York v. Industrial Commission

269 N.W. 726, 223 Wis. 140, 107 A.L.R. 841, 1936 Wisc. LEXIS 535

Opinions

Fowler, J.

This is a workmen’s compensation case. The Industrial Commission denied compensation on the ground that the relation of employer and employee did not exist. The employee brought action to' review the order denying compensation. The circuit court held that under the undisputed facts the plaintiff was an employee of the defendant Schlimgen Memorials, Inc., and vacated the order and returned the record to the commission with directions to determine whether the employee suffered compensable injury, and to award compensation if it found that he did.

The appellants contend that upon the facts as detailed in the statement preceding the opinion a valid partnership was created and that the relationship created between the company and the partnership' was that of employer and independent contractor. The respondent contends that the contracts are a mere subterfuge to' evade the Workmen’s Compensation Act, and that as such they are invalid; and that being invalid the relation between the company and each of the individuals constituting the so-called partnership is that of master and servant and renders the company subject to the Workmen’s Compensation Act.

It is true that some of the provisions of the lease agreements may be considered as a subterfuge. For instance, it is quite plain that the company was not a sales agent for the partnership' in selling its products, and that the partnership did not in fact buy the stone that went into' the finished product from the company. The fact manifestly is that the company was selling its own merchandise and buying the stone that entered into that merchandise. The upshot of the whole arrangement was that the company let to' the partnership the performance of the work that entered into' its merchandise, and agreed to pay therefor a stipulated price for the several items of work that entered into- the finished article. But that the lease agreement designates as constituting buying and selling that which is not such, does not render either the part nership agreement or the agreements between the company and the partnership void. It matters not what the parties designated the legal effect of their agreements to be.

It is also plain that the purpose behind the arrangement was to evade liability for compensation under the Workmen’s Compensation Act. But if the contracts were valid, that they were entered into- for this purpose does not bring the company and the individual partners within the act. As well say that one receiving a salary such as renders him subject to an income tax should not avoid payment of the tax referable to- his salary by offsetting against it capital losses which the law allows him to offset. By so- doing one may avoid subjection to- the income tax, but as in so- doing he has done nothing forbidden by the law, his income to- the amount o-f the offset is not subject to the tax. Perhaps a more closely analogous situation is that involved in Jenkins v. Moyse, 254 N. Y. 319, 172 N. E. 521. Usury avoids contracts in New York, but corporations may not interpose usury as a defense. The plaintiff applied to the defendant for a loan. The defendant would not make the loan for the legal rate, but proposed that if the defendant would incorporate and convey his property to a corporation he would loan the corporation the amount desired. The plaintiff created a corporation, of which he was the sole stockholder, and conveyed his property to the corporation. The defendant then loaned the corporation $27,000, and took á mortgage on the property for $45,000 which was grossly usurious. It was held that as nothing had been done to- evade usury that the law did no-t permit, the mortgage was valid. As said in a prior New York case, Union Dime Savings Inst. v. Wilmot, 94 N. Y. 221:

“The parties had a perfect right to deal with each other with the usury laws before their eyes, and to so shape the transaction as to avoid the condemnation o-f those laws,” although “in one sense it took the form it did for the purpose of escaping usury.”

So here, the transaction being such as is legally permissible, it is not rendered illegal, although it took the form it did for the purpose of escaping the Workmen’s Compensation Act.

A case directly in point here is McCormick v. Sears, Roebuck & Co. 254 Mich. 221, 236 N. W. 785, wherein it was held that a workman has the right to contract with one who secures roofing jobs and supplies all material therefor at a flat rate of a stated price per square foot, the workman agreeing to employ all helpers and exercise complete supervision over the work, and to- save the other party harmless against claims for compensation. That the purpose of the arrangement is to avoid liability for compensation on the part of the one who- procures the jobs or furnishes the material does not vitiate the contract. The workman so- contracting has no claim against the other party for compensation if injured in performing the work. Upon like reason the rule of this case applies where two or more workmen as partners make a contract for a similar purpose.

