Before BRATTON, HUXMAN and MURRAH, Circuit Judges.
This case arises under the Social Security Act, 49 Stat. 620, as amended, 42 U.S.C.A. § 301 et seq. The appellee, the Wholesale Oil Company, Inc.,*fn1 sued the United States to recover social security taxes which it had paid under protest. It recovered a judgment therefor, and the government has appealed. The only question is whether the persons who operated retail gasoline filling stations owned by the Company were employees within the meaning of the Act. The facts are substantially these:
The Company is a Kansas corporation, engaged in the distribution of petroleum products. In 1938 and through 1940 it entered into written agreements with individuals for the operation of the filling stations owned by it. While differing in some respects, the contracts are substantially the same. They generally provide that the Company was to furnish all equipment, funds, and merchandise necessary to stock the station; that the operator was to devote his entire time to the operation thereof; that a bank account was to be opened in the name of the Company in a bank designated by it; that the operator was to make daily deposits of all receipts in the bank account and was to furnish daily reports of designated, detailed information; that all books and records were to be kept in the Company's office in Hutchinson, and that no obligations were to be incurred except upon express authority of the Company; that credit extended without approval of the Company was at the risk of the operator; that the operator was to receive a drawing account of from $50 to $100 per month, which was to be charged against one-half of the profits which he was to receive at stated times; that the operator could not dispose of his interest in the business without the approval of the Company. Some of the contracts were for a number of years while others were for an indefinite time. All but one of the contracts were subject to cancellation by either party on written notice of from fifteen to ninety days, except that three could not be canceled until after the first year. Several contracts provided that the operator could purchase the stock and equipment at a price to be fixed by the Company, upon the termination of the contract. All purchase orders were to be issued from the office at Hutchinson. Express authority had to be obtained from the home office before the operator could incur any obligation. The stations were all operated in the Company's name. When one operator quit, there was no distribution of assets, but only a final accounting of the profits. When a new operator took over a station, the license was not canceled, but the new operation was continued under the same license.
Oral testimony was introduced at the trial substantially as follows: All checks on the bank account were supposed to be issued by the Company. The operator could check against the account only in emergency. All bills were paid from the home office of the Company. Small bills were paid by the operator out of petty cash. The Company left the matter of fixing prices to the operator. Orders for merchandise were placed by the operator where the order was less than car-load lots. Car-load lots were ordered through the Company at Hutchinson. The operator determined the character of the stock he would keep. He always hired all the help at the station. Salaries for such help were paid out of the proceeds of the business. Loss resulting from credit was "split fifty-fifty."
The trial court made appropriate findings of fact and conclusions of law. It concluded as a matter of law that the relationship between the parties was not one of employer and employee, but was more in the nature of a special partnership or joint adventure. There was no conflict in the evidence. The findings of fact are not in issue, and, being supported by the evidence, are accepted by us. But whether the conclusions of law which the court drew therefrom are correct is a matter concerning which we exercise our own independent judgment.
Appellee took the position that the contracts created a partnership rather than the relation of employer and employee. While the court at the conclusion of the trial expressed pressed grave doubts as to this, it ultimately adopted this theory, as evidenced by its second conclusion of law.
Contracts for the rendition of services ordinarily result in one of three general classifications - such contracts may create a partnership, that of an independent contractor, or that of master and servant. It is necessary to consider the relationship created by these contracts because this enables us to determine into which classification they fall. By considering the elements of these three general classifications, we eliminate those that do not fit the facts and thus determine the correct relationship created by the contracts.
We cannot agree with the trial court that the contracts created a special partnership or joint adventure. A joint adventure is but one form of a partnership, and for the purpose of this part of the discussion we will speak only of a partnership. A partnership connotes a community of interest. More is required than a community of interest in the fruits of the venture. There must be such interest in the business and also in the management of the business. There must also be joint liability. None of these elements is present here. The Company owned all the assets. It owned the sites, the stations, and all the merchandise. At no time, either during the operation of the business or at the termination of the contract, did the operator have or acquire a vested interest in any of the property used in the business. The privilege which some of the contracts gave the operator to purchase the business upon termination of the contract evidenced no ownership as a partner in such assets, because he could buy them, not at their actual or appraised value, but only at such value as the Company alone chose to place on them. Had he been an employee, he could have done this either during the continuation of the contract or upon its termination, without such a provision in the contract. This provision means no more than that if the employee wants to buy the business, he may do so, at a valuation which the Company places on it. Neither did the operator have the right to exercise his independent judgment in the management and operation of the business. While there was some oral testimony to the effect that the operator was free from dictation of the Company in the management and operation of the business, when examined in the light of the contracts and of all of the testimony, this right is more fanciful than real. The business was conducted in the name of the Company; the bank account was kept in the name of the Company in a bank designated by it; the checks were written against the account only by the Company and none were written against this account by the operator save that in an emergency he might draw a check against the account. The license for the station was taken in the name of the Company. When the operator terminated his contract, the license of the Company was not surrendered. It continued, and the station was operated under the same license by the new operator or employee. The operator was required to make detailed, daily reports to Hutchinson. While he could place orders for merchandise less than in car-load lots, all purchase orders were issued from the home office and orders for car-load lots were issued by the Company. He had to procure the approval of the home office before he could incur any obligations. What independent powers of management did this leave him? What could he do that the Company could not veto? The contract did not give him the right to fix prices. The oral testimony was that the Company permitted him to fix prices.Neither did he assume any liability for the debts of the so-called partnership or joint adventure. He did not become liable for merchandise accounts or for other obligations incurred by the Company. The only liability he had was that he shared the net operating losses, if any. But sharing in the profits or losses alone of a business is not sufficient by itself to create a partnership relation.*fn2 The relationship created by these contracts lacked many of the usual elements necessary to create a partnership, either general or special, in the nature of a joint adventure. We accordingly conclude that no partnership relation existed between the parties.
