John Gabel Manufacturing Co. v. Murphy

This is an appeal from a judgment of the circuit court of Cook county against appellant for an unpaid unemployment compensation assessment fixed by the Director of Labor. The sole question presented by the record is whether certain named persons, hereinafter referred to, were employees of appellant for the time here involved.

The facts are not in dispute. Appellant is and has been for a number of years engaged in the business of manufacturing automatic vending machines and automatic phonographs. Prior to October 1, 1938, it had placed automatic phonographs in stores and other locations for use by patrons. Prior to that date it employed Ohlson, Schennum, Becker, Severson, Engdahl and Blomberg to service its machines and collect the coins deposited therein. A young lady named Barran was employed to keep the books of those transactions. On October 1, 1938, appellant leased all the machines then out on location, some 400 in number, to Ohlson. Each machine was covered by a separate lease, the terms of which were identical and are hereinafter referred to. Ohlson and Schennum, Becker, Severson, Engdahl and Blomberg formed a partnership known as the Bell Music Company, to operate the machines. Their partnership provided that after the payment of 35 per cent rental to appellant under Ohlson's leases, office expenses of the partnership, repairs and upkeep of the machines and the purchase of records, the net proceeds were to be divided among the several partners. This partnership rented offices separate from appellant and employed Miss Barran as bookkeeper and office girl, and also employed one Simmons to service machines in locations owned by colored people. The partnership had a bank account and a telephone listed in the name of Bell Music Company. The service partners, in making collections, made out slips, in duplicate, bearing the name, address, numbers of the machines, the amount collected and commission paid out, and the signature of the location owner.

Appellant, under the leases, could cancel any or all leases with Ohlson at any time. It exerted no control over the partnership. If any machine was not producing what it thought was a sufficient rental, it suggested to Ohlson that he either move the machine to another location or give adequate reasons why the particular machine or machines did not produce more income. During the existence of the leases appellant dealt solely with Ohlson. The partnership continued operation under the leases appellant had with Ohlson until about January 1, 1941, when appellant cancelled its leases with Ohlson and executed leases with Ohlson and his five partners in the same form as previously made to Ohlson.

The Director of Labor found that Barron and Simmons, employees of Bell Music Company, and Ohlson, Schennum, Becker, Severson, Engdahl and Blomberg, members of the partnership, were employees of appellant, and found appellant liable for an assessment and accrued interest amounting to $1272.28, after allowing a credit of $23.64 that had been paid by the Bell Music Company. The circuit court, upon review of the record under a writ ofcertiorari, found that the decision of the Director of Labor should be confirmed, the writ of certiorari quashed, and that appellant was indebted to the Director of Labor for contribution in the sum of $980.98 with interest at 1 per cent per month from the date the contributions became due and payable, and entered judgment against appellant in the sum of $1458.69.

Appellant contends that Ohlson, under his leases from October 1, 1938, to December 31, 1940, was operating and servicing the machines not as an employee but as an independent contractor, and that with his five partners, as the Bell Music Company, was operating an independent business, and that Miss Barran and Simmons were employees of the Bell Music Company and not of appellant. To sustain the judgment, appellee insists that under the leases Ohlson was an employee of appellant; that the five servicemen, Barran and Simmons, were employees of Ohlson, to assist him in the work he was performing as an employee of appellant, and that under section 2(d) of the Unemployment Compensation Act, they must be also held to be employees of appellant, the employing unit.

The record, without contradiction, shows that appellant dealt solely with Ohlson in making the leases. It is admitted that the relationship of employer and employee existed between appellant and Barran and the six members of the partnership up to October 1, 1938. Appellant's vice-president testified that appellant desired to concentrate on the manufacture and sale of automatic phonographs and to avoid possibility of labor trouble, which might extend from service employees engaged in the operation of the machines to those of its factory, and its purpose was to retire from the business of operating the machines.