Upon hearing of respondent’s application for compensation the examiner found, and the commission approved the finding, that a partnership- was entered into- between the applicant and the other workmen, and that the shop- lease from the company was executed with full knowledge by the partners o-f the purpose of the arrangement “that work would be afforded them and the . . . [company] would be released from any liability under the compensation act; that such lease was entered into- in good faith between the parties and is binding upon the parties; that no fraud” was practiced by the company to- induce the arrangement. No- contention is made herein that any fraud was practiced by the company or that the arrangement was not entered into in good faith. We venture to say that nobody wo-uld consider the arrangement as in any way tainted with illegality but for the fact that the purpose behind it was to- avoid liability for compensation under the Workmen’s Compensation Act. But for this purpose, the relation thereby created would unquestionably be considered as that of employer and independent contractor, rather than that of master and servant. That a partnership was in effect created is manifest. Both the partnership agreements and the way the business was carried on show this. There was no specific agreement to share losses, but where there is an agreement to share profits, without any express stipulation for sharing losses, a partnership is created. Clinton Bridge & Iron Works v. First National Bank of Darlington, 103 Wis. 117, 79 N. W. 47. Had the company been sued by a third person during the continuance of the arrangement to recover for any supplies purchased by any of the partners used in conducting the business, or for the power furnished for operation the machines used in conducting the business, there would have been no liability. Power bills which ran as high as $75 in one month were uniformly paid by the partnership direct to the utility that furnished the power. The partnership on one occasion let out the use of certain of the leased machinery and received $35 for its use. Had an individual partner sued the company for the reasonable value of the work performed by him, he could not have recovered on the ground that the contracts were void. The contracts being valid for all other purposes, as they unquestionably were, they were also' valid in creating a partnership and a lessor-lessee relationship, and a relationship of employer and independent contractor between the company and the partnership instead of that of master and servant between the company and the individual partners.

The respondent contends that liability for compensation cannot be avoided by such partnership agreements as the one involved and that “other states unanimously so hold.” The cases cited involve situations by no means “such” as the instant one. In Utility Coal Co. v. Rogez, 170 Okla. 264, 39 Pac. (2d) 60, persons owning the right, as partners to mine coal on certain lands and employing one hundred or more men as miners, formed corporations in which the owners of the rights owned all the stock, and these corporations entered into agreements with an association comprised of its miners signing the contracts and certain of the officers and owners of the corporate stock whereby the miners instead of receiving daily wages, were to receive a proportion of the net earnings of the mine. This association was designated as a partnership'. No' miner not signing the agreement was permitted toi work in the mine. Any miners were dropped on quitting work and miners who were not original signers by signing and working in the mines became parties to the contract. There was no lease of the company property. All tools and livestock used in operating the mine were owned by the corporation. Officers and stockholders of the corporation who signed the association agreement were by the agreement in managerial positions in the association. The association was held not to' constitute a partnership because it was not the intent of the agreement to’ form a partnership, there was no intent to- share losses that might result from mine operations, and there was no1 such community of interest as concerned third persons as enabled a member of the association to contract with such persons. One provision of the association agreement was similar to the provision of the instant lease agreement that purported to make one of the owners of the corporate stock a selling agent for the association, but inspection of the agreement set out in the opinion of the court discloses no' other points of similarity to the instant agreement except that members were not to receive a stated daily wage. Two other cases cited to* the point stated are companion cases to' the Rogez Case, supra. Another Oklahoma case cited by respondent in support of his contention is Drumright Gas Engine Co. v. Sherrill, 173 Okla. 147, 46 Pac. (2d) 921. This case presents no similarity to the instant one except that the workers involved were not to' re ceive a daily wage. The company took the job of dismantling an oil tank at a specified rate per ton of the dismantled sheets of steel comprising the tank. It then made an arrangement with three workmen to do the work of dismantling for one half the gross amount received for the job, the company to stand all expense connected therewith. The company had compensation insurance for its employees, but as the class of work called for by the dismantling job carried a higher rate of insurance than the other work carried on by the company, the company took out a policy to cover the workmen on this particular job. One of the three workmen was injured during the progress of the work. The manager of the company thereupon employed another man to' take his place. The injured man was immediately sent to a doctor by the company manager. On completion of the job the company received $448.12. One half of this amount they paid to the workmen, one third to each of the original workmen, and one third was divided between the injured workman and the one employed by the company to take his place. The company paid $103.53 to secure compensation insurance for the workmen for this particular job, and charged this expense to the job, and with this charge sustained a small loss on the job. In reporting the accident to1 the industrial commission, the company stated that the injured man was its employee and was injured while in its employment. The agreement between the company and the owner of the tank provided that the company was to assume all liability that might occur to their employees during progress of the work. The industrial commission found that the relation of employer and employee existed, but the circumstances stated are manifestly so different from those here involved that the case is not in point.

Another case cited by respondent is Butz v. Hahn Paint & Varnish Co. 220 Iowa, 995, 263 N. W. 257. It was claimed therein that an applicant for compensation was a partner with the person of whom he claimed to' be an employee. The facts of the case are entirely dissimilar to those here involved. One basis of denial of the partnership relation was that the agreement between the injured man and his alleged partner was oral, and was for sharing of profits with no agreement to share losses. The Iowa court holds that an agreement to share losses as well as profits must be expressly made in order to1 constitute a partnership. As above pointed out, this is not the law in this state. Clinton Bridge & Iron Works v. First National Bank of Darlington, supra. The holding of the latter case is expressly approved in Langley v. Sanborn, 135 Wis. 178, 181, 114 N. W. 787. The law thus declared has never been overruled by the court, and is consistent with the law of partnership as declared by the Uniform Partnership Act, sec. 123.03 (1), Stats.

