Case Name: DE-RAEF CORPORATION v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1947-03-03
Citations: 108 Ct. Cl. 255
Docket Number: No. 46025
Parties: DE-RAEF CORPORATION v. THE UNITED STATES
Judges: Jones, Judge, and Littleton, Judge, concur.
Reporter: United States Court of Claims Reports
Volume: 108
Pages: 255–270

Head Matter:
DE-RAEF CORPORATION v. THE UNITED STATES
[No. 46025.
Decided March 3, 1947]
Mr. Temple IF. Seay for the plaintiff. Messrs. Moreloch & Seay and Joseph A. Hoskins and Phil D. Moreloch were on the brief.
Mr. John A. Rees, with whom was Acting Assistant Attorney General Sewall Key, for the defendant. Messrs. A. F. Prescott and Andrew' D. Sharpe were on the brief.

Opinion:
Whitaker, Judge,
delivered the opinion of the court.
Plaintiff sues to recover taxes alleged to have been wrongfully collected from it under Title IX of the Social Security Act (49 Stat. 620, 639), which levies a tax on the employer of eight or more persons. In order for plaintiff to be such an employer one of four of its so-called "licensees", in reality commission salesmen, must have been its employee. Plaintiff says they were not employees, but independent contractors.
An employer is defined by the Act as one who has in his "employ" eight or more persons. Section 907 (c) of the Act provides:
The term "employment" means any service, of whatever nature, performed within the United States by an employee for his employer, except— .
An employee is not otherwise defined.
We must construe the meaning of the word, of course, in such a way as to give effect to the purpose of the Act. National Labor Relations Board v. Hearst Publications, 322 U. S. 111. The purpose in the enactment of Title IX of the Act was to provide a fund for the relief of persons thrown out of employment.
In the broadest sense of the word anyone who performs services for another is an employee, fro tenvpore at least, and conceivably could come within the purpose of Congress. One employs a physician, a lawyer, a contractor; but it is commonly recognized that such people were not in the mind of Congress. Congress certainly had in mind the common laborer working for a daily wage, but it also had in mind the skilled artizan, as well. How far up the scale did it intend to go? No one can say with assurance.
It hardly seems necessary, however, for us to speculate. The Act gave the Secretary of the Treasury the power to make regulations to carry out the Act, and such regulations which are within the general scope of the Act and are reason ably adapted to its enforcement have the force and effect of law. United States v. 200 Barrels of Whiskey, 95 U. S. 571; Maryland Casualty Co. v. United States, 251 U. S. 342; Campbell v. Galeno Chemical Co., 281 U. S. 599, 610; International Railway Co. v. Davidson, 257 U. S. 506, 514. Pursant to this power, the Secretary of the Treasury promulgated Regulations 90, in which he adopted the common law distinction between an employee and an independent contractor. In pertinent part it reads:
Whether the relationship of employer and employee exists, will in doubtful cases be determined upon an examination of the particular facts of each case.
Generally the 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 that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but howi it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. 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 for accomplishing the result, he is an independent contractor, not an employee.
Our inquiry, then, is confined to determining whether plaintiff had the right to regulate and control the details and means by which these salesmen should accomplish the sale of its products. If it did, they were employees. If it did not, but was interested only in the results accomplished, and not in the means by which they were accomplished, they were independent contractors, and not within the terms of the Act.
Plaintiff entered into written contracts with these men for the sale of its patented products. All the contracts were substantially the same. They denominated the salesmen as "licensees." Under the contracts they were given the right to sell plaintiff's products at a stipulated price within a certain territory during the life of the contracts. They agreed to sell a certain amount each year, but they were free to work when they pleased and where they pleased, so long as it was within their territory. They furnished their own transportation, but plaintiff reimbursed them for expenses incurred. The contracts provided they should sell a certain percentage of their yearly quota each month and should devote their entire time to the work, but both of these provisions were disregarded by common consent. All of them were interested in other enterprises. One was a partner in a retail ice cream business; another had a machine shop; and the other two sold other merchandise.
No supervision was exercised by plaintiff over the methods employed in making the sales; nor did it have any facilities for doing so. The commissioner of this court so found, and the parties have taken no exception to the finding. The contracts did provide that they would make daily reports of plants visited and demonstrations made of plaintiff's products, but this was rarely done except in the case of a new customer. No provision was made for cancelling the contracts or otherwise disciplining the salesmen if these reports were unsatisfactory. The commissioner found, to which no exception was taken:
The men worked full time during these months and if they obtained their annual quota of sales, plaintiff considered that they had met the requirement of their contracts in that respect.
*
Plaintiff was concerned primarily with the volume of sales made and not with the manner by which that result was accomplished. In view of their previous training and experience, both licensees and plaintiff felt that they were qualified to perform the obligations in their contracts without any other aid or instructions from plaintiff.
Plaintiff did send these salesmen a loose-leaf manual which contained articles on various phases of dairy manufacturing, and on salesmanship, some written by the salesmen themselves or by distributors of plaintiff's products, but this "literature," quoting again from the commissioner's report, unexcepted to, "did not contain any instructions, regulations or directions as to the manner in which licensees' selling activities should be conducted."
The contracts contained no provision for supervision and control over the manner of making the sales and none were in fact exercised. We are, accordingly, of the opinion that, applying the test laid down by the Secretary's regulations, these men were not employees in the sense of the Act, but independent contractors.
This view will be found to be in harmony with that of the Second Circuit Court of Appeals in McGowan v. Lazeroff, 148 F. (2d), 512, and in Texas Co. v. Higgins, 118 F. (2d) 636, and in Radio City Music Hall Corp. v. United States, 135 F. (2d), 715; and with that of the Fifth Circuit in American Oil Co. v. Fly, 135 F. (2d) 491; and with that of the Sixth Circuit in Glenn v. Beard, 141 F. (2d) 376, and in Glenn v. Standard Oil Co. 148 F. (2d) 51. See also decision of Fourth Circuit in Magruder v. Yellow Cab Co., of D. C., 141 F. (2d) 324. The facts in all these cases differ from those at bar, but the same test is applied in all of them.
We are of opinion the tax was erroneously assessed and collected, and that the plaintiff is entitled to recover. Judgment will be entered against the defendant in the sum of $2,946.35, and interest as allowed by law. It is so ordered.
Jones, Judge, and Littleton, Judge, concur.