Virginia Employment Com'n v. A.I.M. Corp.

Decision Date29 April 1983
Docket NumberNo. 801516,801516
PartiesVIRGINIA EMPLOYMENT COMMISSION v. A.I.M. CORPORATION. Record
CourtVirginia Supreme Court

Robert J. Barry, Asst. Atty. Gen. (Marshall Coleman, Atty. Gen., on brief), for appellant.

Linda L. Royster, Richmond (Charles F. Witthoefft, Hirschler, Fleischer, Weinberg, Cox & Allen, Richmond, on brief), for appellee.

Before CARRICO, C.J., COCHRAN, POFF, COMPTON, STEPHENSON and RUSSELL, JJ., and HARRISON, Retired Justice.

COMPTON, Justice.

In this case arising under the Virginia Unemployment Compensation Act, Code §§ 60.1-1 through -134, we consider whether services performed by certain individuals for remuneration constitute "employment" subject to the Act.

In 1979, appellant Virginia Employment Commission initiated a proceeding pursuant to Code § 60.1-70 to determine whether some of the activities in connection with the business of appellee A.I.M. Corporation, a company engaged in the distribution of "Mrs. Smith's Pies" products, amounted to "employment" under the Act. After a hearing, a special examiner designated by the Commission ruled that the services performed by "owner-operators" of A.I.M. constitute such employment. Accordingly, in a decision reciting findings of fact, the Commission ordered A.I.M. to file payroll contribution reports as required by the Act and Commission regulations, covering remuneration paid to those employees for the years 1976, 1978, and 1979 and thereafter as long as A.I.M. is liable under the Act.

A.I.M. filed a petition for judicial review in the court below pursuant to Code § 60.1-71. After consideration of the pleadings, the record of proceedings before the Commission, and argument of counsel, the trial court set aside and vacated the Commission's decision, ruling the relationship between the owner-operators and A.I.M. did not constitute employment under the applicable provisions of the Act. This appeal by the Commission ensued, following entry of the June 1980 final decree.

Under Code § 60.1-71, "the findings of the Commission as to the facts, if supported by the evidence and in the absence of fraud, shall be conclusive, and the jurisdiction of the [trial] court shall be confined to questions of law." Here, the pertinent facts are undisputed and there is no claim of fraud. The record before the Commission is comprised of a specimen copy of a seven-page written agreement between A.I.M. and the owner-operators, the testimony of two witnesses, and several other exhibits. Thus, our task is to determine whether the trial court committed an error of law in setting aside the Commission's decision. *

Since 1975, A.I.M. has been a distributor for "Mrs. Smith's Pies" products in the Richmond metropolitan area. The merchandise is purchased at a distribution point in Maryland and delivered daily to A.I.M.'s Henrico County facility. In order to distribute the products locally, A.I.M. enters into contracts with individuals, called "owner-operators," who purchase the products from A.I.M. and resell them to customers.

The contract, labelled "Owner-Operator License Agreement," and the method of operation may be summarized as follows. A.I.M., the "company," grants the owner-operator a "license" to sell all types of the company's pies in a described "geographic area of prime responsibility." The individual agrees "to fully and adequately service such territory in a manner that could be reasonably expected to obtain the maximum number of sales" of the company's products.

The owner-operator promises to purchase from the company the quantities of products he determines are necessary to maintain "a sufficient distribution in the Territory." He agrees "to maintain route books showing the name and address and the amounts sold to each customer so that a permanent record can be made of the customers within the territory." Such record is to be delivered to the company upon termination of the agreement. According to the contract, the individual may add customers at any time, terminate service to customers in his sole discretion, and may sell to customers outside the geographic area of prime responsibility.

The owner-operator is required to "maintain telephone service at his place of residence so that he can communicate, or be communicated with, on any special problems." He promises to work a minimum of six days per week, although, in practice, this provision is not strictly enforced. The agreement contemplates "active engagement by the Owner-Operator in his own business of distributing and selling Company's products." The individual may conduct whatever other business activities he wishes, however, except he may not distribute products within the territory that compete with Mrs. Smith's Pies products.

The individual agrees "to purchase or lease and equip a truck with racks and shelves" suitable for delivery of the products "in a businesslike manner." He promises to maintain liability insurance on the vehicle and to have painted on the truck's front doors "Owned and Operated by" followed by the individual's name and address. He is permitted to "utilize his truck equipment as he deems fit" provided the use does not violate any terms of the contract. He promises to obtain, at his expense, any licenses and permits required by law for the equipment, to pay any taxes or fees assessed in respect to the equipment, and "to pay all the expenses of his business operations." He is permitted to use "a company owned spare vehicle" for three days each calendar quarter.

The owner-operator agrees to pay cash on the day of receipt for products purchased. Testimony showed that the individuals return to A.I.M.'s Henrico County facility each evening "to settle" with the company. Balances owed to or by the owner-operator are carried over in some instances from day to day with settlement of each account required by Friday of each week.

The individual promises not to distribute "day-old Soft Pies" and the company declines to "accept responsibility" for products which have become adulterated by the "Owner-Operator's mishandling." The company agrees to "accept responsibility" for adulterations resulting from the manufacturing process.

The owner-operator may employ others "in the conduct of his business" and promises "to service the territory with a competent, experienced and qualified Driver-Salesman" who shall be under the sole control of the owner-operator. The payment of all amounts due for taxes or charges (unemployment, social security, workmen's compensation, withholding) upon such employees is the responsibility of the owner-operator.

The individual covenants not to compete with the company in the territory for a period of six months from termination of the agreement. He agrees that if he becomes "involved in a labor dispute" which interferes with the individual's activity for the company, the contract is subject to "immediate cancellation by the company without liability of any kind whatsoever."

According to an affidavit submitted at the hearing by A.I.M.'s president, corroborated by his testimony, the owner-operator "receives no payment for services from A.I.M." Although the written contract provides the company "agrees to pay the Owner-Operator for services rendered to the company," an attachment to the contract interprets this provision solely as requiring the company to allow the individual a percentage discount off the posted wholesale price of company products upon sale to the owner-operator. According to the affidavit, the products so purchased from the company may be sold by the individual to his customers at a price determined solely in his discretion. The profit, if any, to the individual is the result of the owner-operator's ability to sell his products at a premium over the price paid, while minimizing the expense of his business enterprise.

The contract states the relationship of the individual to the company "shall be that of independent contractor." It provides the agreement may be cancelled after the first 30 days upon either party receiving 15 days written notice from the other. It further recites the owner-operator may assign or sell his rights under the contract, subject to prior written approval of the company and provided the assignee or purchaser agrees to enter into a new agreement under the same terms and conditions as set forth in the present contract.

During the administrative hearing, the Commission's field tax representative offered as an exhibit a September 25, 1978 letter of A.I.M.'s president, Arnold I. Meyer. The letter was written to Patricia Knapp, one of the owner-operators, who was subsequently discharged and applied to the Commission for unemployment compensation. Meyer testified he had been "with her" during the week before the letter was written and "the lady asked for my comments on how she conducted her business on her route." The letter reads:

"Dear Pat:

"You have asked for my comments on your route.

"1. The deluxe boxed pies you put out on Tuesday, 9-19-78, should have been picked up on Friday, 9-23-78. These pies also should have a pull date on them, of no more than 3 days for fruit and 2 days for custard and meringue. Let's change this practice this week.

"2. When you over-charge a chain account like Big Star, we all get hurt, because when you get caught, we get put out of the store and possibly out of the company operation. This has happened already. Remember, Mrs. Smith Pie Co. is Coast to Coast.

"3. You will be able to serve the STOPS I gave you on Tuesday and Thursday or Friday, by working route 30, this side of 360, with a little extra driving. Give it a chance to develop.

"4. Your truck is in need of repair. Like a new muffler (which you have already) and repair or replace the magnets on the pie cabinets. If you would like, I will LOAN you a new cabinet for your truck and YOU at your own expense get it put in.

"5. I want from you, no later than Thursday September 28, 1978, a...

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