No. 14917 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

STANDARD CHEMICAL MANUFACTURING 

COMPANY, a corporation, 

Plaintiff and Respondent, 

THE EMPLOYMENT SECURITY DIVISION OF 

THE MONTANA STATE DEPARTMENT OF LABOR 

AND INDUSTRY; THE BOARD OF LABOR APPEALS 

OF THE MONTANA STATE DEPARTMENT OF LABOR 

MJD INDUSTRY; MICHAEL J. WHALEN, JAMES W. 

MURRY, and DOUGLAS R. HANSIN ,as members 

of the Board of Labor Appeals, 

Defendants and Appellants. 

Appeal from: District Court of the First Judicial District, 

Honorable Peter G. Meloy, Judge presiding. 

Counsel of Record: 

For Appellants: 

Robert J.Campbel1, Helena, Montana 

For Respondent: 

Scribner, Huss and Mulroney, Helena, Montana 

!a[+ q , ;.7q Filed: , r -. ,-. - 

Submitted on briefs: November 7, 1979 

Decided: &2:&$ 
Mr. Justice John Conway Harrison delivered the Opinion of 

the Court. 

This is an appeal from a judgment holding that respondent 

is exempt from paying unemployment compensation tax on 

Persons it employs as salesmen. The judgment was rendered 

in the District Court of the First Judicial District, in and 

for the County of Lewis and Clark, the Honorable Peter G. 

Meloy presiding. 

Respondent is a Nebraska corporation engaged in the 

manufacturing, distributing and wholesaling of livestock 

nutritional products. Respondent markets its products in 

twenty-three states through the use of certain salesman, who 

are called "contract distributors" or "distributor dealers." 

The salesmen are recruited by a division manager, who explains the nature of the products as well as respondent's 

method of distribution, and then enters into contracts for 

distribution. Once they are recruited, the salesmen purchase 

a sales kit for $40.00, which is mailed by respondent to 

either the salesman or his division manager. Accompanying 

the kit are supply order forms, sales manuals, and other 

promotional sales items. Most of the salesmen employed by 

respondent are farmers, ranchers or persons involved in the 

livestock industry. There are no required hours and the 

salesmen may work parttime. Salesmen receive no formal 

training except for occasional assistance in determining a 

customer's nutritional needs or a problem relating to toxicity. 

While the salesmen do not represent themselves as 

agents of the company, order forms nevertheless reflect the 

name of the company. The contract for sale, for example, is 

made between respondent and the customer. Payments for the 

products are made by check payable to either respondent or 
the salesman or by case payable to the salesman. Respondent 

furnishes a suggested retail price for its products, but 

salesmen are not bound by the price. They may even barter 

for the products. 

Respondent extends credit to customers on the basis of 

prior approved credit applications, which must be obtained 

by the salesmen. When credit is approved and established, 

it is the responsibility of respondent to collect from the 

customer. Salesmen may also extend credit to customers. 

They are liable to respondent, however, for the costs of 

goods sold. When salesmen order products, the wholesale 

purchase price is charged to the account of the salesman and 

he is individually responsible for loss, damage and contamination. The salesman may return the merchandise upon 

express approval, however, and receive a credit. Commissions 

are paid to the salesmen weekly, and the amount of the 

commission is the difference between customer sales price 

and the wholesale price. 

Respondent maintains five company warehouses or merchandise banks in Montana. Salesmen are also permitted to have 

storage facilities, but must first receive permission from 

the company and must build them at their own expense. 

Approximately 20 to 30 percent of the salesmen have storage 

facilities. Merchandise is generally delivered to the 

company warehouses by respondent and may be picked up there 

by customers. There is a conflict in the testimony as to 

whether respondent delivers orders directly to customers. 

Both respondent and its salesmen have the right to 

terminate their contract at any time. At the conclusion of 

the relationship, salesmen leave with only a customer list 

and perhaps a greater knowledge of the nutritional needs of 
livestock. 

This appeal arises out of a determination made by the 

Employment Security Division and the State Board of Labor 

Appeals that respondent's salesmen were "employees" within 

the terms of the provisions of Title 39, Chapter 51, Montana 

Code Annotated. Respondent filed an action in District 

Court to overturn those administrative decisions. On May 7, 

1979, the District Court granted respondent judgment, holding that respondent was not subject to unemployment compensation tax on those persons acting as its salesmen. 

