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06/16/97 BAILEY AND ASSOCIATES v. ILLINOIS

June 16, 1997

BAILEY AND ASSOCIATES, INC., PLAINTIFF-APPELLEE AND CROSS-APPELLANT,
v.
ILLINOIS DEPARTMENT OF EMPLOYMENT SECURITY AND LOLETA DIDRICKSON, IN HER CAPACITY AS DIRECTOR OF EMPLOYMENT SECURITY, DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.



Appeal from Circuit Court of Sangamon County. Nos. 90MR328, 92MR314, 93MR219. Honorable Richard J. Cadagin, Judge Presiding.

Honorable James A. Knecht, J., Honorable Frederick S. Green, J. - Concur, Honorable Robert W. Cook, J. - Dissent. Justice Knecht delivered the opinion of the court.

The opinion of the court was delivered by: Knecht

JUSTICE KNECHT delivered the opinion of the court:

This appeal involves a dispute between the plaintiff, Bailey and Associates, Inc. (Bailey), and the defendants, Illinois Department of Employment Security (Department) and Loleta A. Didrickson, its previous Director. At issue in this case are the Director's determinations under the Unemployment Insurance Act (Act) (see Ill. Rev. Stat. 1991, ch. 48, par. 300 et seq.), holding Bailey had to pay contributions under the Act for salespeople who sold memberships in campgrounds owned and operated by Bailey. In three decisions the Director determined these individuals were employees of Bailey, rather than exempt as independent contractors (see Ill. Rev. Stat. 1991, ch. 48, par. 322), and consequently were not exempt for the purposes of unemployment contributions. Director of Employment Security v. Bailey & Associates, Inc., Ill. Dept. Employment Sec. Nos. 87-H-92, H-13565 (September 19, 1990); Director of Employment Security v. Bailey & Associates, Inc., Ill. Dept. Employment Sec. No. H-19603 (October 5, 1992); Director of Employment Security v. Bailey & Associates, Inc., Ill. Dept. Employment Sec. No. H-24421 (July 9, 1993). Bailey filed a complaint in the circuit court seeking review of each decision. After consolidation, the circuit court affirmed in part and reversed in part. Defendants appeal the portion of the circuit court's order reversing the Director's decisions. Bailey cross-appeals from the portion of the circuit court's order affirming the Director's decisions. We affirm in part and reverse in part.

I. BACKGROUND

The facts are not in dispute. Bailey owns and operates two membership resort campgrounds. A membership entitles a member to use campground facilities and services. Bailey does not sell the memberships, relying instead on a sales force.

Salespeople are compensated on a commission basis. Bailey never withheld income or social security taxes from their commissions and always reported their commissions on forms applicable to independent contractors. Once all the memberships are sold, Bailey earns revenue from maintenance fees, membership dues, concessions, rentals, and assessments.

Bailey's salespeople worked at their own pace, set their own hours, and did not have a dress code. They were free to conduct their business anywhere. There were no sales meetings. Working for another employer was allowed. The salespeople were restricted from working for Bailey's competitors. Salespeople were free to employ any methods of sales, and sell at any location, as long as they used sales contracts provided by Bailey, did not misrepresent the terms of membership, and made sales at prices within approved ranges.

They were required to pay for sales leads received from Bailey and bore expenses for promotional materials, entertainment, offices, telephones, supplies, automobiles, lead generation, additional workers, and all other costs.

Salespeople bore full responsibility for every membership they sold until three timely payments had been made on the contract. They were required to establish and maintain reserve accounts out of their commissions with Bailey, which were charged if a customer failed to pay. They were also required to attend an initial three-day product information seminar.

Under the terms of the contract between Bailey and its sales force, salespeople agreed to expend at least 20% of their net commissions for the purpose of promoting the marketing and sale of memberships, including the costs of promotional materials, sales leads, and travel or entertainment expenses. They had to submit a statement of expenditure to Bailey biannually. They had to use sales contracts prepared and supplied by Bailey. During the three-day rescission period, Bailey's employees called new members to make sure no misrepresentations were made by the salespeople.

The Department issued separate notices of determination and assessment and demand for payment to Bailey for unpaid unemployment contributions and interest for 1984 through 1988, for 1989, and for 1991. These notices were based on an audit finding Bailey liable for contributions because the Department determined Bailey's sales force consisted of employees, rather than independent contractors. Bailey filed timely protests and petitions for administrative hearings for all the notices, except for the fourth quarter of 1988.

