Earthgrains Bakery Group, Inc. v. Mississippi Department of Employment Security
131 So. 3d 1163
Miss.2014Background
- Sara Lee restructured in 2006 to convert employee route drivers in Mississippi into independent distributor corporations that purchase exclusive territories and operate Subchapter S businesses to resell Sara Lee bakery products.
- Distributors buy product from Sara Lee at discounted prices, sell to retailers at higher wholesale prices, and earn profit from the margin; some large-chain receivables may be sold to Sara Lee.
- Distributors procure/maintain trucks, hire employees, pay operating expenses, and may brand trucks/shirts for an optional weekly advertising payment (up to $100).
- MDES found the distributors were employees — specifically agent/commission drivers under Miss. Code § 71-5-11(J)(2)(a) (and alternatively under (J)(14)) and assessed unemployment insurance taxes; Sara Lee appealed.
- The ALJ first rejected (J)(14) but later found distributors were agent/commission drivers under (J)(2)(a); the Board of Review and circuit court affirmed.
- The Mississippi Supreme Court reversed, holding MDES failed to apply statutory factors and its finding lacked substantial evidence; judgment rendered for Sara Lee.
Issues
| Issue | Plaintiff's Argument (Sara Lee) | Defendant's Argument (MDES) | Held |
|---|---|---|---|
| Whether distributors are paid "remuneration" (wages/commission) by Sara Lee under §71-5-11(J)(2) | Distributors are independent businesses paid from resale margins and only receive optional advertising fees; no wages or commissions from Sara Lee | Distributors receive remuneration via advertising payments and settlement checks when Sara Lee purchases accounts receivable; Sara Lee negotiates chain prices affecting distributors | Held for Sara Lee: distributors' income is resale margin, not wages/commission; advertising fee is incidental and insufficient as remuneration |
| Whether distributors satisfy the three statutory factors (J)(2)(i–iii) to be "agent/commission drivers" | Distribution agreements are with corporate distributors, not individuals; distributors may hire employees and revoke agency for chain negotiations, so services are not "personal" | MDES treated distributors as agents/commission drivers subject to (J)(2)(i–iii) | Held for Sara Lee: ALJ failed to analyze the statutory factors; (i) is not met because contracts contemplate corporate performance, so (J)(2) cannot apply |
| Whether ALJ/MDES decision is supported by substantial evidence and applied law correctly | ALJ misapplied law and ignored controlling factors; decision arbitrary and unsupported | MDES relied on evidence of payment flows and negotiation role to support classification | Held for Sara Lee: decision not supported by substantial evidence and law not properly applied; reversal required |
| Constitutional challenge to application of §71-5-11(J)(2)(a) | (Alternative) application unconstitutional | MDES enforcement of statute | Court declined to reach constitutional claim because statutory grounds dispositive |
Key Cases Cited
- Mississippi Employment Sec. Comm’n v. PDN, Inc., 586 So.2d 838 (Miss. 1991) (taxing ambiguities resolved for taxpayer; method-of-payment and other factors relevant to employment classification)
- Medlin v. Mississippi Employment Security Commission, 171 So.2d 496 (Miss. 1965) (self-employment earnings are not wages under Employment Security Law)
- Mississippi Employment Sec. Comm’n v. Jones, 826 So.2d 77 (Miss. 2002) (equating "remuneration for personal services" with "wages")
- Matter of Balhorn-Moyle Petroleum Co., 315 N.W.2d 481 (S.D. 1982) (earnings from self-employment are not wages despite use of the term "commission")
- Holman Enterprises Tobacco Warehouse v. Carter, 536 S.W.2d 461 (Ky. 1976) (commission label insufficient where earnings derive from self-employment)
- Idaho Ambucare Ctr., Inc. v. United States, 57 F.3d 752 (9th Cir. 1995) (corporate officers who perform only minor services are not employees for employment-tax purposes)
- Central Illinois Public Service Co. v. United States, 435 U.S. 21 (U.S. 1978) (certain reimbursements are not wages subject to employment taxes)