Appellee argues that notwithstanding this undisputed evidence the leases did not terminate the relationship of employer and employee. In construing contracts the language used therein, if not ambiguous, must be given the construction which the words used imply. (Emerich Outfitting Co. v. Siegel, Cooper Co.237 Ill. 610.) In other words, the language used must be given its common everyday meaning. Nothing can be added to nor taken from it to ascertain what the parties intended. The leases involved here each leased one automatic phonograph and equipment of records. Under the lease lessee was to install and maintain the leased property in a location where it would be accessible for use and operation by the public, but all arrangements for such purpose were to be made by lessee in his own name and behalf, and at his own expense and risk, without obligating lessor in any way. The lessee was to use his best efforts to keep the leased property in operation in the best possible location so the largest possible earnings might be produced. Lessee was to pay lessor, as rentals, 35 per cent of the net amount taken in by the leased property after deducting the amount paid to location owners. All rentals were to be paid semimonthly, each payment to be accompanied by written statement signed by the lessee, on a form prescribed by the lessor, showing location of leased property, total taken in, and amount paid to location owner during the previous semimonthly period. Lessee, on termination of the lease, was to return the leased property in a like good working order as when received, reasonable wear and tear excepted. Lessee agreed to, at his own expense, (a) keep property in good repair, working order and condition; (b) replace damaged, worn-out, broken or out-of-date records, same to be the property of the lessor; (c) pay all taxes; (d) keep leased property insured and (e) provide or transportation, installation, operation and maintenance and protection of all leased property and make all collections therefrom. On failure of lessee to pay rentals or to keep or perform any agreement required by the lease to be kept, or in case of death or bankruptcy, lessor might elect to terminate without notice and repossess the leased property without process of law. The lease recited that it was understood and agreed that lessee was at all times to be an independent contractor and as such should carry on the business, so contemplated by the lease, in his own name and at his own expense and risk; that nothing in the lease should imply a partnership between lessor and lessee; that the payment of a per cent of the net amount taken in by the leased property was only a method of computing the amount of the rentals to be paid the lessor and gave no authority to obligate the lessor in any manner. This instrument does not purport to be other than what its language states, i.e., a lease of specific personal property. There is nothing in the language of the lease that can be said even to imply that Ohlson was an employee of appellant. If he was, that relationship will have to be determined from applicable provisions of the statute.

Subparagraph (f)(1) of section 2 of the Unemployment Compensation Act, (Ill. Rev. Stat. 1937, chap. 48, par. 218,) as it existed prior to its amendment in 1939, defines "employment" as follows: "Subject to the other provisions of this subsection, ``employment' means service, including service in interstate commerce, performed for wages or under any contract of hire, written or oral, express or implied." As amended in 1939, the words "for wages or under any contract of hire, written or oral, express or implied" were eliminated and the words "by an individual for an employing unit, and including all services performed by an officer of a business corporation," were added.

The Unemployment Compensation Act was adopted to alleviate the stress of unemployment. In Miller, Inc. v. Murphy, 379 Ill. 524, it was held that the act, rather than the common-law concept of master and servant, governs that relationship. In Rozran v.Durkin, 381 Ill. 97, that holding was extended to the issue whether the services were those of an employee or contractor. In no case has this court held that where the service does not come within the definition of "employment" or "employing unit," as defined in the act, the one rendering that service becomes an employee. (Ozark Minerals Co. v. Murphy, 384 Ill. 94.) The act in no way destroys the relation of contractor or subcontractor.

In determining whether Ohlson was an employee or an independent contractor, the principal consideration, under the general rule pertaining to employer and employee, is the right to control the manner of doing the work. Not the actual exercise of the right by interfering with the work, but the right to control, constitutes the test. (Ozark Minerals Co. v. Murphy, 384 Ill. 94; Amalgamated Roofing Co. v. Travelers Ins. Co. 300 Ill. 487.) "An independent contractor is one who undertakes to produce a given result without being in any way controlled as to the method by which he attains that result." (Jaggard on Torts, sec. 73.) A test often resorted to, in determining whether one is an employee or an independent contractor, is to ascertain whether the one doing the work represents the master as to the result of the work, only, or as to the means. If he represents the master only as to the result and himself selects the means, he must be regarded as an independent contractor. (Ozark Minerals Co. v. Murphy, 384 Ill. 94; Pace v. Appanoose County, 184 Iowa, 498, 168 N.W. 916.) The mere fact that the owner may have an overseer or an architect to see that the work complies with the contract or that the work is done to the owner's satisfaction, does not change the character of the contract, if it meets the test stated. Ozark Minerals Co. v. Murphy, 384 Ill. 94; Pace v. Appanoose County, 184 Iowa, 498,168 N.W. 916; Humpton v. Unterkircher, 97 Iowa, 509, 66 N.W. 776; Thompson on Negligence, 2d, sec. 629.

