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determining that the first two of three prongs of the statutory test were satisfied by Spar, but ultimately concluding that Spar failed to prove that merchandisers were customarily engaged in an independently established trade, occupation, profession or business, and affirming the agency's determination that merchandisers that worked for Spar were employees
Summary of this case from Spar Mktg. Servs., Inc. v. StateOpinion
DOCKET NO. A-4950-10T2
03-12-2013
SPAR MARKETING SERVICE, INC., Petitioner-Appellant, v. NEW JERSEY DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, Respondent-Respondent.
Gordon & Rees LLP and Thomas Vollbrecht (Hammargren & Meyer, P.A.) of the Minnesota bar, admitted pro hac vice, attorneys for appellant (Michael J. Vollbrecht and Thomas Vollbrecht, on the briefs). Jeffrey S. Chiesa, Attorney General, attorney for respondent (Lewis A. Scheindlin, Assistant Attorney General, of counsel; Donald M. Palombi, Deputy Attorney General, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Alvarez and St. John.
On appeal from the New Jersey Department of Labor and Workforce Development, Docket No. 08-033.
Gordon & Rees LLP and Thomas Vollbrecht (Hammargren & Meyer, P.A.) of the Minnesota bar, admitted pro hac vice, attorneys for appellant (Michael J. Vollbrecht and Thomas Vollbrecht, on the briefs).
Jeffrey S. Chiesa, Attorney General, attorney for respondent (Lewis A. Scheindlin, Assistant Attorney General, of counsel; Donald M. Palombi, Deputy Attorney General, on the brief). PER CURIAM
Petitioner Spar Marketing Services, Inc. appeals from a final administrative action issued on May 6, 2011, by the Commissioner of the Department of Labor and Workforce Development (Department), affirming the initial decision of the administrative law judge (ALJ). Petitioner was required to pay, after reassessment, employer contributions for unemployment and temporary disability insurance benefits for individuals found to be petitioner's employees during one audit period. We affirm.
I.
We briefly summarize the procedural history and facts from the record on appeal.
Department auditor Kishor Shah reported on petitioner's employment of various merchandisers in New Jersey who worked in various Eckert Drug stores from 2000 to 2003. Shah assessed petitioner $52,492.94 in unpaid contributions for unemployment and disability insurance payments to the State, as he concluded the merchandisers did not have independent contractor status under N.J.S.A. 43:21-19(i)(6)(A), (B), and (C) (The ABC test), and thus were covered employees. As a result of the audit, Chief Auditor John J. Maroney notified petitioner that contributions were due. Petitioner requested a hearing and the Department transferred the matter to the Office of Administrative Law pursuant to N.J.S.A. 52:14B-1 to -15 and N.J.S.A. 52:14F-1 to -13 where it was filed for determination as a contested case.
At the hearing on September 22, 2010, Shah was the Department's sole witness. Shah testified that he sent James H. Ross, vice president of Spar, a copy of the ABC test to serve as a guide for the company. In addition, he sent a letter with an attached list of documents he wanted petitioner to make available for his review. Ross did not provide Shah with federal form 1099s for the years 2000 to 2003, but instead provided a summary of the forms explaining that the books and records of petitioner were located in Michigan. Shah noted in his field investigation that he was unable to contact the merchandisers as petitioner did not provide actual federal form 1099s. Neither did Ross provide business invoices or business cards for the merchandisers, their business locations, business telephone numbers; nor other records.
Shah did receive a letter dated April 13, 2004 from Ross setting forth Ross' contention that merchandiser Stephanie Kollock was retained by petitioner as an independent contractor, pursuant to a signed contract, a copy of which was not provided. Shah could not contact individual merchandisers in order to interview them as petitioner did not provide him with contact information.
Shah concluded that even though Ross believed that the merchandisers were independently established in business, Ross failed to provide any actual evidence to support that belief. Shah also stated that he interviewed petitioner's accountant, Spencer Barack, CPA, but that no further information was forthcoming.
Petitioner's president, Robert Brown, testified that petitioner subcontracted work from different companies. This entailed petitioner performing a variety of tasks involving merchandise in retail stores, such as introducing or stocking a manufacturer's product on store shelves. Brown stated that all the merchandisers sign a written contract with petitioner and that Kollock's contract is representative of those contracts.
Brown explained that petitioner posts jobs and the merchandisers are free to select them, but there is no obligation for a merchandiser to take a particular job offer. The merchandiser is also free to subcontract out the job. When the job is completed, the merchandiser submits an invoice for payment which will be at a flat or hourly rate. The merchandiser is paid by petitioner even if for some reason petitioner did not receive payment from its customer.
