No. 87-397 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

ZIMMER-JACKSON ASSOCIATES, INC., 

Plaintiff and Appellant, 

DEPARTMENT OF LABOR AND INDUSTRY, 

and SAM AUSTIN, 

Defendants and Respondents. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis and Clark, 

The Honorable Thomas C. Honzel, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Stephen R. McCue, Harrison, Loendorf and Poston, P.C., 

Helena, Montana 

For Respondent : 

David Scott, Helena, Montana, (Department of Labor) 

William J. O'Connor, 11, Dunaway, O'Connor and Moe 

Billings, Montana, (Sam Austin) 

Submitted on Briefs: March 11, 1988 

Decided: April 13, 1988 

Filed: 'A~R 1988 

Clerk 
Mr. Justice William E. Hunt, Sr., delivered the Opinion of the 

Court. 

This is an appeal from the Order of the District Court, 

First Judicial District, County of Lewis and Clark affirming 

the decision of the Board of Labor Appeals which held that 

the defendant/respondent was an employee of 

plaintiff/appellant for purposes of unemployment insurance. 

We affirm. 

The issues on appeal, restated, are: 

1. Did the District Court err when it affirmed the 

Board's decision holding that respondent's commissions from 

appellant were wages for purposes of unemployment insurance 

tax? 

2. Did the District Court err when it affirmed the 

Board's decision holding that respondent's relationship with 

appellant satisfied the test pursuant to S 39-51-203(4), MCA, 

(1983), sometimes referred to as the ABC test, therefore 

classifying him as an employee for purposes of unemployment 

insurance tax? 

By letter of January 31, 1986, the Montana Department of 

Labor and Industry, Unemployment Insurance Division, 

determined that Zimmer-Jackson Associates, Inc. (ZJ) must 

report Austin's services to the Division and must pay 

unemployment insurance tax on those services. A hearing was 

held before an appeals referee of the Department who made 

findings of fact and concluded that Austin was an employee 

and not an independent contractor for purposes of the 

unemployment insurance tax. On appeal the Board of Labor 

Appeals adopted the findings of fact and decision of the 
referee as its own. Upon petition for judicial review the 

District Court affirmed the decision of the Board. 

The appellant, ZJI is a distributor of medical equipment 

in seven western states including Montana. It is an 

independent agent of Zimmer USA (Zimmer) which manufactures 

medical equipment. From 1977 to 1985, respondent Austin was 

a sales associate for ZJ based in Billings and covering most 

of Montana. Austin was responsible for selling ZJ goods to 

various hospitals and clients in his area. The selling 

procedure for ZJ sales associates is uncomplicated. When an 

associate makes a sale, the order is sent to ZJ who then 

sends it to Zimmer. The equipment is sent to the customer 

who pays Zimmer directly. Both ZJ and the associate receive 

a percentage from the sale. The sales associate's commission 

is based upon a percentage of the associate's total sales as 

payment is received by Zimmer. 

Austin maintained a Billing's office where he employed a 

secretary. As with all ZJ associates, a base rent was paid 

by ZJ on the office and phone. Basic office equipment was 

also provided by ZJ. The base amount is determined by the ZJ 

Board of Directors. Any expenses above that amount are the 

responsibility of the associate. An associate can hire 

support personnel such as a secretary providing that the 

position is approved by ZJ. The particular person hired is 

not required to be approved. While the salary is negotiated 

between the associate, ZJ and the secretary, ZJ pays that 

salary. 

The territory covered by any one associate is set by ZJ. 

Modifications may be made at the associate's request. This 

was done in Austin's case when he complained about the 

geographical size of his Montana territory. Consequently ZJ 

allowed him to give up a portion of this territory for which 

he was compensated $8,000.00 in exchange for his part in 
developing the territory and for the loss of possible future 

commissions from that portion of the territory. 

An associate usually must comply with any contracts 

directly between his or her client and ZJ or Zimmer. An 

associate is allowed to sell below the contract price but may 

not sell above it. An associate is also allowed to make 

separate contracts with his or her clients. Any contract of 

this type had to be sent to Zimmer for approval. A contract 

that conflicted with Zimmer contracts was sent back to be 

redone by the associate. Efforts were always made to resolve 

the conflict. 

Austin did a limited business with other companies for 

instrument sharpening. ZJ discouraged working for 

competitive companies but tolerated it as long as Austin's 

sales goals were met. Appellant disputes the finding by the 

referee that if an associate failed to meet his goals he 

would be fired unless he agreed to give up selling 

competitive products. 

