SMRJ, Inc. v. Russell

SECOND DIVISION
DATE: December 26, 2007
No. 1-07-0112
SMRJ, INC., d/b/a Four Boys Labor Service, ) APPEAL FROM THE
) CIRCUIT COURT OF
Plaintiff-Appellant, ) COOK COUNTY
)
v. )
)
BRENDA RUSSELL, Director of the Illinois )
Department of Employment Security, and ) No. 05 L 50885
THE ILLINOIS DEPARTMENT OF )
EMPLOYMENT SECURITY, and )
Administrative Agency of the State of )
Illinois, and JOSEPH NUNES, the Director )
of the Illinois Department of Employment )
Security's Representative, ) THE HONORABLE
) ALEXANDER P. WHITE,
Defendants-Appellees. ) JUDGE PRESIDING.
JUSTICE HOFFMAN delivered the opinion of the court:
The plaintiff, SMRJ, Inc., d/b/a Four Boys Labor Service (SMRJ), appeals from an order of
the circuit court affirming a final administrative decision issued by the Director of the Illinois
Department of Employment Security (the Director). Following an audit of SMRJ’s unemployment
insurance contributions for 1999, the Director found that 1,350 workers who performed services
pursuant to referrals by SMRJ were employees rather than independent contractors. The Director
also found that SMRJ was liable for a total of $95,159.16, including $58,264.41 in unpaid
unemployment insurance contributions, plus $36,894.75 in statutory interest.
On appeal, SMRJ contends that (1) it was denied due process and a fair hearing because the
Director’s representative who conducted the administrative hearing was biased against its interests,
(2) it was not the employer of the subject workers, (3) its payments to the subject workers were not
No. 1-07-0112
wages, (4) the subject workers were independent contractors and were exempt from coverage
pursuant to section 212 of the Unemployment Insurance Act (the Act) (820 ILCS 405/212 (West
1998)), (5) the doctrine of equitable estoppel precluded the Department from enforcing its
determination and assessment and from collecting statutory interest on the unpaid contributions, and
(6) the circuit court erred in entering a monetary judgment and miscalculated the amount of statutory
interest owed. For the reasons that follow, we affirm.
Following an audit conducted in 2001, the Department issued a determination and assessment
finding that SMRJ had failed to pay $58,264.41 in unemployment insurance trust fund contributions
for 1999 and that it was liable for $26,744.95 in statutory interest. SMRJ filed a protest and petition
for hearing, contending that the auditor had classified many individuals as SMRJ employees when
they should have been classified as independent contractors, whose wages should not have been
counted against SMRJ. An administrative hearing was conducted by the Director’s representative,
Joseph Nunes.
At the hearing, SMRJ called two witnesses. Bogdan Dobrzynski, the Department field auditor
who performed the 2001 audit, testified exclusively about the circumstances of the exit interview
performed at the conclusion of the audit. Louis Adler, SMRJ’s accountant, testified regarding the
company’s business practices and treatment of the workers that were the subject of the audit. None
of the four brothers who owned SMRJ testified, nor did any of the 1,350 workers whose status was
at issue.
Adler testified that he was employed by an independent accounting firm and had performed
accounting services for SMRJ since 1990. He stated that SMRJ referred workers to companies that
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advised SMRJ that they were in need of laborers. According to Adler, SMRJ was neither an
employment agency nor a temporary employment agency, although he did not know whether it had
a license to operate as a temporary employment agency. When workers came to SMRJ, they
completed and signed a document prepared by SMRJ and entitled “Application for Eligibility
Verification.”
The “Application for Eligibility Verification” included spaces for the worker to provide basic
information, such as his or her name, address, date of birth, and social security number. Below that,
it had spaces to fill in the name of an authorized SMRJ representative and for the worker to sign and
date the form. The document also stated as follows:
“By signing this agreement, I hereby attest that the information [I] am providing with
this statement (Photocopies on back) is accurate and true. I certify, under penalties
of perjury, that my taxpayer identification number is correctly shown above. I certify
that I am not subject to withholding.
I also agree that I will be treated as an Independent Contractor and that all financial
responsibilities (Federal and State taxes) will rest upon me.
I also understand that there will be a service fee taken out of pay each and every time
I work.
I also understand that I will receive no fringe benefits and I will also be paid a certain
fee for the services I render depending on the amount of hours that I will work at the
discretion of the company I will work at, not FOUR BOYS LABOR SERVICE.”