The following issue is raised for our consideration on 

appeal: 

Whether the District Court erred in determining that 

respondent's salesmen were "independent contractors" and 

were therefore exempt from unemployment compensation tax on 

those persons pursuant to Title 39, Chapter 51, Montana Code 

Annotated. 

This Court has previously used two tests as guidelines 

in determining whether services performed by an individual 

for wages are deemed employment or are those of an independent contractor. See St. Regis Paper Co. v. Unemployment 

Comp. Comm'n (1971), 157 Mont. 548, 487 P.2d 524; Pat Griffin 

Co. v. Employment Security Comm'n (1974), 163 Mont. 529, 519 

P.2d 147. The first test is the so-called "ABC" test and is 

established by statute: 

"Service performed by an individual for 

wages is considered to be employment subject to this chapter unless and until it 

is shown to the satisfaction of the division that: 

"(A) such individual has been and will 

continue to be free from control or 

direction over the performance of such 

services, both under his contract and 

in fact; 
"(B) such service is either outside 

the usual course of the business for 

which such service is performed, or 

that such service is performed outside 

of all the places of business of the 

enterprise for which such service is 

performed; and 

"(C) such individual is customarily 

engaged in an independently established 

trade, occupation, profession, or business." Section 39-51-203(4), MCA. 

Wages are defined in section 39-51-201, MCA, as ". . . 

all remuneration payable for personal services, including 

commissions and bonuses and the cash value of all remuneration payable in any medium other than cash." 

All three of the stated conditions must exist or the 

services performed will be deemed to be employment. Griffin, 

supra, at 533, 519 P.2d at 150. The statute shall be reasonably applied and will not be distorted to allow persons who 

are truly independent in their operations to be held employees merely for tax purposes and resulting benefits derived 

from an employer-employee relationship. Griffin, supra. To 

keep the distortion at a minimum, this Court has used another 

test derived from common law principles as an additional 

guideline: 

"While section 87-148(j) (5), R.C.M. 1947 [now section 39-51-203 (4) , MCA] , is used as a guide in 

the determination of the relationship between an 

employer and an individual performing services, 

the well-established test in determining whether 

an individual is an employee or an independent 

contractor is also a guide to be used. As we 

did in St. Regis, we here reiterate this test as 

expressed in Shope v. City of Billings, 85 Mont. 

302, 306, 278 P. 826, 827: 

"'An independent contractor is one who renders 

service in the course of an occupation, and 

represents the will of his employer only as to 

the result of his work, and not as to the means 

whereby it is accomplished, and is usually not 

paid by the job. (And see Neyman v. Pincus, 82 

Mont. 467, 267 P. 805.)' 
"The vital test in determining whether a person 

employed to do a certain piece of work is a 

contractor or a mere servant, is the control 

over the work which is reserved by the employer. 

Stated as a general proposition, if the contractor is under the control of the employer, 

he is a servant; if not under such control, he 

is an independent contractor. " Griffin, 519 

P.2d at 150. 

In this case, two administrative bodies, the Employment 

Security Division and the State Board of Labor Appeals, were 

confronted with a mixed question of law and fact, namely 

whether respondent's salesmen might be deemed to stand in 

the relationship of "employment. " That question not only 

involved the determination of several underlying facts to 

establish the economic relationship between respondent and 

its salesmen, but it also involved the specific application 

of a statute containing a broad statutory term. In questions 

of this kind, where the agency is entrusted and charged with 

administering the statute and making necessary, initial 

factual determinations, it is well settled that a reviewing 

court's function is limited. Where factual determinations 

are warranted by the record and have a reasonable basis in 

law, they are to be accepted. It is not the court's function to substitute its own inferences of fact for those of 

an administrative tribunal or agency, where facts are supported by evidence in the record. NLRB v. Hearst Publications 

(1943), 322 U.S. 111, 133, 64 S.Ct. 851, 860, 88 L.Ed. 1170, 

Section 2-4-704, MCA states: 

" (2) The court may not substitute its judgment 

for that of the agency as to the weight of the 

evidence on questions of fact. The court may 

affirm the decision of the agency or remand 

the case for further proceedings. The court 

may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, 

inferences, conclusions, or decisions are: 
"(a) in violation of constitutional or statutory provisions; 

"(b) in excess of the statutory authority 

of the agency; 

"(c) made upon unlawful procedure; 

" (dl affected by other error of law; 

"(e) clearly erroneous in view of the reliable, 

probative, and substantial evidence on 

the whole record; 

"(f) arbitrary or capricious or characterized 

by abuse of discretion or clearly unwarranted 

exercise of discretion; or 

"(g) because findings of fact, upon issue 

essential to the decision, were not made 

although requested. 

