IN THE SUPREME COURT OF MISSISSIPPI

NO. 94-CC-00590-SCT

CLARK PRINTING COMPANY, INC.

v.

MISSISSIPPI EMPLOYMENT SECURITY COMMISSION

DATE OF JUDGMENT: 05/27/94

TRIAL JUDGE: HON. JAMES E. GRAVES JR.

COURT FROM WHICH APPEALED: HINDS COUNTY CIRCUIT COURT

ATTORNEY FOR APPELLANT: GEORGE T. HOLMES

ATTORNEY FOR APPELLEE: FRED J. LOTTERHOS

NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES

DISPOSITION: REVERSED AND REMANDED - 9/26/96

MOTION FOR REHEARING FILED:

MANDATE ISSUED: 10/17/96

BEFORE SULLIVAN, P.J., McRAE AND MILLS, JJ.

MILLS, JUSTICE, FOR THE COURT:

¶1. This appeal proceeds from an Order of the Hinds County Circuit Court (First Judicial District)

affirming the Mississippi Employment Security Commission's (hereinafter MESC) decision that, in

1992, Clark Printing Company, Inc. (hereinafter Clark Printing) was a "newly subject employer"

under Section 71-5-353 of the Mississippi Code of 1972. The Court is presented with a question of

law involving a statutory tax scheme under the Mississippi Employment Compensation Law. We hold

that Clark Printing is an eligible employer under the Mississippi Unemployment Compensation Law

and reverse and remand for further proceedings consistent herewith.

FACTS

¶2. The facts are undisputed. Clark Printing entered business in 1985. Since then, and until about

August 1992, Clark Printing hired three different companies to handle various payroll services for it,

including the reporting of wages and the payment of unemployment contributions to the Mississippi

Employment Security Commission (MESC). In August 1992, Clark Printing hired Atwood

Accounting to keep its books. At this point, MESC registered Clark Printing as a new employer, with

the 2.7% rate prescribed by Miss. Code Ann. § 71-5-353 (2) ( 1972).

¶3. Clark Printing's arrangements with those employee leasing companies were pursuant to a verbal
agreement, whereby they would "payroll" for Clark Printing. The uncontradicted testimony before

the Commission proved that the "employee leasing" firms merely provided Clark with payroll and

benefit administration services, which included the processing of weekly payrolls, based on the

number of hours reported by Clark, and the filing of monthly, quarterly and annual payroll and benefit

employer tax reports. Clark was ultimately responsible for the payroll and all taxes, workers'

compensation and benefits, and was billed by the firm[s] for all payroll and other employee expenses.

That is, the employee leasing companies would report all employees as theirs and pay their wages,

thereby achieving an economy of scale and saving money for Clark Printing, which would reimburse

for the wages and pay a fee to the employee leasing company for its services. The economy of scale

resulted in savings in workers compensation and other insurance expense as well as a low

unemployment insurance rate, and the convenience of avoiding paperwork involved in making

withholdings from employees' paychecks.

¶4. During the entire period of time, the employees at Clark Printing worked under the supervision

and control of Mr. and Mrs. Clark.

DISCUSSION

STANDARD OF REVIEW

¶5. This Court's standard of review in MESC administrative decisions is:

In applying similar provisions, courts of other jurisdictions have placed the burden of proof

upon the party seeking to show the worker was not an employee. We approve and adopt this

allocation of the burden of proof.

Our restricted standard of review for administrative appeals is well known. In the absence of

fraud, an order from a Board of Review of the Employment Security Commission on the facts is

conclusive in the lower court, if supported by substantial evidence. This Court and the circuit

court is limited to the findings of the Board of Review.

We have articulated the additional principle that employment security contribution assessments

are an excise tax and, therefore, every doubt as to their application must be resolved in favor of

the taxpayer and against the taxing power.

Mississippi Employment Sec. Comm'n v. PDN, Inc., 586 So. 2d 838, 840 (Miss. 1991).

¶6. As to questions of law, it is a well-settled principle that this Court is the "ultimate expositor of the

law of this state." UHS-Qualicare, Inc. v. Gulf Coast Community Hospital, Inc., 525 So. 2d 746,

754 (Miss. 1987). Therefore, this Court conducts a de novo review on questions of law. Id.; C.E.

Tucker v. Hinds County, MS, and Mississippi Power & Light Company, 558 So. 2d 869, 872

(Miss. 1990).

1. Whether Clark Printing Company, Inc., is a "newly subject employer" or an "eligible

employer" under Miss. Code Ann. § 71-5-353 (1972).

¶7. The MESC most clearly set forth its position (and quandary) in regards to an employer's use of

employee leasing firms during the opening statement before the Administrative Law Judge.
. . . . Clark Printing entered into such an agreement with a leasing company. Under Section

3401(d) of the Internal Revenue Code, states, among other things, the definition of an

employer. It says the term employer means: the person for whom an individual performs or

performed any service of whatever nature as an employee of such person except that if the

person for whom the individual performs or performs services does not have control of the

payment of the wages for such services, the term employer means the person having control of

the payment of wages. The State of Mississippi has not passed any specific legislation

defining who the employer is with regards to people leasing relationships. In this case,

Clark Printing chose to pay someone else and lease their employees. The leasing company paid

the workers, and I assume paid all applicable state, local and federal taxes. Since the Internal

Revenue Service considers the leasing company to be the employer, we have also

considered the leasing company to be the employer. In this case, Clark Printing did not

become an employer until September 1, 1992, and until they qualify for a modified rate, their

rates will be 2.7%. The computation of an employer's tax rate is governed by the law. We have

no authority to change or modify any employer's tax rate for any reason other than for errors

being made in the computation.

(Emphasis added.)

¶8. In its brief, the MESC argues that the employee leasing concept is new in employer-employee

relations. This unfortunately damages MESC's position because they appear to concede that the

Mississippi Employment Compensation Law does not account for this new concept.

A number of states have dealt with the problem which this case illustrates by varying degrees of

statutory regulation of the employee leasing industry, some only in an unemployment insurance

context, and some in a very comprehensive way. Until there is some such regulation here,

problems like this will multiply.

Appellee's Brief at 8 (emphasis added).

¶9. In her Order, the Administrative Law Judge stated:

Clark Printing argues that it has been paying unemployment contributions since the company

began, and therefore should not be registered as a new employer. However, the record does not

show this to be the case. Instead what the record shows is that Clark Printing had its employees

reported to MESC through three companies and paid unemployment contributions based upon

the rates of the companies. From 1985 until September, 1992, Clark Printing benefited from the

lower rates which were given to the companies which were reporting its employees to MESC.

When it changed its method of operation and hired an accounting firm, MESC registered it as a

new employer. While Clark Printing is not a new employer in the sense of just beginning

operations, it is a new employer for purposes of the Employment Security Law in that it

had never before been registered in its own name and given a rate of contribution and

accumulated experience. Clark Printing employees were reported to MESC by the three

payroll services companies with the consent of Clark Printing on the accounts of the companies.

Clark Printing benefited from the lower rate which the services had. When Clark Printing

stopped using the personnel services firms and hired an accounting firm, it met the statutory
definition of an employer and an employing unit having the requisite amount of workers and

wages paid. Even though it was not new in the sense of just beginning business, it was new in

the sense of not having been registered before by MESC in its own name. Through a totally

consensual arrangement with the payroll services companies, Clark Printing allowed its

employees to be reported to MESC and paid contributions to the agency based upon the rates

assigned to the payroll services companies. This was part of the agreement.

For seven years Clark Printing enjoyed paying contributions at the lower rates of the payroll

services firms. When it changed its method of payroll servicing and was registered in its own

name and assigned a rate of 2.7%, it makes the argument that it was the employer all along and

should not be subject to the higher rate of a new employer. The company can't have it both

ways.

(Emphasis added.)

LAW

¶10. Both the Mississippi Employment Security Law and case law hold that the test of employer and

employee is determined by common law master-servant doctrine.

Services performed by an individual for wages shall be deemed to be employment subject to this

chapter unless and until it is shown to the satisfaction of the commission that such individual has

been and will continue to be free from control and direction over the performance of such

services both under his contract of service and in fact; and the relationship of employer and

employee shall be determined in accordance with the principles of the common law governing

the relation of master and servant.

Miss. Code Ann. § 71-5-11(I)(14) (1972).

¶11. Our case law concerning employment compensation states:

[T]he test as to who is a servant is stated to be whether the service is rendered by one whose

physical conduct, time and activities in the performance of his duties are controlled, or are

subject to the right of control, by the alleged master under the contract of employment or hire.

Mississippi Employment Sec. Comm'n v. PDN, Inc., 586 So. 2d 838, 842 (Miss. 1991).

¶12. The action of the MESC and the ruling of the Administrative Law Judge are in direct

contradiction to the statutory law in this State. In this case, the undisputed evidence reveals that

Clark Printing had complete control over its employees. Thus, Clark Printing is the employer under

Section 71-5-11(I)(14). Clark Printing has exercised exclusive control over its employees since 1985.

This fulfills the definition of eligible employer under Section 71-5-353 of the Mississippi Code.

¶13. We note that the MESC is not left out in the cold with a ruling that Clark Printing has been an

eligible employer since 1985. Clark Printing will continue to pay employment compensation taxes at

the rate an employer doing business since 1985 would pay. The MESC is not without recourse.

Under existing statutes, the MESC may challenge the rates that "employee leasing firms" report for

their "employees." If the MESC carries the burden placed on them by the Mississippi Employment
Compensation Law, the MESC might require the "leasing firm" to remit taxes at the rate that the true

employer would be required to pay.

¶14. As to MESC's argument that it is unfair for Clark Printing to benefit from its relationship with

various "employee leasing firms," this Court is an inappropriate forum to seek a remedy. If this

burden imposed by our statutes is too heavy for the MESC to realistically carry, then the MESC

should seek relief by asking the Legislature to address the problem of "leasing firms." This Court will

not, by fiat, carve an exception to the Mississippi Employment Compensation Law because of the

recent evolution of "employee leasing firms." See Kelly v. Mississippi Valley Gas, 397 So. 2d 874,

876-77 (Miss. 1981) (holding that public policy exception to employment-at-will doctrine is a

question for the Legislature).

¶15. Without any burden on them, Clark Printing proved that it has been an employer, as defined by

the Mississippi Employment Compensation Law, since 1985. Thus, it is an eligible employer under

Section 71-5-353 of the Mississippi Code. We reverse and remand the judgment of the Circuit Court

of Hinds County with orders to further remand this case to the MESC to compute the appropriate

contribution rate of Clark Printing and refund any excess taxes paid.

¶16. REVERSED AND REMANDED FOR PROCEEDINGS CONSISTENT WITH THIS

OPINION.

LEE, C.J., PRATHER AND SULLIVAN, P.JJ., PITTMAN, BANKS, McRAE, ROBERTS

AND SMITH, JJ., CONCUR.