TWENTIETH CENTURY LITES v. CALIFORNIA DEPARTMENT OF EMPLOYMENT (1945)

This is an appeal from a judgment discharging an alternative writ of mandate theretofore issued and dismissing the petition, whereby petitioner sought to compel respondent Commission to set aside and vacate its decision determining that thirty-three named persons were ‘employees' of petitioner under the Unemployment Insurance Act, Chapter 352, St.1935, p. 1226, as amended, Act 8780d, Deering's General Laws, to correct its books and records with respect to such persons so erroneously listed therein as employees of petitioner, and to return to petitioner the sum of $1,873.96 contributed by it on behalf of said persons.

For purposes of convenience, petitioner and appellant, Twentieth Century Lites, Inc., a corporation, will hereinafter be referred to as ‘appellant’; the defendants and respondents, California Employment Stabilization Commission, successor to the California Employment Commission, referred to in the title and pleadings of the instant proceeding as ‘California Department of Employment’, will be designated as ‘respondent’; and the Unemployment Insurance Act, supra, as ‘the act’.

The facts are not disputed and may be epitomized by saying:

Appellant is engaged in the manufacture, sale and installation of neon advertising displays. Its plan of doing business is as follows: Appellant used the services of salesmen who submitted orders for its products. Upon ascertaining the desires of a prospective customer the salesman submitted the same to appellant whose art department prepared a sketch and estimated the cost of installation. The salesman then returned to the prospective purchaser with the sketch and estimate and attempted to sell the installation, and if successful obtained a signed agreement from the customer on a form furnished by the appellant. In some instances, when the prospective sale was for a small display, the salesman quoted a price and obtained the signed agreement without first consulting the art department for a sketch and estimate. The salesman signed such form as appellant's representative. Appellant accepted or rejected the order obtained by the salesman. The agreement for the sale or lease of a neon sign was subject to appellant's approval and to the verification of the customer's credit rating. If the order was accepted by appellant, the salesman was paid a commission thereon. Upon delivery of the signed agreement to the appellant and the latter's approval of the customer's credit the salesman's services ended. A customer's request for changes in installations or for an adjustment of price could be honored only by appellant. The salesmen used cards indicating that they were representatives of the appellant, correspondent with customers on appellant's stationery and signed letters as representatives of the latter's sales department. The salesmen were furnished desk space and telephone service in appellant's office. The salesmen had the right to take their orders to other companies engaged in the same business. The services of the salesmen were terminable at the will of either party without liability. Salesmen were not required to report regularly to appellant's office. A so-called ‘lead’ service was maintained by appellant which was available to all salesmen except in certain instances when the name of a prospective customer was given to only one salesman.

The salesmen were not required to furnish a bond, were not required to produce a minimum amount of business or to work fixed or regular hours. The salesmen were not assigned to any specific territory and only called upon those prospective customers that they chose to solicit. The salesmen received no advances or loans from the petitioner and were not permitted a drawing account. No sales meetings or training classes were conducted and no advertising material was furnished to the salesmen. Salesmen requiring the assistance of other persons made arrangements for the payment of such persons. The salesmen were free to work for others or to devote as much time as they desired to other business activities whether in competition with the appellant or not.

The salesmen entered into a written contract with the appellant before entering into the latter's service. It was provided by the contract that the appellant would make available to the salesmen all current information and ‘leads' to prospective customers except such as appellant might find expedient to place exclusively in the possession of another salesman. The appellant agreed to assist the salesmen in their work by advice, instructions and full cooperation. The salesmen were to be provided with such facilities as appellant's office might be able to furnish. The salesmen agreed to work diligently to sell or lease appellant's products and to solicit additional prospects and otherwise promote the business. The usual and customary commissions were to be paid the salesmen unless appellant advised the salesmen of a special contract relating to a particular transaction and appellant would not be liable for any commissions until the sale, contract or lease had been approved and accepted by it. The salesmen were not to be restricted to territory, method of sale, the amount of time devoted to appellant's business or any minimum volume of business. They were not required to submit reports of their activities except as to business transacted or consummated. Appellant would make no cash advances to the salesmen for their traveling or other expenses and would not be liable therefor. The salesmen had no authority to bind appellant on any promise or representations unless specifically authorized in writing by the latter. The salesmen were not responsible for collections under transactions consummated by them and in all actions at law should be construed to be sub-agents only with respect to customers for whom services were performed and would otherwise be deemed to be independent contractors and not servants, employees, joint adventurers or partners of appellant. They were not prohibited from engaging in private enterprise not in conflict with their contract with the petitioner.

The question in the case is whether the aforesaid workers were in the ‘employment’ of appellant as that term is defined in the Act, the pertinent and applicable provisions of which read in part as follows:

“Employment,' subject to the other provisions of this act, means service, including service in interstate commerce, performed for wages or under any contract of hire, written or oral, express or implied. * * *.' Sec. 6.5, St.1937, p. 2052.

