SSR 75-3c: SECTIONS 205(c) and 210(j) (42 U.S.C. 405(c) and 410(j)) -- EMPLOYER-EMPLOYEE RELATIONSHIP -- SERVICES AS MANUFACTURERS' REPRESENTATIVE
20 CFR 404.1004
Kane v. Weinberger, U.S.D.C., Western District of Pennsylvania, Civil No. 73-218 (1/25/74)
- Where plaintiff, and old-age insurance beneficiary who requested revision of his earnings record to reflect additional earnings and recomputation of is benefits under the Act, worked in capacity of a manufacturer's representative for three companies during the years 1959, 1963, 1964, and 1965 and was directed by them only as to the objective of establishing new distributorships and new dealer accounts for distributors in specified geographical areas with no control exercised on a daily basis as to the details and means to achieve that objective. held, plaintiff rendered services to the aforesaid companies not in an employer-employee relationship but in a self-employed capacity and, accordingly, is not entitled to have his earnings record for the years in question revised pursuant to section 205(c)(5)(H) nor have his old-age insurance benefits recomputed.
Willson, Senior District Judge:
This is an action pursuant to section 205(g) of the Social Security Act, 42 U.S.C.A. 405(g), seeking review of the final decision of the Secretary of Health, Education, and Welfare, which held that plaintiff and his wife are not entitled to a recomputation of their retirement benefits under the Social Security Act nor is plaintiff entitled to a revision of his earnings record under section 205(c) of the Social Security Act to show additional earnings for 1959, 1963, 1964, and 1965.
The only issue before this Court is whether the decision rendered by the Administrative Law Judge, which became the final decision of the Secretary when the Appeals Council affirmed his decision, is supported by substantial evidence. Both parties have filed amotion for summary judgment, and plaintiff, in the alternative, has asked for remand to the Secretary. This Court concludes that the decision is supported by substantial evidence.
A review of the evidence is this record is appropriate. On August 30, 1965, plaintiff applied for retirement insurance benefits, and on September 8, 1965, his wife filed an application for wife's insurance benefits on the wage record of here husband. Plaintiff was awarded reduced retirement insurance benefits at age 63 or beginning with the month of August 1964, twelve months prior to the filing of his application for such benefits.
Upon review of his social security earnings record, which he had requested on January 29, 1968, plaintiff informed the Social Security Administration on February 29, that the earnings record did not correlate with his own and he requested a revision of the record and a recomputation of his benefits. At that time, plaintiff's earning record disclosed no reported earnings for the years 1959, 1964, and 1965, and reported earnings of $536.97 in 1963. Plaintiff contends that his earnings record should be credited with wages of $4,800 in 1959 from Spe-de-way Products, wages of $659.80 in 1963, $3,736.50 in 1964, and $334.42 in 1965 from Belson Manufacturing Company, and, additionally, $2,217.29 in 1964 from American Timber Homes, Inc.
The controlling question in determining whether plaintiff was entitled to a revision of his earnings record for these years was whether plaintiff was to be classified as an employee or whether he was a self-employed independent contractor. If his earnings were to flow from being self-employed, that is not an employee but an independent contractor, then, to the extent that the statute of limitations of three years, three months, and fifteen days had run, he would be precluded from gaining such revision for failure to pay Federal Insurance Contribution Act taxes for those years. See 42 U.S.C.A. 405(c). However, if plaintiff was indeed an employee during the years in question, then the employers are guilty of having failed to pay Federal Insurance Contribution Act taxes, they are liable for the amount not paid, and plaintiff is entitled to a revision of his earning record and a recomputation of his retirement benefits.
The testimony before the Administrative Law Judge revealed that in 1959 plaintiff had earned $5000 from Spe-de-Way Products Company of Portland, Oregon. Plaintiff had been hired through a local Pittsburgh employment bureau as their sales representative for the western part of Pennsylvania, Ohio,, West Virginia, and Michigan. His job was to establish new distributorships and do promotional work with distributor salesmen and establish new dealer accounts for the distributors in the area. Plaintiff claims he received a salary of $200 per week, was to make up daily reports and routing sheets, was told what distributors to contact and was told not to represent anyone else. On the other hand, the information supplied in an Employment Relationship Questionaire by Spe-de-Way maintained that plaintiff was a salesman paid on a weekly basis on commissions earned, was permitted to do work for others, was guaranteed no minimum pay, could be fired or plaintiff could quit at any time without any liability being incurred, was not eligible for a pension, bonuses, paid vacations or sick days, was not required to report to the company personally or in writing nor required to produce certain amount of work regularly, and was not required to follow daily or weekly routines or schedules established by the company. The company stated that it had engaged ten other persons to perform services similar to plaintiff. Plaintiff was not reimbursed for any expenses incurred. In fact, he received a $774.54 refund from the Internal Revenue Service in 1959 as his allowable expenses and deductions for 1959 exceeded the $5000 he had earned, thus he payed no income or Federal Insurance Contribution Act taxes that year. Additionally, there was no contract of employment between plaintiff and Spe-de-way, nor could plaintiff and Spe-de-way, nor could plaintiff evidence any written document by Spe-de-way describing his duties.
