
    JOHN EDWARDS D/B/A INLAND ROOFING CO. v. THE UNITED STATES
    No. 126-55.
    Decided December 3, 1958
    
      
      Mr. J oseph J. Lymam, for the plaintiff.
    
      Mr. Harold, B. Larsen, with whom was Mr. Assistant Attorney General Charles K. Bice, for the defendant. Mr. J ames P. Garland was on the brief.
   Jones, Chief Judge,

delivered the opinion of the court: This is an action by a taxpayer to recover from the Government Federal insurance contributions taxes paid under sections 1400 et seq., of the Internal Eevenue Code of 1939 (26 U. S. C. §,§ 1400 et seq.) for the period January 1,1949, through December 31,1952. The issue presented is whether certain mechanics called “applicators” and their helpers, performing services for the plaintiff, were or were not employees within the meaning of section 1426 (d) of the Internal Eevenue Code of 1939, as amended. That section provides in pertinent part as follows:

$ $ $ $ H*
(d) Employee. — The term “employee” includes an officer of a corporation, but such term does not include (1) any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an independent contractor or (2) any individual (except an officer of a corporation) who is not an employee under such common-law rules. [26 U. S. C. (1952 ed.) § 1426 (d)]

If the applicators were not employees, within the meaning of that section, but were independent contractors, then the taxes were illegally assessed and collected.

The plaintiff, an individual doing business as Inland Hoofing Company engaged in contracting for the sale, application, and installation of roofing and siding materials, maintained a regular business office in Spokane, Washington. His salesmen obtained written contracts for the plaintiff with property owners for the sale and application of roofing and siding materials, and, on occasion, for the installation of storm windows. The contract form contained a general description of the improvements to be made and an agreed price for labor and materials.

The individuals who performed the labor on the contracts were called “applicators.” The plaintiff had the names of several qualified applicators whom he could call when he had contracts to be performed. In some instances, applicators would come to his office seeking work and at other times the plaintiff would advertise in the newspaper for experienced applicators.

When the plaintiff was ready to commence work on a particular contract, the applicator, if he agreed to do the job, was handed a work sheet which contained the name and address of the property owner where the work was to be performed, a general description of the work, together with an approximation of the number of squares of material to be applied or the number of storm windows to be installed.

The relationship between the plaintiff and the applicators was such that the applicators were free to accept or reject any proffered job. Occasionally a job might be rejected by the applicator and the plaintiff would then endeavor to find another job acceptable to that particular applicator.

The plaintiff generally paid the prevailing rate to the applicators for each square of roofing or siding applied, or for each storm window installed and consequently there were no price negotiations between the plaintiff and the applicator, except in a situation where an applicator might do extra work on a particular job.

Contract materials such, as roofing, siding materials, and storm windows were furnished by the plaintiff, but tools, installation equipment such as planks, ladders, and materials for scaffolding, were furnished by the applicator himself.

The applicator worked either alone or with an associate applicator of his choice. The compensation paid for a job was divided between associate applicators in accordance with the agreement between them, and the plaintiff did not participate in such arrangements. The applicators were free to and did employ helpers without the approval of the plaintiff. The helpers were paid either by the applicator or by the plaintiff at the specific direction of the applicator, from the amount of compensation due from the plaintiff to the applicator on the specific job on which the helpers were employed. The helpers were under the control of the applicators in the performance of their work and with respect to hiring and discharge.

The plaintiff was not experienced in the manner and method of performing the work of applying roofing and siding materials, or in the installation of storm windows. He had no supervisors or other personnel to observe, instruct, or direct the applicators as the work progressed. He did not personally undertake to supervise the work of the applicators, although he would occasionally visit a job.

Each job was a separate and distinct undertaking between the plaintiff and the applicator who was compensated by the job and not upon an hourly, daily, or weekly basis. Payment was made at the completion of a job and not on any particular day unless a special arrangement for such payment was made between an individual applicator and the plaintiff.

The applicator could not substitute materials and generally had no authority to change the contract. However, in minor matters such as whether or not porch posts should or should not be covered with siding material, the applicator might consult with the customer, and could proceed in accordance with the customer’s instructions without prior consultation with the plaintiff.

The applicators paid all of their expenses incident to the performance of the work without accounting to or reimbursement from the plaintiff.

The plaintiff endeavored to obtain enough contract jobs ahead in order that he might regularly assign jobs to competent applicators and thereby keep them available for performance of his contracts. When a job was completed, the applicator often returned for another work sheet. If no job was available, the plaintiff sometimes called one of his competitors and requested assignment of a job to the applicator, but usually the applicator would seek work from the competitors of the plaintiff on his own initiative.

