STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1323

North American Cleaning Services Co., Inc.,
Relator,

vs.

Department of Employment and Economic Development,
Respondent.

Filed July 11, 2006

Affirmed

Wright, Judge

Department of Employment and Economic Development

File No. 990 04

Jeffrey R. Sprinkel, Law Office of Jeffrey R. Sprinkel, Ltd., 20395 Summerville Road, Deephaven, MN (for relator)

Matthew St. Martin, Department of Employment and Economic Development, E200 First National Bank Building, 332 Minnesota Street, St. Paul, MN 55101 (for respondent)

Considered and decided by Shumaker, Presiding Judge; Wright, Judge; and Crippen, Judge.*

U N P U B L I S H E D O P I N I O N

WRIGHT, Judge

Relator-business challenges the decision of the senior unemployment review judge that a worker was relator’s employee rather than an independent contractor. We affirm.

FACTS

In March 2003, Noe Arreguin, owner of North American Cleaning Services, Co. (NACS), purchased the business assets of DelaClean International, a cleaning service. NACS became the successor in interest to contracts between DelaClean and its cleaning customers as well as to contracts between DelaClean and the workers who performed the cleaning. These workers purchased the exclusive right to service NACS janitorial accounts up to a particular total monthly billing amount. The workers received two monthly payments from the money collected from their accounts during the previous month. From these accounts, NACS received a 22-percent account-management fee, which covered costs for administration, marketing, quality control, and liability insurance. NACS also reserved the right to deduct any customer refunds and an associated “complaint-handling fee.”

Shortly after NACS purchased DelaClean’s assets, the Minnesota Department of Employment and Economic Development (DEED) Tax Liability Unit requested information regarding the work relationship between NACS and its workers. NACS completed Form MDES-785, a DEED form used to determine whether a company’s workers are employees or independent contractors. NACS also supplied the contracts and billing statements of one worker, Saeed Hussen.

DEED determined that Hussen and “any others performing similar services” were employees of NACS. DEED found the following indicators of an employment relationship: (1) NACS controlled the means and manner in which the services were performed; (2) NACS had the right to discharge workers at any time without incurring liability; (3) the workers’ services were not available to the public on a continuing basis; (4) the workers could end their relationship with NACS without incurring liability for failure to complete the job; (5) the workers did not make a substantial investment in facilities used to perform the services; (6) the workers did not perform work for multiple firms or individuals simultaneously, as independent contractors; and (7) the services performed were in the usual course of NACS’s business activities.

NACS appealed DEED’s determination, and a hearing was held before an unemployment law judge (ULJ). The ULJ similarly found that Hussen and others similarly situated were employees because (1) NACS had the right to discharge without incurring liability; (2) NACS provided training and required quality-control reports to be filed; (3) workers were paid twice a month on a regular basis; (4) NACS provided the services in the ordinary course of its business; and (5) there was no evidence that workers provided similar services to other companies or employers.

NACS appealed the ULJ’s determination to a senior unemployment review judge (SURJ), who also found that Hussen and others similarly situated were employees of NACS. The SURJ concluded that NACS (1) controlled the means and manner of its workers’ performance through training and quality-control visits and (2) retained the power to terminate its workers at any time for reasons NACS deems necessary. This certiorari appeal followed.

D E C I S I O N

On appeal, we review the decision of the SURJ rather than that of the ULJ. Kalberg v. Park & Recreation Bd. of Minneapolis, 563 N.W.2d 275, 276 (Minn. App. 1997). In doing so, we view the SURJ’s factual findings in the light most favorable to the SURJ’s decision and “will not disturb them as long as there is evidence that reasonably tends to sustain those findings.” Schmidgall v. FilmTec Corp., 644 N.W.2d 801, 804 (Minn. 2002). Although we defer to the SURJ’s findings of fact if they are reasonably supported by the evidence in the record, we review questions of law de novo. Ress v. Abbott Nw. Hosp., Inc., 448 N.W.2d 519, 523 (Minn. 1989).

NACS contends that the SURJ erred by classifying its workers as employees rather than independent contractors. Whether a worker is an employee or an independent contractor involves a mixed question of law and fact. Wise v. Denesen Insulation Co., 387 N.W.2d 477, 479 (Minn. App. 1986). When the facts are undisputed, the determination of whether a person is an employee becomes a question of law. Neve v. Austin Daily Herald, 552 N.W.2d 45, 48 (Minn. App. 1996). Here, because NACS does not dispute the SURJ’s factual findings, the sole issue before us is whether, based on the facts, an employment relationship exists.

An employer must pay unemployment insurance taxes on the taxable wages paid to each employee. Minn. Stat. § 268.051, subd. 1 (2002). Factors used to determine whether a worker’s status is that of an employee or an independent contractor are “(1) [t]he right to control the means and manner of performance; (2) the mode of payment; (3) the furnishing of material or tools; (4) the control of the premises where the work is done; and (5) the right of the employer to discharge.” Speaks, Inc. v. Jensen, 309 Minn. 48, 50, 243 N.W.2d 142, 144 (1976) (quoting Guhlke v. Roberts Truck Lines, 268 Minn. 141, 143, 128 N.W.2d 324, 326 (1964)). The most important factor is the right of the employer to control the means and manner of performance. Id. at 51, 243 N.W.2d at 144. DEED rules further explain these factors. See Minn. R. 3315.0555 (2003) (describing essential and additional factors to consider in determining whether worker is employee and criteria for determining if employer has control over method of performing services). Thus, we examine the undisputed facts in light of the five factors to determine whether Hussen and others similarly situated are employees of NACS.

Of the five factors, two weigh in favor of finding that Hussen is an employee. First, NACS controlled the means and manner of the workers’ performance by requiring them to undergo NACS’s training and by utilizing a quality-control checklist. Arreguin testified that NACS requires new workers to complete 20 hours of its training before NACS permits the workers to work at a location by themselves. DelaClean conducted Hussen’s training before the acquisition by NACS. NACS’s orientation program includes safety training and field orientation. NACS prohibits a worker from using an assistant who has not completed NACS’s training and orientation.

NACS also imposed quality standards to ensure satisfactory job performance. Whenever a customer complained, Arreguin inspected the work using a quality-control checklist. If the work did not meet NACS’s standards, Arreguin directed the worker to improve the quality of the work and noted whether customer complaints persisted.

Second, NACS retained the right to terminate the workers. The contract between NACS and the workers states that NACS has

the right to terminate [the] contract with Contractor at any time for reasons deemed necessary by [NACS], Inc. These reasons may include, but are not limited to the following:

a. Refusal to accept servicing accounts.

b. Too many complaints received from servicing accounts.

c. Contractor having unauthorized helpers on servicing account.

Arreguin testified that if customer complaints on a particular account were excessive, he would terminate the worker.

The remaining factors weigh against a finding of an employment relationship. For example, the record demonstrates that workers receive bimonthly payments of their accounts collected by NACS, and NACS does not withhold any payroll taxes. Under the contract, if NACS does not receive payment from the customer, the worker will not receive payment. And the workers supply their own cleaning products and equipment.

A majority of the factors weighs against finding an employment relationship. But control over the means and manner of performance is the most important factor. Because the facts support the conclusion that NACS controls the means and manner of performance and retains the right to terminate at any time “for reasons deemed necessary” by NACS, we conclude that an employment relationship exists. The SURJ did not err in its application of the law.

Finally, NACS argues that if the right to terminate were enforced without regard to performance, the terms of the contract would be unconscionable. NACS maintains that “no sensible, lucid person” would agree to the termination clause in the worker contract. NACS does not address how this purported contractual defect diminishes NACS’s control over the means and manner of the workers’ job performance. Moreover, the enforceability of a contract is not a factor for determining whether an employee-employer relationship exists. Thus, this argument is unavailing.

Accordingly, the SURJ did not err in determining that Hussen and other similarly situated workers are employees of NACS, rather than independent contractors.

Affirmed.

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.