“Employer' means:

‘(a) Any employing unit, which for some portion of a day, but not necessarily simultaneously, in each of twenty different weeks, whether or not such weeks are or were consecutive, has within the current calendar year or had within the preceding calendar year in employment four or more individuals, irrespective of whether the same individuals are or were employed in each such day; provided, that prior to January 1, 1938, employer means any employing unit which for some portion of a day, but not necessarily simultaneously, in each of twenty different weeks, whether or not such weeks are or were consecutive, has within the current calendar year or had within the preceding calendar year in employment eight or more individuals, irrespective of whether the same individuals are or were employed in each such day; * * *.’ (Sec. 9)

In the case at bar we are dealing with a specific statute declaratory of the social policy of the state and designed to implement such social or economic policy to the end that the evil social effects of unemployment may be avoided. B. P. Schulberg Productions, Ltd., v. California Employment Commission, 66 Cal.App.2d 831, 153 P.2d 404. It therefore becomes the duty of the courts to so construe it as to accomplish its objects and consequently, if expressly or by necessary implication, the act here under consideration, by its terms, brings within the scope of its remedial and regulatory provisions the workers situated and in the status involved here, then the judgment of the trial court must be affirmed.

We regard it as a fair statement concerning the act to say that under its terms the relationship between the individual who performs services and the person for whom such services are rendered must, as to those services, be the legal relationship of employer and employee.

Generally speaking, such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which the result is accomplished. In other words, an employee is one who is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. Not that it is necessary that the employer actually direct or control the manner in which the services are performed but that he possess the right to do so. The test is whether the one for whom the services are performed possesses the power to exercise complete control regardless of whether or not such potential control is exercised with respect to all details. If he does, then an employer-employee relationship is established. California Employment Commission v. Los Angeles, etc., News Corp., 24 Cal.2d 421, 425, 150 P.2d 186; California Employment Commission v. Bates, 24 Cal.2d 432, 436, 150 P.2d 192; Garrison v. California Employment Stabilization Commission, 64 Cal.App.2d 820, 824, 149 P.2d 711. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods by which the result is to be accomplished, he is an independent contractor, not an employee, and manifestly not within the purview of the act here under consideration. Barton v. Studebaker Corp. of America, 46 Cal.App. 707, 717, 189 P. 1025. Cases from other jurisdictions cited by respondent are of little assistance because of material differences in the definitions of descriptive terms therein contained when compared with those appearing in the California Act.

An examination of the factual situation in the case at bar discloses that the contract between the salesmen and appellant herein provided for no set time which was required to be devoted to the latter's business; they were not required to make reports as to their work; were not ‘prohibited from engaging in private enterprises which are not in violation, nor in conflict’ with said contract. The salesmen were not assigned to any specific territory and called only upon those prospective customers whose business they chose to solicit. No advances or loans were received by the salesmen from appellant, nor were they permitted a drawing account. Such salesmen were free to take their business to firms other than appellant, even though the latter were competitors of appellant. In short, the obligation of the salesmen herein was to seek, secure and bring to appellant orders for the latter's products, but with reference to the details of their work or as to how it should be performed the undisputed evidence shows that the salesmen were not subject to the authoritative control of appellant. This was entirely up to the salesmen. They could work when they pleased and seek out and solicit such persons as they pleased as purchasers of appellant's products, and once they obtained such prospective purchasers they could bring the business to appellant or take the same to one of its competitors. They were under no obligation to give any particular time or service to appellant. When a salesman brought a ‘prospect’ to appellant he was acting as much for himself as for the corporation, and if the ‘prospect’ was converted into a customer the salesman received his agreed commission and if a ‘deal’ was not effected he received nothing.

Respondent directs our attention to the fact that the salesmen used cards indicating they were representatives of appellant, corresponded with customers on appellant's stationery, signing communications as members of appellant's sales department and that they utilized appellant's sales and lease forms; that the salesmen were furnished desk space and telephone facilities in appellant's office. We are not impressed with the significance of these facts because of the undisputed evidence disclosing the terms of the agreement between the salesmen and appellant corporation and the nature of the relationship existing between them as established by such terms. Moreover, the use by the salesmen of appellant's business cards, stationery, telephone facilities and desk space is not determinative of, and has little, if any, bearing upon, the issue with which we are here concerned. Some importance might attach thereto, were we confronted with the issue of ostensible agency, wherein the customers of appellant, or other third parties with whom appellant was dealing, were concerned, but appellant's customers are not involved herein, nor is the question of ostensible agency. The essential element of control is woefully lacking in the case at bar. Moody v. Industrial Accident Commission, 204 Cal. 668, 672, 269 P. 542, 60 A.L.R. 299; Counihan v. Lufstufka Bros. & Co., 118 Cal.App. 602, 5 P.2d 694; Lee v. Nanny, 38 Cal.App.2d 90, 100 P.2d 832.

