                         IN THE SUPREME COURT OF MISSISSIPPI
                                  NO. 94-CC-00590-SCT
CLARK PRINTING COMPANY, INC.
v.
MISSISSIPPI EMPLOYMENT SECURITY COMMISSION

DATE OF JUDGMENT:                             05/27/94
TRIAL JUDGE:                                  HON. JAMES E. GRAVES JR.
COURT FROM WHICH APPEALED:                    HINDS COUNTY CIRCUIT COURT
ATTORNEY FOR APPELLANT:                       GEORGE T. HOLMES
ATTORNEY FOR APPELLEE:                        FRED J. LOTTERHOS
NATURE OF THE CASE:                           CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION:                                  REVERSED AND REMANDED - 9/26/96
MOTION FOR REHEARING FILED:
MANDATE ISSUED:                               10/17/96




     BEFORE SULLIVAN, P.J., McRAE AND MILLS, JJ.


     MILLS, JUSTICE, FOR THE COURT:


¶1. This appeal proceeds from an Order of the Hinds County Circuit Court (First Judicial District)
affirming the Mississippi Employment Security Commission's (hereinafter MESC) decision that, in
1992, Clark Printing Company, Inc. (hereinafter Clark Printing) was a "newly subject employer"
under Section 71-5-353 of the Mississippi Code of 1972. The Court is presented with a question of
law involving a statutory tax scheme under the Mississippi Employment Compensation Law. We hold
that Clark Printing is an eligible employer under the Mississippi Unemployment Compensation Law
and reverse and remand for further proceedings consistent herewith.

                                              FACTS

¶2. The facts are undisputed. Clark Printing entered business in 1985. Since then, and until about
August 1992, Clark Printing hired three different companies to handle various payroll services for it,
including the reporting of wages and the payment of unemployment contributions to the Mississippi
Employment Security Commission (MESC). In August 1992, Clark Printing hired Atwood
Accounting to keep its books. At this point, MESC registered Clark Printing as a new employer, with
the 2.7% rate prescribed by Miss. Code Ann. § 71-5-353 (2) ( 1972).

¶3. Clark Printing's arrangements with those employee leasing companies were pursuant to a verbal
agreement, whereby they would "payroll" for Clark Printing. The uncontradicted testimony before
the Commission proved that the "employee leasing" firms merely provided Clark with payroll and
benefit administration services, which included the processing of weekly payrolls, based on the
number of hours reported by Clark, and the filing of monthly, quarterly and annual payroll and benefit
employer tax reports. Clark was ultimately responsible for the payroll and all taxes, workers'
compensation and benefits, and was billed by the firm[s] for all payroll and other employee expenses.
That is, the employee leasing companies would report all employees as theirs and pay their wages,
thereby achieving an economy of scale and saving money for Clark Printing, which would reimburse
for the wages and pay a fee to the employee leasing company for its services. The economy of scale
resulted in savings in workers compensation and other insurance expense as well as a low
unemployment insurance rate, and the convenience of avoiding paperwork involved in making
withholdings from employees' paychecks.

¶4. During the entire period of time, the employees at Clark Printing worked under the supervision
and control of Mr. and Mrs. Clark.

                                             DISCUSSION

                                      STANDARD OF REVIEW

¶5. This Court's standard of review in MESC administrative decisions is:

     In applying similar provisions, courts of other jurisdictions have placed the burden of proof
     upon the party seeking to show the worker was not an employee. We approve and adopt this
     allocation of the burden of proof.

     Our restricted standard of review for administrative appeals is well known. In the absence of
     fraud, an order from a Board of Review of the Employment Security Commission on the facts is
     conclusive in the lower court, if supported by substantial evidence. This Court and the circuit
     court is limited to the findings of the Board of Review.

     We have articulated the additional principle that employment security contribution assessments
     are an excise tax and, therefore, every doubt as to their application must be resolved in favor of
     the taxpayer and against the taxing power.

Mississippi Employment Sec. Comm'n v. PDN, Inc., 586 So. 2d 838, 840 (Miss. 1991).

¶6. As to questions of law, it is a well-settled principle that this Court is the "ultimate expositor of the
law of this state." UHS-Qualicare, Inc. v. Gulf Coast Community Hospital, Inc., 525 So. 2d 746,
754 (Miss. 1987). Therefore, this Court conducts a de novo review on questions of law. Id.; C.E.
Tucker v. Hinds County, MS, and Mississippi Power & Light Company, 558 So. 2d 869, 872
(Miss. 1990).

     1. Whether Clark Printing Company, Inc., is a "newly subject employer" or an "eligible
     employer" under Miss. Code Ann. § 71-5-353 (1972).

¶7. The MESC most clearly set forth its position (and quandary) in regards to an employer's use of
employee leasing firms during the opening statement before the Administrative Law Judge.
     . . . . Clark Printing entered into such an agreement with a leasing company. Under Section
     3401(d) of the Internal Revenue Code, states, among other things, the definition of an
     employer. It says the term employer means: the person for whom an individual performs or
     performed any service of whatever nature as an employee of such person except that if the
     person for whom the individual performs or performs services does not have control of the
     payment of the wages for such services, the term employer means the person having control of
     the payment of wages. The State of Mississippi has not passed any specific legislation
     defining who the employer is with regards to people leasing relationships. In this case,
     Clark Printing chose to pay someone else and lease their employees. The leasing company paid
     the workers, and I assume paid all applicable state, local and federal taxes. Since the Internal
     Revenue Service considers the leasing company to be the employer, we have also
     considered the leasing company to be the employer. In this case, Clark Printing did not
     become an employer until September 1, 1992, and until they qualify for a modified rate, their
     rates will be 2.7%. The computation of an employer's tax rate is governed by the law. We have
     no authority to change or modify any employer's tax rate for any reason other than for errors
     being made in the computation.