The plaintiff never terminated his arrangement with an applicator during the progress of a j ob. If not satisfied with an applicator’s work, the plaintiff simply did not offer him another work sheet. The applicator, if dissatisfied, refused the next j ob offered by the plaintiff.

The applicators were not members of any labor union and plaintiff’s dealings with them were on an individual basis. Plaintiff had no agreement which entitled him to preferred call on the time and services of the applicators.

Under the statutory definition the usual common law rules are to be applied in determining whether an individual is an employee and within the act or whether he is an independent contractor, thus making the act inapplicable. While the question of the existence of an employer-employee relationship must be decided on the basis of all the factors involved, Bartels v. Birmingham, 382 U. S. 126, 130; Metropolitan Roofing & Modernizing Company v. United States, 125 F. Supp. 670; Jagolinzer v. United States, 150 F. Supp. 489, the generally accepted and fundamental test is whether there exists, on the part of the employer, control or a right to control the activities of the alleged employee not only as to the result to be accomplished, but also as to the manner and method of attaining the result. De-Raef Corporation v. United States, 108 C. Cls. 255, 266; Radio City Music Hall Corp. v. United States, 135 F. 2d 715; Party Cab Co. v. United States, 172 F. 2d 87; National Labor Relations Board v. Nu-Car Carriers, 189 F. 2d 756. Restatement of the Law of Agency, §§2(3) and 220. The same test is adopted in the applicable Treasury Regulations which provide, 26 CFE §403.204 (b),

Generally such relationship [of employer and employee] exists when the person for whom services are performed has the right to control and 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. * * * [Emphasis supplied.]

While the decision in United States v. Silke, 331 U. S. 704, heavily relied on by defendant, but cited by both parties, might indicate that a somewhat broader definition of employee should be adopted through the so-called “economic reality” test, it is significant that the common law definition was written into the statute by Congress for the first time in 1948, after the decision in the Sills case. The repudiation of the expansion of the common law rule proposed by the Treasury Department for determining the existence of the relationship of employer and employee was accomplished by adding to § 1607 (i) of the Internal Revenue Code, the words:

but such term [employee] does not include (1) any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an independent contractor or (2) any individual (except an officer of a corporation) who is not an employee under such common-law rules.

In the present case the plaintiff had no right to control or direct the applicators as to the means or methods used by them in accomplishing the result. The plaintiff’s only concern was that the applicators accomplish a result in conformity with the terms of the contract with the owner of the structure to which the roofing or siding was being applied. In this way the plaintiff had no more control over the applicator than a house owner exerts over a house painter and it would be repugnant to the common law to consider the ordinary house painter anything other than an independent contractor.

The applicators here decided when and during what hours they would work and the manner in which they would perform tbeir work. Unlike the performers held to be employees in Ringling Bros.-Barnum & Bailey Com. Shows v. Higgins, 189 F. 2d 865, the applicators did not commit themselves to a specified time. See Central New York Insulating Co. v. United States, 138 F. Supp. 236.

In the instant case the applicators nsed their own means of transportation to and from the job without compensation from the plaintiff and used their own tools. The applicators hired their own helpers without prior notification to or authorization from the plaintiff.

Defendant relies on Security Roofing & Construction Co. v. United States, 163 F. Supp. 794. That case, like the instant case, involved the question whether applicators were employees of the taxpayer or independent contractors. The court noted that the fundamental factor in determining whether the applicators were employees or independent contractors was the “degree to which the plaintiff has the right to control and direct them, not only as to the result to be accomplished by the work, but also as to the details and the means by which that result is accomplished.” After analyzing the facts relative to the degree of control exercised by the taxpayer, the court concluded that the applicators were employees despite two very similar cases in the same circuit to the contrary. Metropolitan Roofing & Modernizing Co. v. United States, supra; Jagolinzer v. United States, supra. The facts which persuaded the court in the Security case that the degree of control exercised by the taxpayer rendered him the employer of the applicators, were similar but not identical in all respects to the facts in this case. In the Security case, the applicators could not perform any additional work for a customer of the taxpayer or resolve even minor problems arising in connection with a job without first consulting the taxpayer. In the instant case, the applicators had considerably more freedom. Findings 11 and 12. In the Security case applicators were required to refer all inquiries from passersby to the taxpayer. No such requirement has been established in the instant case. In the Secwrity case, the taxpayer supplied tbe staging and ladders or, if the applicator used bis own staging, the taxpayer paid him an additional amount. This was not true in the case at bar. Finding 16. In the Security case, the taxpayer could take an applicator off one job and send him to another; the taxpayer could discharge the applicator at any time for cause. The taxpayer in the instant case had no such rights. Finding 18. In the Security case, the taxpayer performed all cleanup work at the completion of the job and in general exercised fairly close supervision of the manner in which the work of the applicators was performed. This was not true in the instant case. Finding 8. We are of the opinion that the facts in the instant case do not establish the same degree of control found by the District Court to be lodged in the taxpayer in the Security case.