The next question is, Were the operators independent contractors? In Jones v. Goodson, 10 Cir., 121 F.2d 176, 179, we discussed in detail the elements which distinguish an independent contractor from an employee. We said that: "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."
We also said that only a "reasonable measure of direction and control over method and means of performing the service is a constituent element of the relationship of master and servant * * *." Did the Company have a reasonable measure of direction and control over the method and means of conducting the business, or, putting it another way, what could the operator do in shaping the policy or conducting the business independently of or in opposition to the wishes of the Company? From the analysis of the contract requirement as already set out, the conclusion is inescapable that he could do but very little, if anything, in opposition to the wishes of the Company. He could not even write checks on the bank account. As a matter of fact, he did not have a bank account in his name, and while he determined his requirements as to merchandise, this was subject to supervision by the Company because it issued all purchase orders. But it is urged that the fixed prices and determined his working hours. His contract did not give him either of these rights. The testimony and the findings of the court were that as a matter of practice he set his prices, determined his business hours, and ordered replenishing stocks, and was free to engage such additional help as he deemed expedient. But even these privileges were exercised in conjunction with the Company. E. A. Andrews, president of the Company, testified that such matters as "keeping the place in order mainly, and the kind of stock to buy, and the prices which they set, prices to suit their particular trade of their own town," were discussed. He further testified that, "They were on the location. That was one reason. But we talked those things over when it was necessary." Can there be any question as to what would have happened if the Company's suggestions concerning these matters had been disregarded? No doubt these privileges, which were not given by the contract, soon would have been withdrawn. In addition, the Company always could enforce its suggestions by the ever-present cancellation clause by which it could cancel the contract by giving notice of from fifteen to ninety days. While it was stressed that the operator fixed his own hours, the contract did not give him this privilege. It required him to devote his entire time to the operation of the business. Can there be any doubt as to what would have happened if the operator had chosen to open the station only from 8 to 10 o'clock each morning, even though such operation resulted in a net profit? The answer is obvious.
The Company stresses the fact that it could not discharge the employee at will. But that is not controlling, or even very persuasive. A servant hired for a definite number of years is nonetheless an employee, even though the master is without power to discharge him. Whether the compensation of employees is paid in a fixed sum or in a percentage of the profits is not determinative. We think the true relationship of these operators, when viewed in the light of the entire record, is correctly reflected in the observations of the trial court at the conclusion of the hearing, as follows: "At the same time it looks very much like the ordinary employer and employee relationship too where the employee gets a guaranteed amount per month, which would in effect be the salary that he is paid, and then receives some bonus out of the profits provided there are profits. As a matter of fact, I say to you frankly that at this time I am inclined to believe that that is about what it is. These people were attempted to be hired to run the business; they were given an interest in the profits. The only thing they furnished was the time and labor, which is all they would have furnished had they been paid a salary and nothing more. So that when you analyze this contract and give it a practical construction and consider the evidence as to the manner in which the parties actually operated under the contract, it seems to me that you just about have a situation where you were paying these employees a salary, these managers, a specified salary referred to in the contract as a 'drawing account,' * * *."
As stated by us in the Goodson case, supra, only a reasonable measure of control over the method and means of performing the services is necessary to create the relationship of employer and employee.
We think it is a matter of common knowlege that the manager of local knowledge that the manager of local is invested with a certain amount of discretion and control in the operation of the local unit. It is doubtful whether the amount of discretion vested in the operators of these individual stations, all of which belonged to the Company, differed materially from that vested in managers of local stations of some of our large oil companies operating throughout the nation, who admittedly are employees. It is undisputable that at the termination of the contract everything belonged to the Company. It ...