CALIFORNIA EMPLOYMENT STABILIZATION COMMISSION v. MORRIS (1946)

The only question to be determined is whether, by reason of the provisions of the statute known as the California Unemployment Insurance Act, Stats.1935, ch. 352, p. 1226, and amendments thereto, real estate salesmen are employees of the real estate broker under whom they are licensed to operate.

This action was brought under the provisions of sections 37, 38, and 44 of said act, St.1937, p. 2054, St.1943, p. 3055, to recover contributions, interest, and penalties alleged to be due and unpaid from defendant to plaintiff. Judgment was for defendant and plaintiff appeals.

During the period covered by this action respondent was a licensed real estate broker doing business under the fictitious name of ‘State Development Company.’ He engaged the services of six salesmen and two licensed brokers to sell land owned by him. Both salesmen and brokers operated under oral agreements. Before the salesmen began the performance of their services respondent signed either an application for a salesman's license or a transfer of the salesman's license to himself as the employer-broker. When a salesman terminated his services respondent also signed a transfer of the salesman's license. The salesmen were instructed not to make any misrepresentations. All sales were subject to respondent's confirmation. Respondent furnished contract blanks to the salesmen for their use in making sales. When a sale was made and the payment received from the purchaser, the salesman would deliver the payment to respondent and would receive respondent's check for his commission. Salesmen were permitted to use desks in respondent's office and they used the office in making sales. Salesmen had their prospects come into respondent's office and received their calls there. They carried cards which bore the words ‘State Development Company’ and the address and telephone number of respondent's place of business. If lots were sold on installments the salesmen received a percentage of the deferred payments until the unpaid balance was paid. Respondent did not have any sales instruction manuals or rules directing the manner in which the salesmen were to perform their duties. Salesmen were not required to be present at any given place for any number of hours, and they were not required to devote any specified time in the performance of their duties. They were not assigned to a territory to be canvassed and were not required to follow any sales route or schedule of calls or to call on any particular number of prospects. Respondent did not furnish the names of prospective customers and the salesmen obtained their own lists, paying for the same. They were not required to submit, and did not submit, any written resport and were not required to report at respondent's place of business or to make collections or to attend sales meetings. Respondent did not furnish telephone or stenographic services. The salesmen furnished their own telephones and paid for their stenographic work, stationary, postage, and business cards. Their stenographic work was not done in respondent's office. Some of the salesmen bought and sold lands for themselves other than respondent's property without objection from respondent. No commissions were paid in advance to the salesmen.

The trial court found that the salesmen and brokers were not employees of respondent and that their compensation was received by them as independent contractors. The evidence is uncontradicted and we therefore have to consider whether it sustains said finding or whether, as contended by appellant, the trial court must be required to find on the evidence that said persons were in the employ of respondent and that the compensation received by them was ‘wages' as defined by the statute. If from the undisputed facts only one conclusion may be drawn, the question whether respondent's salesmen were employees or independent contractors is one of law and not of fact. Yucaipa Farmers Coop. Ass'n v. Industrial Acc. Com., 55 Cal.App.2d 234, 238, 130 P.2d 146. See also Chapman v. Edwards, 133 Cal.App. 72, 79, 24 P.2d 211; Burlingham v. Gray, 22 Cal.2d 87, 100, 137 P.2d 9.

1. Purpose of the statute. Section 1 of the statute declares that large numbers of persons in California do not enjoy permanent employment, and purchasing power is thereby rendered unstable; that private charity and local relief cannot alone prevent the effects of unemployment; and that in order to meet the situation created by excessive unemployment ‘this act is designed to accumulate a reserve to assist in protecting the public against the social effects of unemployment which may be created in future years.’ Stats.1935, ch. 352, p. 1226. By amendment in 1939 the legislature declared that the public good and the general welfare of the citizens of the state required the enactment of the statute to establish a system of unemployment insurance providing benefits ‘for persons unemployed through no fault of their own, and to reduce involuntary unemployment and the suffering caused thereby to a minimum.’ Stats.1939, ch. 564, p. 1967.