Here, the Employment Security Division and the State 

Board determined that, for unemployment compensation tax 

purposes, respondent's salesmen were employees. The District Court overturned those determinations and held that 

they were clearly erroneous in view of the reliable, probative and sustantial evidence on the record. The court 

then found that respondent's salesmen were "independent 

contractors." Upon this appeal, we are confronted with the 

task of determining whether the District Court committed an 

abuse of discretion. 

At the outset, we recognize that the element of right 

of control is the most crucial factor which distinguishes 

"employees" from "independent contractors." This element is 

common to both the "ABC" and common law tests. We also 

recognize that the right of control is a very close question 

under the particular facts and circumstances of this case. 

There are several factors which suggest that respondent retained the right to control its salesmen: salesmen were 

recruited by a division manager; they purchased $40.00 sales 

kits; they were assigned to particular territories in which 
they could distribute products; respondent recommended sales 

prices for its products; sales were made on respondent's 

contracts and forms; and respondent extended credit to 

customers. There are also several other factors which 

suggest that respondent did not have the right of control: 

salesmen received no formal training; they could work parttime; they furnished their own transportation and paid their 

own expenses; they could deviate from the recommended price 

and barter for products; they could extend credit to customers; 

they were not required to file reports; and they were responsible for damage, loss or contamination. 

Where the issue of control is so close and there is 

sufficient credible evidence on the record which would allow 

reaching opposite conclusions, we think that a finding which 

overturns another as being "clearly erroneous" is an abuse 

of discretion. Where the District Court's reviewing function 

is limited, as in this case, the findings of administrative 

agencies and tribunals must be sustained where there is 

sufficient credible evidence in the record. 

In view of the closeness of this case, however, we also 

feel it is necessary to consider another element of the 

"ABC" test, which is controlling in our jurisdiction. That 

test, unlike the common law test, goes beyond the issue of 

control. 

In particular, we make reference to element "C" of the 

"ABC" test, the question of whether an individual is customarily engaged in an independently established trade, occupation, 

profession or business. To uphold the findings of the 

District Court, we must be able to say that respondent's 

salesmen here are customarily engaged in an independently 

established trade, occupation or business. 
We have never had occasion to construe or interpret 

what is meant by an "independently established business" 

under part "C" of section 39-51-203(4), MCA. Several other 

jurisdictions with statutes identical to ours, however, have 

interpreted the phrase. In Vermont, for example, an "independently established business" is an enterprise in which a 

claimant is able to engage in an independent activity without any hindrance from any individual whatsoever. Vermont 

Securities, Inc. v. Unemployment Compensation Comm'n (1954), 

118 Vt. 196, 201, 104 A.2d 915, 917; Bluto v. Dep't of 

Employment Sec. (1977), 135 Vt. 205, 373 A.2d 518, 521. In 

Maine, an "independently established business" is an enterprise 

in which an individual has a proprietary interest to the 

extent that he could operate without hindrance from any 

source. Hasco Manufacturing Co. v. Maine Employ. Sec. 

Comm'n (1962), 158 Me. 413, 185 A.2d 442, 445; Fournier v. 

Maine Employ. Sec. Comm'n (1965), 161 Me. 48, 206 A.2d 925, 

926. Illinois also adopts the "proprietary interest" test. 

Hart v. Johnson (1979), 68 Ill.App.3d 968, 386 N.E.2d 623. 

In Hart, the Illinois court stated: 

". . . it is apparent that the act contemplates 

that one who is engaged in an independent enterprise is an individual who has a proprietary 

interest in such business to the extent that he 

can operate same without hindrance from any individual whatsoever and whose business also is 

free from control. Here, the so-called dealers 

had no business to sell or give away. They were 

dependent on the appellant for their employment 

. . . Although appellant urges that the individuals were free to carry other lines, it is a 

fact that there is no evidence that any individuals did so. [Citation omitted.]" Hart, 386 

N.E.2d at 629. 

