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FIFTH DIVISION
Filed: 11/09/00

In this appeal, we must decide whether the administrative agency erred in determining that Carpetland U.S.A., Inc.("Carpetland"), owed unemployment contributions under the Unemployment Insurance Act ("the Act") (820 ILCS 405/100et seq. (West 1998)) for its installation contractors and measure services.

Carpetland sought administrative review of a decision by Lynn Quigley Doherty, Director of the Illinois Department ofEmployment Security ("Director"), which adopted and affirmed an Illinois Department of Employment Security("Department") representative's determination. The Department found that work performed by installation contractors andmeasurers for Carpetland's customers was "employment" under the Unemployment Insurance Act (820 ILCS 405/100 etseq. (West 1998)) and, therefore, not exempt under section 212 of the Act. 820 ILCS 405/212 (West 1998). The Directorfurther determined that Carpetland owes $38,977.17 plus interest and $200 in penalties in unpaid unemploymentcontributions on behalf of 259 installation contractors and 12 measure services. On administrative review, the circuit courtaffirmed the Director's decision and entered judgment in favor of the Department. Carpetland now appeals from thatjudgment.

On appeal, Carpetland contends (1) that the Director's decision that the services performed by installation contractors andmeasurers constituted employment within the meaning of section 206 of the Act (820 ILCS 405/206 (West 1998)) isagainst the manifest weight of the evidence, (2) the circuit court erred as a matter of law in deciding that Carpetland waivedits constitutional claims by not raising them at the administrative level, and (3) Carpetland was denied due process by theprocedure leading to the Director's decision. Because we agree with Carpetland's first contention, we need not address itssecond and third claims.

BACKGROUND

The following evidence was introduced at the administrative hearing before the Director's representative. CarpetlandU.S.A. is a retailer of floor coverings, primarily carpet. During 1991, Carpetland operated 17 retail stores in Illinois. Eachcustomer who requested installation agreed to the following terms which were included in the customer's contract withCarpetland:

"INSTALLATION BY SUBCONTRACTOR

It is understood that Carpetland will not install said materials but that by the acceptance of this proposal you authorizeCarpetland to contract with a subcontractor on [your] behalf to make the installation. You authorize Carpetland to issue tosaid subcontractor on [your] behalf an installation work order with these specifications. You agree to pay to Carpetland theamount specified herein which shall include the price of all materials and the installation charges which are payable to thesubcontractor on your behalf."

Next, Carpetland arranged for and contracted with an installer to complete the installation. In 75% of Carpetland's floorcovering sales, installation was included in the sale and the price. In these sales, the customer paid Carpetland directly forthe installation.

Three installers and one measurer testified at the hearing before the representative describing their relationships withCarpetland as well as the nature of their businesses. Installers and measurers could hire helpers or employees to work forthem. Joseph Smith, an installer, testified during the hearing that he was president of a company called The Tile Works,Inc., which was an installation service that performed floor covering installations for Carpetland and other carpetcompanies. Smith later changed the name of the business to J. Smith Floors, and Carpetland made payments to this entity.Smith testified that he engaged helpers, both as employees and subcontractors. The representative found that, while therewas no record for The Tile Works, Inc., in the Department's files, there was a record for J. Smith Flooring, Inc., in May1994. The representative concluded that Smith may have created a corporate entity, but he did not truly work for that entitysince Smith did not adhere to corporate structure formalities.

Kenneth W. Weiss, a measurer, also testified at the hearing. He stated that for the first part of 1991 he worked for hisfather's company, G.W. Carpet Service, and through that business entity, he performed carpet measuring for Carpetland aswell as for others. There is no information in the record to show that G.W. Carpet Service paid any unemploymentcontributions on Weiss' behalf. For the second half of the year, Weiss testified that he created his own company called KenWeiss Measure Service, which had no employees and dealt directly with Carpetland. Weiss stated that he filed an incometax return as a subcontractor of Gary Weiss for the first half of 1991 and of Carpetland for the second half.

James Lawson testified at the hearing that in 1991 he installed carpets, vinyl and some hardwood floors for carpet stores,including Carpetland, under the name Lawson's Carpet Service. Lawson stated that he advertised for a full- or part-timehelper and hired a few, but had to fire them because they were not sufficiently qualified. Department records showed thatLawson's Carpet Service had a Department account number and reported having one employee during the first six monthsof 1991.

Craig Panozzo testified that during 1991 he worked for Craig's Custom Tile where he acted as the sole proprietor,president, worker, and owner. Panozzo performed work for Carpetland installing ceramic and marble flooring in newconstruction. He stated that he has no employer account number with the Department, he used his own social securitynumber, and that he did not file a corporate federal income tax return in 1991. Payments by Carpetland in 1991 were madeto Craig Panozzo. The representative therefore concluded that Panozzo did not truly work for the corporate entity Craig'sCustom Tile because he did not adhere to corporate structure formalities.

ANALYSIS

In reviewing a final decision under the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 1998)), we review theagency's decision and not the circuit court's determination. XL Disposal Corp. v. Zehnder, 304 Ill. App. 3d 202, 207, 709N.E.2d 293, 297 (1999). Judicial review of the Department's decision extends to all questions of law and fact presented bythe record. Cohen Furniture Co. v. Department of Employment Security, 307 Ill. App. 3d 978, 981, 718 N.E.2d 1058, 1061(1999). The Department's factual findings are held to be prima facie true and a reviewing court may only set aside suchdecisions if they are contrary to the manifest weight of the evidence. Cohen, 307 Ill. App. 3d at 981. However, theDepartment's conclusions of law are not entitled to such deference and are subject to de novo review. AFM MessengerService, Inc. v. Department of Employment Security, 315 Ill. App. 3d 308, 312, 733 N.E.2d 749 (2000).

The facts in this case are not in dispute. As in City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191,205, 692 N.E.2d 295 (1998), "this case involves an examination of the legal effect of a given set of facts, [and therefore] itinvolves a mixed question of fact and law." As such, the Illinois Supreme Court held that a clearly erroneous standard ofreview applied. The clearly erroneous standard is "between a manifest weight of the evidence standard and a de novostandard so as to provide some deference to the [agency's] experience and expertise." City of Belvidere, 181 Ill. 2d at 205.We must accept the administrative agency's findings under this standard unless we are "'left with the definite and firmconviction that a mistake has been committed.' " AFM Messenger Service, 315 Ill. App. 3d at 312-13, quoting UnitedStates v. United States Gypsum Co., 333 U.S. 364, 395, 92 L. Ed. 746, 765-66, 68 S. Ct. 525, 541-42 (1948).

In this case, Carpetland argues that the circuit court and the Director erred in finding that the services provided by theinstallation contractors and measure services constituted employment by Carpetland within the meaning of section 206 ofthe Act and that these individuals were not independent contractors under the exception in section 212. Employment isdefined under the Act as "any service *** performed by an individual for an employing unit." 820 ILCS 405/206 (West1998). An exception to this broad definition is contained in section 212, exempting independent contractors from"employment" and provides:

"Service performed by an individual for an employing unit, whether or not such individual employs others in connectionwith the performance of such services, shall be deemed to be employment unless and until it is proven in any proceedingwhere such issue is involved 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 of service and in fact; and

B. Such service is either outside the usual course of the business for which such service is performed or that such service isperformed outside of all the places of business of the enterprise for which such service is performed; and

C. Such individual is engaged in an independently established trade, occupation, profession, or business." 820 ILCS405/212 (West 1998).

The employer has a strict burden of proof and must prove all three requirements of section 212 before an exemption will begranted. O'Hare-Midway Limousine Service, Inc. v. Baker, 232 Ill. App. 3d 108, 112, 596 N.E.2d 795 (1992); JackBradley, Inc. v. Department of Employment Security, 146 Ill. 2d 61, 75, 585 N.E.2d 123, 129 (1991). When construingsection 212(A), courts do not strictly follow common law principles relating to independent contractor status. Cohen, 307Ill. App. 3d at 982. Instead, courts use the term "independent contractor" in a much broader sense. Cohen, 307 Ill. App. 3dat 982.

First, we analyze section 212(A) to determine if the installers and measurers were free from control and direction over theperformance of their services by Carpetland. "Direction or control" means that an employer has the right to control anddirect the worker, not only as to the work to be done but also as to how it should be done, whether or not that control isexercised. 56 Ill. Admin. Code