Plaintiff testified that he began his employment with Belson Manufacturing Company on or about January 11, 1963, and continued with that firm until February or March 1965. He claims that he should be credited for the monies earned from this concern, that is $659.85 for 1963, $3,736.50 for 1964 and $334.42 for 1965. In his testimony, plaintiff indicated that he had been appointed Eastern District Manager, was on straight commission on sales and had to pay his own expenses. According to plaintiff's testimony, he was not entitled to handle any other product, was to devote all his time to sales to Belson. Stein, Belson's general sales manager, came in about four times and contacted accounts he had opened. Plaintiff said he worked five days a week, but he set his own hours; Stein could not tell him what hours to work. His only instructions were to open new distributors and new dealer accounts. Belson could fire plaintiff or not renew his role as representative. Plaintiff indicated that he had no idea why Belson had not deducted withholding taxes.
During 1963, plaintiff, while claiming that he was not entitled to handle other products, did work for Independent Pennsylvania Nail Company (Hartman). He said he only did this as a favor to Bob Hartman, owner and president of the company. When he was in a territory working for Belson, he would make some stops on behalf of Hartman. He claimed to be an employee of this company and had earned $450 on straight commissions, from which amount the company had paid withholding taxes.
Besides claiming that $3,736.50 from Belson in 1964 should be credited to him, the plaintiff also contends that the $2,217.29 he received from American Timber Homes should be included, even though he incidentally forgot to include that amount in computing his federal income tax that year. Plaintiff testified that he had taken issue with Belson about not representing anyone else, that he wanted to take on American Timber, and that Belson agreed. In 1965, he wrote and told Miller, President of Belson, that if he wanted to put another representative in the area that was fine as he was going to devote his time to American Timber.
Plaintiff submitted a copy of the letter of February 10, 1965, from the executive vice president of American Timber Homes, which recited, among other things, that their mutual business association had not been advantageous to either of them and it had been reluctantly concluded that the time had come to terminate that association (Exhibit 135).
Also in evidence was a letter from a payroll clerk for American Timber Homes, wherein the clerk reported that American Timber Homes had no salaried salesmen and all of its representatives were self-employed, did not have to make any report of their expenses and were not, in fact, reimbursed for any expenses. In addition, representatives were not guaranteed any minimum income and there was no control over the manner in which the representatives worked. (Exhibit 111).
From all of the evidence presented, the Administrative Law Judge made the following findings:
- "1. The claimant filed an application for reduced retirement insurance benefits under the Social Security Act on August 30, 1965, and was awarded such benefits beginning with the month of August, 1964, twelve months prior to the filing of such application.
- 2. The evidence establishes that the claimant has been a self-employed manufacturer's representative for a number of years and has also been employed as a salesman by various companies, at time engaged concurrently in the rendering of services as a self-employed manufacturer's representative and as an employed salesman.
- 3. The evidence establishes that in 1959 the claimant rendered services for the SPE-DE-WAY Products Company as a self-employed manufacturer's representative.
- 4. The evidence establishes that in 1963, 1964, and 1965 the claimant rendered services to the Belson Manufacturing Company as a self-employed manufacturer's representative.
- 5. The evidence establishes that in 1964 and 1965 the claimant rendered services to American Timber Homes, Inc. as a self-employed manufacturer's representative.
- 6. The evidence fails to establish that the claimant timely and properly paid Federal Insurance Contribution Act taxes on any net self-employment income derived from the services rendered in the years 1959, 1963, 1964, and 1965 to the aforesaid companies.
- 7. The evidence fails to establish that the claimant rendered services in the years 1959, 1963, 1964, and 1965 to the aforesaid companies in the course of an employer-employee relationship.
- 8. The evidence establishes that the time limitation within which the claimant could seek revision of his earnings record so as to be credited with net earnings from self-employment income in the years 1959, 1963, 1964, and 1965 has passed.
- 9. Based on the foregoing findings the claimant is not entitled to have his Social Security earnings record revised for said years of 1959, 1963, 1964, and 1965.
- 10. Based on the foregoing findings the claimant and his wife are being paid the amounts properly due them for retirement insurance benefits and derivative wife's insurance benefits under the Social Security Act.
- 11. Based on the foregoing findings the claimant and his wife are not entitled to a recomputation of their said benefits."