An "independently established business" in New Jersey 

is one that will survive the termination of a particular 

service relationship. In Gilchrist v. Division of Employment 
Security (19571, 48 N.J.Super. 147, 137 A.2d 29, 35, the New 

Jersey court stated: 

"The fact that a salesman who works on commission 

must rely on his efforts and ability to secure 

orders to make a livelihood does not necessarily 

mean that he is working for himself as an entrepreneur or businessman, within the intendment of 

test C. The double requirement that an individual must be 'customarily engaged' and 'independently 

established' calls for an enterprise that exists 

and can continue to exist independently of and 

apart from the particular service relationship. 

The enterprise must be one which is stable and 

lasting--one that will survive the termination 

of the relationship." 

We also note with interest several other states within 

this jurisdiction that have statutes similar to ours. 

Idaho, Oregon and Utah have statutes which contain parts "A" 

and "C" of the "ABC" test. Part "C" of those statutes adds 

that the "independently established business" must be "of 

the same nature as a contract for service." Idaho has 

established three factors to be considered in determining 

whether an individual is engaged in an independent business: 

(1) Does the worker have authority to hire subordinates? 

(2) Does the worker own major items of equipment? (3) Would 

either party be liable to the other for a preemptory termination of the business relationship? Hammond v. Dep't of 

Employment (1971), 94 Idaho 66, 480 P.2d 912, 914; Swayne v. 

Dep't of Employment (1969), 93 Idaho 101, 456 P.2d 268, 272. 

In Utah importance is placed upon the independence of 

the business. An "independently established business" must 

exist independent of the services under consideration in the 

sense that it is the whole of which the particular ser771ce 

is a part. Leach v. Board of Review of Industrial Com'n 

(1953), 123 Utah 423, 260 P.2d 744, 748. 

In Oregon, case law holds that an independently established business is an enterprise which is created and exists 

apart from a relationship with a particular employee and which 
survives the termination of that realtionship. The continued existence of the business does not depend upon a 

relationship with a particular employer. Timberland 

Sales, Inc. v. Employment Division (1975), 20 0r.App. 192, 

530 P.2d 880, 883-884; Kirkpatrick v. Peet (1967), 247 Or. 

204, 428 P.2d 405, 409-10; Baker v. Cameron (1965), 240 Or. 

354, 401 P.2d 691, 696. The Oregon legislature has also 

enunciated additional criteria to determine whether an 

enterprise is an independently established business: 

"(A) The individual customarily has two or 

more effective contracts. (B) The individual 

as a normal business practice utilizes separate telephone service, business cards and 

engages in such commercial advertising as is 

customary in operating similar businesses. 

(C) The individual is recognized by the Department of Revenue as an employer. (D) The 

individual furnishes substantially all of the 

equipment, tools and supplies necessary in 

carrying out his contractual obligations to 

his clients." 0r.Rev.Stat. § 657.040 

In this case, both the Board and the District Court 

entered specific findings with respect to part "C" of the 

"ABC" test. The Board stated: 

"The salesmen were not engaged in independently 

established businesses as a result of their association with the company, and would not have 

saleable businesses if they terminated their 

relationship with the company. They were not 

engaged in independently established businesses, 

but merely salesmen who worked on a commission 

basis. " 

The District Court stated: 

". . . The salesmen are livestock 'nutritional 

experts' capable of analyzing and adjusting the 

nutrition of their customer's livestock. [Citations to transcript omitted.] This is a skill 

they could sell after their relationship with 

Standard Chemical is ended. It does not matter 

that they would not have a business to sell. A 

lawyer, for example, does not have a saleable 

business, only a marketable skill. Thus, it is 

clear that the third requirement of the 'ABC' 

test is fulfilled." 
Upon a review of the record before us, we find that the 

District Court abused its discretion in holding that respondent's 

salesmen were independent contractors and were not subject 

to unemployment compensation benefits. Respondent's salesmen 

here are employees. They have no independently established 

business of their own. Their "business" does not exist 

independently and apart from their relationship with respondent. They are, rather, dependent upon respondent for their 

employment. Should their relationship with respondent 

terminate, their "business" would also terminate as well. 

They have no authority to hire subordinates; they have the 

right, as does respondent, to terminate their employment; 

and, they have no liability for a peremptory termination of 

their relationship. It is also doubtful whether respondent's 

salesmen may truly be called "nutritional experts." There 

is little formal training the salesman receive from which to 

gain such expertise. Respondent only occasionally assists 

its salesmen in determining customers' nutritional needs and 

in problems relating to toxicity. For these reasons, we 

hold that the District Court abused its discretion and that 

respondent's salesmen are employees. 

Accordingly, the judgment of the District Court is 

reversed . 

We concur: