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Ridge Country Club v. United States.


May 7, 1943


Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Philip L. Sullivan, Judge.

Author: Evans

Before EVANS and KERNER, Circuit Judges, and LINDLEY, District Judge.

EVANS, Circuit Judge.

We are, by this appeal, called upon to apply the Federal Unemployment and Insurance Contribution Tax Acts*fn1 to a golf club that hires a professional instructor and pays him a salary and also, pursuant to his employment agreement, permits him to carry on a business for his profit on the property of the club. The outcome turns upon our answer to the question, - What is the proper base for determining the tax? Should it include, in addition to the pro's salary of $1200 a year, the substantial profits made by him in conducting his golf shop, together with his earnings received from the giving of lessons to beginners and to those who believe (or know) their game may be improved by instructions from one, other than his golf partner.

The Commissioner included both revenues as the sum upon which the tax was computed. Plaintiff paid under protest and sued to recover that part of the sum which was based upon the pro's earnings and profits over and above the $1200 salary. The claim involved several years' payment.

The pertinent provisions of the pro's contract with the club are set forth in the margin.*fn2 In substance, the pro was to have the shop concession and teach lessons, and the club would turn over to him such funds as were by it collected for such services. Both sides emphasize the aspects of the case which are indicative of either (a) an employment status, or (b) the independent contractor relationship of the plaintiff.

The statute governs. Its applicable provisions are quoted below.*fn3

A study of the pro's contract in the light of the statute compels us to exclude from the appellant's social security tax, the profits from the conduct of the golf shop and the lessons. These profits were gained, not as an employee, but as an independent contractor.

The pro sustained a dual relationship to the club. Concededly, he was an employee as to the annual retainer, yet an independent contractor when he acted as a shopkeeper and instructor.

We have not overlooked the fact that these two capacities were bound together by a single contract and that one was dependent on the other. But, looking at the single issue as to the nature of the pro's relationship to the club when giving instructions or operating the shop, we think it clear that he was an independent contractor.

Under the contract, the club furnished the shop, and its members were the persons chiefly to be served, both as to instructions, and as purchasers of supplies, although such services were not limited to club members. The club received no percentage of the income derived from such shop, or instruction fees. The pro was himself required to hire and pay the expenses of an assistant. The club promised to be an instrumentality to effect payment of charges made against its members.They billed the expenses of instruction and golf supplies to the members, and if they collected the same they paid it over to the pro. But they made no guaranty of the members' debts.Any loss was the pro's. The store was to be run entirely at the pro's own risk, and solely for his own profit. He fixed his own fees for golf instruction. All the aspects of this contract were indicative of an independent contractor relationship rather than the hiring of an employee.

Both sides point out attributes of the "employer-employee" and "independent contractor" relationships, i.e., control by the employer of the employee's activities, right of discharge, etc.

All those criteria are standard tests used in the several unrelated fields of jurisprudence, i.e., workmen's compensation, principal and agent, contracts, etc.

The test of the Regulation which we feel clinches the independent contractor status as to the extra work here in issue is that the control of the club was simply as to the result to be accomplished and not the means of accomplishment. The club wanted to make professional instructional services available to its members and it wanted a store ready to meet its members' golfing needs. It certainly was not dictating to the pro how to teach the members. The Regulations specifically point out the generally excludable occupations of the standard professions. A golf pro may be so classified, in some instances.

Of utmost importance is the wording of the statute imposing the tax - Sec. 901, 42 U.S.C.A.§ 1101. It provided that the tax shall be a certain percentage "of the total wages * * * payable by him" (the employer). The club never paid the pro the money upon which the tax is based.

Both sides cite and rely on Williams v. jacksonville Terminal Co., 315 U.S. 386, 62 S. Ct. 659, 86 L. Ed. 914. There, the court was determining whether the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq., which provided for minimum wage requirements, was complied with where the "red caps" reported their tips to the railroad company and if their wages including such tips, fell below the minimum, the company guaranteed the payment of the nimimum statutory wage. The Court held such a contract constituted compliance with the statute. That statute used the phrase "every employer shall pay * * *wages * * * ." Of course, the tips were not actually wages paid by the employer, but the Supreme Court held the legislative purpose of the enactment had been met. We, too, look to the purpose of the statute and the intent of the legislature in enacting it, as well as the words used to carry out this intention. Only certain classes are the beneficiaries of this social legislation, consisting chiefly of the ordinary wage earners. The statute does not comprehend store keepers, professional men engaged in making their own livelihood, profiting or losing from the exercise of their own judgment, capital, and enterprise. They generally profit to a greater extent than the employed person who does not reap the entire benefit of his services, and therefore, presumably, is not able to provide for the emergencies of destitute old age, or economic depression and unemployment, and so is, more generally, in need of Government insurance aginst such misfortunes.

The contract which defined the rights and duties of the pro, gave him wide discretion in the conduct of his activities. his profits depended chiefly on his abilities and the time and enthusiasm he put into his work. he alone, could direct the manner in which he would execute his duties.

We cnclude he was an independent contractor as to the issues here presented. The judgment of the District Court must be, and is reversed.

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