The statute under consideration is a valid exercise of the police power, is remedial in character, and must be liberally construed to effectuate its purpose. California Employment Comm. v. Butte County Rice Growers Ass'n, 25 Cal.2d 624, 630, 154 P.2d 892. It declares the social and economic policy of the state, and its purpose is, by providing the means of avoiding the evil economic effects of unemployment, to give effect to such declared policy. The levy of ‘contributions,’ which may be appropriately regarded as taxes under a more euphemistic designation, upon employers and employees is for a more beneficent purpose than merely that of producing revenue. The real design of the act is to accumulate a reserve fund from which benefits can be paid when the contributing employees become unemployed. The contribution or tax is not, as is true of measures designed for revenue purposes only, the essence of the statute but is merely an incident implementing its social and economic purposes. With these purposes in mind the provisions of the statute ‘should not be whittled down by narrow construction, nor should exceptions not clearly justified by their language be engrafted upon them by judicial interpretation.’ California Employment Comm. v. Black-Foxe Military Inst., 43 Cal.App.2d Supp. 868, 872, 110 P.2d 729, 732. ‘The obvious design of the law should not be sacrificed to a literal interpretation’ of its language and it is the duty of the court to give effect to the spirit and purpose of such legislation as far as may be possible, without doing violence to its clearly expressed provisions, to the end that the public policy as declared by the legislature may be achieved. Los Angeles County v. Frisbie, 19 Cal.2d 634, 639, 122 P.2d 526, 529. The court should not so restrict the scope of the act as to deprive of its benefits those whom the legislature intended to protect during periods of unemployment. Exemptions from a remedial statute must be strictly construed.

2. Statutory definitions of terms. The legislature has power, within reasonable limitations, to prescribe definitions of words used in statutes and when it does so the definitions are binding on the courts. In re Monrovia Evening Post, 199 Cal. 263, 269, 248 P. 1017. As defined and used in the statute the terms ‘employment,’ ‘services,’ and ‘wages' are broader in meaning and application than under the common law. Such definitions of these and like terms as are found in personal injury cases and in actions arising under other statutes must be disregarded and the definitions in the statute under consideration must be followed. The latter are controlling and in construing the act the court is bound to give effect to them to the exclusion of definitions usually found in dictionaries. Rideaux v. Torgrimson, 12 Cal.2d 633, 636, 86 P.2d 826; Levitt v. Faber, 20 Cal.App.2d Supp. 758, 762, 64 P.2d 498; Creameries of America v. Industrial Comm., 98 Utah 571, 102 P.2d 300, 302. The commonly used or dictionary definition of a term cannot be substituted for that contained in the statute which the legislature has directed shall be used to the exclusion of all others. Fox v. Standard Oil Co., 294 U.S. 87, 96, 55 S.Ct. 333, 79 L.Ed. 780, 787.

The Unemployment Insurance Act has provided a glossary of terms particularly applicable to its subject matter. The following definitions found therein are pertinent to this discussion: “Employment' * * * means service, * * * performed for wages or under any contract of hire, written or oral, express or implied.' Sec. 6.5, Stats.1937, ch. 739, p. 2052. “Wages' means all remuneration payable for personal services, including commissions and bonuses and the cash value of all remuneration payable in any medium other than cash.' Sec. 11, Stats.1937, ch. 752, p. 2079.

The liability of respondent to contribute to the fund will be resolved by the answers to these questions: (1) Did respondent's salesmen render service to him or were they independent contractors? (2) If they rendered personal services were they compensated in ‘wages' as that term is above defined?

