Fuller Brush Co. v. Industrial Commission

LARSON, Justice. This is an original proceeding to review a decision of the Industrial Commission of Utah holding in effect that the defendant, Lamont Holst, was an employee of the Fuller Brush Company, and affirming an order of Floyd T. Atkin, Appeals Examiner of the Unemployment Compensation Division of the Industrial Commission directing the Fuller Brush Company “to file a wage and separation report and pay into the Utah Unemployment Compensation Fund the *98 necessary contributions on wages earned by the claimant while in the company’s employ.” The plaintiff presents two questions: (1) Is the order of the Industrial Commission, or its employees, directing plaintiff to pay “contributions” into the Utah Unemployment Compensation Fund, valid and binding? (2) Was the legal relationship between plaintiff and defendant Holst that of vendor and vendee or that of employer and employee? We consider them in order. (1) In the recent cases of Logan-Cache Knitting Mills v. Industrial Commission and Charles F. Hull, 99 Utah 1, 102 P. 2d 495, and National Tunnel & Mines v. Industrial Commission and Hartle, 99 Utah 89, 102 P. 2d 508, this court held that orders to pay contributions into the Unemployment Compensation Fund must issue from the State Tax Commission and not from the Industrial Commission. The order of the Industrial Commission directing plaintiff to pay into the Unemployment Compensation Fund the necessary contributions on wages earned by the claimant while in the employ of plaintiff is without validity. (2) We come now to the second question presented by the record, — as to whether defendant, Lamont Holst, was an employee of the plaintiff, that is did he perform personal service for wages under the terms of the act, and if so, is he excluded from the provisions of the act by virtue of subheads 5 or 6 of subdivision (j) of Sec. 19 of the act, Laws 1936, Sp. Sess., c. 1, as amended by Laws 1937, c. 43? Plaintiff contends that the relationship between it and Holst was that of vendor and vendee and not that of employer and employee, while defendants argue the relationship, although in form one of vendor and vendee, was in fact a relationship of employment for wages. Both counsel have vigorously presented their positions, the argument centering on the meaning of Sec. 19 (j) (5). An analysis of the act discloses that the answer to this question is not found in that section, since the question as to whether the relationship is *99 one of employment within the act must be answered before Sec. 19 (j) (5) comes into the picture at all. Let us examine the act briefly. The act is one to provide for payment of benefits to individuals who are unemployed through no fault of their own, and otherwise eligible for benefits. Secs. 2 and 3. Such benefits are computed on the individual’s latest weekly wage. Sec. 3. Sec. 4, entitled “Benefit Eligibility Conditions,” emphasizes claimant must have been employed, is now unemployed, and earned wages for employment. To like effect is Sec. 7 which provides for payment, of contributions “with respect to wages payable for employment.” We refer to these matters to emphasize that the act only applies to and covers individuals who are in employment for wages. The act does not cover every status of employment, nor does it cover every individual who receives from another remuneration for work done. It covers only individuals who have been, or are in employment and who receive therefor wages as those two terms are defined in the act. Globe Grain & Milling Co. v. Industrial Commission et al., 98 Utah 36, 91 P. 2d 512; Roberts v. Industrial Commission, 97 Utah 434, 93 P. 2d 494; Logan-Cache Knitting Mills v. Industrial Comm. and Charles F. Hull, supra; National Tunnel & Mines Company v. Industrial Comm. and Alton Hartle, supra; Salt Lake Tribune Publishing Co. v. Industrial Comm. and Lynn Clark Cushing, 99 Utah 259, 102 P. 2d 307; Creameries of America, Inc. v. Industrial Comm. and Robert L. Foss, 98 Utah 571, 102 P. 2d 300. “Employment” is defined as service performed for wages or under any contract of hire. “Wages” is defined as all remuneration payable for personal services, including commissions, bonuses, and gratuities customarily incident to the course of employment, whether received in cash or other medium. Sec. 19(j) (1), and (p). The first question therefore to be determined, when a claimant applies for benefit payments, or when the question arises as to whether a particular individual should be included on a payroll report for purposes of determining *100 the amount of contributions to be paid is: Has this individual rendered personal service for wages or under a contract of hire? In other words, did he render personal services? If so, did he, or was he entitled to receive therefor remuneration based upon such personal service? If both these questions be answered in the affirmative, then he is within the act, unless excluded by subheads 5 or 6 of subdivision (j) of Sec. 19. If either of these questions be answered in the negative, such person is not within the act. If the questions last above set forth be answered affirmatively, then the inquiry must be made as to exclusion by subheads 5 or 6. Subhead 6 excludes public service, agricultural service, domestic service and certain other definitely specified types of personal employments. They all constitute personal service normally rendered for wages, or under a contract of hire, and except for the language of subhead 6 would be employment within the act. Subhead 5 excepts from the operation of the act another kind of personal service rendered for wages. It is such service as (a) leaves the individual performing it “* * * free from control or direction over the performance of such services, both under his contract of service and in fact”; and (b) is outside the usual course of the employer’s business, or performed outside the place of business of the employer; and (c) is performed by an individual who “is customarily engaged in an independently established trade, occupation, profession or business.” But these three factors are not given for the purpose of determining whether a certain labor performed or service rendered, comes within the term “employment” as used in the act, nor for determining whether such labor or service is performed for “wages” as used in