Appellant, under the provisions of the leases, did not and could not exercise any control over the work of Ohlson other than as set out in the lease, which reserved to appellant only the right to call attention to certain locations where the receipts from the machine were not what appellant thought they should be, and in that event all appellant could do about it was to suggest the machine be placed in a new location or require that Ohlson satisfactorily explain why the receipts fell off. Appellant could cancel the lease on any one or more machines at any time Ohlson did not live up to the provisions of his lease. If and when that was done, their relationship as to the particular lease or leases was at an end.

Appellee urges that the 400 machines were on location under contracts between appellant and the owners of the places where the machines were placed; that appellant did not assign its contracts to Ohlson, and the operation of the business continued as before the leases were executed. There is no evidence in the record, however, to show that appellant had any contract or contracts with any person or persons relative to the placing of the machines. There was therefore no contract to assign. So far as the record shows, each and every machine was placed by Ohlson after the execution of the leases. There is no evidence in the record, nor can any implication be drawn from evidence that the leases were anything different from what they, on their face and according to their provisions, purported to be, and no evidence of any other relationship or control than that prescribed by the lease.

Prior to October 1, 1938, the placing of machines by appellant and the employment of Ohlson, his five servicemen and Barran to care for that branch of its business, was a separate and distinctive branch of the business of appellant. No effort was made to contradict appellant's evidence that it desired to discontinue that branch of its business and desired also to devote its entire time to the manufacture and sale of its machines, and for this reason retired from that branch of its business. We see no difference in the arrangement appellant had with Ohlson from that of a farmer who owns a farm and machinery to operate it, and who also buys, sells and feeds livestock, and, desiring to devote his entire time to his livestock business and to be free from the responsibility of cultivating the land, leases to a then hired employee, his farm and his farm equipment and the use of the farm land, under a lease similar in its terms as to rentals, repairs and the like, to the one before us. Measured by the rules stated, and applying the facts as shown by the evidence, it is clear that Ohlson was not an employee of appellant but was an independent contractor.

In Ozark Minerals Co. v. Murphy, 384 Ill. 94, subparagraph (d) of section 2, defining "employing unit" and "who shall be deemed to be an employee," was discussed, and it was there held that while it brings the employees of an independent contractor or subcontractor dealing with an "employing unit" within the act as employees of the "employing unit," with the exception therein specified, the act nowhere declares that an independent contractor, as defined by the statute, may be considered an employee of the employing unit.

That the General Assembly intended to tax employing units upon the wages of employees only and not on the earnings of independent contractors, is clearly shown by subparagraphs (f)(1) and (f)(5) of section 2 hereinabove referred to. By the amendment of section 2(f)(1) in 1939, (Ill. Rev. Stat. 1939, p. 1614,) "employment" means services by an individual for an employing unit. Under subsection (d) of section 2, the services of an independent contractor, as defined by the statute, are not included.

In the case before us there was no hiring of Ohlson, nor services to be performed for appellant by him. Under the leases Ohlson acquired the undisputed possession of the phonographs at a rental of 35 per cent of the net amount the machines produced. The services to be performed in the operation of the machines were not to be performed for the benefit of appellant, but were for the benefit of Ohlson, at his own expense. Like any other lease of property, when the lease expired by its terms or was cancelled, Ohlson was only to return each machine to appellant. Appellant was not an "employing unit" insofar as Ohlson was concerned. Neither section 2(f)(5), as in force in 1937, nor as amended in 1939, has therefore any application to the situation before us.

From what has herein been said it follows that the members of the partnership and their employees, Barran and Simmons, were not employees of appellant. The circuit court erred in quashing the writ of certiorari and in entering judgment against appellant for the assessment and interest. The judgment is reversed and the cause remanded, with directions to quash the record.

Reversed and remanded, with directions.