3. Determination of relationship of employer-employee. One of the best tests, in fact the orthodox test, to determine whether the relationship is that of an independent contractor or employee is the right of the other party to control and direct the person who performs the services, not merely as to the result to be obtained but as to the means used to gain the result. It is not the fact that one party actually directs or controls the other, nor the extent of the direction or control, but it is his potential power to guide and regulate that determines the relationship of employer-employee. California Employment Comm. v. Los Angeles Down Town Shopping News Corp., 24 Cal.2d 421, 425, 150 P.2d 186; Baugh v. Rogers, 24 Cal.2d 200, 206, 148 P.2d 633, 152 A.L.R. 1043; Burlingham v. Gray, 22 Cal.2d 87, 99, 137 P.2d 9; Press Publishing Co. v. Industrial Acc. Comm., 190 Cal. 114, 121, 210 P. 820; S. A. Gerrard Co. v. Industrial Acc. Comm., 17 Cal.2d 411, 414, 110 P.2d 377. The fact that a certain amount of freedom of action is permitted in the manner in which the service is performed, the employee choosing his own time to go and return and not being directed where to go or to whom to sell, does not change the character of the employment if the employer retains general supervision over it. Burlingham v. Gray, supra, 22 Cal.2d at page 100, 137 P.2d 9; Riskin v. Industrial Acc. Comm., 23 Cal.2d 248, 253, 144 P.2d 16; Easton v. Industrial Acc. Comm., 34 Cal.App. 321, 328, 167 P. 288; May v. Farrell, 94 Cal.App. 703, 710, 271 P. 789; Cameron v. Pillsbury, 173 Cal. 83, 86, 159 P. 149; Curcic v. Nelson Display Co., 19 Cal.App.2d 46, 50, 64 P.2d 1153. The right to terminate the relationship without liability is but another way of stating the right to discharge immediately, and this means the right of control. Hillen v. Industrial Acc. Comm., 199 Cal. 577, 582, 250 P. 570; Chapman v. Edwards, 133 Cal.App. 72, 77, 24 P.2d 211; Riskin v. Industrial Acc. Comm., supra. But the absence of the right of direction and control does not necessarily exclude the parties of their relationship from the operation or scope of the statute. Singer Sewing Machine Co. v. Industrial Comm., 104 Utah 175, 134 P.2d 479, 485, rehearing denied 104 Utah 196, 141 P.2d 694. An independent contractor is a person who is engaged in an independent occupation, responsible to his principal only for the result of his operations and not for the means of its accomplishment. California Employment Comm. v. Los Angeles Down Town Shopping News Corp., 24 Cal.2d 421, 424, 150 P.2d 186.

The method of compensation does not determine whether a person is an employee or an independent contractor. An agent selling real estate for a commission, paying his own expense, but under the general control of his principal, was held to be an employee. Brown v. Industrial Acc. Comm., 174 Cal. 457, 461, 163 P. 664. Where the owner of a building engaged another to make alterations thereon under an agreement whereby the latter's compensation was to be a percentage of the cost of the labor and materials used in the work, the latter was held to be an employee of the owner and not an independent contractor. The owner had the right to discharge the other person at any time and exercised control over the construction work. Charles R. McCormick Lumber Co. v. O'Brien, 90 Cal.App. 776, 781, 266 P. 594.

Respondent was, by the express provisions of the statute, the director of the operations of his salesmen and they were legally under his control. They could not act independently nor under the orders of others. Respondent's failure, if he did fail, to exercise the duty imposed on him by law to control and direct them did not change their status from that of employees to independent contractors.

