Justice.

This is an appeal from a judgment holding that respondent is exempt from paying unemployment compensation tax on persons it employs as salesmen. The judgment was rendered in the District Court of the First Judicial District, in and for the County of Lewis and Clark, the Honorable Peter G. Meloy presiding.

Respondent is a Nebraska corporation engaged in the manufacturing, distributing and wholesaling of livestock nutritional products. Respondent markets its products in twenty-three states through the use of certain salesman, who are called "contract distributors" or "distributor dealers." The salesmen are recruited by a division manager, who explains the nature of the products as well as respondent's method of distribution, and then enters into contracts for distribution. Once they are recruited, the salesmen purchase a sales kit for $40.00, which is mailed by respondent to either the salesman or his division manager. Accompanying the kit are supply order forms, sales manuals, and other promotional sales items. Most of the salesmen employed by respondent are farmers, ranchers or persons involved in the livestock industry. There are no required hours and the salesmen may work parttime. Salesmen receive no formal training except for occasional assistance in determining a customer's nutritional needs or a problem relating to toxicity.

While the salesmen do not represent themselves as agents of the company, order forms nevertheless reflect the name of the company. The contract for sale, for example, is made between respondent and the customer. Payments for the products are made by check payable to either respondent or the salesman or by case payable to the salesman. Respondent furnishes a suggested retail price for its products, but salesmen are not bound by the price. They may even barter for the products.

Respondent extends credit to customers on the basis of prior approved credit applications, which must be obtained by the salesmen. When credit is approved and established, it is the responsibility of respondent to collect from the customer. Salesmen may also extend credit to customers. They are liable to respondent, however, for the costs of goods sold. When salesmen order products, the wholesale purchase price is charged to the account of the salesman and he is individually responsible for loss, damage and contamination. The salesman may return the merchandise upon express approval, however, and receive a credit. Commissions are paid to the salesmen weekly, and the amount of the commission is the difference between customer sales price and the wholesale price. Respondent maintains five company warehouses or merchandise banks in Montana. Salesmen are also permitted to have storage facilities, but must first receive permission from the company and must build them at their own expense. Approximately 20 to 30 percent of the salesmen have storage facilities. Merchandise is generally delivered to the company warehouses by respondent and may be picked up there by customers. There is a conflict in the testimony as to whether respondent delivers orders directly to customers.

Both respondent and its salesmen have the right to terminate their contract at any time. At the conclusion of the relationship, salesmen leave with only a customer list and perhaps a greater knowledge of the nutritional needs of livestock.

This appeal arises out of a determination made by the Employment Security Division and the State Board of Labor Appeals that respondent's salesmen were "employees" within the terms of the provisions of Title 39, Chapter 51, Montana Code Annotated. Respondent filed an action in District Court to overturn those administrative decisions. On May 7, 1979, the District Court granted respondent judgment, holding that respondent was not subject to unemployment compensation tax on those persons acting as its salesmen.

The following issue is raised for our consideration on appeal:

Whether the District Court erred in determining that respondent's salesmen were "independent contractors" and were therefore exempt from unemployment compensation tax on those persons pursuant to Title 39, Chapter 51, Montana Code Annotated.

This Court has previously used two tests as guidelines in determining whether services performed by an individual for wages are deemed employment or are those of an independent contractor. See St. Regis Paper Co. v. Unemployment Comp. Comm'n (1971), 157 Mont. 548, 487 P.2d 524; Pat Griffin Co. v. Employment Security Comm'n (1974), 163 Mont. 529, 519 P.2d 147. The first test is the so-called "ABC" test and is established by statute:

"Service performed by an individual for wages is considered to be employment subject to this chapter unless and until it is shown to the satisfaction of the division 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 and in fact;

"(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 customarily engaged in an independently established trade, occupation, profession, or business." Section 39-51-203(4), MCA.

Wages are defined in section 39-51-201, MCA, as ". . . all remuneration payable for personal services, including commissions and bonuses and the cash value of all remuneration payable in any medium other than cash."

All three of the stated conditions must exist or the services performed will be deemed to be employment. Griffin, supra, at 533, 519 P.2d at 150. The statute shall be reasonably applied and will not be distorted to allow persons who are truly independent in their operations to be held employees merely for tax purposes and resulting benefits derived from an employer-employee relationship. Griffin, supra. To keep the distortion at a minimum, this Court has used another test derived from common law principles as an additional guideline:

"While section 87-148(j)(5), R.C.M.1947 (now section 39-51-203(4), MCA), is used as a guide in the determination of the relationship between an employer and an individual performing services, the well-established test in determining whether an individual is an employee or an independent contractor is also a guide to be used. As we did in St. Regis, we here reiterate this test as expressed in Shope v. City of Billings, 85 Mont. 302, 306, 278 P. 826, 827:

" 'An independent contractor is one who renders service in the course of an occupation, and represents the will of his employer only as to the result of his work, and not as to the means whereby it is accomplished, and is usually not paid by the job. (And see Neyman v. Pincus, 82 Mont. 467, 267 P. 805.)'

"* * *

"The vital test in determining whether a person employed to do a certain piece of work is a contractor or a mere servant, is the control over the work which is reserved by the employer. Stated as a general proposition, if the contractor is under the control of the employer he is a servant; if not under such control, he is an independent contractor." Griffin, 519 P.2d at 150.

In this case, two administrative bodies, the Employment Security Division and the State Board of Labor Appeals, were confronted with a mixed question of law and fact, namely whether respondent's salesmen might be deemed to stand in the relationship of "employment." That question not only involved the determination of several underlying facts to establish the economic relationship between respondent and its salesmen, but it also involved the specific application of a statute containing a broad statutory term. In questions of this kind, where the agency is entrusted and charged with administering the statute and making necessary, initial factual determinations, it is well settled that a reviewing court's function is limited. Where factual determinations are warranted by the record and have a reasonable basis in law, they are to be accepted. It is not the court's function to substitute its own inferences of fact for those of an administrative tribunal or agency, where facts are supported by evidence in the record. NLRB v. Hearst Publications (1943), 322 U.S. 111, 133, 64 S.Ct. 851, 860, 88 L.Ed. 1170, 1185.

Section 2-4-704, MCA states:

"(2) The court may not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

"(a) in violation of constitutional or statutory provisions;

"(b) in excess of the statutory authority of the agency;

"(c) made upon unlawful procedure;

"(d) affected by other error of law;

"(e) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record;

"(f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or

"(g) because findings of fact, upon issues essential to the decision, were not made although requested."

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