One of the means of ascertaining whether or not the right to control exists is the determination whether or not if instructions were given they would have to be obeyed. Applying this test to the case at bar, let up suppose that appellant had said to one or all of the salesmen: ‘You will report regularly to the office at nine o'clock each morning, you will furnish a bond conditioned upon the faithful performance of your duties; you will only call upon prospective customers in a given territory; you will call upon each prospective purchaser whose name is furnished to you; and you will not be permitted to engage in any business other than ours; you will return to the company office at the end of each day's work and make a report of your daily activities'. If the salesmen are to be considered as employees it would have been their plain duty to obey the foregoing instructions. But manifestly such obedience was not required under the terms of their contracts herein. To us it seems clear that under their contracts with appellant the salesmen were responsible to the former only as to the result of the work to be done, namely to bring to appellant proposed contracts for the purchase or lease of appellant's products. With reference to what we have herein said we find no contradiction of our views as expressed in B. P. Schulberg, Ltd., v. California Employment Commission et al., supra [66 Cal.App.2d 831, 153 P.2d 405], because therein we said ‘Appellant was liable for the contributions it made for the year 1938 under the Unemployment Insurance Act only if the above mentioned artists were its employes during the various periods of the year 1937.’ We adhere to the holding in the case just cited that whenever the meaning to be given to particular terms is prescribed by the Legislature in enacting a statute, that meaning is binding on the courts. It is from the very terms as defined in the act itself that we determine, as have other appellate tribunals, that the act by its very language never contemplated that contributions be made pursuant thereto unless the legal relationship of employer-employee exists. In holding that the salesmen in the case at bar are not employees of appellant we are guided by the purposes that the Legislature had in mind and the declared objectives of the act itself.

In the Schulberg case it was conceded that the artists were in ‘employment’ of either one of two concerns and the only question presented for determination was which of two corporations occupied the legal relationship of employer-employee to the artists therein mentioned. It was through application of the rules which we have herein enunciated that we arrived at our determination, viz., which corporation exercised the right of control over the artists. Nor are we dissuaded from our expressed views in the instant proceeding by the holdings in National Labor Relations Board v. Hearst Publications, 322 U. S. 111, 64 S.Ct. 851, 857, 88 L.Ed. 1170, and Grace v. Magruder, App.D.C., 148 F.2d 679, so earnestly relied upon by respondent, because, while holding that the statutes there under consideration ‘must be read in the light of the mischief to be corrected and the end to be attained’ and that the word ‘employee’ is “not treated by Congress as a word of art having a definite meaning * * *.' Rather ‘it takes color from its surroundings * * * (in) the statute where it appears,” nevertheless in both cases it was held that from the contract between the parties the nature of the relationship can ordinarily be determined, and both cases were decided upon the theory that the facts therein present showed, as was said in Grace v. Magruder, supra, ‘the power of supervision and control implicit in the arrangement’ between the one performing the services and the one for whom such services were performed. No such showing is present in the case with which we are here concerned.

Respondent strongly urges that the right to terminate the agreement at any time and without cause is a persuasive argument in favor of the assumption that appellant thereby had the power of coercion and control over the salesmen, but it is equally true that the salesmen also had an equal right to terminate their agreements with appellant and as was said in Fidelity & Casualty Co. v. Industrial Accident Commission, 191 Cal. 404, 410, 216 P. 578, 581, 43 A.L.R. 1304, where a like situation was present, ‘It could just as well be argued, so far as this aspect of the contract is concerned, that decedent had the power of control over Haydis.’ It must be conceded that the right of immediate discharge is an incident of the relationship of employer-employee, and points strongly to the existence of such a relationship, but in the instant case we are persuaded that by reason of the terms of the agreement between the parties the right of immediate termination of the contract was vested in appellant to secure satisfactory performance by the salesmen as to the results of their work and not as to the means whereby such results were to be achieved. In an independent contract the parties may and often do incorporate provisions tending to secure satisfactory results without thereby negativing the relationship of independent contractor or establishing the relationship of employer-employee.

While it is true as stated in California Employment Comm. v. Black-Foxe Military Inst., 43 Cal.App.2d Supp. 868, 872, 110 P.2d 729, and quoted with approval in California Employment Commission v. Butte County, etc., Ass'n, 25 Cal.2d 624, 154 P.2d 892, 895, with reference to the act now engaging our attention that ‘in view of the purpose of these provisions they should not be whittled down by narrow construction, nor should exceptions not clearly justified by their language be engrafted upon them by judicial interpretation’, it is equally true and amounts only to the statement of a principle of natural justice to say that by judicial interpretation the act should not be extended to include within its provisions any class or group clearly excluded by the language of the statute. It is for the Legislature to indicate by appropriate amendatory languate its intention to broaden the scope and meaning of ‘in employment’ beyond the limits now established by the present language of the act as interpreted by the courts of this state.

To uphold respondent's contention in the instant case that the legal relationship of employer-employee existed between appellant and the salesmen would in effect modify the statute. This, neither the California Employment Stabilization Commission nor the court has the power to do, either directly or indirectly. Hutchison v. Clark, 67 Cal.App.2d 155, 153 P.2d 796, 799.

The judgment is reversed, and the cause remanded, with directions to the court below to issue a peremptory writ of mandate as prayed for.

WHITE, Justice.

YORK, P. J., and DORAN, J., concur.