#### The State of Ohio, Appellant, *v.*Earl G. Smith, Inc., Appellee.

*470(No. 3950

Decided March 7, 1947.)

*Mr. Hugh 8. Jenkins,*attorney general, *Mr. M. L. Schellenger*and *Mr. John M. Woy,*for appellant.

Mr. *Walter J. Mackey,*for appellee.

By the Court.

This is an appeal on questions of law from a judgment of the Common Pleas Court of Franklin county. The action was brought by the Bureau of Unemployment Compensation of the state of Ohio against Earl G. Smith, Inc., to collect contributions, under the Unemployment Compensation Act, alleged to be due for the years 1937 to 1944, inclusive,, in a total amount of $1,258.83, with interest at eight per cent from various due dates.

In the' petition it is alleged that the defendant corporation was an “employer” as defined in the Unemployment Compensation Act (Sections 1345-1 to 1345-35, inclusive, General Code) and is liable for the contributions set out in the petition, which the defendant refused to pay.

The defendant in its answer denies that at any time during the calendar years from 1937 to 1944, inclusive, it was subject to the Unemployment Compensation Act, and avers that during such period defendant had only two employees who performed services which were covered by the act, and that, therefore, defendant was not an “employer” as defined in Section 1345-1 b (1), General Code.

The defendant in its answer specifically alleges the following:

*471“During the entire period above referred to, it had only two regular employees in addition to one individual who, during this period, was compensated on a commission basis, and who, in the performance of his work, was master of his own time and efforts and that the remuneration payable to him was wholly dependent on the amount of effort he chose to expend, and that by virtue of the nature of this work- any services performed by such individual is exempt from the unemployment compensation law under General Code Section 1345-1 c D (8).”

The issue presented is clear. Was the defendant an “employer” of three or more employees during the period in question, as contemplated by the act? The plaintiff introduced the findings of the Bureau of Unemployment Compensation showing the amounts alleged to be due from the defendant and rested. Under the provisions of Section 1345-28, General Code, the plaintiff made out a *prima facie*case. It was stipulated that the compensation paid to employees and the amount of contributions due are correctly set forth in the petition, if the defendant were liable under the act. It was further agreed that the sole issue in the case is whether the services performed by Earl G. Smith for the corporation came within the exclusion clause in Section 1345-1 c D (7), formerly 1345-1 c D (8), General Code. The trial court found that Earl G. Smith was compensated on a commission basis, was master of his own time and efforts and his remuneration was wholly dependent on the amount of effort he chose to expend; and that as a consequence the defendant was not an “employer” under the act. Judgment was rendered for the defendant.

Plaintiff has assigned four separate grounds of .error, all of which hinge on the failure of the court to find that the services of Earl G. Smith were included *472within the term “employment” as defined in the act.

To be amenable to the provisions of the act, the employer must have employed within a calendar year three or more individuals. Section 1345-1 b (1), General Code. The defendant admits that it employed two individuals, but denies it employed three employees, as alleged. Was Earl G. Smith an employee within the meaning of the act? The section defining “employment” (Section 1345-1 c, General Code) was amended several times during the period in question, but those amendments did not change the provisions of the exclusion clause applicable to the issue presented. The determination of this issue is controlled by Section 1345-1 c D (7), General Code, which provides:

“D. The term ‘employment’ shall not include: * * *

“ (7) service performed by an individual for one or more principals who is compensated on a commission basis, and who in the performance of the work is master of his own time and efforts, and whose remuneration is wholly dependent on the amount of effort he chooses to expend; * *

In order to exempt services under such section, it must be established, first, that the employee is compensated on a commission basis; second, that the employee is master of his own time and efforts; and, third, that the remuneration is wholly dependent on the amount of effort that such employee chooses to expend.

The evidence clearly shows that Earl G. Smith, Inc., was a corporation engaged in the business of selling-real estate and insurance in Akron, Ohio; that Earl G. Smith held a substantial part of the stock' and was president and general manager of the corporation; that the corporation employed a secretary and an office assistant; that the corporation employed several salesmen who were compensated solely on a commission basis; and that the business of the corporation was *473under the exclusive direction and control of Earl Gr. Smith.

Was Earl Gr. Smith an employee within the meaning of the act, or did his services and relationship with the corporation meet the test of the exclusion clause?

First, was he compensated on a commission basis? A part of the minutes of the board of directors of the defendant, under date of February 4, 1936, relates to the method used by the corporation-in compensating Earl G. Smith for his services and reads as follows:

‘ ‘ The president suggested that the directors should, in accordance with the bylaws of the company, fix the compensation of the officers of the company.

“Whereupon, it was duly moved, seconded and carried that the provisions hereto adopted regarding compensation of officers be amended to provide that the president be paid on a drawing account basis, chargeable against commissions earned for brokerage, loan and insurance business and that the secretary and treasurer be paid a salary of $1,800 per year, all other provisions to remain as previously written. ’ ’

That method of compensating Earl G. Smith for his services never changed. He was compensated on a drawing-account basis, chargeable against commissions. He drew as he needed the money and was not confined to a minimum or maximum amount. He was limited only by the amount in his commission drawing-account. He received no salary and derived all his compensation on the basis of commissions earned. We are of 'the opinion that the evidence clearly showed he was compensated solely on a commission basis.

Second, in the performance of his services was he master of his own time and efforts? It is contended that Earl G. Smith, being president and general manager of the corporation, acted under the direction of the board of directors of the corporation, and that *474with respect to such services he was not master of his own time and efforts. The evidence does not support that contention. On such matter Smith testified as follows:

“Q. In performing your services for the company, are you directed to go any particular place or perform any particular duties by anybody in the company? A. No, never.

“Q. Well, then, are you entirely on your own so far as your time is concerned? A. Yes.

“Q. You mean you go and come as you will? A. That is right.

“Q. And so far as clients or people with whom you do business, does anybody direct you as to whom you should see or whom you should interview or anything of that kind? A. No, I am the master of my fate.

“Q. What was that? *A. As*the poet says, ‘I am master of my fate.’ ”

Earl Gr. Smith, Inc., in truth and fact, was a one-man corporation. It was Smith’s business, and in the performance of his services he acted under the direction of no one. True, Earl GL Smith, Inc., is a corporation, organized under the laws of the state of Ohio and, as such, is a distinct entity. Under the law its board of directors is given authority to give directions to its officers and employees. The evidence does not show that the board of directors exercised its prerogative. This issue must b.e decided on the basis of the factual situation and cannot rest on a mere fictional relationship which existed between the corporation and its officers and employees. Whether Earl Gr. Smith was master of his own time and efforts is a factual matter. The undisputed evidence in this case shows that he was master of his own time and efforts.

Third, did his remuneration wholly depend on the amount of effort he chose to expend? It is contended *475that in addition to receiving commissions on his own sales he derived remuneration from the company for sales made by other salesmen. It appears that the defendant kept two accounts, a company commission account and a separate commission account for Earl G-. Smith, against which his withdrawals were chargeable. An effort was made to explain the bookkeeping system used by the defendant, which appears to be rather complicated. The evidence is not clear that Smith derived any remuneration from any other source except his personal commission account. On such matter he testified clearly and definitely that no part of the commissions earned on sales made by other salesmen was credited to his personal commission account. After' a careful consideration of all the evidence on this issue, we are not prepared to hold that the trial court was unjustified in finding that Smith’s remuneration was wholly dependent on the amount of effort he chose to expend.

The contributions paid under the act, being in the nature of a tax, we recognize and apply the rule which requires the court to construe the aGt, as it relates to liability for such contributions, most strictly against the state and in favor of the taxpayer. The cases cited by the state do not involvé the interpretation and application of an exclusion clause, which is the issue presented in the instant case, and, therefore, are not persuasive in the determination of this issue.

We have been furnished a copy 'of the well considered opinion of Judge Randall, in which he discusses very ably all the issues presented. We might well adopt it as our own.

We are of the opinion that Earl Gf. Smith was not an employee of the defendant, within the meaning of the act; that the defendant was not an employer of three individuals within the meaning of the act; and *476that, therefore, defendant was not required to make contributions as prescribed by the act.

As we find no error in the record, the judgment of ,the trial court is affirmed.

*Judgment affirmed,.*

Wiseman, P. J., Miller and ITornbeck, JJ., concur.