Bailey & Associates, Inc. v. Department of Employment Security
Annotate this Case
NO. 4-94-0712
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
BAILEY AND ASSOCIATES, INC., ) Appeal from
Plaintiff-Appellee and ) Circuit Court of
Cross-Appellant, ) Sangamon County
v. ) Nos. 90MR328
ILLINOIS DEPARTMENT OF EMPLOYMENT ) 92MR314
SECURITY and LOLETA DIDRICKSON, in ) 93MR219
her capacity as Director of Employment )
Security, ) Honorable
Defendants-Appellants and ) Richard J. Cadagin,
Cross-Appellees. ) Judge Presiding.
_________________________________________________________________
JUSTICE KNECHT delivered the opinion of the court:
This appeal involves a dispute between the plaintiff,
Bailey and Associates, Inc. (Bailey), and the defendants, Illi-
nois Department of Employment Security (Department) and Loleta A.
Didrickson, its previous Director. At issue in this case are the
Director's determinations under the Unemployment Insurance Act
(Act) (see Ill. Rev. Stat. 1991, ch. 48, par. 300 et seq.), hold-
ing Bailey had to pay contributions under the Act for salespeople
who sold memberships in campgrounds owned and operated by Bailey.
In three decisions the Director determined these individuals were
employees of Bailey, rather than exempt as independent contrac-
tors (see Ill. Rev. Stat. 1991, ch. 48, par. 322), and conse-
quently were not exempt for the purposes of unemployment contri-
butions. Director of Employment Security v. Bailey & Associates,
Inc., Ill. Dept. Employment Sec. Nos. 87-H-92, H-13565 (September
19, 1990); Director of Employment Security v. Bailey & Associ- ates, Inc., Ill. Dept. Employment Sec. No. H-19603 (October 5,
1992); Director of Employment Security v. Bailey & Associates,
Inc., Ill. Dept. Employment Sec. No. H-24421 (July 9, 1993).
Bailey filed a complaint in the circuit court seeking review of
each decision. After consolidation, the circuit court affirmed
in part and reversed in part. Defendants appeal the portion of
the circuit court's order reversing the Director's decisions.
Bailey cross-appeals from the portion of the circuit court's
order affirming the Director's decisions. We affirm in part and
reverse in part.
I. BACKGROUND
The facts are not in dispute. Bailey owns and operates
two membership resort campgrounds. A membership entitles a mem-
ber to use campground facilities and services. Bailey does not
sell the memberships, relying instead on a sales force.
Salespeople are compensated on a commission basis.
Bailey never withheld income or social security taxes from their
commissions and always reported their commissions on forms ap-
plicable to independent contractors. Once all the memberships
are sold, Bailey earns revenue from maintenance fees, membership
dues, concessions, rentals, and assessments.
Bailey's salespeople worked at their own pace, set
their own hours, and did not have a dress code. They were free
to conduct their business anywhere. There were no sales meet-
ings. Working for another employer was allowed. The salespeople
were restricted from working for Bailey's competitors. Sales-
people were free to employ any methods of sales, and sell at any
location, as long as they used sales contracts provided by Bail-
ey, did not misrepresent the terms of membership, and made sales
at prices within approved ranges.
They were required to pay for sales leads received from
Bailey and bore expenses for promotional materials, entertain-
ment, offices, telephones, supplies, automobiles, lead genera-
tion, additional workers, and all other costs.
Salespeople bore full responsibility for every member-
ship they sold until three timely payments had been made on the
contract. They were required to establish and maintain reserve
accounts out of their commissions with Bailey, which were charged
if a customer failed to pay. They were also required to attend
an initial three-day product information seminar.
Under the terms of the contract between Bailey and its
sales force, salespeople agreed to expend at least 20% of their
net commissions for the purpose of promoting the marketing and
sale of memberships, including the costs of promotional materi-
als, sales leads, and travel or entertainment expenses. They had
to submit a statement of expenditure to Bailey biannually. They
had to use sales contracts prepared and supplied by Bailey.
During the three-day rescission period, Bailey's employees called
new members to make sure no misrepresentations were made by the
salespeople.
The Department issued separate notices of determination
and assessment and demand for payment to Bailey for unpaid unem-
ployment contributions and interest for 1984 through 1988, for
1989, and for 1991. These notices were based on an audit finding
Bailey liable for contributions because the Department determined
Bailey's sales force consisted of employees, rather than indepen-
dent contractors. Bailey filed timely protests and petitions for
administrative hearings for all the notices, except for the
fourth quarter of 1988.
After administrative hearings, the Director's represen-
tative in each case found the services performed by the salespeo-
ple for Bailey were not exempt under section 212 of the Act (Ill.
Rev. Stat. 1991, ch. 48, par. 322), which defines independent
contractors. The representatives found the salespeople were em-
ployees of Bailey.
The representative in each case also found the sales-
people were not exempt from coverage under the Act by virtue of
section 3(5) of the Illinois Membership Campground Act (Member-
ship Act) (Ill. Rev. Stat. 1987, ch. 29, par. 903(5)), which pur-
ported to define campground membership sales force as independent
contractors, and is one of the subjects of this appeal. In each
case, the Director adopted the recommended decisions of her rep-
resentatives.
In October 1990, November 1992, and August 1993, Bailey
filed complaints for administrative review of the Director's
decisions in the circuit court. Case No. 90-MR-328 involves the
assessment for 1984 through 1988; No. 92-MR-314 is the assessment
for 1989; and No. 93-MR-219 is for 1991. These cases were con-
solidated in July 1993. In July 1994 the circuit court held as
follows: (1) salespeople were legally and factually independent
contractors, both by virtue of section 3(5) of the Membership Act
and on the facts; (2) section 3(5) of the Membership Act was pro-
spective and applied to this case only from September 24, 1987,
the time when the Membership Act became effective; and (3) Bailey
failed to timely file a protest in response to the notice of
determination for the fourth quarter of 1988. The Department ap-
peals, and Bailey cross-appeals.
In related administrative proceedings, three former
Bailey employees applied for unemployment compensation. In one
of these cases, a former salesman was found to be an employee and
awarded unemployment benefits; Bailey did not seek review of this
decision, and it became final.
II. ANALYSIS
A. Standard of Review
The findings and conclusions of administrative agencies
on questions of fact are considered prima facie true and correct
and therefore a reviewing court may reverse them only if those
findings are against the manifest weight of the evidence. A
decision is against the manifest weight of the evidence only when
an opposite conclusion is clearly apparent. Ill. Rev. Stat.
1991, ch. 110, par. 3-110; Jack Bradley, Inc. v. Department of
Employment Security, 146 Ill. 2d 61, 73, 585 N.E.2d 123, 128
(1991); Blair v. Department of Employment Security, 168 Ill. App.
3d 537, 539, 522 N.E.2d 834, 836 (1988). However, on questions
of law, agencies are not entitled to such deference, and an erro-
neous interpretation of a statute will be reversed. Carson Pirie
Scott & Co. v. State of Illinois Department of Employment Secu-
rity, 131 Ill. 2d 23, 34, 544 N.E.2d 772, 777 (1989). Even when
the issue specifically includes an interpretation of a statute,
though, agencies receive some deference, for reasons of their
expertise and experience, especially if the statute in question
is their enabling statute. The interpretation will be overturned
only if it is clearly erroneous. City of Decatur v. American
Federation of State, County, & Municipal Employees, Local 268,
122 Ill. 2d 353, 361, 522 N.E.2d 1219, 1222 (1988). Where, as
here, the facts are not in dispute, their legal effect is a mat-
ter of law. Fitzpatrick v. Human Rights Comm'n, 267 Ill. App. 3d
386, 392, 642 N.E.2d 486, 491 (1994).
B. Membership Act
The Department appeals the circuit court's holding
section 3(5) of the Membership Act unambiguously provides Bail-
ey's salespersons are independent contractors. The circuit court
did not err. The primary rule of statutory construction is to
give effect to legislative intent. Solich v. George & Anna
Portes Cancer Prevention Center of Chicago, Inc., 158 Ill. 2d 76,
81, 630 N.E.2d 820, 822 (1994). The primary source of the stat-
ute's meaning is its language. Solich, 158 Ill. 2d at 81, 630 N.E.2d at 822. We review issues of statutory construction de
novo. See City of Maroa v. Illinois Central R.R., 229 Ill. App.
3d 503, 505, 592 N.E.2d 660, 662 (1992).
The statute in question, the Membership Act, as amended
effective September 24, 1987 (Pub. Act 85-812, 1, eff. September
24, 1987 (1987 Ill. Laws 3413)), conclusively resolved the issue.
It provided:
"'Salesperson' means any person, other
than a Membership Camping Operator, who is
engaged in obtaining commitments of persons
to enter into Membership Camping Contracts by
making direct sales presentations to such
persons. For purposes of 'The Unemployment
Insurance Act', approved June 30, 1937, as
amended, a salesperson under this Act is an
independent contractor and not considered to
be engaged in employment unless such sales-
person has tax withheld by a Membership Camp-
ing Operator pursuant to Section 701 of the
Illinois Income Tax Act." (Emphasis added.)
Ill. Rev. Stat. 1987, ch. 29, par. 903(5).
The Department argues the phrase "unless such salesperson has tax
withheld" should be interpreted as "unless such salesperson
should have tax legally withheld."
The Department's position is as follows: if there is a
conflict between two statutes, courts must interpret the statutes
in a manner so as to avoid inconsistency and give effect to both
statutes. See Stone v. Department of Employment Security Board
of Review, 151 Ill. 2d 257, 262, 602 N.E.2d 808, 810 (1992). The
purpose of the Act is to relieve the "[e]conomic insecurity due
to involuntary unemployment." Ill. Rev. Stat. 1991, ch. 48, par.
300. If section 3(5) of the Membership Act is construed to mean
what it says on its face, the Department argues, an operator of a
campground could defeat the purpose of the Act by refusing to
withhold taxes, even if this refusal violated the Illinois Income
Tax Act (Tax Act) (Ill. Rev. Stat. 1991, ch. 120, par. 1-101 et
seq.). Section 701 of the Tax Act (Ill. Rev. Stat. 1991, ch.
120, par. 7-701) requires an employer conducting business in
Illinois to withhold taxes on compensation if to do so is re-
quired under section 3401 of the United States Internal Revenue
Code (Code) (26 U.S.C. 3401 (1988)). Section 3401 of the Code
requires an employer to withhold income taxes from compensation
paid to an "employee." 26 U.S.C. 3401 (1988). In determining
whether an individual is an employee under the federal law, the
most important consideration is the employer's right of control.
See 26 C.F.R. 31.3401(c)-1(b) (1995). Therefore, argues the De-
partment, the determination of whether Bailey should have with-
held taxes hinges on the determination of whether his salespeople
were "employees" under federal law. Since the Department deter-
mined Bailey's salespeople were "employees" under both federal
and Illinois law, under the Department interpretation Bailey
should have withheld their taxes; therefore, section 3(5) of the
Membership Act affords Bailey no relief.
We find this reasoning unpersuasive. We conclude sec-
tion 3(5) of the Membership Act unambiguously provides for an
independent contractor treatment of Bailey's sales force. We
note the circuit court held the salespeople were legally and
factually independent contractors both because of section 3(5)
and the facts presented.
The Department's argument is not logically sound for a
number of reasons. First, by declaring campground salespeople
should have their taxes withheld, the Department in effect ren-
ders the entirety of section 3(5) of the Membership Act a nulli-
ty. No campground salesperson, under the Department's interpre-
tation, can ever be an independent contractor. This is an absurd
result, and we must presume the legislature did not intend ab-
surdity. Loyola Academy v. S&S Roof Maintenance, Inc., 146 Ill. 2d 263, 273, 586 N.E.2d 1211, 1216 (1992); People v. Liberman,
228 Ill. App. 3d 639, 647, 592 N.E.2d 575, 581 (1992).
Second, different campground operators may have differ-
ent legitimate reasons for treating their sales force either as
employees or as independent contractors. Section 3(5) of the
Membership Act allows them to engage their sales force as employ-
ees or as independent contractors. In some instances, a camp-
ground operator may treat a salesperson as an employee and the
surrounding circumstances will demonstrate the salesperson is an
employee. The campground operator would then have to withhold
income tax and make unemployment contributions.
Finally, we disagree with the Director, who asserted
the legislature did not express its intent clearly enough:
"Section 3(5) of the Membership Campground
Act is poorly drafted. A much clearer ex-
pression of legislative intent is necessary
to conclude that the General Assembly intend-
ed to exempt campground membership salesper-
sons from the broad remedial purposes of the
Unemployment Insurance Act." Director of
Employment Security v. Bailey & Associates,
Inc., Ill. Dept. Employment Sec. No. H-24421
(July 9, 1993).
How else can the legislature express its intent to exempt "camp-
ground membership salespersons from the broad remedial purposes
of the Unemployment Insurance Act" (Director of Employment Secu-
rity v. Bailey & Associates, Inc., Ill. Dept. Employment Sec. No.
H-24421 (July 9, 1993)), except to say "[f]or purposes of 'The
Unemployment Insurance Act' *** a salesperson under [the Member-
ship Act] is an independent contractor" (Ill. Rev. Stat. 1987,
ch. 29, par. 903(5))? The Department's interpretation of section
3(5) of the Membership Act is insupportable. See Carson Pirie
Scott, 131 Ill. 2d at 34, 544 N.E.2d at 777; City of Decatur, 122 Ill. 2d at 361, 522 N.E.2d at 1222 (clearly erroneous interpreta-
tions of statutes must be reversed). The circuit court was cor-
rect in reversing the Department's decisions and is affirmed.
C. Collateral Estoppel
The Department, nevertheless, argues section 2202 of
the Act (Ill. Rev. Stat. 1989, ch. 48, par. 682) precludes Bailey
from relitigating the status of his sales force.
At one previous proceeding the Department found one
Bailey salesman an employee. Bailey failed to seek a review of
this decision. Consequently, argues the Department, Bailey is
estopped from relitigating the issue of the status of his sales
force.
At issue here is section 2202 of the Act, which pre-
vents an "employing unit" such as Bailey from relitigating cer-
tain issues already decided by the Department. Ill. Rev. Stat.
1991, ch. 48, par. 682. Section 2202 of the Act affords preclu-
sive effect where (1) the findings are made in a prior proceeding
before a claims adjudicator, referee, or the board of review; and
(2) the proceeding resulted in a decision to allow unemployment
benefits to a claimant. If these threshold requirements are met,
a finding that an employing unit is an "employer" would have a
preclusive effect.
Such a final finding is preclusive not only with re-
spect to a claimant, but also with respect to other individuals:
"If, after the hearing ***, the Director
shall find that services were rendered for
such employing unit by other individuals
under circumstances substantially the same as
those under which the claimant's services
were performed, the finality of the findings
made *** as to the status of the services
performed by the claimant, shall extend to
all such services rendered for such employing
unit ***." Ill. Rev. Stat. 1989, ch. 48,
par. 682.
The Department, in its decision as to the 1989 assess-
ment, referred to three different cases in which a Director's
representative ruled former Bailey workers were employees, not
independent contractors. Only one of these decisions (Department
case No. L-18-030, mailed September 19, 1990), however, involved
a salesman (Larry Thompson) in circumstances similar to the in-
stant case. Bailey did not appeal this decision, and it became
final. Bailey concedes it falls within the scope of section 2202
of the Act. We hold, however, Bailey's failure to appeal does
not estop it from challenging the status of its sales force in
the instant case.
Section 2202 of the Act essentially codifies the common
law doctrine of collateral estoppel in the unemployment compensa-
tion context. Our court defined collateral estoppel as a doc-
trine barring relitigation of identical issues in a subsequent
action where (1) the issues in two cases are identical; (2) a
final judgment on the merits has been rendered; and (3) the party
against whom estoppel is asserted is the same party (or a party
in privity) and has had a full and fair opportunity to litigate
the issue. Betts v. Manville Personal Injury Settlement Trust,
225 Ill. App. 3d 882, 895, 588 N.E.2d 1193, 1201-02 (1992).
Bailey argues its stake in the Thompson matter was not
large enough to provide an incentive to fully litigate the issue.
We agree. Our supreme court recently cautioned against the unre-
strained application of collateral estoppel when considerations
of fairness are present. It stated we have "'broad discretion'"
to ensure the application of collateral estoppel is not fundamen-
tally unfair, even though the threshold requirements for it are
otherwise satisfied. Herzog v. Lexington Township, 167 Ill. 2d 288, 296, 657 N.E.2d 926, 930 (1995), quoting In re Owens, 125 Ill. 2d 390, 399-400, 532 N.E.2d 248, 252 (1988). As an example
of unfairness, our supreme court referred to a situation where
"[a] defendant may not have an incentive to fully litigate the
prior suit if the damages in that case are small." See Herzog,
167 Ill. 2d at 296, 657 N.E.2d at 930. We find it would be fun-
damentally unfair to estop Bailey from challenging the Director's
determination, especially in view of clearly expressed legisla-
tive intent.
Additionally, applying section 2202 of the Act to pre-
clude Bailey from claiming the independent contractor status to
its sales force would lead to a result contrary to the express
intent of the legislature as evidenced in section 3(5) of the
Membership Act. Courts must harmonize conflicting statutes, if
possible. Williams v. Illinois State Scholarship Comm'n, 139 Ill. 2d 24, 52, 563 N.E.2d 465, 478 (1990) (even when apparent
conflict exists, courts must construe statutes in harmony with
each other). Assuming arguendo section 2202 of the Act estops
Bailey, section 3(5) of the Membership Act, as most recent, or
more specific, prevails over section 2202 of the Act. See Jahn
v. Troy Fire Protection District, 163 Ill. 2d 275, 282, 644 N.E.2d 1159, 1162 (1994) (when choosing between two statutes in
direct conflict, the more recent enactment generally will prevail
as the later expression of legislative intent); Brown v. Mason,
132 Ill. App. 3d 439, 441, 477 N.E.2d 61, 63 (1985) (in cases of
conflict, specific statutory provisions prevail over general
ones).
We note one of the central policies underlying collat-
eral estoppel is one of judicial economy. Osborne v. Kelly, 207
Ill. App. 3d 488, 491, 565 N.E.2d 1340, 1342 (1991). Because the
decision in question became final after the first of these pro-
ceedings (No. 90-MR-328) commenced, requiring Bailey to proceed
with its appeal would have led to duplicative proceedings to
determine essentially the same issue. Hypothetically, under the
agency interpretation of section 2202 of the Act, if 100 former
sales staff of Bailey applied for unemployment, Bailey would have
had to maintain 100 separate appeals, notwithstanding that a
single issue was at the core of all the proceedings. Moreover,
it is conceivable the costs of maintaining the proceedings would
have exceeded Bailey's financial stake in individual cases.
For the foregoing reasons, we hold the circuit court
did not err in holding section 2202 of the Act does not collater-
ally estop Bailey from maintaining the present action.
D. Prospective or Retroactive Application
The circuit court held section 3(5) of the Membership
Act had only prospective effect. It therefore held section 3(5)
of the Membership Act applied only to services performed by Bail-
ey's salespeople after September 24, 1987, the date it became
effective. Bailey argues section 3(5) of the Membership Act
should apply retroactively. We agree.
As previously noted, the question of whether a statute
operates retroactively or prospectively is one of legislative
intent. Champaign County Nursing Home v. Petry Roofing, Inc.,
117 Ill. App. 3d 76, 78, 452 N.E.2d 847, 849 (1983). Generally,
statutes are presumed to have a prospective effect. Rivard v.
Chicago Fire Fighters Union, Local No. 2, 122 Ill. 2d 303, 308-
09, 522 N.E.2d 1195, 1198 (1988). However, this presumption of
prospectivity does not apply to clarifications of existing law.
Continental Illinois National Bank & Trust Co. v. Lenckos, 102 Ill. 2d 210, 220, 464 N.E.2d 1064, 1068 (1984).
The question then becomes whether section 3(5) of the
Membership Act added new substantive rights or merely clarified
the existing law. We find it was a mere clarification.
Generally, if the legislature passes an amendment con-
tradicting a recent interpretation of a statute, it is "an indi-
cation that such interpretation was incorrect and that the amend-
ment was enacted to clarify the legislature's original intent."
Collins v. Board of Trustees of the Firemen's Annuity & Benefit
Fund, 155 Ill. 2d 103, 111, 610 N.E.2d 1250, 1253 (1993). Our
supreme court made this observation in the context of a judicial
interpretation, but the same reasoning applies to the decisions
of agencies. The Department has consistently held campground
membership sales personnel are not "independent contractors" (the
Department's determination to find them "employees" is exempli-
fied by its refusal to accept the mandate of section 3(5) of the
Membership Act). It follows the enactment of section 3(5) of the
Membership Act was meant to correct the Department's interpreta-
tion and was therefore a clarification.
Further, the scant legislative history of section 3(5)
of the Membership Act supports the supposition section 3(5) was
not meant to fashion substantive changes. Thus, the sponsor of
the legislation indicated it was merely a definitional provision.
85th Ill. Gen. Assem., House Proceedings, June 29, 1987, at 82
(statements of Representative Cullerton) ("[Section 3(5) of the
Membership Act] defines sales person for purposes of [the] Unem-
ployment Compensation Act"). Nowhere in the debates of either
house is there any indication section 3(5) of the Membership Act
was viewed as modifying or having any effect on substantive
rights.
The Department argues section 3(5) of the Membership
Act added a provision "where none previously existed." However,
new provisions have often been found to clarify existing laws.
See, e.g., Lenckos, 102 Ill. 2d at 219-20, 464 N.E.2d at 1068
(amendment to Tax Act "intended to clarify, rather than change,
the existing law"); Royal Imperial Group, Inc. v. Joseph Blumberg
& Associates, Inc., 240 Ill. App. 3d 360, 363, 366-68, 608 N.E.2d 178, 180, 182-83 (1992) (amendment adding new section to Consumer
Fraud and Deceptive Business Practices Act clarified existing
law); Rubin v. Marhsall Field & Co., 232 Ill. App. 3d 522, 531-
32, 597 N.E.2d 688, 694 (1992) (amendment adding new section to
Consumer Fraud and Deceptive Business Practices Act clarified ex-
isting law).
Next, the Department argues section 3(5) of the Member-
ship Act contains no language indicating its retroactivity. The
Department's argument is misplaced. A statutory provision does
not have to contain such language to be retroactive. Otherwise,
there would be no need to have a rule of construction indicating
the presumption of prospectivity does not apply to clarifications
of existing law. Lenckos, 102 Ill. 2d at 220, 464 N.E.2d at
1068. If the Department's position is adopted, the rule of con-
struction would be superfluous. This position finds support in
the case law as well. See Braun v. Retirement Board of the
Firemen's Annuity & Benefit Fund, 108 Ill. 2d 119, 126, 483 N.E.2d 8, 11 (1985) ("[a]lthough the amendment did not itself say
that it was intended to clarify rather than modify, the changes
made were by way of clarification").
Finally, our supreme court has indicated the "substance
versus procedure" distinction is not helpful in the retroactivity
analysis. Instead, the court chose the "vested right" test,
under which a change is not really "retroactive" unless it af-
fects a vested right. If the change does not affect a vested
right, then "the better approach is to apply the law that applies
by its terms at the time of the appeal." First of America Trust
Co. v. Armstead, 171 Ill. 2d 282, 289, 664 N.E.2d 36, 39 (1996).
Obviously, the Department does not have a "vested right" to treat
campground salespeople either as employees or as independent
contractors. Instead, the Department is to apply the law as
passed by the legislature, which has spoken with sufficient clar-
ity on this issue.
In sum, it is clear the legislature passed section 3(5)
of the Membership Act because of the Department's insistence on
treating membership campground sales forces as employees. The
section was meant to be a clarification of existing law, rather
than a substantive provision. It also did not affect a vested
right. As such, it should have been given a retroactive applica-
tion by the circuit court in its review of the agency action.
E. Determination for the Fourth Quarter of 1988
Bailey also appeals the circuit court's order insofar
as it held it is precluded from challenging the Department's de-
termination for the fourth quarter of 1988. The circuit court
did not err. At a hearing, the following dialogue took place:
"THE COURT: All right. First of all,
as to if one protest was not timely made--and
I don't know this--the Director went ahead
and there was no motion to strike or the like
and went ahead and heard it, and I don't
think the Director on appeal here now can
raise--
ATTORNEY FOR THE DEPARTMENT: Your Hon-
or, if I can just interject. If you read the
Director's decisions which I'm sure you will,
you will see in the Director's decision it
does state that was not protested in a timely
fashion. It wasn't a matter of she took it
up. It was a matter of Bailey and Associates
did mention it, and the Director did address
it in her decision that it was not timely.
THE COURT: Is that right?
[Plaintiff's attorney]: She said simply
that it was not timely but does not strike
the objections, Your Honor, or hold that they
are invalid.
THE COURT: Well, if she said it wasn't
timely filed, I'll go with her on that."
Bailey argues it should not be precluded from challeng-
ing the Department's determination with respect to the fourth
quarter of 1988 because, it alleges, its protest was considered
"on the merits" by the Director. Consequently, Bailey argues the
Director's argument has been waived. This contention is without
merit.
The Director's representative in his decision noted:
"[t]he petitioner [Bailey] timely filed its protests and peti-
tions for hearing to all of the above determination [sic] and
assessments except the one dated July 21, 1989, which was for the
fourth quarter of 1988." The Director, in affirming her repre-
sentative, repeated: "[t]he petitioner [Bailey] timely filed its
protest and petitions for hearing to all of the assessments ex-
cept the assessment dated July 21, 1989, which was for the fourth
quarter of 1988." Otherwise, the record is devoid of any discus-
sion of the late protest and the consequences of its late filing.
It stands to reason, though, the Director's finding
indicated she did not consider the untimely petition. If she did
consider it, as Bailey argues, then the references to the late
filing would have been superfluous. Contrary to Bailey's asser-
tion, the evidence received at the relevant hearing did not in-
clude evidence specifically relating to the fourth quarter of
1988. The circuit court thus did not err in holding for the
Department on this issue.
F. Factual Status of Bailey's Sales Force
The Department cross-appeals the circuit court's order
holding Bailey's salespeople were both factually and legally
independent contractors. Because the court correctly applied
section 3(5) of the Membership Act to the facts, concluding Bail-
ey's salespeople are legally independent contractors, we need not
reach the other issue.
III. CONCLUSION
For the foregoing reasons, we affirm the circuit
court's decision on the following points: (1) campground member-
ship salespersons are "independent contractors" by virtue of sec-
tion 3(5) of the Membership Act; (2) section 2202 of the Act does
not estop Bailey from challenging the status of his sales force;
and (3) Bailey failed to timely protest the agency's determina-
tion for the fourth quarter of 1988. We reverse the circuit
court on the issue of prospective application of section 3(5) of
the Membership Act and hold it applies retroactively.
Affirmed in part; reversed in part.
GREEN, J., concurs.
COOK, J., dissents. JUSTICE COOK, dissenting:
I respectfully dissent.
I disagree with the majority's holding that the ques-
tion of whether Bailey's salespeople are independent contractors
(and therefore Bailey need not pay contributions for purposes of
unemployment insurance) depends on Bailey's choice not to with-
hold Illinois income taxes from those individuals. If the mem-
bers of the sales force are employees, then Bailey is required to
withhold income tax and to make unemployment contributions.
Bailey has no choice in the matter, except to the extent that
Bailey is able to restructure its overall relationship with its
salespeople so that they are not employees.
An employer is required to make unemployment insurance
contributions "with respect to wages payable for employment."
820 ILCS 405/1400 (West 1994). An employer is also required to
withhold income taxes from compensation paid to an "employee."
Section 3(5) of the Membership Act provides that the same test
that applies to income tax withholding applies to unemployment
insurance contributions. Section 3(5) eliminates the possibility
that someone in Bailey's position will be treated differently for
income tax purposes than for unemployment insurance purposes, and
eliminates the necessity for Bailey to litigate the issue with
both the Director of the Department and the Director of the De-
partment of Revenue (Revenue). Under section 3(5), determination
of status as a nonemployee for income tax purposes is binding for
unemployment insurance purposes.
The fact that Bailey has chosen not to withhold for
income tax purposes does not end the matter. The Director of
Revenue may nevertheless determine that Bailey's salespeople are
employees and that Bailey is required to withhold. Until that is
done, however, the Director of the Department must accept the
fact that none of the members of the sales force "has tax with-
held by a Membership Camping Operator pursuant to Section 701 of
the Illinois Income Tax Act." Ill. Rev. Stat. 1987, ch. 29, par.
903(5). Accordingly, unless we accept the Director's argument
under section 2202 of the Act, each of the salespersons in this
case "is an independent contractor and not considered to be en-
gaged in employment." Ill. Rev. Stat. 1987, ch. 29, par. 903(5).
It is intolerable for one in Bailey's position to allow
members of its sales force to collect unemployment compensation
but then assert that those individuals are not employees when the
Director brings an enforcement action for unpaid unemployment
insurance contributions. If Bailey shares (indirectly) the bene-
fits of unemployment insurance, it must share the burdens of
unemployment insurance. Section 2202 accordingly requires Bailey
to litigate the issue of status as an employee at its first op-
portunity to do so. The decision involving salesman Larry Thomp-
son became final before the circuit court's decision in this case
and as such became binding upon the circuit court.
I do not see that any undue burden is placed on Bailey
"if 100 former sales staff of Bailey applied for unemployment" as
the majority suggests. Slip op. at 14. It is true there is no
mutuality of estoppel between Bailey and its sales force. If
Bailey won the first case, other members of the sales staff could
still file their own claims alleging that they were employees.
Once employee status is found to exist, however, that controls
all the remaining cases, so long as the services in the remaining
cases were rendered "under circumstances substantially the same"
as those in the first case. 820 ILCS 405/2202 (West 1994). Of
course, once Bailey begins paying contributions for the salespeo-
ple it becomes very difficult to argue the salespeople are not
employees when they file claims. Even if Bailey is being sub-
jected to "offensive collateral estoppel," the legislature has
determined, in section 2202, that that is appropriate.
Finally, I disagree with the majority's holding that
section 3(5) should be applied retroactively. It does appear
that the supreme court has adopted a new test for determining
whether legislation should be retroactive or prospective. "[T]he
better approach is to apply the law that applies by its terms at
the time of the appeal, unless doing so would interfere with a
vested right." First of America Trust Co., 171 Ill. 2d at 289,
664 N.E.2d at 39. A retroactive change in the law is one that
takes away or impairs vested rights acquired under existing laws,
or creates a new obligation, imposes a new duty, or attaches a
new disability in respect of transactions or considerations al-
ready past. First of America Trust Co., 171 Ill. 2d at 290, 664 N.E.2d at 40. As the majority points out, the Department has
consistently held campground membership sales personnel were not
"independent contractors." Slip op at 15. The legislature was
not overturning a random incorrect interpretation when it enacted
section 3(5), it was imposing a new duty or obligation on the
Department in respect of transactions or considerations already
past. Section 3(5) should be applied prospectively.
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
BAILEY AND ASSOCIATES, INC., ) Appeal from
Plaintiff-Appellee and ) Circuit Court of
Cross-Appellant, ) Sangamon County
v. ) Nos. 90MR328
ILLINOIS DEPARTMENT OF EMPLOYMENT ) 92MR314
SECURITY and LOLETA DIDRICKSON, in ) 93MR219
her capacity as Director of Employment )
Security, ) Honorable
Defendants-Appellants and ) Richard J. Cadagin,
Cross-Appellees. ) Judge Presiding.
_________________________________________________________________
JUSTICE KNECHT delivered the opinion of the court:
This appeal involves a dispute between the plaintiff,
Bailey and Associates, Inc. (Bailey), and the defendants, Illi-
nois Department of Employment Security (Department) and Loleta A.
Didrickson, its previous Director. At issue in this case are the
Director's determinations under the Unemployment Insurance Act
(Act) (see Ill. Rev. Stat. 1991, ch. 48, par. 300 et seq.), hold-
ing Bailey had to pay contributions under the Act for salespeople
who sold memberships in campgrounds owned and operated by Bailey.
In three decisions the Director determined these individuals were
employees of Bailey, rather than exempt as independent contrac-
tors (see Ill. Rev. Stat. 1991, ch. 48, par. 322), and conse-
quently were not exempt for the purposes of unemployment contri-
butions. Director of Employment Security v. Bailey & Associates,
Inc., Ill. Dept. Employment Sec. Nos. 87-H-92, H-13565 (September
19, 1990); Director of Employment Security v. Bailey & Associ- ates, Inc., Ill. Dept. Employment Sec. No. H-19603 (October 5,
1992); Director of Employment Security v. Bailey & Associates,
Inc., Ill. Dept. Employment Sec. No. H-24421 (July 9, 1993).
Bailey filed a complaint in the circuit court seeking review of
each decision. After consolidation, the circuit court affirmed
in part and reversed in part. Defendants appeal the portion of
the circuit court's order reversing the Director's decisions.
Bailey cross-appeals from the portion of the circuit court's
order affirming the Director's decisions. We affirm in part and
reverse in part.
I. BACKGROUND
The facts are not in dispute. Bailey owns and operates
two membership resort campgrounds. A membership entitles a mem-
ber to use campground facilities and services. Bailey does not
sell the memberships, relying instead on a sales force.
Salespeople are compensated on a commission basis.
Bailey never withheld income or social security taxes from their
commissions and always reported their commissions on forms ap-
plicable to independent contractors. Once all the memberships
are sold, Bailey earns revenue from maintenance fees, membership
dues, concessions, rentals, and assessments.
Bailey's salespeople worked at their own pace, set
their own hours, and did not have a dress code. They were free
to conduct their business anywhere. There were no sales meet-
ings. Working for another employer was allowed. The salespeople
were restricted from working for Bailey's competitors. Sales-
people were free to employ any methods of sales, and sell at any
location, as long as they used sales contracts provided by Bail-
ey, did not misrepresent the terms of membership, and made sales
at prices within approved ranges.
They were required to pay for sales leads received from
Bailey and bore expenses for promotional materials, entertain-
ment, offices, telephones, supplies, automobiles, lead genera-
tion, additional workers, and all other costs.
Salespeople bore full responsibility for every member-
ship they sold until three timely payments had been made on the
contract. They were required to establish and maintain reserve
accounts out of their commissions with Bailey, which were charged
if a customer failed to pay. They were also required to attend
an initial three-day product information seminar.
Under the terms of the contract between Bailey and its
sales force, salespeople agreed to expend at least 20% of their
net commissions for the purpose of promoting the marketing and
sale of memberships, including the costs of promotional materi-
als, sales leads, and travel or entertainment expenses. They had
to submit a statement of expenditure to Bailey biannually. They
had to use sales contracts prepared and supplied by Bailey.
During the three-day rescission period, Bailey's employees called
new members to make sure no misrepresentations were made by the
salespeople.
The Department issued separate notices of determination
and assessment and demand for payment to Bailey for unpaid unem-
ployment contributions and interest for 1984 through 1988, for
1989, and for 1991. These notices were based on an audit finding
Bailey liable for contributions because the Department determined
Bailey's sales force consisted of employees, rather than indepen-
dent contractors. Bailey filed timely protests and petitions for
administrative hearings for all the notices, except for the
fourth quarter of 1988.
After administrative hearings, the Director's represen-
tative in each case found the services performed by the salespeo-
ple for Bailey were not exempt under section 212 of the Act (Ill.
Rev. Stat. 1991, ch. 48, par. 322), which defines independent
contractors. The representatives found the salespeople were em-
ployees of Bailey.
The representative in each case also found the sales-
people were not exempt from coverage under the Act by virtue of
section 3(5) of the Illinois Membership Campground Act (Member-
ship Act) (Ill. Rev. Stat. 1987, ch. 29, par. 903(5)), which pur-
ported to define campground membership sales force as independent
contractors, and is one of the subjects of this appeal. In each
case, the Director adopted the recommended decisions of her rep-
resentatives.
In October 1990, November 1992, and August 1993, Bailey
filed complaints for administrative review of the Director's
decisions in the circuit court. Case No. 90-MR-328 involves the
assessment for 1984 through 1988; No. 92-MR-314 is the assessment
for 1989; and No. 93-MR-219 is for 1991. These cases were con-
solidated in July 1993. In July 1994 the circuit court held as
follows: (1) salespeople were legally and factually independent
contractors, both by virtue of section 3(5) of the Membership Act
and on the facts; (2) section 3(5) of the Membership Act was pro-
spective and applied to this case only from September 24, 1987,
the time when the Membership Act became effective; and (3) Bailey
failed to timely file a protest in response to the notice of
determination for the fourth quarter of 1988. The Department ap-
peals, and Bailey cross-appeals.
In related administrative proceedings, three former
Bailey employees applied for unemployment compensation. In one
of these cases, a former salesman was found to be an employee and
awarded unemployment benefits; Bailey did not seek review of this
decision, and it became final.
II. ANALYSIS
A. Standard of Review
The findings and conclusions of administrative agencies
on questions of fact are considered prima facie true and correct
and therefore a reviewing court may reverse them only if those
findings are against the manifest weight of the evidence. A
decision is against the manifest weight of the evidence only when
an opposite conclusion is clearly apparent. Ill. Rev. Stat.
1991, ch. 110, par. 3-110; Jack Bradley, Inc. v. Department of
Employment Security, 146 Ill. 2d 61, 73, 585 N.E.2d 123, 128
(1991); Blair v. Department of Employment Security, 168 Ill. App.
3d 537, 539, 522 N.E.2d 834, 836 (1988). However, on questions
of law, agencies are not entitled to such deference, and an erro-
neous interpretation of a statute will be reversed. Carson Pirie
Scott & Co. v. State of Illinois Department of Employment Secu-
rity, 131 Ill. 2d 23, 34, 544 N.E.2d 772, 777 (1989). Even when
the issue specifically includes an interpretation of a statute,
though, agencies receive some deference, for reasons of their
expertise and experience, especially if the statute in question
is their enabling statute. The interpretation will be overturned
only if it is clearly erroneous. City of Decatur v. American
Federation of State, County, & Municipal Employees, Local 268,
122 Ill. 2d 353, 361, 522 N.E.2d 1219, 1222 (1988). Where, as
here, the facts are not in dispute, their legal effect is a mat-
ter of law. Fitzpatrick v. Human Rights Comm'n, 267 Ill. App. 3d
386, 392, 642 N.E.2d 486, 491 (1994).
B. Membership Act
The Department appeals the circuit court's holding
section 3(5) of the Membership Act unambiguously provides Bail-
ey's salespersons are independent contractors. The circuit court
did not err. The primary rule of statutory construction is to
give effect to legislative intent. Solich v. George & Anna
Portes Cancer Prevention Center of Chicago, Inc., 158 Ill. 2d 76,
81, 630 N.E.2d 820, 822 (1994). The primary source of the stat-
ute's meaning is its language. Solich, 158 Ill. 2d at 81, 630 N.E.2d at 822. We review issues of statutory construction de
novo. See City of Maroa v. Illinois Central R.R., 229 Ill. App.
3d 503, 505, 592 N.E.2d 660, 662 (1992).
The statute in question, the Membership Act, as amended
effective September 24, 1987 (Pub. Act 85-812, 1, eff. September
24, 1987 (1987 Ill. Laws 3413)), conclusively resolved the issue.
It provided:
"'Salesperson' means any person, other
than a Membership Camping Operator, who is
engaged in obtaining commitments of persons
to enter into Membership Camping Contracts by
making direct sales presentations to such
persons. For purposes of 'The Unemployment
Insurance Act', approved June 30, 1937, as
amended, a salesperson under this Act is an
independent contractor and not considered to
be engaged in employment unless such sales-
person has tax withheld by a Membership Camp-
ing Operator pursuant to Section 701 of the
Illinois Income Tax Act." (Emphasis added.)
Ill. Rev. Stat. 1987, ch. 29, par. 903(5).
The Department argues the phrase "unless such salesperson has tax
withheld" should be interpreted as "unless such salesperson
should have tax legally withheld."
The Department's position is as follows: if there is a
conflict between two statutes, courts must interpret the statutes
in a manner so as to avoid inconsistency and give effect to both
statutes. See Stone v. Department of Employment Security Board
of Review, 151 Ill. 2d 257, 262, 602 N.E.2d 808, 810 (1992). The
purpose of the Act is to relieve the "[e]conomic insecurity due
to involuntary unemployment." Ill. Rev. Stat. 1991, ch. 48, par.
300. If section 3(5) of the Membership Act is construed to mean
what it says on its face, the Department argues, an operator of a
campground could defeat the purpose of the Act by refusing to
withhold taxes, even if this refusal violated the Illinois Income
Tax Act (Tax Act) (Ill. Rev. Stat. 1991, ch. 120, par. 1-101 et
seq.). Section 701 of the Tax Act (Ill. Rev. Stat. 1991, ch.
120, par. 7-701) requires an employer conducting business in
Illinois to withhold taxes on compensation if to do so is re-
quired under section 3401 of the United States Internal Revenue
Code (Code) (26 U.S.C. 3401 (1988)). Section 3401 of the Code
requires an employer to withhold income taxes from compensation
paid to an "employee." 26 U.S.C. 3401 (1988). In determining
whether an individual is an employee under the federal law, the
most important consideration is the employer's right of control.
See 26 C.F.R. 31.3401(c)-1(b) (1995). Therefore, argues the De-
partment, the determination of whether Bailey should have with-
held taxes hinges on the determination of whether his salespeople
were "employees" under federal law. Since the Department deter-
mined Bailey's salespeople were "employees" under both federal
and Illinois law, under the Department interpretation Bailey
should have withheld their taxes; therefore, section 3(5) of the
Membership Act affords Bailey no relief.
We find this reasoning unpersuasive. We conclude sec-
tion 3(5) of the Membership Act unambiguously provides for an
independent contractor treatment of Bailey's sales force. We
note the circuit court held the salespeople were legally and
factually independent contractors both because of section 3(5)
and the facts presented.
The Department's argument is not logically sound for a
number of reasons. First, by declaring campground salespeople
should have their taxes withheld, the Department in effect ren-
ders the entirety of section 3(5) of the Membership Act a nulli-
ty. No campground salesperson, under the Department's interpre-
tation, can ever be an independent contractor. This is an absurd
result, and we must presume the legislature did not intend ab-
surdity. Loyola Academy v. S&S Roof Maintenance, Inc., 146 Ill. 2d 263, 273, 586 N.E.2d 1211, 1216 (1992); People v. Liberman,
228 Ill. App. 3d 639, 647, 592 N.E.2d 575, 581 (1992).
Second, different campground operators may have differ-
ent legitimate reasons for treating their sales force either as
employees or as independent contractors. Section 3(5) of the
Membership Act allows them to engage their sales force as employ-
ees or as independent contractors. In some instances, a camp-
ground operator may treat a salesperson as an employee and the
surrounding circumstances will demonstrate the salesperson is an
employee. The campground operator would then have to withhold
income tax and make unemployment contributions.
Finally, we disagree with the Director, who asserted
the legislature did not express its intent clearly enough:
"Section 3(5) of the Membership Campground
Act is poorly drafted. A much clearer ex-
pression of legislative intent is necessary
to conclude that the General Assembly intend-
ed to exempt campground membership salesper-
sons from the broad remedial purposes of the
Unemployment Insurance Act." Director of
Employment Security v. Bailey & Associates,
Inc., Ill. Dept. Employment Sec. No. H-24421
(July 9, 1993).
How else can the legislature express its intent to exempt "camp-
ground membership salespersons from the broad remedial purposes
of the Unemployment Insurance Act" (Director of Employment Secu-
rity v. Bailey & Associates, Inc., Ill. Dept. Employment Sec. No.
H-24421 (July 9, 1993)), except to say "[f]or purposes of 'The
Unemployment Insurance Act' *** a salesperson under [the Member-
ship Act] is an independent contractor" (Ill. Rev. Stat. 1987,
ch. 29, par. 903(5))? The Department's interpretation of section
3(5) of the Membership Act is insupportable. See Carson Pirie
Scott, 131 Ill. 2d at 34, 544 N.E.2d at 777; City of Decatur, 122 Ill. 2d at 361, 522 N.E.2d at 1222 (clearly erroneous interpreta-
tions of statutes must be reversed). The circuit court was cor-
rect in reversing the Department's decisions and is affirmed.
C. Collateral Estoppel
The Department, nevertheless, argues section 2202 of
the Act (Ill. Rev. Stat. 1989, ch. 48, par. 682) precludes Bailey
from relitigating the status of his sales force.
At one previous proceeding the Department found one
Bailey salesman an employee. Bailey failed to seek a review of
this decision. Consequently, argues the Department, Bailey is
estopped from relitigating the issue of the status of his sales
force.
At issue here is section 2202 of the Act, which pre-
vents an "employing unit" such as Bailey from relitigating cer-
tain issues already decided by the Department. Ill. Rev. Stat.
1991, ch. 48, par. 682. Section 2202 of the Act affords preclu-
sive effect where (1) the findings are made in a prior proceeding
before a claims adjudicator, referee, or the board of review; and
(2) the proceeding resulted in a decision to allow unemployment
benefits to a claimant. If these threshold requirements are met,
a finding that an employing unit is an "employer" would have a
preclusive effect.
Such a final finding is preclusive not only with re-
spect to a claimant, but also with respect to other individuals:
"If, after the hearing ***, the Director
shall find that services were rendered for
such employing unit by other individuals
under circumstances substantially the same as
those under which the claimant's services
were performed, the finality of the findings
made *** as to the status of the services
performed by the claimant, shall extend to
all such services rendered for such employing
unit ***." Ill. Rev. Stat. 1989, ch. 48,
par. 682.
The Department, in its decision as to the 1989 assess-
ment, referred to three different cases in which a Director's
representative ruled former Bailey workers were employees, not
independent contractors. Only one of these decisions (Department
case No. L-18-030, mailed September 19, 1990), however, involved
a salesman (Larry Thompson) in circumstances similar to the in-
stant case. Bailey did not appeal this decision, and it became
final. Bailey concedes it falls within the scope of section 2202
of the Act. We hold, however, Bailey's failure to appeal does
not estop it from challenging the status of its sales force in
the instant case.
Section 2202 of the Act essentially codifies the common
law doctrine of collateral estoppel in the unemployment compensa-
tion context. Our court defined collateral estoppel as a doc-
trine barring relitigation of identical issues in a subsequent
action where (1) the issues in two cases are identical; (2) a
final judgment on the merits has been rendered; and (3) the party
against whom estoppel is asserted is the same party (or a party
in privity) and has had a full and fair opportunity to litigate
the issue. Betts v. Manville Personal Injury Settlement Trust,
225 Ill. App. 3d 882, 895, 588 N.E.2d 1193, 1201-02 (1992).
Bailey argues its stake in the Thompson matter was not
large enough to provide an incentive to fully litigate the issue.
We agree. Our supreme court recently cautioned against the unre-
strained application of collateral estoppel when considerations
of fairness are present. It stated we have "'broad discretion'"
to ensure the application of collateral estoppel is not fundamen-
tally unfair, even though the threshold requirements for it are
otherwise satisfied. Herzog v. Lexington Township, 167 Ill. 2d 288, 296, 657 N.E.2d 926, 930 (1995), quoting In re Owens, 125 Ill. 2d 390, 399-400, 532 N.E.2d 248, 252 (1988). As an example
of unfairness, our supreme court referred to a situation where
"[a] defendant may not have an incentive to fully litigate the
prior suit if the damages in that case are small." See Herzog,
167 Ill. 2d at 296, 657 N.E.2d at 930. We find it would be fun-
damentally unfair to estop Bailey from challenging the Director's
determination, especially in view of clearly expressed legisla-
tive intent.
Additionally, applying section 2202 of the Act to pre-
clude Bailey from claiming the independent contractor status to
its sales force would lead to a result contrary to the express
intent of the legislature as evidenced in section 3(5) of the
Membership Act. Courts must harmonize conflicting statutes, if
possible. Williams v. Illinois State Scholarship Comm'n, 139 Ill. 2d 24, 52, 563 N.E.2d 465, 478 (1990) (even when apparent
conflict exists, courts must construe statutes in harmony with
each other). Assuming arguendo section 2202 of the Act estops
Bailey, section 3(5) of the Membership Act, as most recent, or
more specific, prevails over section 2202 of the Act. See Jahn
v. Troy Fire Protection District, 163 Ill. 2d 275, 282, 644 N.E.2d 1159, 1162 (1994) (when choosing between two statutes in
direct conflict, the more recent enactment generally will prevail
as the later expression of legislative intent); Brown v. Mason,
132 Ill. App. 3d 439, 441, 477 N.E.2d 61, 63 (1985) (in cases of
conflict, specific statutory provisions prevail over general
ones).
We note one of the central policies underlying collat-
eral estoppel is one of judicial economy. Osborne v. Kelly, 207
Ill. App. 3d 488, 491, 565 N.E.2d 1340, 1342 (1991). Because the
decision in question became final after the first of these pro-
ceedings (No. 90-MR-328) commenced, requiring Bailey to proceed
with its appeal would have led to duplicative proceedings to
determine essentially the same issue. Hypothetically, under the
agency interpretation of section 2202 of the Act, if 100 former
sales staff of Bailey applied for unemployment, Bailey would have
had to maintain 100 separate appeals, notwithstanding that a
single issue was at the core of all the proceedings. Moreover,
it is conceivable the costs of maintaining the proceedings would
have exceeded Bailey's financial stake in individual cases.
For the foregoing reasons, we hold the circuit court
did not err in holding section 2202 of the Act does not collater-
ally estop Bailey from maintaining the present action.
D. Prospective or Retroactive Application
The circuit court held section 3(5) of the Membership
Act had only prospective effect. It therefore held section 3(5)
of the Membership Act applied only to services performed by Bail-
ey's salespeople after September 24, 1987, the date it became
effective. Bailey argues section 3(5) of the Membership Act
should apply retroactively. We agree.
As previously noted, the question of whether a statute
operates retroactively or prospectively is one of legislative
intent. Champaign County Nursing Home v. Petry Roofing, Inc.,
117 Ill. App. 3d 76, 78, 452 N.E.2d 847, 849 (1983). Generally,
statutes are presumed to have a prospective effect. Rivard v.
Chicago Fire Fighters Union, Local No. 2, 122 Ill. 2d 303, 308-
09, 522 N.E.2d 1195, 1198 (1988). However, this presumption of
prospectivity does not apply to clarifications of existing law.
Continental Illinois National Bank & Trust Co. v. Lenckos, 102 Ill. 2d 210, 220, 464 N.E.2d 1064, 1068 (1984).
The question then becomes whether section 3(5) of the
Membership Act added new substantive rights or merely clarified
the existing law. We find it was a mere clarification.
Generally, if the legislature passes an amendment con-
tradicting a recent interpretation of a statute, it is "an indi-
cation that such interpretation was incorrect and that the amend-
ment was enacted to clarify the legislature's original intent."
Collins v. Board of Trustees of the Firemen's Annuity & Benefit
Fund, 155 Ill. 2d 103, 111, 610 N.E.2d 1250, 1253 (1993). Our
supreme court made this observation in the context of a judicial
interpretation, but the same reasoning applies to the decisions
of agencies. The Department has consistently held campground
membership sales personnel are not "independent contractors" (the
Department's determination to find them "employees" is exempli-
fied by its refusal to accept the mandate of section 3(5) of the
Membership Act). It follows the enactment of section 3(5) of the
Membership Act was meant to correct the Department's interpreta-
tion and was therefore a clarification.
Further, the scant legislative history of section 3(5)
of the Membership Act supports the supposition section 3(5) was
not meant to fashion substantive changes. Thus, the sponsor of
the legislation indicated it was merely a definitional provision.
85th Ill. Gen. Assem., House Proceedings, June 29, 1987, at 82
(statements of Representative Cullerton) ("[Section 3(5) of the
Membership Act] defines sales person for purposes of [the] Unem-
ployment Compensation Act"). Nowhere in the debates of either
house is there any indication section 3(5) of the Membership Act
was viewed as modifying or having any effect on substantive
rights.
The Department argues section 3(5) of the Membership
Act added a provision "where none previously existed." However,
new provisions have often been found to clarify existing laws.
See, e.g., Lenckos, 102 Ill. 2d at 219-20, 464 N.E.2d at 1068
(amendment to Tax Act "intended to clarify, rather than change,
the existing law"); Royal Imperial Group, Inc. v. Joseph Blumberg
& Associates, Inc., 240 Ill. App. 3d 360, 363, 366-68, 608 N.E.2d 178, 180, 182-83 (1992) (amendment adding new section to Consumer
Fraud and Deceptive Business Practices Act clarified existing
law); Rubin v. Marhsall Field & Co., 232 Ill. App. 3d 522, 531-
32, 597 N.E.2d 688, 694 (1992) (amendment adding new section to
Consumer Fraud and Deceptive Business Practices Act clarified ex-
isting law).
Next, the Department argues section 3(5) of the Member-
ship Act contains no language indicating its retroactivity. The
Department's argument is misplaced. A statutory provision does
not have to contain such language to be retroactive. Otherwise,
there would be no need to have a rule of construction indicating
the presumption of prospectivity does not apply to clarifications
of existing law. Lenckos, 102 Ill. 2d at 220, 464 N.E.2d at
1068. If the Department's position is adopted, the rule of con-
struction would be superfluous. This position finds support in
the case law as well. See Braun v. Retirement Board of the
Firemen's Annuity & Benefit Fund, 108 Ill. 2d 119, 126, 483 N.E.2d 8, 11 (1985) ("[a]lthough the amendment did not itself say
that it was intended to clarify rather than modify, the changes
made were by way of clarification").
Finally, our supreme court has indicated the "substance
versus procedure" distinction is not helpful in the retroactivity
analysis. Instead, the court chose the "vested right" test,
under which a change is not really "retroactive" unless it af-
fects a vested right. If the change does not affect a vested
right, then "the better approach is to apply the law that applies
by its terms at the time of the appeal." First of America Trust
Co. v. Armstead, 171 Ill. 2d 282, 289, 664 N.E.2d 36, 39 (1996).
Obviously, the Department does not have a "vested right" to treat
campground salespeople either as employees or as independent
contractors. Instead, the Department is to apply the law as
passed by the legislature, which has spoken with sufficient clar-
ity on this issue.
In sum, it is clear the legislature passed section 3(5)
of the Membership Act because of the Department's insistence on
treating membership campground sales forces as employees. The
section was meant to be a clarification of existing law, rather
than a substantive provision. It also did not affect a vested
right. As such, it should have been given a retroactive applica-
tion by the circuit court in its review of the agency action.
E. Determination for the Fourth Quarter of 1988
Bailey also appeals the circuit court's order insofar
as it held it is precluded from challenging the Department's de-
termination for the fourth quarter of 1988. The circuit court
did not err. At a hearing, the following dialogue took place:
"THE COURT: All right. First of all,
as to if one protest was not timely made--and
I don't know this--the Director went ahead
and there was no motion to strike or the like
and went ahead and heard it, and I don't
think the Director on appeal here now can
raise--
ATTORNEY FOR THE DEPARTMENT: Your Hon-
or, if I can just interject. If you read the
Director's decisions which I'm sure you will,
you will see in the Director's decision it
does state that was not protested in a timely
fashion. It wasn't a matter of she took it
up. It was a matter of Bailey and Associates
did mention it, and the Director did address
it in her decision that it was not timely.
THE COURT: Is that right?
[Plaintiff's attorney]: She said simply
that it was not timely but does not strike
the objections, Your Honor, or hold that they
are invalid.
THE COURT: Well, if she said it wasn't
timely filed, I'll go with her on that."
Bailey argues it should not be precluded from challeng-
ing the Department's determination with respect to the fourth
quarter of 1988 because, it alleges, its protest was considered
"on the merits" by the Director. Consequently, Bailey argues the
Director's argument has been waived. This contention is without
merit.
The Director's representative in his decision noted:
"[t]he petitioner [Bailey] timely filed its protests and peti-
tions for hearing to all of the above determination [sic] and
assessments except the one dated July 21, 1989, which was for the
fourth quarter of 1988." The Director, in affirming her repre-
sentative, repeated: "[t]he petitioner [Bailey] timely filed its
protest and petitions for hearing to all of the assessments ex-
cept the assessment dated July 21, 1989, which was for the fourth
quarter of 1988." Otherwise, the record is devoid of any discus-
sion of the late protest and the consequences of its late filing.
It stands to reason, though, the Director's finding
indicated she did not consider the untimely petition. If she did
consider it, as Bailey argues, then the references to the late
filing would have been superfluous. Contrary to Bailey's asser-
tion, the evidence received at the relevant hearing did not in-
clude evidence specifically relating to the fourth quarter of
1988. The circuit court thus did not err in holding for the
Department on this issue.
F. Factual Status of Bailey's Sales Force
The Department cross-appeals the circuit court's order
holding Bailey's salespeople were both factually and legally
independent contractors. Because the court correctly applied
section 3(5) of the Membership Act to the facts, concluding Bail-
ey's salespeople are legally independent contractors, we need not
reach the other issue.
III. CONCLUSION
For the foregoing reasons, we affirm the circuit
court's decision on the following points: (1) campground member-
ship salespersons are "independent contractors" by virtue of sec-
tion 3(5) of the Membership Act; (2) section 2202 of the Act does
not estop Bailey from challenging the status of his sales force;
and (3) Bailey failed to timely protest the agency's determina-
tion for the fourth quarter of 1988. We reverse the circuit
court on the issue of prospective application of section 3(5) of
the Membership Act and hold it applies retroactively.
Affirmed in part; reversed in part.
GREEN, J., concurs.
COOK, J., dissents. JUSTICE COOK, dissenting:
I respectfully dissent.
I disagree with the majority's holding that the ques-
tion of whether Bailey's salespeople are independent contractors
(and therefore Bailey need not pay contributions for purposes of
unemployment insurance) depends on Bailey's choice not to with-
hold Illinois income taxes from those individuals. If the mem-
bers of the sales force are employees, then Bailey is required to
withhold income tax and to make unemployment contributions.
Bailey has no choice in the matter, except to the extent that
Bailey is able to restructure its overall relationship with its
salespeople so that they are not employees.
An employer is required to make unemployment insurance
contributions "with respect to wages payable for employment."
820 ILCS 405/1400 (West 1994). An employer is also required to
withhold income taxes from compensation paid to an "employee."
Section 3(5) of the Membership Act provides that the same test
that applies to income tax withholding applies to unemployment
insurance contributions. Section 3(5) eliminates the possibility
that someone in Bailey's position will be treated differently for
income tax purposes than for unemployment insurance purposes, and
eliminates the necessity for Bailey to litigate the issue with
both the Director of the Department and the Director of the De-
partment of Revenue (Revenue). Under section 3(5), determination
of status as a nonemployee for income tax purposes is binding for
unemployment insurance purposes.
The fact that Bailey has chosen not to withhold for
income tax purposes does not end the matter. The Director of
Revenue may nevertheless determine that Bailey's salespeople are
employees and that Bailey is required to withhold. Until that is
done, however, the Director of the Department must accept the
fact that none of the members of the sales force "has tax with-
held by a Membership Camping Operator pursuant to Section 701 of
the Illinois Income Tax Act." Ill. Rev. Stat. 1987, ch. 29, par.
903(5). Accordingly, unless we accept the Director's argument
under section 2202 of the Act, each of the salespersons in this
case "is an independent contractor and not considered to be en-
gaged in employment." Ill. Rev. Stat. 1987, ch. 29, par. 903(5).
It is intolerable for one in Bailey's position to allow
members of its sales force to collect unemployment compensation
but then assert that those individuals are not employees when the
Director brings an enforcement action for unpaid unemployment
insurance contributions. If Bailey shares (indirectly) the bene-
fits of unemployment insurance, it must share the burdens of
unemployment insurance. Section 2202 accordingly requires Bailey
to litigate the issue of status as an employee at its first op-
portunity to do so. The decision involving salesman Larry Thomp-
son became final before the circuit court's decision in this case
and as such became binding upon the circuit court.
I do not see that any undue burden is placed on Bailey
"if 100 former sales staff of Bailey applied for unemployment" as
the majority suggests. Slip op. at 14. It is true there is no
mutuality of estoppel between Bailey and its sales force. If
Bailey won the first case, other members of the sales staff could
still file their own claims alleging that they were employees.
Once employee status is found to exist, however, that controls
all the remaining cases, so long as the services in the remaining
cases were rendered "under circumstances substantially the same"
as those in the first case. 820 ILCS 405/2202 (West 1994). Of
course, once Bailey begins paying contributions for the salespeo-
ple it becomes very difficult to argue the salespeople are not
employees when they file claims. Even if Bailey is being sub-
jected to "offensive collateral estoppel," the legislature has
determined, in section 2202, that that is appropriate.
Finally, I disagree with the majority's holding that
section 3(5) should be applied retroactively. It does appear
that the supreme court has adopted a new test for determining
whether legislation should be retroactive or prospective. "[T]he
better approach is to apply the law that applies by its terms at
the time of the appeal, unless doing so would interfere with a
vested right." First of America Trust Co., 171 Ill. 2d at 289,
664 N.E.2d at 39. A retroactive change in the law is one that
takes away or impairs vested rights acquired under existing laws,
or creates a new obligation, imposes a new duty, or attaches a
new disability in respect of transactions or considerations al-
ready past. First of America Trust Co., 171 Ill. 2d at 290, 664 N.E.2d at 40. As the majority points out, the Department has
consistently held campground membership sales personnel were not
"independent contractors." Slip op at 15. The legislature was
not overturning a random incorrect interpretation when it enacted
section 3(5), it was imposing a new duty or obligation on the
Department in respect of transactions or considerations already
past. Section 3(5) should be applied prospectively.
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