The term ‘wages' is the equivalent of ‘remuneration.’ If one person renders personal service to another for which he is entitled to remuneration the relationship is within the act. Singer Sewing Machine Co. v. Industrial Comm., supra. ‘Wages may be measured by time, by the piece, or by any other standard.’ La Franchi v. Industrial Acc. Comm., 213 Cal. 675, 676, 3 P.2d 305, 306. Drivers of delivery trucks are employees where their compensation for delivering merchandise to customers consists of the difference between the amount charged them for the merchandise and the amount they receive from their customers. Sisk v. Arizona Ice, etc., Co., 60 Ariz. 496, 141 P.2d 395, 397; Jack and Jill, Inc., v. Tone, 126 Conn. 114, 9 A.2d 497, 499. In Northern Oil Co. v. Industrial Comm., 104 Utah 353, 140 P.2d 329, 333, solicitors for the sale of corporate stock, working under division managers and receiving a commission on sales, the percentage being more if they were present when the sale was consummated than if absent, were held to be in ‘employment’ under the statute. The method utilized to determine the payment to be made for the work done is not of controlling significance. A workman who is not on the payroll, but is paid by the piece or quantity, is in the relationship of employee. Caraher v. Sears, Roebuck & Co., 124 Conn. 409, 414, 200 A. 324, 327.

No importance attaches to the fact that respondent issued no sales or instruction manuals or rules, nor to the arrangement whereby the salesmen furnished their own business cards and stationery and paid for their stenographic services. In the performance of their duties in selling respondent's property they were under his direction and control. One who pays his own expenses while in the performance of his duties is an employee if the employer exercises general control over his work. Hall v. Sera, 112 Conn. 291, 295, 152 A. 148, 150.

The fact, testified to by respondent, that he never prohibited salesmen from selling lands for other brokers, does not make the salesmen independent contractors. If they had done so both they and the other brokers would have violated the penal provisions of the Real Estate Act hereinafter quoted.

4. Effect of the provisions of the Real Estate Act. The relationship between respondent and his salesmen of employer and employees is definitely established by the following provisions of the California Real Estate Act, as the same read during the period of respondent's operations, 1 Deering's Gen.Laws, 1937 Ed., Act 112, p. 30 (emphasis added): A real estate broker is a person ‘who, for a compensation, sells or offers for sale, * * * real estate, * * * for another or others.’ Sec. 2. A real estate salesman is ‘one who for a compensation is employed by a licensed broker to sell, or offer for sale, * * * real estate, * * *.’ Sec. 2. An applicant for a salesman's license shall state in his application ‘the name and place of business of the person * * * then employing him, or in whose employ he is to enter.’ Sec. 9a. The salesman's license shall be displayed in the office of the real estate broker; the salesman cannot do business except from the location stipulated in the license; ‘the salesman's license shall remain in the possession of the licensed broker employer until canceled or until said licensee shall leave the employ of said broker’; immediately upon the salesman's withdrawal from the employ of the broker, the latter shall return the salesman's license to the commissioner for cancellation. Sec. 11. It is declared to be a crime for any person to act as a real estate salesman without a license. Sec. 17. And it is made unlawful for any licensed broker to pay any compensation to any person who is not a licensed broker, or a salesman licensed under the broker paying the compensation, or for any real estate salesman to be employed by or to accept compensation from any person other than the broker under whom the was at that time licensed. A licensed broker is forbidden to employ or compensate, directly or indirectly, any person for performing any of the acts specified in section 2 who is not a licensed broker or who is not a salesman licensed under the broker employing, or paying the compensation to, such person. Sec. 18.

These provisions of the Real Estate Act vest in the broker the right and power of control over the salesmen and the brokers working under him. He is the employer, they the employees. A salesman cannot obtain an independent or general license but must be licensed under the broker by whom he is employed; he can do business only from the office of and can work for no one other than the broker employer. By reason of the statutory provisions the salesman is never a free agent. He cannot delegate his duties and can do not independent act. He is at all times subservient to the will of the broker and is under the latter's control, direction, and authority. He cannot represent to the public that he is in business for himself. His sales must be made in the name of the broker under whom he is licensed. He is forbidden to accept compensation for making sales from any person other than the broker. When the jurisdiction of the broker to direct the acts of his salesman ceases the latter ceases to be a salesman; he can make no sales and can receive no compensation. The relationship of broker-employer and salesman-employee may be terminated at the will of either party, and in the instant case respondent had the right to discharge his salesmen at any time without liability.