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Adler testified that the service fee mentioned in this agreement was a referral fee collected by
SMRJ. He further stated that SMRJ exercised no control over the workers it referred and had no
relationship with the workers. The workers were free to choose whether they would perform services
pursuant to a referral, and any necessary materials, supplies, tools or equipment were given to the
worker by the referred company. Although the workers received their pay from SMRJ, they were
not provided paid vacations or sick leave, pension benefits, or bonuses.
According to Adler, SMRJ knew nothing about the individuals they referred, other than the
basic information on the “Application for Eligibility Verification” form, and he was not sure whether
SMRJ maintained a file for each worker. Adler stated that, when a worker came in seeking work,
SMRJ would give that person a choice of several companies he or she could work for, and it was up
to the worker to decide whether to pursue working for any of those companies. When the Director’s
representative asked how SMRJ became aware that companies needed workers, Adler said that there
were some companies that were always looking for workers. In response to an inquiry about what
types of companies were involved in these referrals, Adler mentioned manufacturing companies,
chemical companies, and iron companies. Adler specified only machine operators and fork-lift
operators as examples of jobs for which SMRJ provided referrals.
When asked how SMRJ knew that a worker had accepted work pursuant to a referral, Adler
stated that the client company sent a report to SMRJ, but he was unable to provide specific
information about the contents of such reports. Adler said, “I guess it contains the name of the
person and the amount of time that they worked.” He also stated that the report might be sent daily
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or weekly, depending on how much time the individual performed services for the company. When
asked if the report included the number of hours the person had worked, Adler responded, “I guess.”
The Director’s representative inquired about whether the report contained the hourly amount
that the person had earned, and Adler responded, “I don’t think so.” When asked how SMRJ knew
what to pay each worker, Adler initially answered that SMRJ was advised in the report of the rate
that had been determined by the client company. He later testified, however, that he did not know
whether the report contained the worker’s hourly rate of pay. The Director’s representative asked
what other information the report contained, but Adler said that he did not know. Upon further
questioning, Adler stated that he did not know whether the report contained the worker’s name and
social security number.
Adler further testified that he did not know how much of each worker’s pay SMRJ received
as a referral fee, and he was unsure whether SMRJ’s fee was based on a percentage of the worker’s
wages. According to Adler, the client company determined the rate of pay for each worker referred
by SMRJ. Yet, he did not know how a client company became aware that SMRJ had referred the
worker. Adler stated that SMRJ did not have any contracts with the client companies to which
workers were referred. He testified that SMRJ did not receive any payment from a client company
that permanently hired a worker that had been referred by SMRJ. According to Adler, if a company
complained about a worker that SMRJ referred, that worker would not be sent to the same company
again.
Adler also testified about a conversation that he had in 1993 with Mary Ellen Voigt, a
Department auditor who performed an audit that year. According to Adler, Voigt stated during the
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audit that she was very pleased that the company was able to refer so many people to companies so
they could be kept off the unemployment roles. The hearing was then adjourned so that an effort
could be made to find Voigt due to the hearsay nature of Adler’s testimony about this conversation.
The hearing was resumed after it was determined that Voigt could not be located. Adler again
stated that Voigt had told him during the exit interview for the 1993 audit that the company was
doing a very good job of keeping workers off the unemployment roles by finding them employment
through the referral service. According to Adler, Voigt also said that she did not find any discrepancy
in the procedures that SMRJ had followed, and he relayed this information to his client.
Adler further stated testified that the 1999 unemployment insurance claim of a worker named
Melvin Riddles had been denied on the basis that Riddles was not an employee of SMRJ. According
to Adler, Riddles’ claim for unemployment benefits had triggered the Department’s audit of SMRJ
for 1999.
The Director’s representative issued a recommended decision, stating that the determination
and assessment should be upheld with an assessment of statutory interest. SMRJ filed exceptions to
the recommended decision, asserting, inter alia, that the Director’s representative was biased. On
August 18, 2005, the Director issued her decision upholding the determination and assessment.
The Director rejected the argument that the workers were employees of its client companies,
rather than of SMRJ. In reaching this conclusion, the Director particularly noted that SMRJ supplied
workers upon requests from its clients, who paid SMRJ directly. The Director also noted that SMRJ
apprised itself of the number of hours worked by each worker and then paid the individual workers
after collecting its fee, which was based on a percentage of the workers’ wages.
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The Director next found that SMRJ had not shown that the workers were independent
contractors and, therefore, exempt under section 212 of the Act (820 ILCS 405/212 (West 1998)).