The Government contends that the fact that the plaintiff was enrolled under and paid contributions on behalf of applicators to the state industrial and unemployment program has a bearing on the employee status of the applicator. Finding 19. Following the view taken in Dimmitt-Rickhoff-Bayer Real Estate Co. v. Finnegan, 179 F. 2d 882, we feel that fact is not decisive in view of the whole situation herein presented.

On the basis of all the factors involved, we are led to the conclusion that the applicators here were independent contractors and not employees. In reaching this decision we have applied the tests as to whether an applicator is an employee or an independent contractor laid down in Levin v. Manning, 124 F. Supp. 192; Silver v. United States, 131 F. Supp. 209; Metropolitan Roofing and Siding Co. v. United States, supra; Farm & Home Modernization Corp. v. United States, 138 F. Supp. 423; Millard's Inc. v. United States, supra; Jagolinzer v. United States, supra.

It follows that the plaintiff is entitled to recover together with interest thereon as provided by law, and judgment will therefore be entered to that effect with the amount of recovery to be determined pursuant to Kule 38 (c).

It is so ordered.

Lakamore, Judge; Madden, Judge; and Whitaker, Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the briefs and argument of counsel, and the report of Trial Commissioner Eoald A. Hogenson, makes the following findings of fact:

1. Plaintiff is an individual doing business as Inland Eoof-ing Company at Spokane, Washington, engaged in contracting for the sale and application and installation of roofing and siding materials and storm windows on houses.

2. Plaintiff brings this action to recover from defendant Federal Insurance Contributions Act taxes for the period January 1,1949 through December 31, 1952. The principal issue in this case is whether individuals performing services for the taxpayer in applying the roofing and siding materials to homes are employees of the plaintiff or independent contractors. The parties stipulated, pursuant to Eule 38 (c), that the trial would be limited to the issues of law and fact relating to the right of plaintiff to recover, reserving the determination of the amount of the recovery, if any, for further proceedings.

3. Salesmen solicited written contracts between plaintiff and home owners for sale and application of roofing and siding materials, or installation of storm windows. Inserted in the contract form was a general description of the home improvement to be performed, and plaintiff agreed for stipulated unit price to furnish the labor and materials, and further agreed “that all materials will be standard grade for this type of construction and that only skilled, competent workmen will be used throughout.”

The individuals who actually performed the labor on the contracts are hereinafter referred to as “applicators.” Most of the work was application of siding and roofing, with only occasional installation of storm windows. The applicators did not solicit or obtain any contracts for the plaintiff, but referred any inquiries to the plaintiff or his salesmen.

4. Plaintiff maintained a regular office for the transaction of his business. Plaintiff had the names of several qualified applicators whom he could call when he had contracts to be performed. In other instances, applicators came to his office and applied for a job. At times plaintiff inserted ads in newspapers and obtained applicators. One such, ad was listed under “Help Wanted, Male”, requested experienced roofing and siding applicators, and provided plaintiff’s office telephone number.

When an applicator came to the plaintiff seeking a contract job to perform, plaintiff inquired of his qualifications and experience unless previously acquainted with him, and gave jobs only to well-qualified applicators who were deemed capable of performing the contract work.

5. Giving of contract jobs to applicators was made by plaintiff at his office. When a particular contract job was ready, the applicator was handed a work sheet which contained the name of the property owner and the address of the place where the work was to be performed, and a general description of the work, together with an approximation of the number of squares (a square being 100 square feet) of siding or roofing material to be applied, or number of storm windows to be installed. Each applicator was free to accept or reject any proffered job. Occasionally a job would be rejected, and plaintiff would endeavor to find a job acceptable to the particular applicator.

Plaintiff generally paid to the applicators for each square of roofing or siding applied, or for each storm window installed, the amount of money which was the prevailing and customary rate paid in the trade, and consequently there were no price negotiations between plaintiff and the applicator, except in the limited circumstances hereinafter described in these findings.