(Emphasis added.)

¶8. In its brief, the MESC argues that the employee leasing concept is new in employer-employee
relations. This unfortunately damages MESC's position because they appear to concede that the
Mississippi Employment Compensation Law does not account for this new concept.

     A number of states have dealt with the problem which this case illustrates by varying degrees of
     statutory regulation of the employee leasing industry, some only in an unemployment insurance
     context, and some in a very comprehensive way. Until there is some such regulation here,
     problems like this will multiply.

Appellee's Brief at 8 (emphasis added).

¶9. In her Order, the Administrative Law Judge stated:

     Clark Printing argues that it has been paying unemployment contributions since the company
     began, and therefore should not be registered as a new employer. However, the record does not
     show this to be the case. Instead what the record shows is that Clark Printing had its employees
     reported to MESC through three companies and paid unemployment contributions based upon
     the rates of the companies. From 1985 until September, 1992, Clark Printing benefited from the
     lower rates which were given to the companies which were reporting its employees to MESC.
     When it changed its method of operation and hired an accounting firm, MESC registered it as a
     new employer. While Clark Printing is not a new employer in the sense of just beginning
     operations, it is a new employer for purposes of the Employment Security Law in that it
     had never before been registered in its own name and given a rate of contribution and
     accumulated experience. Clark Printing employees were reported to MESC by the three
     payroll services companies with the consent of Clark Printing on the accounts of the companies.
     Clark Printing benefited from the lower rate which the services had. When Clark Printing
     stopped using the personnel services firms and hired an accounting firm, it met the statutory
     definition of an employer and an employing unit having the requisite amount of workers and
     wages paid. Even though it was not new in the sense of just beginning business, it was new in
     the sense of not having been registered before by MESC in its own name. Through a totally
     consensual arrangement with the payroll services companies, Clark Printing allowed its
     employees to be reported to MESC and paid contributions to the agency based upon the rates
     assigned to the payroll services companies. This was part of the agreement.

     For seven years Clark Printing enjoyed paying contributions at the lower rates of the payroll
     services firms. When it changed its method of payroll servicing and was registered in its own
     name and assigned a rate of 2.7%, it makes the argument that it was the employer all along and
     should not be subject to the higher rate of a new employer. The company can't have it both
     ways.

(Emphasis added.)

                                                LAW

¶10. Both the Mississippi Employment Security Law and case law hold that the test of employer and
employee is determined by common law master-servant doctrine.

     Services performed by an individual for wages shall be deemed to be employment subject to this
     chapter unless and until it is shown to the satisfaction of the commission that such individual has
     been and will continue to be free from control and direction over the performance of such
     services both under his contract of service and in fact; and the relationship of employer and
     employee shall be determined in accordance with the principles of the common law governing
     the relation of master and servant.

Miss. Code Ann. § 71-5-11(I)(14) (1972).

¶11. Our case law concerning employment compensation states:

     [T]he test as to who is a servant is stated to be whether the service is rendered by one whose
     physical conduct, time and activities in the performance of his duties are controlled, or are
     subject to the right of control, by the alleged master under the contract of employment or hire.

Mississippi Employment Sec. Comm'n v. PDN, Inc., 586 So. 2d 838, 842 (Miss. 1991).

¶12. The action of the MESC and the ruling of the Administrative Law Judge are in direct
contradiction to the statutory law in this State. In this case, the undisputed evidence reveals that
Clark Printing had complete control over its employees. Thus, Clark Printing is the employer under
Section 71-5-11(I)(14). Clark Printing has exercised exclusive control over its employees since 1985.
This fulfills the definition of eligible employer under Section 71-5-353 of the Mississippi Code.

¶13. We note that the MESC is not left out in the cold with a ruling that Clark Printing has been an
eligible employer since 1985. Clark Printing will continue to pay employment compensation taxes at
the rate an employer doing business since 1985 would pay. The MESC is not without recourse.
Under existing statutes, the MESC may challenge the rates that "employee leasing firms" report for
their "employees." If the MESC carries the burden placed on them by the Mississippi Employment
Compensation Law, the MESC might require the "leasing firm" to remit taxes at the rate that the true
employer would be required to pay.

¶14. As to MESC's argument that it is unfair for Clark Printing to benefit from its relationship with
various "employee leasing firms," this Court is an inappropriate forum to seek a remedy. If this
burden imposed by our statutes is too heavy for the MESC to realistically carry, then the MESC
should seek relief by asking the Legislature to address the problem of "leasing firms." This Court will
not, by fiat, carve an exception to the Mississippi Employment Compensation Law because of the
recent evolution of "employee leasing firms." See Kelly v. Mississippi Valley Gas, 397 So. 2d 874,
876-77 (Miss. 1981) (holding that public policy exception to employment-at-will doctrine is a
question for the Legislature).

¶15. Without any burden on them, Clark Printing proved that it has been an employer, as defined by
the Mississippi Employment Compensation Law, since 1985. Thus, it is an eligible employer under
Section 71-5-353 of the Mississippi Code. We reverse and remand the judgment of the Circuit Court
of Hinds County with orders to further remand this case to the MESC to compute the appropriate
contribution rate of Clark Printing and refund any excess taxes paid.

¶16. REVERSED AND REMANDED FOR PROCEEDINGS CONSISTENT WITH THIS
OPINION.

LEE, C.J., PRATHER AND SULLIVAN, P.JJ., PITTMAN, BANKS, McRAE, ROBERTS
AND SMITH, JJ., CONCUR.