Specifically, the Director determined that SMRJ had not shown a lack of control and direction over
the subject workers, as required by section 212A (820 ILCS 405/212A (West 1998)) and failed to
sustain its burden under section 212B, which mandates that the worker provide services outside the
usual course of the employing unit’s business or outside of all of the employing unit’s places of
business (820 ILCS 405/212B (West 1998)).
In addition, the Director determined that SMRJ had failed to satisfy section 212C, which
mandates that the workers be engaged in independently established trades, occupations, professions,
or businesses. In reaching this conclusion, the Director considered the factors set forth in the
applicable Department regulation (56 Ill. Admin. Code § 2732.200(e)) and found that the subject
workers had no proprietary interest in any independent business but were totally dependent upon
SMRJ to obtain work with SMRJ’s client companies. In the absence of evidence that the individual
workers performed services for other business entities, the Director determined that the workers did
not have interests in businesses that were not subject to cancellation or destruction upon severance
of the relationship with SMRJ. The Director noted that the record contained no evidence that any
of the subject workers had a shop or office of his or her own, advertised or provided services to the
public at large, maintained a business listing in a telephone directory or trade journal, had an
investment in any capital goods which could have been used in operating a business enterprise, or
gained the profits and bore the losses of a business enterprise. Based on the evidence contained in
the record, the Director found that none of the subject workers were independently established in a
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business and that SMRJ had failed to meet its burden of proof under section 212C (820 ILCS
405/212C (West 1998)).
Finally, the Director rejected SMRJ’s contention that statutory interest under section 1401
of the Act should be waived under the doctrine of equitable estoppel based on statements made by
Voigt during the 1993 audit. The Director noted that Adler’s testimony concerning these statements
had no evidentiary value because it was hearsay. Furthermore, the Director observed that Voigt’s
statement that SMRJ was performing a good deed by helping the workers gain employment could
be true, regardless of whether the workers were classified as employees or independent contractors
under section 212 of the Act. The Director found that Voigt’s remarks did not induce SMRJ to
change its treatment of the subject workers so that it incurred a greater liability for contributions and
interest. To the contrary, the record clearly established that SMRJ classified the subject workers as
independent contractors both before and after Voigt allegedly made these remarks.
SMRJ subsequently sought judicial review of the Director’s decision. The complaint for
administrative review included a due process claim, based on allegations that Nunes was found to
have been biased in an unrelated case. The complaint also asserted that the Department should be
equitably estopped from collecting statutory interest on the unpaid contributions. Following briefing
and arguments, the circuit court affirmed the Director’s final administrative decision on the merits and
rejected SMRJ’s due process and estoppel arguments.
The Director then filed a motion for reconsideration, requesting that the court to grant
additional relief under section 3-111(a)(8) of the Administrative Review Law (735 ILCS 5/3-
111(a)(8) (West 2006)) by entering a judgment of $95,159.16, representing the amount due from
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SMRJ, including statutory interest. Over SMRJ’s objection, the circuit court entered judgment in that
amount against SMRJ. This appeal followed.
On appeal, SMRJ argues that it was deprived of the right to due process during the
administrative hearing because the Director’s representative was biased against its interests . We find
this argument unpersuasive.
It is firmly established that concepts of due process apply to both courts and administrative
agencies that perform adjudicatory functions. Girot v. Keith, 212 Ill. 2d 372, 380, 818 N.E.2d 1232
(2004); Arvia v. Madigan, 209 Ill. 2d 520, 540, 809 N.E.2d 88 (2004). The requirements of due
process in judicial proceedings differ from those administrative proceedings, which are simpler and
less formal and technical. Daniels v. Police Board, 338 Ill. App. 3d 851, 860, 789 N.E.2d 424
(2003). Due process in an administrative proceeding is satisfied by a “ ‘procedure that is suitable and
proper to the nature of the determination to be made and conforms to fundamental principles of
justice.’ ” Comito v. Police Board, 317 Ill. App. 3d 677, 687, 739 N.E.2d 942 (2000), quoting
Telcser v. Holzman, 31 Ill. 2d 332, 339, 201 N.E.2d 370 (1964). That procedure must include the
opportunity to be heard, the right to cross-examine adverse witnesses, and impartial rulings on the
evidence. Abrahamson v. Illinois Dep’t of Professional Regulation, 153 Ill. 2d 76, 95, 606 N.E.2d
1111 (1992). Also, as in judicial proceedings, due process requires that administrative proceedings
be adjudicated by an impartial tribunal. Girot, 212 Ill. 2d at 380; Collura v. Board of Police
Commissioners, 113 Ill. 2d 361, 369, 498 N.E.2d 1148 (1986).