Brown further stated that petitioner has no employees and has always treated the merchandisers as independent contractors. He noted that in 1986, petitioner obtained a ruling from the Internal Revenue Service (IRS) that the merchandisers were independent contractors and that a subsequent IRS audit reached the same conclusion. Brown also stated that certain other states had determined that the merchandisers were independent contractors. Petitioner provides the merchandisers with 1099 forms. Brown believes that approximately sixty percent of merchandising companies treat their merchandisers as independent contractors and forty percent as employees.
With regard to Part C of the ABC test, Brown stated that petitioner places no restrictions on the merchandisers' ability to perform similar work for other merchandising companies and in fact there are many such companies in operation. In response to the question whether he has a feel for how many of the merchandisers that work with petitioner also work with other companies, Brown responded that he could not give an exact percentage but that it is fairly high. Brown stated that the merchandisers cannot make a living just working for petitioner in most cases. This is due to the fact that the amount of work is not consistent month to month. Brown stated that the merchandisers would need the ability to work for a number of companies "so when one company doesn't have a lot of work, they can try to get work from another company."
Lynn Neal, a merchandiser, also testified for petitioner. In terms of compliance with Part C of the test, Neal testified that she "occasionally" worked for merchandising companies other than petitioner. In response to a question about naming other merchandisers for whom she had done work, Neal responded Cross Mark and Huffy Service First. She estimated that she worked for Huffy in 2005. However, Neal stated she was an employee and not an independent contractor of those entities. Neal also testified that she worked for Force One, another merchandiser, for about a year in approximately 2009, a year not included in the audit period.
Petitioner also called Heidi Savage, Director of Human Resources and Administration, for Spar Marketing Force, a company related to petitioner. Savage explained how Spar Marketing Force and petitioner use the National Association of Retail Merchandising Services (NARMS), a website, to post job opportunities for the merchandisers. She also stated that the merchandisers can advertise their services on the website. Further, Savage described Volition, a public chat room, which has forums that can be used to look for merchandising information. She stated that Spar Marketing Force does not do recruit for the merchandisers, a separate team does that work. Finally, Savage testified that Spar Marketing Force has full-time employees and part-time employees.
In his March 25, 2011 initial decision, the ALJ examined the statutory definition of "employment," governed by N.J.S.A. 43:21-19(i)(1)(A). That statute defines employment as: "[a]ny service performed . . . for remuneration or under any contract of hire, written or oral, express or implied." Ibid. Finding that the merchandisers performed a service for remuneration, the ALJ noted the burden of persuasion shifted to petitioner to show that the services fell outside those of "employment," by satisfying each of the three-prongs of the ABC test. Carpet Remnant Warehouse, Inc. v. N.J. Dep't. of Labor, 125 N.J. 567, 581 (1991). The statutory ABC test provides, in pertinent part:
(6) Services performed by an individual for remuneration shall be deemed to be employment . . . unless and until it is shown to the satisfaction of the division that:
(A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
(B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.
[N.J.S.A. 43:21-19(i)(6).]
The ALJ determined that petitioner satisfied the first two prongs of the statutory test. However, he found that petitioner failed to provide, by a preponderance of credible evidence, proofs sufficient to satisfy subsection (C). In this regard, the ALJ determined:
Although merchandisers working for Spar Services are free to provide their services for other merchandisers while working for Spar Services in New Jersey, there was no evidence that such other relationships actually existed during the audit period.
. . . .
Neither merchandiser Neal's nor Brown's testimony demonstrated that the merchandisers for Spar Services actually had relationships with a sufficient number of other merchandising companies or that such relationships generated a sufficient supplemental volume of business. There was no evidence of the amount of remuneration that the merchandisers received from Spar Services compared to that received from other merchandising companies.
. . . .
Although Spar Services argues that its merchandisers could decide tomorrow to work for other merchandising companies, there is no demonstration that the merchandisers—who were the subjects of the audit—actually had such established relationships with other merchandising companies. Simply put, the evidence does not establish that the merchandisers would still have a business as opposed to merely the opportunity to seek out other business if
their relationship with Spar Services terminated.
Consequently, the ALJ recommended that all merchandisers utilized by petitioner, from 2000 through 2003, be deemed petitioner's employees, subject to the imposition and payment of unemployment and temporary disability assessments.