the act. Subhead 5 applies only to cases, where it has been previously determined, where the work or service comes within the term “employment” as defined in the act, and that it was performed for “wages or under a contract of hire.” Until it has been so determined subhead 5 has no application. These conditions indicate a legislative intent to make an exception, to eliminate from the operation of *101 the act certain kinds of personal service in private industry-rendered for wages, but which could not well be defined by a single work or class designation like those in subdivision 6. A few illustrations will make clear the purpose and meaning of the three factors. A takes to the blacksmith a horse to be shod and a plow point to be sharpened. The smith renders personal service and receives remuneration for his time and labor, which constitutes wages under the act. But it was not contemplated that A should pay contributions on the money paid the blacksmith, nor that the smith should be eligible for benefit compensations under the act as now written. The blacksmith performs his task of shoeing the horse and sharpening the plow point according to his own methods and ideas without direction or control from A, who may leave the shop while the work is done, relying and depending upon the smith’s superior knowledge and ability. The work is done away from all places of business of A, — and the smith is customarily engaged in an independently established trade, to wit, blacksmithing. Other illustrations are the shoe shiner; the auto-mechanic who repairs or overhauls a car; the dentist; the butcher who cuts up the deer the hunter brings in; the plumber who cleans out the drains and perhaps replaces parts of the plumbing; the C. P. A. who comes in and audits the books; and the barber who cuts the hair, gives a shave, massage and shampoo; and the surgeon performing an operation on the patient. In these simple illustrations, such people all render personal service for a remuneration, but they are free from control in the doing of the service, that is, they are their own bosses as to how they do it; they perform services outside the employer’s place of business, or outside the usual course of his business, and they are all customarily engaged in an independently established trade, business or profession. Much has been said in the briefs and arguments in this case as to the meaning of part (c) of subhead 5. The decision of the Appeal Tribunal, and therefore of the Industrial Commission, was based upon that factor, their finding being that claimant had not, prior to his work for plain *102 tiff been customarily engaged in selling goods to the public. It apparently construed the provision for the purpose of this case to mean that it must be shown that claimant, prior to the service upon which this action is based, and during the time of such service, had been engaged in the business of rendering the same kind of service to other parties. Plaintiff contends that the provision refers wholly to the service involved, and argues that if in rendering such service, claimant was acting for himself he was engaged in a business of his own, and therefore during such employment was customarily engaged in an independently established business. The difficulty with this position is that it ignores entirely the significance of the words “customarily” and “independently.” The statute does not say, as the Colorado court read it in Industrial Comm. v. Northwestern Mutual Life Ins. Co., 103 Colo. 550, 88 P. 2d 560, “independently engaged in an established business,” nor does it read as plaintiff’s interpretation would make it read: “that he was customarily engaged in an independent business.” The adverb “independently” clearly modifies the word “established,” and must therefore carry the meaning that the “business” or “trade” was established independently of the employer or the rendering of the personal service forming the basis of the claim. And in the exclusion clauses (j) (5), or perhaps more correctly the clauses making the exceptions from the general inclusion of all persons rendering personal service for wages, the present tense “is” indicates the employee must be engaged in such independent business at the time of rendering the service involved. “Customarily” means usually, habitually, according to the customs, general practice or usual order of things, regularly. We think it clear without further discussion why these exceptions, exemptions or exclusion provisions were written and what they mean, and why the legislature intended to except such rendering of personal services for wages from the operation and effect of the act. Let us examine the record and determine whether under the admitted facts it can be said as a matter of law that *103 claimant Holst did not perform personal services for plaintiff and receive, or was entitled to receive wages therefor. The question as to whether one performing personal services is performing them for another or for himself usually offers no difficulty. In a few borderline cases, where services for another and for self may overlap, or where an artificial relationship may be set up between the parties some difficulty may be encountered. It may be stated that services are performed for another when performed under his supervision, direction and control, in the performance of the details of the work and in the use of the méans employed; (Texas Co. v. Wheeless, 185 Miss. 799, 187 So. 880), when he has the right to hire (select the worker) and the right to fire (terminate the employment) and when the compensation, if any, accruing to the worker becomes a direct liability on the other party. But all these are not always present, and if present they may not be evident on a casual examination. Under some of the recent labor legislation, the right to hire and fire has been much limited. The right to determine and fix the compensation of the worker is indicative, although under many wage laws the compensation is fixed by law or by an administrative body, or may be determined by a contract between the employer and a third party. But it is not all personal service performed for another that comes within the act, but only such as is performed “for wages or under any contract of hire.” “Wages” is defined as all compensation payable for personal services, rendered for another under