Yet, “ ‘[a] mere possibility of prejudice is insufficient to show that an administrative decision
maker was biased.’ ” Daniels, 338 Ill. App. 3d at 862, quoting Collura, 113 Ill. 2d at 370. In the
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absence of a showing to the contrary, state administrators are assumed to be individuals of conscience
and intellectual discipline, capable of judging a particular controversy fairly on the basis of its own
circumstances. Arvia, 209 Ill. 2d at 541; Abrahamson, 153 Ill. 2d at 95. Thus, “ ‘[t]o prove bias, the
plaintiff must overcome a presumption of honesty by showing in the record that the administrative
proceedings were either tainted by dishonesty or contained an unacceptable risk of bias.’ ” Girot, 212
Ill. 2d at 380-81, quoting Huff v. Rock Island County Sheriff’s Merit Comm’n, 294 Ill. App. 3d 477,
481, 689 N.E.2d 1159 (1998).
Here, the record does not support SMRJ’s contention that the Director’s representative was
biased against its interests. To the contrary, the report of proceedings reflects that Nunes allowed
SMRJ to introduce any evidence that it wished to present. Indeed, Nunes continued the hearing so
an effort could be made to locate Voigt and determine whether she would be available to testify
regarding her findings and comments about the previous audit. In addition, when it was determined
that Voigt could not be located, Nunes permitted SMRJ to present Adler’s testimony regarding his
recollection of Voigt’s comments. Also, SMRJ’s reference to a prior, unrelated case in which the
Director and the reviewing court found that Nunes had failed to conduct the hearing impartially does
not establish that he was biased in this case. There is no indication in the record that the hearing
conducted in the prior case had any connection to or impact on the hearing in this case.
We will not presume that the Director’s representative was biased, and the record does not
reflect that SMRJ was denied the right to a hearing before a neutral tribunal. Accordingly, we reject
SMRJ’s unsubstantiated claim that it was deprived of due process.
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We next address SMRJ’s challenge of the Director’s decision that it was liable for
unemployment insurance contributions based on the services performed by the subject workers. The
determination of whether workers are employees or independent contractors under the Act involves
a mixed question of law and fact. Carpetland U.S.A., Inc. v. Illinois Dep’t of Employment Security,
201 Ill. 2d 351, 369, 776 N.E.2d 166 (2002); AFM Messenger Service, Inc. v. Dep’t of Employment
Security, 198 Ill. 2d 380, 392, 763 N.E.2d 272 (2001). Consequently, the Director’s decision in this
case will be set aside only if it is clearly erroneous. See Carpetland U.S.A., Inc., 201 Ill. 2d at 369;
AFM Messenger Service, Inc., 198 Ill. 2d at 391-92. In reviewing a mixed question, the
administrative agency’s decision must be accepted unless the court is “ ‘left with the definite and firm
conviction that a mistake has been committed.’ ” AFM Messenger Service, Inc., 198 Ill. 2d at 393,
quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 92 L. Ed. 2d
746 (1948).
SMRJ contends that it was not the employer of the subject workers because it merely referred
the workers to its client companies. We disagree.
Section 206 of the Act provides that “employment” includes “all services performed by an
individual for an employing unit.” 820 ILCS 405/206 (West 1998); Jack Bradley, Inc. v. Dep’t of
Employment Security, 146 Ill. 2d 61, 74, 585 N.E.2d 123 (1991). An “employing unit” is defined
to include a corporation “which has or * * * had in its employ one or more individuals performing
services for it within this State.” 820 ILCS 405/204 (West 1998). Also, “wages” are “every form
of remuneration for personal services, including salaries, commissions, and bonuses.” 820 ILCS
405/234 (West 1998).
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The evidence adduced at the administrative hearing established that when workers came to
SMRJ, they completed and signed a document prepared by SMRJ and entitled “Application for
Eligibility Verification.” After a worker performed services pursuant to a referral by SMRJ, the client
company provided SMRJ with a report indicating the name of the individual worker and the number
of hours worked. The client companies reported the hours worked by each individual and paid SMRJ
directly for those services. SMRJ then compensated the individual workers after it collected its fees.
These circumstances demonstrate that the services performed by the subject workers benefitted SMRJ
and properly were considered “employment” under the Act. See Jack Bradley, Inc., 146 Ill. 2d at 76.