After administrative hearings, the Director's representative in each case found the services performed by the salespeople for Bailey were not exempt under section 212 of the Act (Ill. Rev. Stat. 1991, ch. 48, par. 322), which defines independent contractors. The representatives found the salespeople were employees of Bailey.

The representative in each case also found the salespeople were not exempt from coverage under the Act by virtue of section 3(5) of the Illinois Membership Campground Act (Membership Act) (Ill. Rev. Stat. 1987, ch. 29, par. 903(5)), which purported to define campground membership sales force as independent contractors, and is one of the subjects of this appeal. In each case, the Director adopted the recommended decisions of her representatives.

In October 1990, November 1992, and August 1993, Bailey filed complaints for administrative review of the Director's decisions in the circuit court. Case No. 90-MR-328 involves the assessment for 1984 through 1988; No. 92-MR-314 is the assessment for 1989; and No. 93-MR-219 is for 1991. These cases were consolidated in July 1993. In July 1994 the circuit court held as follows: (1) salespeople were legally and factually independent contractors, both by virtue of section 3(5) of the Membership Act and on the facts; (2) section 3(5) of the Membership Act was prospective and applied to this case only from September 24, 1987, the time when the Membership Act became effective; and (3) Bailey failed to timely file a protest in response to the notice of determination for the fourth quarter of 1988. The Department appeals, and Bailey cross-appeals.

In related administrative proceedings, three former Bailey employees applied for unemployment compensation. In one of these cases, a former salesman was found to be an employee and awarded unemployment benefits; Bailey did not seek review of this decision, and it became final.

II. ANALYSIS

A. Standard of Review

The findings and conclusions of administrative agencies on questions of fact are considered prima facie true and correct and therefore a reviewing court may reverse them only if those findings are against the manifest weight of the evidence. A decision is against the manifest weight of the evidence only when an opposite conclusion is clearly apparent. Ill. Rev. Stat. 1991, ch. 110, par. 3-110; Jack Bradley, Inc. v. Department of Employment Security, 146 Ill. 2d 61, 73, 585 N.E.2d 123, 128, 165 Ill. Dec. 727 (1991); Blair v. Department of Employment Security, 168 Ill. App. 3d 537, 539, 522 N.E.2d 834, 836, 119 Ill. Dec. 172 (1988). However, on questions of law, agencies are not entitled to such deference, and an erroneous interpretation of a statute will be reversed. Carson Pirie Scott & Co. v. State of Illinois Department of Employment Security, 131 Ill. 2d 23, 34, 544 N.E.2d 772, 777, 136 Ill. Dec. 86 (1989). Even when the issue specifically includes an interpretation of a statute, though, agencies receive some deference, for reasons of their expertise and experience, especially if the statute in question is their enabling statute. The interpretation will be overturned only if it is clearly erroneous. City of Decatur v. American Federation of State, County, & Municipal Employees, Local 268, 122 Ill. 2d 353, 361, 522 N.E.2d 1219, 1222, 119 Ill. Dec. 360 (1988). Where, as here, the facts are not in dispute, their legal effect is a matter of law. Fitzpatrick v. Human Rights Comm'n, 267 Ill. App. 3d 386, 392, 642 N.E.2d 486, 491, 204 Ill. Dec. 785 (1994).

B. Membership Act

The Department appeals the circuit court's holding section 3(5) of the Membership Act unambiguously provides Bailey's salespersons are independent contractors. The circuit court did not err. The primary rule of statutory construction is to give effect to legislative intent. Solich v. George & Anna Portes Cancer Prevention Center of Chicago, Inc., 158 Ill. 2d 76, 81, 630 N.E.2d 820, 822, 196 Ill. Dec. 655 (1994). The primary source of the statute's meaning is its language. Solich, 158 Ill. 2d at 81, 630 N.E.2d at 822. We review issues of statutory construction de novo. See City of Maroa v. Illinois Central R.R., 229 Ill. App. 3d 503, 505, 592 N.E.2d 660, 662, 170 Ill. Dec. 224 (1992).

The statute in question, the Membership Act, as amended effective September 24, 1987 (Pub. Act 85-812, ยง 1, eff. September 24, 1987 (1987 Ill. Laws 3413)), conclusively resolved the issue. It provided:

"'Salesperson' means any person, other than a Membership Camping Operator, who is engaged in obtaining commitments of persons to enter into Membership Camping Contracts by making direct sales presentations to such persons. For purposes of 'The Unemployment Insurance Act', approved June 30, 1937, as amended, a salesperson under this Act is an independent contractor and not considered to be engaged in employment unless such salesperson has tax withheld by a Membership Camping ...


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