a contract of hire, express or implied. This compensation is based upon and computed upon service rendered, and is not derived from the accomplishment of a purpose or achievement of an objective, by the person receiving the remuneration, through a difference in two prices. The essential elements of wages are that they form a direct obligation against the employer, in favor of the employee; that when the service is performed the compensation, if any, accrues and becomes payable regardless of *104 the success or failure of the undertaking; that any profits or earning over and above costs of the service accrues to the employer, and any loss as a result of the undertaking or service must be borne by the employer. It is not essential that the wage move directly from the employer to the employee, as where the employee works on commissions, deducts his commission from a collection and remits the “nets,” but it is essential that the remuneration accrues from the product or service of the employer, and would accrue to him except for the fact that the employee is entitled to retain or receive it as remuneration under his contract of hire. The term “contract of hire” is not defined in the act probably because the legislature felt that the expression was so well established, understood and definite, that it needs no further amplification or exposition. It is used in its common meaning and acceptation. It is an agreement whereby one undertakes or obligates himself to render personal service for another for a remuneration to be paid because of the service was rendered, regardless of the element of profit or loss resulting from the work, endeavor, or undertaking. A brief statement of the salient facts becomes necessary. Plaintiff is a corporation engaged in the manufacture and sale of brushes. The selling policy of plaintiff is not to sell through brokers, jobbers, and stores, but to enter into written contracts with individuals as dealers, who have a territory assigned to them and in which they effectuate their sales by calling directly at the homes of the people. They were supplied with a sample case of brushes, which was charged or leased to them, and which they could pay for and keep or return for credit upon termination of the contract as dealer. All goods were sold to the dealer for cash and by him resold to purchasers at an advanced price. If a dealer were unable to pay cash he was allowed credit for one weekly order of brushes, provided he first furnished a credit bond or undertaking in the sum of $200 to insure payment. The company suggested retail prices for the various articles but the dealer was not required to adhere thereto. The dealer *105 set Ms own hours of work, the order of work, and methods of work. He made no work reports to the company and received no orders or directions from it. He made no reports of sales, furnished the company no list of his customers or record of his accounts with them. Any good will he built up was his own and not the company’s. He could sell for cash or credit without knowledge of the company, and upon termination of his contract gave the company nothing except payment for the merchandise he had received. A new dealer in the territory had to build his own business, find his own customers, and begin all over again without any knowledge of the business done by his predecessor in the territory. All the elements pointed out in the Creameries of America case and the Salt Lake Tribune case, supra, as evidencing the fact that the relationship was one of employment, are lacking in this case. The appeal tribunal and the Industrial Commission found specifically that Holst was free from all direction and control over the performance of his services, both under his contract and in fact; and that his services were performed outside the places of business of the company, but found that he received wages in the nature of commissions. Putting it briefly, they found that claimant performed personal service, that he received wages in the nature of commissions from plaintiff, and therefore such personal services must have been rendered for plaintiff. That claimant performed personal service is not in dispute, but there is a dispute as to whether such services were performed for plaintiff or for self, and as to whether he received wages therefor or profits on sales. In other words, was the relationship between plaintiff and claimant that of employer and employee or that of vendor and vendee? The finding being positive and definite that claimant in the performance of the personal service was free of all direction and control by plaintiff, both in fact and under his contract of hire, it must follow of necessity that he did not perform service for plaintiff under a contract of hire or for wages, and therefore the relationship was one that never came within the scope of the act because he was not in employment that would bring him *106 within the act, to wit, rendering personal service for another under a contract of hire or for wages. Since there was no obligation on plaintiff to pay claimant any remuneration for services, but claimant must get his remuneration, if any, from his ability to sell the brushes at an advanced price over the cost to him and that he and not plaintiff assumed the risk of profit or loss on the venture or undertaking, it follows claimant’s services were not rendered for wages or under a contract of hire. The error came about through a misinterpretation of the law, in holding that all personal services were within the act unless excluded by the provisions of Sec. 19 (j) (5), — whereas only those personal services are within the act which are rendered for another for wages or under a contract of hire. As pointed out above, Sec. 19(j) (5) is an exception provision, applying only after it has been determined that personal services were rendered for another for wages or under a contract of hire. It excepts from this class certain instances in which the three conditions of that section all are present. Since claimant never came within the act as rendering personal service for another for wages or under a contract of hire, it is unnecessary to consider whether he was customarily engaged in an independently established business. The orders of the Appeal Tribunal and the Industrial Commission are annulled, vacated and set aside. MOFFAT, C. J., concurs.