Where real estate salesmen worked under a broker as provided by a statute regulating real estate brokers, and had the right to sell only property listed with the broker, receiving their commissions from him and having no right to collect commissions from the owners of property sold, they were held to be employees of the broker and the commissions were denominated ‘wages' under the statute. Babb & Nolan v. Huiet, 67 Ga.App. 861, 21 S.E.2d 663, 667. In Lowmiller v. Monroe, Lyon & Miller, Inc., 101 Cal.App. 147, 151, 281 P. 433, 282 P. 537, the court held that a real estate salesman, licensed under a broker, was an employee and that any attempt to create for him the status of independent contractor or broker would have been in violation of the penal provisions of the statute.

In 1938 the Bureau of Internal Revenue ruled that real estate salesmen who were engaged in the sale of real estate for a broker, their remuneration consisting entirely of commissions on sales made by them, and who were prohibited by law from performing services for any broker other than the one with whom they were registered, were not employees of the broker for the purpose of the Social Security Act. S.S.T. 346, Cum.Bul. 1938–2, p. 300. This regulation was declared to be erroneous and was revoked in April, 1943. Mim. 5504, Cum.Bul.1943, p. 1066. In the latter ruling the Bureau held that the salesman's function is to represent the broker and whatever business he transacts is the business of the broker; that regulatory laws in most of the states contemplate that a salesman is not privileged to engage in his occupation independently nor in the course of his own business but only as his activities may be related to and under the supervision of a licensed broker; that the salesman is not obligated to achieve a certain result and he has no delegable duties. It is further stated that although it is not feasible for a broker to exercise complete control over all of the physical activities of his salesmen, nevertheless, under the customs and practices and usual agreements, the broker has the right to control the means and methods of such services as the salesmen undertake to perform on behalf of the broker.

5. Cases distinguished. Nothing is found in the cases cited by respondent that sustains his contention. In Royal Indemnity Co. v. Industrial Acc. Comm., 104 Cal.App. 290, 285 P. 912, the alleged employee did not obtain a salesman's license under the broker but operated as an independent broker under his own license. 104 Cal.App. at page 296, 285 P. at page 914. In Firpo v. Murphy, 72 Cal.App. 249, 254, 236 P. 968, it is held that a broker is not entitled to a commission when the transaction is handled by a salesman who is not licensed under the broker as required by law. Koeberle v. Hotchkiss, 8 Cal.App.2d 634, at page 640, 48 P.2d 104, at page 107, held that a broker who was licensed when his services were performed was entitled to maintain an action to recover his compensation although he did not hold a license at the time the cause of action arose. Gray v. Horne, 48 Cal.App.2d 372, 373, 119 P.2d 779, holds that the services described in the complaint were not those required to be performed by a licensed broker. The cases arising under the workmen's compensation laws do not lend aid in solving the instant case by reason of material differences in the nature and purpose of the statutes and the variances in their details.

An employer cannot evade or avoid the specific provisions of the statute declaring it to be unlawful for a broker to pay compensation to any person other than a salesman licensed under him or to another licensed broker, Real Estate Act, sec. 18, supra, nor can he destroy the relationship of employer-employee by an agreement or arrangement between himself and his salesman that such relationship does not exist, or by adopting a particular method of doing business in an attempt to make his salesman an independent contractor.

The finding that the salesmen and brokers working under respondent were not his employees is not sustained by the evidence.

Judgment reversed.

On Petition for Rehearing.

Even though respondent was engaged solely in the sale of his own property, he could not have compensated his salesmen for their services unless they had been licensed as real estate salesmen under him as a real estate broker. In the absence of such licenses it was unlawful for him to pay and for them to accept compensation. Real Estate Act, secs. 17 and 18.

The petition for rehearing is denied.

WILSON, Justice.

MOORE, P. J., and McCOMB, J., concur.