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National Data Services v. Director of Employment Security

March 02, 2001


Appeal from the Circuit Court of Du Page County. No. 98--MR--804 Honorable John W. Darrah, Judge, Presiding.

The opinion of the court was delivered by: Justice Bowman

Defendant, Director of the Illinois Department of Employment Security (Director), appeals from the judgment of the circuit court of Du Page County reversing her decision. The Director had found that home workers hired by plaintiff, National Data Services of Chicago, Inc., were not independent contractors as defined by section 212 of the Unemployment Insurance Act (Act) (820 ILCS 405/212 (West 1996)). On appeal the Director contends that her decision, finding that plaintiff owed unemployment 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 made an 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 by one of plaintiff's home workers for unemployment benefits. Plaintiff filed a protest and requested an administrative hearing. 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 business practices.

The testimony revealed that plaintiff had approximately 100 home workers. These workers provided data entry services for plaintiff's clients. Before plaintiff gave assignments to prospective workers, plaintiff tested their ability to perform the work by providing them with a test batch of cards containing data typical of a normal assignment. To be hired, a worker had to achieve 100% accuracy in keying the data. The worker was required to sign a contract, to have an IBM compatible computer, and to purchase anti-virus software. The typical worker was a stay-at-home mother. The contract signed by a worker described her as an independent contractor, and the home workers who testified considered themselves to be independent 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 one used her own software. Plaintiff provided home workers with the instructions for an assignment that were based on how the particular customer told plaintiff it wanted its work keyed. The jobs plaintiff assigned to its home workers were to be picked up and dropped off at plaintiff's place of business. The work could be picked up and dropped off for the home worker by another individual. The assignments were left at a counter inside a separate entrance to a small vestibule of plaintiff's building. This was the only access home workers had to the building. They were not allowed entrance to any other 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. Denying home workers access to other parts of plaintiff's premises also was for their safety, since plaintiff's premises housed a production center.

Typically, the type of work being performed by home workers was the data entry of information from warranty cards into files, 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. A worker was not required to take a minimum amount of work and could refuse work without repercussion. A worker was required to meet the deadline for return of the work, which was typically three days. Those jobs that required a 24-hour turn-around time, were of a sensitive nature, involved complex documents requiring supervision to complete the task, or required 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 could be promoted.

Home workers were not required to perform services on given days or at given times during the day. They did not receive vacation 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. They could 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 was subject to a "compliance review" by plaintiff. After a home worker submitted her work product to plaintiff, plaintiff reviewed the work for accuracy and compliance with the specifications provided for the work. Plaintiff removed charges for any unacceptable work at a piecework rate. The rate of pay was $65 per 1,000 cards. A home worker's services would be 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 for their services. The home workers would submit these invoices along with their finished work product. Steve Gruner testified that he was involved in setting the pricing for plaintiff's customers and for establishing the prices to be paid to home workers for the customer's jobs. Typically, workers were paid by plaintiff once a month, although the parties contracted 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 provided by home workers. Dennis Dee, plaintiff's president, explained that plaintiff's two primary considerations for deciding to give out work to home workers were the capital outlay and the difficulty in finding 50 full-time employees to do the data entry work that the home workers provided. Steve Gruner stated that it would cost up to $10,000 per work space for each full-time employee that would be needed to perform the services provided plaintiff by a home worker. The Director's representative found that plaintiff failed to meet its strict burden of proof under all of the provisions of section 212 of the Act and that, therefore, plaintiff's home workers constituted employees, not independent contractors. Plaintiff filed objections to this decision. After reviewing the evidence presented at the administrative hearing, the Director overruled plaintiff's objections, finding that plaintiff had met none of the conditions set forth in section 212. Plaintiff filed a complaint for administrative review in the circuit court of Du Page County. The court reversed the Director's decision, and this appeal ensued.

The Director contends that the trial court erred in reversing her decision that the home workers who perform services for plaintiff 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 Furniture Co. v. Department of Employment Security, 307 Ill. App. 3d 978, 981 (1999). Our role is to review the Director's decision and not the circuit court's determination. XL Disposal Corp. v. Zehnder, 304 Ill. App. 3d 202, 207 (1999). The Director's factual findings are held to be prima facie true and correct and will not be disturbed unless they are contrary to the manifest weight 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 law and a "clearly erroneous" standard of review applies. City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205 (1998). The "clearly erroneous" standard rests somewhere between "manifest weight of the evidence" and de novo, 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 an administrative agency's findings unless we are firmly convinced that the agency has committed a mistake. Randolph Street Gallery, 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 to the elements set forth in section 212 of the Act in reaching her decision that plaintiff's home workers did not meet the independent contractor's exception set forth in that statutory provision. Because this case involves the examination of the legal effect of a given set of facts, it involves a mixed question of fact and law and, ...

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