The standard of review the District Court must follow 

derives from § 39-51-2410(5), MCA, which states: 

In any judicial proceeding under 39-51-2406 through 

39-51-2410, the findings of the board as to the 

facts, if supported by evidence and in the absence 

of fraud, shall be conclusive and the jurisdiction 

of said court shall be confined to questions of 

law. Such action and the questions so certified 

shall be heard in a summary manner and shall be 

given precedence over all other civil cases except 

cases arising under the workers' compensation law 

of this state. 

The operation of this statute has been well discussed in 

previous cases. When reviewing a decision of the Board of 

Labor Appeals, the District Court must treat the findings of 

the Board as conclusive if they are supported by substantial 

evidence and are absent fraud. Gypsy Highview Gathering 
System v. Stokes (Mont. 19861, 716 P.2d 620, 623, 43 St-Rep. 

595, 598; Kirby Co. of Bozeman v. Employment Set. (1980), 189 

Mont. 1, 5, 614 P.2d. 1040, 1042-3. This Court is held to 

the same standard when reviewing a Board of Labor Appeals 

decision. Gypsy Highview, 716 P.2d at 623. We must 

determine whether the District Court committed an abuse of 

discretion by affirming the Board's decision. Standard Chem. 

Mfg. Co. v. Employment Sec. (1980), 185 Mont. 241, 247, 605 

P.2d 610, 613. 

The pertinent statute defining employment is § 

39-51-203 (4) , MCA (1983) . (4) 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 department 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. 

Appellant asserts as its first issue that Austin's 

commissions did not constitute "wages" and, as such, his 

services do not fall within the purview of the above statute. 

Instead, appellant argues, Austin's commissions were netted 

with his expenses to create "profits." Austin's 

self-employed status, arguably, is bolstered by his tax 

returns of 1982-85 showing he paid self-employment tax. 
Wages, for the purpose of unemployment insurance, are 

defined by $ 39-51-201(19) (a), MCA (1983), as meaning "all 

remuneration payable for personal services, including 

commissions and bonuses and the cash value of all 

remuneration payable in any medium other than cash." This 

Court had the opportunity to address this issue in St. Regis 

Paper Co, Etc. v. Unemployment Comp. Com'n (1971), 157 Mont. 

548, 487 P. 2d 524. There we cited with approval National 

Trailer Convoy, Inc. v. Undercofler (Ga. 1964), 137 S.E.2d 

328 in which the Georgia Supreme Court held, interpreting an 

identical statute, that because of the obvious existence of 

an independent contractor relationship between the parties no 

"wages" existed and therefore the ABC test did not apply. 

This Court also stated that although the statute is 

discretionary, it should not be so distorted as to cover 

relationships that are truly independent in nature. But, 

there is no such distortion in this case. Although we 

discuss it in greater depth below, we cannot say that there 

is an obvious independent contractor relationship here and 

therefore no wages as required by 39-51-203 (4), MCA. 

Austin received commissions on all Zimmer goods he sold. 

Section 39-51-203(4), MCA, plainly states that commissions 

are wages. Therefore Austin was receiving wages as defined 

in the statute and the ABC test must be applied. His tax 

treatment of these wages is not relevant. 

Appellant, next and lastly, contends that none of the 

three tiers of the ABC test were met and specifically 

complains that its rights were prejudiced because the 

District Court failed to find facts which were requested. We 

disagree. 

In order for a service to be deemed employment all three 

standards of S 39-51-203 (4), MCA, (1983) must be met. Pat 

Griffin Co. v. Employment Security Com'n (1974), 163 Mont. 
529, 533, 519 P.2d 147, 150 (Citing - St. Regis, 487 P.2d at 

525) ; Standard Chem., 605 P.2d at 612. As stated above the 

statue must be applied reasonably. Standard Chem., 605 P.2d 

at 612; - St. Regis, 487 P.2d at 525. 

Tier "A" of this three part test requires that an 

individual be free from control over the performance of his 

services. Section 39-51-203 (4) (a) , MCA. We have recognized 

that this is the most important factor in determining 

employment relationships and have often used the common law 

test for determining employment status in conjunction with 

the statute on this point. See Kirby Co. of Bozeman, 614 

P.2d 1040; Standard Chem., 605 P.2d 610. The right of 

control figures most prominently in both tests. Standard 

Chem., 605 P.2d at 613. 

