Vendx Marketing Co., Inc. v. Department of Employment

• Decision Date: 04 November 1992
• Docket Number: No. 19470,19470
• Citation: 841 P.2d 420,122 Idaho 890
• Parties: VENDX MARKETING COMPANY, INC., Employer Account # 0001313271, Claimant-Appellant, v. DEPARTMENT OF EMPLOYMENT, Defendant-Respondent. Pocatello, May 1992 Term
• Court: Idaho Supreme Court

Page 420

841 P.2d 420

122 Idaho 890

VENDX MARKETING COMPANY, INC., Employer Account # 0001313271, Claimant-Appellant, v. DEPARTMENT OF EMPLOYMENT, Defendant-Respondent.

No. 19470.

Supreme Court of Idaho,

Pocatello, May 1992 Term.

Nov. 4, 1992.

Hopkins, French, Crockett, Springer & Hoopes, Idaho Falls, for claimant-appellant. Lary S. Larson, argued.

Larry EchoHawk, Atty. Gen., John C. Hummel, Deputy Atty. Gen., argued, Boise, for defendant-respondent.

CAREY, Justice Pro Tem.

Vendx Marketing, Inc., has appealed the decision of the Industrial Commission of the State of Idaho affirming a determination that services performed by Vendx sales representatives came within the scope of employment covered by unemployment compensation and that commissions paid by Vendx to its sales representatives were wages for employment security fund contribution purposes. The order of the Industrial Commission is vacated and is remanded to the Industrial Commission because of its failure to consider the plain language of the agreements between Vendx and its sales representatives.

FACTUAL AND PROCEDURAL BACKGROUND

The Idaho Department of Employment conducted an audit of the activities of According to evidence presented at a hearing before a Departmental Appeals Examiner, Vendx is an Idaho Corporation located in Idaho Falls that sells candy vending machines nationwide. Since its founding in 1986, Vendx has contracted for the services of experienced sales representatives. When Vendx first started business, and prior to the dates in issue, it paid sales representatives by commission and reimbursed their expenses. After a few months, the payment structure was changed to straight commission without expense reimbursement. Sales representatives never have been paid salaries or guarantees, but only commissions on completed sales. Some sales representatives received up to $200,000.00 per year in gross commissions.

[122 Idaho 892] Vendx from the third quarter of 1986 through the second quarter of 1988 and determined that it had failed to pay approximately $16,000 in contributions to the employment security fund for wages paid to sales representatives between October 1986 and June 1988. Vendx appealed the determination, claiming that its sales representatives were not engaged in covered employment.

For a short period, when Vendx was changing product lines and did not have a product to deliver, sales representatives were offered $500.00 per week to cover expenses. This offer was made so sales representatives would attempt to make sales for future delivery and so that the company would not lose its sales force. Although the offer was made, it does not appear that any sales representative actually received payment under the plan.

Sales representatives received no bonuses, vacation pay, sick leave, or other benefits. Vendx made unsecured loans and advances on future commissions to its sales representatives, which they were required to repay. Upon termination of agreements, Vendx permitted sales representatives to complete sales in progress and paid commissions for those sales.

Vendx carried no workers compensation insurance for its sales representatives. Vendx reported commissions to the IRS on 1099 forms rather than W-2 forms. Vendx did not deduct state or federal withholding or social security taxes from commissions paid.

During the audit period, Vendx had written agreements in force with its sales representatives. There were two types of form agreements, one of which was used prior to October 1987 and the other of which was used after October 1987. The form agreements were drafted by Vendx. While the agreements generally were not subject to negotiation, there were instances in which individual sales representatives were able to bargain for better terms.

The earlier contract, a two-page form dating from September 1986, appears from its structure, grammar, spelling, and content to have been prepared in haste by a non-attorney. Under the terms of the form, sales representatives agreed to sell Vendx's services and programs throughout the United States, and Vendx agreed to pay commissions for sales, including sales completed after termination. Vendx retained contractual control over assignment of territories, approval of financing offered to prospective purchasers, and approval of sales at less than list price. Sales representatives agreed to pay their own expenses and to reimburse Vendx for advances. Parties were free to terminate the agreements without cause. In two separate places, sales representatives were designated as "independent contractors."

One former sales representative testified that he had no written contract at the start of his relationship with Vendx. On September 4, 1986, he attended a meeting at which existing sales representatives were presented with copies of the two-page form agreement to sign. During the meeting, the president of Vendx told them, "Look, for tax purposes, we need to have you guys sign this agreement, if you're going to continue to work with us. But I want you to know that, even though this is for tax purposes, but we can, basically, still tell you what you need to do and what you're supposed to do." (Transcript, p. 269, lines 5-10).

The second contract is a more sophisticated form. It was presented to existing sales representatives at a meeting held on October 29, 1987. Under its terms sales representatives were appointed as "independent contractors" to "sell, promote, and assist in the distribution" of Vendx's products. Vendx agreed to pay a commission for completed sales and to supply catalogs, price lists, product samples, advertising, and promotional materials. Sales representatives were required to devote their "entire time and best efforts" to selling Vendx's products; to place orders only on Vendx's forms; to use only Vendx's catalogs, price lists, and promotional literature; to adhere to all laws and ethical standards; to collect and forward executed orders and down payments to Vendx; to attend and participate in "Business Opportunity Shows" at Vendx's request; and to provide and pay for their own transportation, hotel, telephone, mail, clothing, and automobile insurance expenses. Sales representatives were prohibited from accepting orders on behalf of Vendx; making settlements or collecting payments other than down payments; using unauthorized catalogs, price lists, promotional literature or forms; using Vendx's name on stationery, documents, or advertising without permission; placing advertisements without permission; selling non-Vendx products at business opportunity shows; directly or indirectly marketing competing products; and representing to customers that sales representatives or Vendx would provide locations for vending machines. Vendx retained the right to assign and change territories, to fix or change prices and terms of sales, and to accept or reject orders.

The form also had a section entitled "INDEPENDENT CONTRACTOR STATUS." It read:

The parties intend and agree that Salesman is an independent contractor and not an agent or employee of Vendx. Vendx is interested only in the results obtained under this contract. The manner and means of handling sales shall be under the sole control of Salesman except as otherwise provided herein. Salesman shall adhere to all laws and ethical standards applicable to salespersons and shall perform in a manner consistent with generally accepted procedures for that profession. None of the benefits provided by Vendx to employees, including, but not limited to, Workmen's Compensation Insurance and Unemployment Insurance are available from Vendx to Salesman. Salesman shall be responsible to pay his own Social Security, Self-employment tax, and all estimated Federal and State Income Taxes on a timely basis. Failure to do so shall constitute default. Vendx shall have no obligation or liability for any such payments. Further, employee is not entitled to benefits under Minimum Wage or pre-paid health insurance laws, or laws governing pension plans, or any laws applying to normal employer-employee relationships. Salesman agrees to and shall indemnify and forever hold Vendx harmless from any such claims either by Salesman, Salesman's representatives, heirs, personal representatives, or successors in interest.

The contract period was for one year with successive one-year renewals, subject to the right of both parties to terminate the agreement by mutual consent, the right of either party to terminate the agreement on thirty days' notice, and the right of Vendx to terminate the agreement for cause. Finally, the form contained non-competition, intellectual property, confidentiality, and indemnification clauses.

For the most part, the terms contained in the 1987 contract form were carried out in practice, but exceptions, changes, and amplifications were made from time to time.

In day-to-day operations, Vendx did not provide its sales representatives with offices or supplies other than sales forms, brochures, and business cards. However, it did allow sales representatives to use its office space to complete paperwork. Some of the sales representatives maintained offices in their own homes or other places of business.

Vendx supplied sales representatives with training in areas of product features Vendx sometimes assigned territories to sales representatives, but more typically sales representatives attended trade shows and business opportunity shows throughout the United States. In consultation with individual sales representatives, Vendx scheduled who would attend particular shows. Vendx paid for and supplied show space, pre-fabricated booths, and demonstrator machines, along with flip charts, brochures, advertising, and form sales contracts. Vendx permitted sales representatives to hire temporary assistants for individual shows. If Vendx authorized a temporary hire, it reimbursed the sales representative.

[122 Idaho 894] product knowledge, and...