No written agreement was executed between plaintiff and any applicator. With the exception of the work sheet, the arrangement between them was entirely oral.

6. The contract materials such as roofing and siding materials and storm windows, were furnished by plaintiff and generally placed by him at the job site.

7. The applicators provided their own transportation to and from the job location. They furnished and maintained their own automobiles or trucks on which they provided insurance coverage, all without reimbursement by the plaintiff. One of the applicators rented a truck from the plaintiff on a mileage basis, provided the gasoline and oil, and used the truck in the performance of jobs for the plaintiff and occasionally on jobs which he performed for competitors of the plaintiff, all with plaintiff’s knowledge. He garaged the truck at his home, and otherwise had it completely in his charge throughout the rental period. Apparently, this applicator performed a substantial part of the window installation contracts, as well as siding and roofing jobs, as plaintiff conceded that his reason for rental of the truck to him was to provide him a means of transporting windows to the job location. This applicator used the rented truck to provide transportation for his tools and equipment as well as those of any cooperating applicator or helper. Plaintiff provided the insurance coverage on this truck. No other applicator used a truck or automobile owned by the plaintiff.

8. Plaintiff was not experienced in the manner and method of performing the work of applying roofing and siding materials, or installing windows. He had no supervisors or other personnel to observe, instruct, or direct the applicators as the work progressed. He did not personally undertake to supervise the work of applicators, although he occasionally visited a job in progress to see if it was being performed in accordance with the terms of the contract. Plaintiff concerned himself with completion of the job in accordance with the contract to the satisfaction of his customer.

Having satisfied himself that his applicators were qualified and experienced, plaintiff relied upon them to perform the work properly. The applicators received no instructions or directions from the plaintiff as to the manner or method in which the work was to be done.

9. Each job was a separate and distinct undertaking between plaintiff and the applicator, and a separate work sheet was furnished the applicator for each job. Neither plaintiff nor the applicator was obligated to offer or accept another job. While it was apparent that plaintiff expected and the applicator understood that the job would be accomplished within a reasonable time, each applicator determined his own hours of work and accordingly when the job would be commenced and completed. The applicators worked on such days and for such hours as suited their own convenience, and could take time off between jobs without permission of the plaintiff.

10. The compensation paid to the applicators was not based upon any hourly, daily, weekly, or any other periodic rate, except to the limited extent mentioned in finding 12. It being already understood that plaintiff was paying the prevailing rate per square of roofing or siding applied, or per unit of storm windows installed, the applicator could compute what compensation could be expected from a job at the time the work sheet was proffered to him. When a job sheet designated 23 squares, and only 21 squares were applied, the applicator was paid for 23 squares. If the designated estimate was 23 squares but 25 were actually applied, the applicator was paid for 25 squares. Even though some jobs were more difficult than others, the customary rate was still paid, the easier jobs balancing the more difficult ones. If a job was some distance from Spokane, the applicator would be paid a higher rate per square of material applied.

Upon the completion of a job, the applicator secured a certificate of satisfactory completion from the customer, and delivered this certificate to the plaintiff’s office where plaintiff immediately paid the applicator the amount due him for the job. There was no set day when payment was made tp applicators for work performed. Plaintiff occasionally pnade partial payments for work completed in progress on a job, but never made full payment until completion of the job.

11. Prior to receiving the work sheet at plaintiff’s office, the applicator had had no opportunity to bid on the job, had not entered into negotiations either with the customer or the plaintiff concerning the work outlined in the work sheet, and was not consulted by the plaintiff as to the contract price or other terms of the contract or as to the amount to be paid for the applicator’s services. City or other building permits were obtained by the plaintiff.

The applicator could not substitute materials and generally had no authority to change the contract. However, in minor change matters such as whether or not porch posts should or should not be covered with siding material, the applicator consulted with the customer, and proceeded in accordance with their agreement without prior consultation with the plaintiff.

12. Occasionally a job required carpentry work, which, had been overlooked by the salesman and was extra work over and above the performance described in the contract and the work sheet. If the extra work was relatively minor in nature, the applicator proceeded without approval of the plaintiff, but otherwise conferred with the plaintiff before commencing performance. In either event, the compensation for doing the extra work became the subject matter of negotiation between the applicator and the plaintiff. Not being computable on a per square or per unit basis, the compensation for the extra work was computed mainly from the standpoint of the time required for its performance. Sometimes the compensation for extra work was computed on a per . hour basis, and at other times a flat figure was agreed upon between the plaintiff and the applicator. In any event, the compensation for extra work was in addition to that paid on a per square or per unit basis.

The amount of extra work on the various jobs was relatively small, and the necessity for extra work was infrequent.

13. The applicator either worked alone or with an associate applicator of his own choice. The compensation paid for a job was divided between associate applicators in accordance with the agreement between them, and the plaintiff did not participate in determining the arrangements between them. The applicators were free to and did employ helpers at times without the approval of the plaintiff. The helpers were paid either directly by the applicator or by the plaintiff at the specific direction of the applicator from the amount of compensation due from the plaintiff to the applicator on the specific job on which the helpers were employed. The helpers were under the control of the applicators in the performance of their work and with respect to hiring and discharge. At times plaintiff had inexperienced or unqualified workmen apply to him for jobs, and sometimes he intervened with an applicator and requested that such a workman be employed by the applicator to afford an opportunity for instruction and training in the performance of the work. In some instances the applicator complied with the request, but the control of the helper, the determination of his compensation, and liis discharge remained the function of the applicator.

14. After completion of a job, if the work proved to be unsatisfactory, the applicator was required to go back and repair the work without compensation if he was still performing jobs for the plaintiff.

15. Plaintiff provided signs for the applicators to the effect that the job was being done by Inland Roofing Company, but seldom were they displayed at the job.

16. Applicators furnished all of their own tools and equipment necessary for the performance of the work. These usually consisted of a kit of carpenter’s tools, material cutters, planks, ladders, and other equipment for scaffolding. The applicators maintained their own tools and equipment and replaced them from time to time at their own cost without reimbursement from the plaintiff. The cost of such tools and equipment varied among the applicators from $50 to $500.

The applicators also paid all of their expenses incident to the performance of the work without accounting to or reimbursement from the plaintiff.

17. Plaintiff endeavored to obtain enough contract jobs ahead in order that he could regularly assign jobs to competent applicators and thereby keep them available for performance of his contracts. When a job was completed, the applicator often returned for another work sheet. If no job was available, the plaintiff would on some occasions call one of his competitors and request assignment of a job to the applicator, but usually the applicator would go to the competitors on his own initiative. The applicators were free to and did on occasions contract directly with one of plaintiff’s customers for some home repair or alteration work not covered by plaintiff’s contract or work sheet, such as the removal and replacement of steps or porches or construction of an additional window. In such event, the applicator was compensated directly by the customer without intervention by the plaintiff. Between jobs for the plaintiff, the applicators were free to and did perform contract work on their own account or performed jobs for competitors of the plaintiff.

18. Plaintiff never terminated bis arrangement with an applicator during tbe progress of a job. If not satisfied with an applicator’s work, plaintiff refrained from offering him another work sheet. The applicator terminated or suspended his relationship with the plaintiff without notice by rejecting or failing to apply for another job.

The applicators were not members of any labor union, and plaintiff’s dealings with them were on an individual basis. Plaintiff had no agreement which entitled him to preferred call on the time and services of the applicators.

19. Plaintiff was enrolled under and paid contributions in behalf of applicators to the Washington State Industrial Insurance Program, and also was enrolled under the Washington State Unemployment Insurance Program as to the applicators. Applicators who were injured while performing plaintiff’s contract work received the benefits provided by the State Industrial Insurance.

20. Plaintiff filed his quarterly Federal Employment Tax returns with the District Director of Internal Revenue Service at Seattle, Washington, covering the period involved in this case, and paid the Federal Insurance Contributions Act taxes on the earnings of his regular employees as well as upon the earnings of the applicators who were listed upon such forms.

21. Plaintiff filed a timely claim for refund of the Federal Insurance Contributions Act taxes alleged to have been erroneously paid on the earnings of the applicators.

22. By letter dated June 17, 1954, the Commissioner of Internal Revenue advised the plaintiff that his claim was disallowed. Plaintiff’s petition was thereafter timely filed in this court.

CONCLUSION OK LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover together with interest thereon as provided by law, and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Rule 38 (c).

In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount due thereunder, it was ordered on February 13, 1959, that judgment for the plaintiff be entered for $765.94, with interest as provided by law. 
      
      
         One of the applicators rented a truck on a mileage basis from the plaintiff. The applicator provided his own gasoline and oil and used the truck In the performance of jobs for the plaintiff and occasionally on jobs for the plaintiff’s competitors with the plaintiff’s knowledge, (Finding 7.)
     