The question before the court, then, is whether the Secretary's finding that plaintiff was not an "employee" of Spe-de-way, Belson, and American Timber during the years 1959, 1963, 1964, and 1965, that he was, in fact, a self-employed manufacturer's representative of these companies, is supported by substantial evidence.
In the parts relevant to this case, section 210(j) of the Social Security Act, 42 U.S.C.A. 410(j), defines the term "employee" as any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee, or any individual who performs services for remuneration for any person, as a traveling or city salesman, engaged upon a full-time basis in the solicitation on behalf of, and the transmission to, his principal of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants or other similar establishments for merchandise for resale or supplies in their business operations, if the contract of service contemplates that substantially all of such services are to be performed personally by such individual.
Under 20 CFR 404.1004(c)(2), an employer-employee relationship exists:
- . . . when the person for whom services are performed has the right to control an direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished; that is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient that he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but no necessarily present in every case, are the furnishing of tools and the furnishing of a place to work to the individual who performs the services.
The regulation continues, distinguishing an employee from an independent contractor by stating:
- In general, if an individual is subject to the control and direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing that result, he is an independent contractor.
In United States v. Webb, Inc., 39 U.S.179(1969), the Supreme Court reviewed the evolution of the present regulations cited above and noted that though it cannot provide a workable test, complete in itself, the regulations provide a summary of the principles of common law, intended as an initial guide for the determination as to whether the relationship is the legal relationship of employer and employee.
In making his determination, the Administrative Law Judge was ever mindful of these basic criteria listed above. He found that not one of the three companies involved had the right to control the manner in which plaintiff operated. The most they could do was to direct what was to be accomplished by the plaintiff's endeavors.
Spe-de-way hired him as a representative to establish new distributorships and to do promotional work with distributor salesmen and establish new dealer accounts for the distributors in the area. This was their objective; they had no control over how the plaintiff managed to meet that objective, to direct his daily schedule or to insist on certain working hours. The business card the plaintiff carried indicated that he was "representing Spe-de-way Products Co." There was no employment contract and either party could terminate the association at will. Plaintiff was required to pay his own expenses. Furthermore, although plaintiff contends that he was making a salary of $200 per week, Spe-de-way maintains that what he was receiving was a weekly pay based on commissions earned. The documentary evidence supports this latter position. Instead of receiving a W-2 form, plaintiff received a 1099 form, on which, under the amount of $5000, was typed the word "commissions." (Exhibit 14).
Although plaintiff was designated Eastern District Sales Manager for Belson Manufacturing Co., the facts disclose that plaintiff's activities with this concern would be more typified by the title of manufacturer's representative. As plaintiff testified, he was paid by straight commission, had to pay his own expenses, and was free to set his own hours and working schedule. The only real guideline or directive from the company was that his purpose was to open new distributors and new dealer accounts. The company in no way had the control over him to direct the manner in which plaintiff was to accomplish this goal.
Turning to plaintiff's association with American Timber Homes, the letter from the executive vice-president to plaintiff terminating their relationship typified their relationship as that, a business association. Such a term would be an unlikely term in describing an employer-employee relationship; in fact, it points the other way, towards two businessmen dealing with one another. Strong evidence also comes from American Timber Homes' payroll clerk where she reported that American Timber Homes had no salaried salesmen, that all of its representatives were self- employed, none guaranteed a minimum income or reimbursed for any expenses and that no control was exercised over the manner in which the representatives worked.
Finally, with regard to the years 1963 through 1965 and the relationship during those years between plaintiff and Belson Manufacturing Co. and American Timber Homes, the Secretary's decision relies on the manner in which plaintiff himself typifies h is employment during that period. When he filed for retirement insurance benefits in August 1965, plaintiff indicated that he had been self-employed since 1962, and for the kind of trade or business in which he was self employed, the notation read manufacturer's representative. (Exhibit 1).
Although each case must be decided on the basis of the particular facts presented therein, the finding in De-Raef v. United States,70 E.Supp. 264(Ct. Claims 1947), supports the determination of the Secretary in this action. There, the sale of patented products was involved. The men had the right to sell products at a stipulated price within certain territories during the life of the contract, had agreed to sell a certain amount each year, but were free to work where and when they pleased so long so it was within their territory. The men furnished their own transportation, but were reimbursed for expenses incurred. There was no supervision over methods of sales; although the contract provided for daily reports, this was rarely done, only for new plants. The company was concerned mainly with the volume of sales, not the method. Under these circumstances, the court found that these men were independent contractors, not employees.
After careful consideration of the entire record, the applicable law and regulations, the Secretary's decision must be affirmed by this Court as it is supported by substantial evidence.
AND NOW, January 25, 1974, for the reasons mentioned in the foregoing memorandum, the plaintiff's motion for summary judgment or in the alternative for remand is denied. Defendant's motion for summary judgment is granted.
IT IS SO ORDERED.