SMRJ also claims that, even if it was the employer of the subject workers, it was not obligated
to pay unemployment insurance contributions on their wages because they were exempt under section
212 of the Act. Again, we disagree.
The purpose of the Act is to provide economic relief to those who are involuntarily
unemployed, through the collection of compulsory contributions from employers and the payment
of benefits to eligible unemployed persons. 820 ILCS 405/100 (West 2006); Carson Pirie Scott &
Co. v. Dep’t of Employment Security, 131 Ill. 2d 23, 28, 544 N.E.2d 772 (1989). Under the Act,
liability for contributions and eligibility for benefits is dependent, in part, on the existence of an
“employment” relationship. AFM Messenger Service, Inc., 198 Ill. 2d at 396. The determination of
whether such an employment relationship exists is not controlled by common law principles of master
and servant and independent contractor. AFM Messenger Service, Inc., 198 Ill. 2d at 396. Instead,
courts are required to consider the statutory definitions, which are more inclusive than the common
law. AFM Messenger Service, Inc., 198 Ill. 2d at 396; Jack Bradley, Inc., 146 Ill. 2d at 74.
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Where services are performed by independent contractors, an exception to the expansive
definition of “employment” is created by section 212 of the Act. 820 ILCS 405/212 (West 1998);
AFM Messenger Service, Inc., 198 Ill. 2d at 397. That section provides as follows:
“Service performed by an individual for an employing unit, whether or not such
individual employs others in connection with the performance of such services, shall
be deemed to be employment unless and until it is proven in any proceeding where
such issue is involved that-
A. Such individual has been and will continue to be free from control or direction over
the performance of such services, both under his contract of service and in fact; and
B. Such service is either outside the usual course of the business for which such
service is performed or that such service is performed outside of all the places of
business of the enterprise for which such service is performed; and
C. Such individual is engaged in an independently established trade, occupation,
profession, or business.” 820 ILCS 405/212 (West 1998).
The three conditions set forth in section 212 are phrased in the conjunctive, and all three
conditions must be satisfied for the independent-contractor exemption to apply. AFM Messenger
Service, Inc., 198 Ill. 2d at 397; Jack Bradley, Inc., 146 Ill. 2d at 75. In determining whether
exemption applies, the terminology used by the parties to describe their relationship is not controlling,
and the party claiming the exemption bears a strict burden of proof. AFM Messenger Service, Inc.,
198 Ill. 2d at 397-98; Jack Bradley, Inc., 146 Ill. 2d at 75-76. Also, because the Act was passed with
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the public welfare in mind, its provisions are to be liberally construed in favor of inclusion. AFM
Messenger Service, Inc., 198 Ill. 2d at 398; Jack Bradley, Inc., 146 Ill. 2d at 75.
In this case, the Director found that SMRJ had failed to meet its burden as to all three
conditions of section 212. Because the inability to satisfy any one condition will defeat an employer’s
claim for an independent-contractor exemption, it is not necessary for us to consider whether all three
conditions have been satisfied. See AFM Messenger Service, Inc., 198 Ill. 2d at 398; Griffitts
Construction Co. v. Dep’t of Labor, 76 Ill. 2d 99, 105, 390 N.E.2d 333 (1979). Rather, we need
only address the third condition, which requires that the subject workers be “engaged in an
independently established trade, occupation, profession, or business.” See AFM Messenger Service,
Inc., 198 Ill. 2d at 398; 820 ILCS 405/212(C) (West 1998).
Section 212C “ ‘contemplates that one who is engaged in an independent enterprise is an
individual who has a proprietary interest in such business to the extent that he can operate [the] same
without hindrance from any individual whatsoever and whose business also is free from control.’ ”
Jack Bradley, Inc., 146 Ill. 2d at 77, quoting Murphy v. Daumit, 387 Ill. 406, 417, 56 N.E.2d 800
(1944). “Thus, ‘[t]he ultimate issue is whether the person performing the services was engaged in
an entrepreneurial enterprise which enjoyed a degree of economic independence such that the
enterprise could survive any relationship with the particular person contracting for services.’ ” Jack
Bradley, Inc., 146 Ill. 2d at 78, quoting with approval Sample & Sell, Inc. v. Labor & Industrial
Relations Comm’n, 764 S.W.2d 109, 112 (Mo. App. 1988); see also AFM Messenger Service, Inc.,
198 Ill. 2d at 401; Murphy, 387 Ill. at 417. Where workers are not capable of providing their services
without dependence upon another entity, they will not be considered to have met the statutory
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requirement set forth in section 212C. Jack Bradley, Inc., 146 Ill. 2d at 78. Moreover, the fact that
an individual may also perform services for other companies does not necessarily establish that the
individual is an independent contractor under section 212C. Jack Bradley, Inc., 146 Ill. 2d at 80;
Ross v. Cummins, 7 Ill. 2d 595, 601, 131 N.E.2d 521. The focus of the relevant inquiry is whether
the individual workers had businesses or occupations which were capable of operation independent
of a relationship with employing unit. See Jack Bradley, Inc., 146 Ill. 2d at 80; Legal Process
Service, Inc. v. Ward, 165 Ill. App. 3d 83, 89, 518 N.E.2d 768 (1988).