A decision by a judge of the magistrate’s court of the city of New York, People v. Levine, 160 Misc. 181, 288 N. Y. Supp. 476, is relied on, in which a fine was imposed on the defendant for doing business without taking out indemnity insurance for his employees as a criminal statute required. He defended on the ground that the men engaged at work under contracts that he took were his partners. The factual situation involved was entirely dissimilar to' the instant one. But giving the case its full weight as authority, which at most is but little, it is more than offset by another decision of the same court by the same judge, People v. Kaplan, 160 Misc. 179, 288 N. Y. Supp. 474, in which a like charge was dismissed because the defendant had formed a partnership with the workmen doing the work of demolishing a building by which they all agreed to share equally in the “obligations and profits” of the contract, although the partnership was formed for the purpose of avoiding liability under the Workmen’s Compensation Act.

The above general discussion is perhaps sufficient to cover the case, but some particular contentions of the respondent respecting invalidity of the contracts should perhaps be treated.

Respondent attacks the leasing agreement with its privilege of determination and rent determinable by the amount of business done by the company and its limitation of work to work for the company. The case of Deep Rock Oil Co. v. Derouin, 194 Wis. 369, 216 N. W. 505, wherein the lease involved contained similar provisions, sufficiently meets this contention.

The contracts are also attacked because the company changed the contract rental from a sliding-scale basis to a percentage basis computed on gross price of the completed articles, and permitting the company to charge against the partnership five per cent of the gross price of such articles as were paid for in cash because such reduction to the company’s customers was allowed on payment of cash. In answer tO' this it is only necessary to say that the company alone did not make these changes. The change was made by agreement of the parties. The company proposed; the partners accepted the proposal. The change was fairly and considerately entered into. Even where the strict relation of master and servant exists, the master may propose a wage and the servant may accept. The Fourteenth amendment protects the right of the servant to enter into a contract governing the amount of his compensation and it protects the right of the partners here to enter into a new contract governing their rental basis which affected the amount of their compensation. Morehead v. N. Y. ex rel. Tipaldo, 298 U. S. 587, 56 Sup. Ct. 918, 920. The individual partners possessed the constitutional right by contract to change their status from that of mere servants to that of independent contractors.

Contention is also made by respondent that the company’s right to terminate the lease for unsatisfactory performance of work is equivalent to the power to discharge the partners for unsatisfactory work and therefore renders them em ployees. This is met by Kneeland-McLurg Lumber Co. v. Industrial Comm. 196 Wis. 402, 220 N. W. 199, wherein the distinction between right to summary discharge and right to terminate a contract for unsatisfactory performance is pointed out. This provision is particularly attacked because it is claimed the company might terminate the contract if “dissatisfied for any reason.” The full provision respecting dissatisfaction is “if, for any reason, the corporation shall become dissatisfied with the manner in which the terms of this lease and agreement are being carried out.” Provisions in contracts that work shall be done to the satisfaction of the party for whom it is being performed are permissible. Keachie v. Starkweather D. Dist. 168 Wis. 298, 170 N. W. 236. Contracts so providing are not terminable at the mere will of the party to whom the provision is given, but only on the exercise of an honest judgment as to nonperformance. The other party is protected against arbitrary or capricious action. Even a provision in a lease for a term but with a right to the lessor to terminate it at will is not void. Circumstances may exist that'justify equity in refusing to enforce specific performance of it, but the mere fact that one party is given the right to terminate at will while the other is not, is not alone ground for refusing relief even in equity. Cities Service Oil Co. v. Kuckuck, 221 Wis. 633, 267 N. W. 322.

Respondent contends that under the rules for determining whether one is an employee or an independent contractor plaintiff is an employee because the company retained the right of supervision of work and control of the workmen to the same extent that it exercised them under the previous arrangement. We consider that this contention is not tenable. The four partners themselves controlled their hours of work. They made no' deductions against each other for time off or the like. The work was sufficiently laid out by the work orders. The partners were all skilled workmen and required no further directions. It is true that the company manager had the right to see that the work conformed to the order, and that he at times consulted with the plaintiff as shop foreman respecting procuring the end result, but any employer of an independent contractor has that right. Medford L. Co. v. Industrial Comm. 197 Wis. 35, 221 N. W. 390. Many cases have been before the court in which the distinction between an independent contractor and an employee is pointed out. The latest case treating the matter is Kolman v. Industrial Comm. 219 Wis. 139, 262 N. W. 622. There is no need to discuss the matter further. We consider that the partnership was an independent contractor within the rule oí that case and the cases cited therein.

We believe the above sufficiently covers the contentions of the respondent in support of the judgment of the circuit court. From what is said it follows that the judgment of the court must be reversed, with directions to1 confirm the order of the Industrial Commission denying compensation. There is no need to discuss the contention of respondent that plaintiff had sustained a compensable injury at the time he quit work.

By the Court. — The judgment of the circuit court is reversed, with directions to enter judgment confirming the order of the Industrial Commission denying the plaintiff’s application for compensation.