March 2, 2001

No. 2--00--0078

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

JUSTICE BOWMAN delivered the opinion of the court:

Defendant, Director of the Illinois Department of Employment Security (Director), appeals from the judgment of the circuitcourt of Du Page County reversing her decision. The Director had found that home workers hired by plaintiff, NationalData Services of Chicago, Inc., were not independent contractors as defined by section 212 of the Unemployment InsuranceAct (Act) (820 ILCS 405/212 (West 1996)). On appeal the Director contends that her decision, finding that plaintiff owedunemployment contributions under the Act because its home workers were employees, rather than independent contractors,was not clearly erroneous.

On June 18, 1996, the Department of Employment Security (Department) determined plaintiff to be an employer and madean assessment that plaintiff was responsible for unpaid contributions to the unemployment insurance fund in the amount of$24,011.38, plus interest, for the periods covering the third and fourth quarters of 1992, all four quarters of 1993 and 1994,and the second through fourth quarters of 1995. The Department's determination and assessment resulted from a claim byone of plaintiff's home workers for unemployment benefits. Plaintiff filed a protest and requested an administrativehearing. A hearing was held before the Director's representative. Testimony was received from plaintiff's president,executive vice-president, manager of home contracting services, and several home workers regarding plaintiff's businesspractices.

The testimony revealed that plaintiff had approximately 100 home workers. These workers provided data entry services forplaintiff's clients. Before plaintiff gave assignments to prospective workers, plaintiff tested their ability to perform thework by providing them with a test batch of cards containing data typical of a normal assignment. To be hired, a workerhad to achieve 100% accuracy in keying the data. The worker was required to sign a contract, to have an IBM compatiblecomputer, and to purchase anti-virus software. The typical worker was a stay-at-home mother. The contract signed by aworker described her as an independent contractor, and the home workers who testified considered themselves to beindependent contractors.

Plaintiff provided the workers with software to assist them in doing work although the workers were not required to use it. They could create their own, but, according to Colleen Rice-Prieboy, manager of the home contracting services, no oneused her own software. Plaintiff provided home workers with the instructions for an assignment that were based on howthe particular customer told plaintiff it wanted its work keyed. The jobs plaintiff assigned to its home workers were to bepicked up and dropped off at plaintiff's place of business. The work could be picked up and dropped off for the homeworker by another individual. The assignments were left at a counter inside a separate entrance to a small vestibule ofplaintiff's building. This was the only access home workers had to the building. They were not allowed entrance to anyother part of the building or use of its facilities. Rice- Prieboy and Steve Gruner, plaintiff's executive vice president,testified that this policy was based on the fact that a lot of its in-house work involved confidential information. Denyinghome workers access to other parts of plaintiff's premises also was for their safety, since plaintiff's premises housed aproduction center.

Typically, the type of work being performed by home workers was the data entry of information from warranty cards intofiles, created by plaintiff's software, onto computer diskettes provided by the home workers. According to Rice-Prieboy,the amount of work assigned to a home worker depended on how much was available and how much the worker wanted. Aworker was not required to take a minimum amount of work and could refuse work without repercussion. A worker wasrequired to meet the deadline for return of the work, which was typically three days. Those jobs that required a 24-hourturn-around time, were of a sensitive nature, involved complex documents requiring supervision to complete the task, orrequired the information to be keyed directly into a database or remote server were performed by 10 in-house employees. These people had set hours, participated in employee benefit packages, were paid every two weeks and on time, and couldbe promoted.

Home workers were not required to perform services on given days or at given times during the day. They did not receivevacation time, sick pay, retirement pay, or other benefits. Also, home workers were not prohibited from hiring an assistant,although none of those testifying had done so. Home workers could accept data entry work from other companies. Theycould not solicit or accept business directly from plaintiff's clients.

Plaintiff did not conduct periodic evaluations or formal reviews of home workers as it did with its in-house employees. Nor did plaintiff visit a home worker's home to inspect, supervise, or control work. A home worker's work product wassubject to a "compliance review" by plaintiff. After a home worker submitted her work product to plaintiff, plaintiffreviewed the work for accuracy and compliance with the specifications provided for the work. Plaintiff removed chargesfor any unacceptable work at a piecework rate. The rate of pay was $65 per 1,000 cards. A home worker's services wouldbe terminated if the quality of her work was poor or she was unable to meet job deadlines.

Plaintiff provided its home workers with form invoices on which they would indicate the amount plaintiff owed them fortheir services. The home workers would submit these invoices along with their finished work product. Steve Grunertestified that he was involved in setting the pricing for plaintiff's customers and for establishing the prices to be paid tohome workers for the customer's jobs. Typically, workers were paid by plaintiff once a month, although the partiescontracted for payment within 45 days after plaintiff completed its compliance review of the worker's work product. Occasionally, plaintiff was late in paying workers because of cash flow problems.

Plaintiff had a $10 million overall projected revenue. Out of that sum, $1 million was generated by the services providedby home workers. Dennis Dee, plaintiff's president, explained that plaintiff's two primary considerations for deciding togive out work to home workers were the capital outlay and the difficulty in finding 50 full-time employees to do the dataentry work that the home workers provided. Steve Gruner stated that it would cost up to $10,000 per work space for eachfull-time employee that would be needed to perform the services provided plaintiff by a home worker. The Director'srepresentative found that plaintiff failed to meet its strict burden of proof under all of the provisions of section 212 of theAct and that, therefore, plaintiff's home workers constituted employees, not independent contractors. Plaintiff filedobjections to this decision. After reviewing the evidence presented at the administrative hearing, the Director overruledplaintiff's objections, finding that plaintiff had met none of the conditions set forth in section 212. Plaintiff filed acomplaint for administrative review in the circuit court of Du Page County. The court reversed the Director's decision, andthis appeal ensued.

The Director contends that the trial court erred in reversing her decision that the home workers who perform services forplaintiff are employees rather than independent contractors.

Judicial review of the Director's decision is governed by the Administrative Review Law (735 ILCS 5/3--110 (West 1996);820 ILCS 405/2205 (West 1996)) and encompasses all questions of law and fact presented by the record. Cohen FurnitureCo. v. Department of Employment Security, 307 Ill. App. 3d 978, 981 (1999). Our role is to review the Director's decisionand not the circuit court's determination. XL Disposal Corp. v. Zehnder, 304 Ill. App. 3d 202, 207 (1999). The Director'sfactual findings are held to be prima facie true and correct and will not be disturbed unless they are contrary to the manifestweight of the evidence. Jones v. Department of Employment Security, 276 Ill. App. 3d 281, 284 (1995). However,questions of law decided by the Department are not entitled to such deference and are reviewed de novo. Cohen, 307 Ill.App. 3d at 981.

When a case involves an examination of the legal effect of a given set of facts, it involves a mixed question of fact and lawand a "clearly erroneous" standard of review applies. City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d191, 205 (1998). The "clearly erroneous" standard rests somewhere between "manifest weight of the evidence" and denovo, requiring the reviewing court to afford some deference to the administrative agency's experience and expertise. Randolph Street Gallery v. Zehnder, 315 Ill. App. 3d 1060, 1064 (2000). Under this standard, this court must accept anadministrative agency's findings unless we are firmly convinced that the agency has committed a mistake. Randolph StreetGallery, 315 Ill. App. 3d at 1064.

In the present case the relevant facts are undisputed. We must consider whether the Director correctly applied these facts tothe elements set forth in section 212 of the Act in reaching her decision that plaintiff's home workers did not meet theindependent contractor's exception set forth in that statutory provision. Because this case involves the examination of thelegal effect of a given set of facts, it involves a mixed question of fact and law and, therefore, we apply a "clearlyerroneous" standard in examining the Director's decision. City of Belvidere, 181 Ill. 2d at 205.

Section 1400 of the Unemployment Insurance Act requires an employer to make unemployment contributions to a fundwith respect to wages payable for employment. 820 ILCS 405/1400 (West 1996); Cohen, 307 Ill. App. 3d at 981. The Actis not a taxing act but one passed to alleviate the perils of unemployment and, therefore, it should receive a liberalconstruction. Jack Bradley, Inc. v. Department of Employment Security, 146 Ill. 2d 61, 73 (1991). The Act definesemployment as "any service *** performed by an individual for an employing unit." 820 ILCS 405/206 (West 1996). Section 212 of the Act provides an exception to the contribution requirement for services performed by independentcontractors. 820 ILCS 405/212 (West 1996); United Delivery Service v. Didrickson, 276 Ill. App. 3d 584, 587 (1995).

Section 212 of the Act provides the conditions that must be met for a worker to be considered an independent contractor. That section provides:

"Service performed by an individual for an employing unit, whether or not such individual employs others in connectionwith the performance of such services, shall be deemed to be employment unless and until it is proven in any proceedingwhere 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 isperformed 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 ILCS405/212 (West 1996).

A strict burden of proof is placed upon an employer seeking exemption from unemployment contributions under section212, and all three conditions must be established before an exemption is allowed. AFM Messenger Service, Inc. v.Department of Employment Security, 315 Ill. App. 3d 308, 313 (2000). When interpreting the term "independentcontractor" under section 212, our inquiry is directed to the actual rather than the alleged relationship of the parties, and thedesignations and terminology used in the contracts are not controlling. AFM Messenger Service, 315 Ill. App. 3d at 313-14.

The first condition that plaintiff must establish is that its home workers were free from its control or direction. Control ordirection for the purpose of section 212(A) means that an employer has the right to control and direct the worker, not onlyas to the work to be done, but also as to how it should be done, whether or not that control is exercised. 56 Ill. Adm. Code