The District Court relied upon the finding that Austin 

was required to have his sales contracts reviewed and 

approved by Zimmer and that ZJ determined the base amount 

paid for Austin's office rent and phone charges and Austin's 

secretary. It also relied upon the finding that Austin would 

have been fired if he were selling competitive products and 

his sales dropped below expected goals. ZJ contends that 

this finding is clearly erroneous and not supported by 

substantial evidence. The finding stems from the following 

exchange at the hearing between the appeals referee and the 

owner of ZJ concerning a sales associate who was selling 

competitive products: 

MARONICK: One question, Mr. Jackson. If he were 

not to do that, if he continued to sell both, 

Zimmer and the other, what action would you take, 

what's the agreement? 

JACKSON: The agreement is, if his sales fall below 

a certain level then I would probably terminate his 

relationship with us. If he could keep them at a 

high level, I wouldn't cut my nose off to spite my 

face. 
The appeals referee found that: 

. . . if the Associate were selling competitive 

products and could maintain enough sales such 

selling would be permitted. If however, the 

competitive products were being sold and goals were 

not met the Associate would be fired if he insisted 

on continuing to sell the other products. 

This Court fails to find any inconsistency between this 

finding and the owner's statement. The finding flows 

directly from the testimony given. 

Appellant voices its dissatisfaction over the Board's 

failure to make certain findings, specifically that Austin 

was on the Board of Directors of ZJ; that Austin incurred 

business expenses; that Austin has made a separate claim for 

reimbursement of his expenses ; that Austin paid 

self-employment tax from 1982 to 1985; that Austin's sales of 

products and services for other companies was directly 

competitive with ZJ's business; that Austin received no sales 

technique training from ZS; and that Austin was not required 

to make periodic sales reports aside from year-end letters 

projecting expected sales for the coming year. 

Although such findings would have made this issue a 

closer case, the findings actually made are sufficient to 

establish an employer-employee relationship. The evidence 

need not be a preponderance but only substantial and it is 

irrelevant that there may be substantial evidence for the 

opposition. Gypsy Highview, 716 P.2d at 623, citing Jordan 

v. Craighead (1943), 114 Mont. 337, 343, 136 P.2d 526, 528. 

Therefore we agree with the District Court's conclusion that 

ZJ had the right of control over Austin. 

Part "B" of the ABC test requires that the nature of an 

individual's services falls outside the usual course of the 

employer's business or that the services be performed outside 
the place where employer's business is carried on in order 

for him to avoid the label of employee. 

First the Court notes that this is a little discussed 

provision that has been done away with by the 1987 

legislature. See 5 39-51-203(4), MCA, (1987) in conjunction 

with S 39-51-201 (14), MCA, (1987). 

Appellant argues that the relationship between Austin 

and ZJ can be analogized to automobile dealerships and fast 

food restaurant franchises and that an affirmance of the 

District Court on this point would result in classifying 

owners of these dealerships and franchises as employees. The 

District Court agreed with the appeals referee that: 

Without a sales force, Associates, the employer 

would have no units distributed upon which or from 

which their income is generated. Not only is the 

Associate in the normal course of the Employer's 

business, distribution of medical products, it is 

essential to that process. 

The relationship in this case cannot be likened to that 

of a franchisor and its franchisee because an individual who 

works as a sales agent does not obtain the degree of license 

or privilege that an individual who is given a franchise has. 

A franchise is a property right that implies more of an 

independence of business operations between the franchisee 

and the main company than exists between a sales agent and 

his supplier. We see no abuse of discretion in the District 

Court's adoption of the appeal referee's finding. 

The last element of the ABC test requires that the 

individual be customarily engaged in an independently 

established trade or occupation. In Standard Chem. we 

adopted several criteria from other jurisdictions with 

similar statutes to help us decide whether livestock product 

sales agents were employees or independent contractors hired 

by the manufacturer. See Stendard Chem., 605 P.2d at 614-15. 
Some of the relevant criteria include: (1) worker's 

authority to hire subordinates, (2) worker's ownership of 

equipment, (3) liability for a preemptory termination of the 

business relationship, (4) ability of worker to survive the 

termination of a particular service relationship, and 

(5) worker's ability to engage in activity without 

hinderance from anyone implying a "proprietary interest." 

After review of the record we conclude that this test 

was also met. Austin could not provide for a secretary 

without ZJ's prior approval of the position. His office 

equipment was owned by ZJ. Although he did some slight 

business with other companies, Austin could not survive the 

termination of his relationship to ZJ. As discussed above, 

he was controlled by ZJ in many aspects of his activities. 

There has been no finding regarding liability for 

preemptory termination but in view of the other findings 

above it is unnecessary. 

There is sufficient evidence to find that all three 

standards of the ARC test have been met. Accordingly, we 

hold that the District Court did not abuse its discretion in 

affirming the Board of Labor Appeal's determination that 

Austin was an employee of ZJ. Affirmed. 

/" 

We Concur: # 

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