The Commissioner, in his decision and order dated May 6, 2011, considered the initial decision, made an independent evaluation of the record, and accepted and adopted the findings of fact, conclusion and recommendation contained in the ALJ's initial decision.
On appeal, petitioner seeks a de novo review of the Commissioner's determination, only challenging compliance with subsection (C) of N.J.S.A. 43:21-19(i)(6). Petitioner maintains it has sufficiently shown that the merchandisers were engaged in an independently established business and, therefore, the Commissioner's action must be reversed.
II.
Appellate review of an administrative agency decision is limited. See In re Herrmann, 192 N.J. 19, 27 (2007). A strong presumption of reasonableness attaches to the Commissioner's decision. In re Carroll, 339 N.J. Super. 429, 437 (App. Div.), certif. denied, 170 N.J. 85 (2001). The burden is on petitioner in its appeal to demonstrate grounds for reversal. McGowan v. N.J. State Parole Bd., 347 N.J. Super. 544, 563 (App. Div. 2002); see also Bowden v. Bayside State Prison, 268 N.J. Super. 301, 304 (App. Div. 1993) (holding that "[t]he burden of showing the agency's action was arbitrary, unreasonable, or capricious rests upon the appellant"), certif. denied, 135 N.J. 469 (1994).
"Appellate courts ordinarily accord deference to final agency actions, reversing those actions if they are 'arbitrary, capricious or unreasonable or [if the action] is not supported by substantial credible evidence in the record as a whole.'" N.J. Soc'y for the Prev. of Cruelty to Animals v. N.J. Dep't of Agric., 196 N.J. 366, 384-85 (2008) (quoting Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980)) (alteration in original). Under the arbitrary, capricious, and unreasonable standard, our scope of review is guided by three major inquiries: (l) whether the agency's decision conforms with relevant law; (2) whether the decision is supported by substantial credible evidence in the record; and (3) whether in applying the law to the facts, the administrative agency clearly erred in reaching its conclusion. In re Stallworth, 208 N.J. 182, 194 (2011).
When an agency decision satisfies such criteria, we accord substantial deference to the agency's fact-finding and legal conclusions, while acknowledging the agency's "'expertise and superior knowledge of a particular field.'" Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 10 (2009) (quoting Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992)). We will not substitute our own judgment for the agency's even though we might have reached a different conclusion. Stallworth, supra, 208 N.J. at 194; see also In re Taylor, 158 N.J. 644, 656 (1999) (discussing the narrow appellate standard of review for administrative matters).
In this case, because the Commissioner accepted the ALJ's fact-findings and determinations of credibility, we need only determine whether the Commissioner properly applied the third prong of the ABC test to the facts presented.
It is well settled that,
the primary objective of [N.J.S.A. 43:21-19] is to provide a cushion for the workers of New Jersey "against the shocks and rigors of unemployment." Because the statute is remedial, its provisions have been construed liberally, permitting a statutory employer-employee relationship to be found even though that relationship may not satisfy common-law principles.The double requirement of the statute, that an individual must be "customarily engaged" and "independently established," calls for a business that "exists and can continue to exist independently of and apart from the particular service relationship" with the putative employer. Gilchrist v. Div. of Employment Sec., 48 N.J. Super. 147, 158 (App. Div. 1957). The determination is fact-sensitive and requires an evaluation of the substance, not the form, of the relationship. See Provident, supra, 32 N.J. at 591; see also Trauma Nurses, Inc. v. Bd. of Review, 242 N.J. Super. 135, 142 (App. Div. 1990).
[Carpet Remnant, supra, 125 N.J. at 581 (quoting Provident Inst。 for Sav. in Jersey City v. Div. of Employment Sec, 32 N.J. 585, 590 (1960)).]
While petitioner demonstrated that it regarded and treated the merchandisers as independent contractors, it did not convincingly establish particular facts demonstrating that the merchandisers were conducting independent business operations, including business relationships with other entities. The testimony submitted at the hearing was from one merchandiser, who offered no proof that her livelihood did not depend upon the continued connection with petitioner, and no proof that her relationship with petitioner did not provide her sole source of income during the audit period. The federal form 1099s introduced for the other merchandisers leads to no different conclusion. No proof that the merchandisers worked simultaneously for other merchandising companies was provided; Brown's general claims to the contrary, without documentary support, are not persuasive. As a result, petitioner failed to provide, by a preponderance of credible evidence, proofs sufficient to satisfy subsection (C) of the ABC test.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION