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Wallace v. Annunzio





APPEAL from the Superior Court of Cook County; the Hon. JOHN A. SBARBARO, Judge, presiding.


Plaintiffs, G.H. Wallace and C.B. Cannon, doing business as Wallace and Cannon, are appealing from a judgment of the superior court of Cook County, entered in a proceeding under the Administrative Review Act, (Ill. Rev. Stat. 1949, chap. 110, par. 264 et seq.,) in favor of defendant, Frank Annunzio, Director of Labor of the State of Illinois, in the amount of $733.66 for a deficiency in plaintiffs' contributions under the Illinois Unemployment Compensation Act.

The sole issue herein is whether the individuals officing with plaintiffs' law firm, under an oral agreement, could be deemed to be employed by plaintiffs within the terms and provisions of the Unemployment Compensation Act. Ill. Rev. Stat. 1949, chap. 48, par. 218.

The facts pertaining to the alleged employment relationship are uncontroverted and are derived from the testimony of plaintiff Wallace and associate Ferd Bing, and from defendant's exhibits of plaintiffs' letterheads. Plaintiffs' patent law firm was formed May 1, 1940, succeeding the firm of Belt, Wallace & Cannon, and in 1944, pursuant to an oral agreement which was tacitly renewed each year thereafter, Ferd Bing and Daniel O'Keefe became associated with the firm. For a few months, beginning in the fall of 1945, Edwin Thomas was also an associate.

Under the terms of the oral contract, each associate had his own office in the suite, with his name on the door. The associates were required to pay plaintiffs one third of all fees received from their own cases, and, on work referred by the firm, the associates were credited on the firm books with 45 per cent of the fee, as and when it was collected. Out of this 45 per cent credit was paid the associates' proportionate share of the rent, stenographic and other services. This division of fees operated to the mutual advantage of the firm and the associates, inasmuch as substantial fees were on occasions paid to the firm from the associates' cases. The percentage allowed the associates for handling firm cases was the same as that formerly paid to Ferd Bing for work referred to him by the firm when he maintained a separate office on another floor of the building, and before he entered the oral contract with the plaintiffs. Plaintiffs at no time made social security payments on the percentage of fees credited to the associates.

Each partner and associate, as well as the firm itself, had a regular registration number with the Patent Office, so that if an application were filed by an associate for a client of his own, he used his own registration number, but where an application was filed for a firm client, the firm registration number was used. On the letterheads the names of the firm members, Wallace and Cannon, were separated from the names of the associates by a line, in accordance with the common practice in such matters.

There is no evidence of the percentage of time devoted by the associates to their own cases or to cases referred to them by the firm, or any understanding with reference thereto. Plaintiff Wallace testified that when firm members did not have sufficient time to do all the work they would refer it to one of the associates who would proceed with the project on his own initiative, without further reference to the details of performance, and upon completion thereof the associate would return it to a member of the firm, who would thereafter deal with the client. Ferd Bing, the associate, further testified that on many occasions he would refer his own work to other lawyers outside of the suite, if he were too busy.

Although the firm and the associates could terminate the relationship if any party became dissatisfied, it was understood that because of the complicated confidential nature of the business, cases undertaken by either the associates or the firm for each other would be completed.

On the basis of substantially the foregoing evidence presented to the Director's representative, he concluded that the services of the associates in the firm matters constituted employment under section 2(f)(7) and section 2(f)(1) of the act, and did not come within the requirements of section 2(f)(5). The Director of Labor affirmed this report, and on review under the Administrative Review Act, the superior court of Cook County affirmed the decision of the Director. The court found plaintiffs indebted for contributions in the amount of $432.54, together with interest thereon, and entered judgment against plaintiffs for $733.66, from which plaintiffs have appealed to this court.

Although the findings of the administrative agency are deemed prima facie correct, nevertheless they must be supported by substantial evidence, and the court has power to review all questions of law and fact presented by the record. Beth Weber, Inc. v. Murphy, 389 Ill. 60; Moriarty, Inc. v. Murphy, 387 Ill. 119.

As hereinbefore noted, the essential inquiry is whether the relationship between the firm and the associates constituted "employment" within the terms and provisions of The Unemployment Compensation Act. Notwithstanding the contention of the defendant, the plaintiffs have not injected a new issue into the case by merely referring to the relationship as a joint venture, since the label in no way affects the primary inquiry.

Few problems in the law have given greater variety of application and conflict in result than cases arising in the borderland between what is clearly an employer-employee relationship, and what is clearly one of independent entrepreneurial dealing. (National Labor Relations Board v. Hearst Publications, 322 U.S. 111.) The United States Supreme Court has emphasized the "economic reality" factor in determining whether the relationship constitutes employment, including such elements as opportunity for profit and loss, investment facilities, and permanency of the relation. (United States v. Silk, 331 U.S. 704.) A majority of State unemployment compensation laws contain the so-called "three test" provision within the definition of employment, comparable to section 2(f)(5) of the Illinois act, hereinafter set forth; nevertheless, there is still a lack of uniformity in the decisions among the jurisdictions, as well as within a single jurisdiction. 10 Ohio St. L. Rev. 153; 45 Yale L.J. 86, 88.

It is established that the statutory definition of employment is controlling, rather than any common-law master-servant concept, (Concrete Materials Corp. v. Gordon, 395 Ill. 203,) and that this definition is broader than the common-law concept, and includes, in some instances, persons classified as independent contractors at common law. (Aluminum Cooking Utensil Co. v. Gordon, 393 Ill. 542.) In reviewing the Illinois cases defining "employment" under the act, each decision must be read in the light of the statutory definition of employment at the time the law was interpreted. The relevant provisions of the applicable statute are contained in section 2 of the act, (par. 218,) as follows:

"(f)(1) Subject to the other provisions of this subsection, `employment' means any service * * * performed by an ...

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