In addition, section 2732.200(e) of the Department’s regulations provides 13 factors to be
considered in determining whether an individual is an independent contractor under section 212C of
the Act. See 56 Ill. Admin. Code § 2732.200(e). No single factor will determine if an individual is
engaged in an independently established trade, occupation, profession or business, and the business
reality or totality of circumstances will determine the existence of this condition. 56 Ill. Admin. Code
§ 2732.200(e).
SMRJ correctly asserts that several of these factors apply to the subject workers. For
instance, they were responsible for their own taxes; they performed services for SMRJ under their
own names; SMRJ did not represent the subject workers as employees to its customers; and the
subject workers had the right to perform similar services for other companies when they chose. See
56 Ill. Admin. Code § 2732.200(e)(5), (6), (8), (11). Although these factors suggest a certain
measure of independence in employment, they are not sufficient to establish that the subject workers
were independent contractors.
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The Director determined that many of the factors set forth in the regulation indicated that the
subject workers were not independent contractors. In particular, there was no evidence that the
individual workers had an interest in an independent business that is not subject to cancellation or
destruction upon severance of the relationship. See 56 Ill. Admin. Code § 2732.200(e)(1). Nor did
the record establish that the workers had an investment of capital, owned capital goods, or gained
the profits and bore the losses of a business enterprise. See 56 Ill. Admin. Code § 2732.200(e)(2),
(3). Though Adler testified that the subject workers were free to make their services available to the
general public, there was no evidence that they had done so. See 56 Ill. Admin. Code §
2732.200(e)(4). Also, there was no evidence that the workers had shops or offices of their own or
maintained business listings in the telephone directory or in trade journals. See 56 Ill. Admin. Code
§ 2732.200(e)(7), (12).
Furthermore, the Director found that the subject workers had no ability to negotiate the fee
charged by SMRJ, and their employment was dependent on SMRJ. The workers could not seek
employment directly from the client companies and had to be referred by SMRJ. SMRJ provided the
written contract signed by each individual worker prior to the initial referral, and the workers did not
sign successive agreements each time a referral was made. In addition, SMRJ failed to present any
evidence that the subject workers had proprietary interests in their own businesses that they were able
to operate on their own, without the benefit of a relationship with SMRJ or another referral company.
See Jack Bradley, Inc., 146 Ill. 2d at 80-81.
Based upon the record presented, we conclude that SMRJ failed to carry its strict burden of
proof in demonstrating that the subject workers were engaged in independently established
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occupations or businesses. Consequently, the Director’s decision that the requirements of section
212C had not been satisfied was not clearly erroneous.
We next address SMRJ’s argument that, under the doctrine of equitable estoppel, the
Department should be precluded from enforcing its determination and assessment. We note that this
argument was not raised during the administrative proceedings before the Director or the Director’s
representative. Consequently, it has been forfeited on appeal. See Texaco-Cities Service Pipeline
Co. v. McGaw, 182 Ill. 2d 262, 278, 695 N.E.2d 481 (1998) (noting that issues not raised before the
administrative agency are forfeited on administrative review).
SMRJ also claims that the Department should be estopped from collecting statutory interest
on the unpaid contributions because its classification of the subject workers as independent
contractors had been approved in a previous audit. We reject this claim.
Equitable estoppel is applied against the State only when some positive acts by State officials
may have induced an action by the adverse party under circumstances where it would be inequitable
to hold the adverse party liable for the act so induced. Jack Bradley, Inc., 146 Ill. 2d at 81; Hickey
v. Illinois Central R.R. Co., 35 Ill. 2d 427, 448-49, 220 N.E.2d 415 (1966). The doctrine will be
invoked only in compelling or extraordinary circumstances where it is necessary to prevent fraud and
injustice. Brown’s Furniture v. Wagner, 171 Ill. 2d 410, 431, 665 N.E.2d 795 (1996); Jack Bradley,
Inc., 146 Ill. 2d at 81; Rockford Life Insurance Co. v. Dep’t of Revenue, 112 Ill. 2d 174, 185, 492
N.E.2d 1278 (1986); Austin Liquor Mart, Inc. v. Dep’t of Revenue, 51 Ill. 2d 1, 6, 280 N.E.2d 437
(1972). This is especially true when public revenues are involved. Jack Bradley, Inc., 146 Ill. 2d at
81; Rockford Life Insurance Co., 112 Ill. 2d at 185-86. Moreover, the State is not estopped by the
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mistakes or misinformation given by State employees with respect to tax liabilities or by the prior acts
or conduct of its agents regarding the determination of tax liabilities or failure to collect a tax. See
Brown’s Furniture, 171 Ill. 2d at 432; Austin Liquor Mart, Inc., 51 Ill. 2d at 5; Saco Industries, Inc.
v. Illinois Dep’t of Revenue, 301 Ill. App. 3d 191, 197, 702 N.E.2d 1012 (1998). The fact that a
company’s classification of workers as independent contractors has been approved in a prior
Department audit is insufficient to warrant the application of equitable estoppel. Jack Bradley, Inc.,
146 Ill. 2d at 81-82.
In this case, the Department is not estopped based on its prior determination that SMRJ’s
workers were independent contractors, rendered in the 1993 audit conducted by Voigt. In addition,
the record does not demonstrate that Department officials engaged in any positive acts that caused
SMRJ to alter its conduct or procedures in a manner that increased its existing liability for
unemployment contributions. SMRJ presented no evidence that, as a result of the prior audit, it was
induced to change its classification of the subject workers or vary its policies in any way. Moreover,
the facts of this case do not present any compelling or extraordinary circumstances that would require
application of the application of equitable estoppel. Absent fraud or injustice, the Department is not
estopped from imposing statutory interest on SMRJ’s unpaid contributions, as provided in section
1401 of the Act (820 ILCS 405/1401 (West 1998)). See Brown’s Furniture, 171 Ill. 2d at 431.
In further support of its argument that the statutory interest should be waived, SMRJ relies
on section 2765.65 of the Department’s administrative regulations, which states, in relevant part, as
follows:
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“a) The Director is authorized to waive the payment of all or part of any interest or
penalty upon proposed application and showing of good cause that consists of any or
all of the following:
***
3) Where the Agency, in its written communication or through a specifically identified
employee in oral communication directed to a specific employer account has
affirmatively misled the employer as to its duties and obligations such that the
charging of interest to the employer would violate the principle of equitable estoppel.”
56 Ill. Admin. Code § 2765.65(a)(3).
SMRJ contends that statements made by Voigt during the previous audit in 1993 constituted
an oral communication that affirmatively misled it as to its duties and obligations. Initially, we
observe that a waiver of statutory interest under the Department’s regulation is not mandatory, but
rests within the discretion of the Director. 56 Ill. Admin. Code § 2765.65(a); see also Itasca Public
School Dist. No. 10 v. Ward, 179 Ill. App. 3d 920, 925, 535 N.E.2d 3 (1989). In addition, we find
that Voigt’s remarks do not satisfy the conditions set forth in the regulation.
According to Adler, during the exit interview for the previous audit, Voigt stated that the
company was doing a very good job of keeping workers off the unemployment roles by finding them
employment through the referral service. On its face, this remark does not constitute a finding that
the subject workers were properly classified as independent contractors. Rather, Voigt’s comment
merely reflects a personal opinion that SMRJ was providing a valuable social service in keeping
workers employed. As the Director found, Voigt’s personal opinion could be true whether the
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subject workers were employees or independent contractors. Similarly, Voigt’s statement that she
found no discrepancy in the company’s procedures constitutes nothing more than an expression of
the result of the audit, which we have already held does not warrant the application of estoppel. See
Brown’s Furniture, 171 Ill. 2d at 432; Jack Bradley, Inc., 146 Ill. 2d at 81-82. Neither of these
remarks can be characterized as an oral communication that affirmatively misled SMRJ as to its duties
and obligations. Under such circumstances, we cannot say that the Director abused her discretion
in refusing to waive SMRJ’s interest under section 2765.65(a)(3) of the regulations. 56 Ill. Admin.
Code § 2765.65(a)(3).
Finally, we consider SMRJ’s contention that the circuit court erred in entering judgment
against it for $95,159.16, including $36,894.75 in statutory interest, because the amount of interest
exceeded the applicable statutory limit. This issue presents a question of statutory interpretation,
which we review de novo. See Carpetland U.S.A., Inc., 201 Ill. 2d at 369; AFM Messenger Service,
Inc., 198 Ill. 2d at 395; Branson, 168 Ill. 2d at 254.
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Section 2207 of the Act provides, in relevant part, as follows:
“whenever the interest provided for in Section 1401 on contributions in any quarter,
has accrued to sixty per cent of the amount of the contributions due from any
employing unit for such quarter * * * no action shall be brought, or determination
and assessment made, against such employing unit for collection of the interest in
excess of said sixty per cent of such contributions.” 820 ILCS 405/2207 (West
1998).
The primary rule of statutory construction is to give effect to legislative intent by first looking
at the plain meaning of the language. Davis v. Toshiba Machine Co., America, 186 Ill. 2d 181, 184,
710 N.E.2d 399 (1999). “Where the language of a statute is clear and unambiguous, a court must
give it effect as written, without ‘reading into it exceptions, limitations or conditions that the
legislature did not express.’ ” Garza v. Navistar International Transportation Corp., 172 Ill. 2d 373,
378, 666 N.E.2d 1198 (1996), quoting Solich v. George & Anna Portes Cancer Prevention Center
of Chicago, Inc., 158 Ill. 2d 76, 83, 630 N.E.2d 820 (1994). Courts will first look to the words of
the statute because the language used by the legislature is the best indication of legislative intent.
Nottage v. Jeka, 172 Ill. 2d 386, 392, 667 N.E.2d 91 (1996). When the language of a statute is clear,
resort to other tools of interpretation is not necessary. Henry v. St. John’s Hospital, 138 Ill. 2d 533,
541, 563 N.E.2d 410 (1990).
SMRJ asserts that the entry of judgment, which included $36,894.75 in statutory interest, was
improper because the amount of interest exceeded 60% of the unpaid contributions as determined by
the Director. This assertion is unfounded.
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The clear and unambiguous language of section 2207 states that the limit of 60% interest is
calculated based on the amount of contributions due for the relevant period, not on the amount of
unpaid contributions. Nothing in the plain language of this provision indicates that the maximum-
interest calculation is to be premised on unpaid contributions. Had the legislature intended to base
the interest cap on the amount of unpaid contributions, it would have included that term in the
language of section 2207. The interpretation advanced by SMRJ would require this court to insert
a limitation or condition that the legislature did not express. This we decline to do.
SMRJ also claims that the amount included in the judgment for statutory interest was derived
from an incorrect mathematical calculation. This claim is predicated on the erroneous assumption
that the 60%-interest cap is based on unpaid contributions. In addition, we find that SMRJ’s claim
is refuted by the record. The Director’s exhibit 5 consists of the complete account history for SMRJ,
including the quarterly-detail report for 1999. That report reflects that the contributions due for each
of the four quarters in 1999 were $16,947.48, $16,817.83, $15,673.84, and $12,052.10, respectively.
Therefore, the total amount of contributions due was $61,491.25, and 60% of that amount is
$36,894.75. Consequently, we find no error in the calculation of the amount of statutory interest.
SMRJ next contends that it was improper for the court to enter the judgment for statutory
interest because the entry of that judgment would permit the Department to pursue a claim for post-
judgment interest in excess of the limitation contained in section 2207. We find that this contention
is not supported by the applicable statutory language or by the record.
First, there is no dispute that section 111(a)(8) of the Administrative Review Law permits the
circuit court to enter such a judgment. See 735 ILCS 5/3-111(a)(8) (West 2006). Second, the
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interest limitation contained in section 2207 applies only to actions brought, or determinations and
assessments made, for the interest provided for in Section 1401. 820 ILCS 405/2207 (West 1998).
As a result, the terms of section 2207 would not apply to post-judgment interest that is authorized
by another statutory provision. See 735 ILCS 5/2-1303 (West 2006). Third, there is no indication
in the record that the Department had or intended to pursue a claim for post-judgment interest.
Accordingly, we reject SMRJ’s contention that it was improper for the court to enter a judgment that
included $36,894.75 in statutory interest.
For the foregoing reasons, the judgment of the circuit court is affirmed.
Affirmed.
HALL, J., and KARNEZIS, J., concur.
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