Distinguishing between employees and independent contractors

Distinguishing between employees and independent contractors

Yoga Vida NYC (Commissioner of Labor), 2016 NY Slip Op 06940, Court of Appeals

On October 25, 2016 this LawBlog posted summaries of two decisions by the Appellate Division, Third Department: Cole (Niagara Falls Housing Authority--Commissioner of Labor), 2016 NY Slip Op 06281 and Devore v DiNapoli, 2016 NY Slip Op 06934, both addressing whether an individual was an employee or an independent contractor of the entity for which services were provided [see http://publicpersonnellaw.blogspot.com/2016/10/determining-existence-of-employer.html].

Coincidentally, on October 25, 2016 the Court of Appeals handed down its decision in Yoga Vida NYC (Commissioner of Labor), another case involving a contest between an employer, Yoga Vida, contending certain individuals providing instruction in yoga were independent contractors while the Unemployment Insurance Appeal Board determined that those individuals were employees of Yoga Vida.

Yoga Vida operated a yoga studio offering classes taught by both staff instructors and non-staff instructors. It classified its non-staff instructors as independent contractors. The Commissioner of Labor issued a determination that Yoga Vida was liable for additional unemployment insurance contributions based on its finding that the non-staff instructors were employees and not independent contractors. Yoga Vida challenged the ruling and an Administrative Law Judge [ALJ] sustained Yoga Vida's objection, concluding that the non-staff instructors were independent contractors.

The Commissioner of Labor appealed the ALJ's decision to the Unemployment Insurance Appeal Board and the Board reversed the ALJ’s decision, sustaining the Department’s initial determination that Yoga Vida was liable for additional unemployment insurance contributions at issue.

Yoga Vida's appeal to the Appellate Division was unsuccessful as the panel, in affirming the determination of the Appeal Board, holded that "[o]verall, despite the existence of evidence that could result in a contrary result, the record contains substantial evidence to support the Board's decision that Yoga Vida had sufficient control over the instructors' work, thereby allowing for a finding of an employer-employee relationship." Yoga Vida next appealed the Appellate Division’s decision to the Court of Appeals.

A majority of the Court of Appeals* overturned the Appellate Division’s ruling, explaining that in this instance the record as a whole did not demonstrate “that the employer exercises control over the results produced and the means used to achieve the result.” In the words of the court, “… the Board's determination that the company exercised sufficient direction, supervision and control over the instructors to demonstrate an employment relationship is unsupported by substantial evidence.”

The Court of Appeals indicated that the record before it showed that:

a. The non-staff instructors make their own schedules and choose how they were paid -- either hourly or on a percentage basis;

b. Non-staff instructors were paid only if a certain number of students attend their classes. In contrast, staff instructors were paid regardless of whether anyone attended a class;

c. Staff instructors could not work for competitor studios within certain geographical areas while the non-staff instructors could teach at other locations and were free to tell Yoga Vida students of classes they would teach at other locations so the students could  follow them to another studio if they wish; and

d. Only staff instructors, as distinct from non-staff instructors, were required to attend meetings or receive training.

The court noted that the “incidental controls” relied upon by the Board in reaching its determination, included:

a.  Yoga Vida satisfying itself that the independent instructors possessed the proper licenses;

b. Published a master schedule on its web site; and

c. Provided the space for the classes conducted by the independent instructors.

These "incidental controls," said the court, do not support the conclusion that the instructors are employees nor does the fact that Yoga Vida generally determined what fee was charged, collected the fee directly from the students, and provided a substitute instructor if the non-staff instructor was unable to teach a class and could not find a substitute, “does not supply sufficient indicia of [Yoga Vida’s] control over the [independent] instructors.”

The Court of Appeals, noting that Yoga Vida received feedback about the instructors from the students, said that this did not support the Board's conclusion that the non-staff personnel were employees. Significantly, the court observed that "[t]he requirement that the work be done properly is a condition just as readily required of an independent contractor as of an employee and not conclusive as to either."

The matter was remitted to the Appellate Division with directions to remand to the matter Commissioner of Labor “for further proceedings in accordance with the memorandum herein.”

* Chief Judge DiFiore and Judges Pigott, Abdus-Salaam and Garcia concur in reversing the Appellate Division’s decision. Judge Fahey dissented and voted to affirm in an opinion in which Judge Rivera concurred. Judge Stein took no part.

The decision is posted on the Internet at:

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http://www.nycourts.gov/reporter/3dseries/2016/2016_06940.htm

Determining the existence of an employer-employee relationship

Determining the existence of an employer-employee relationship 
Cole (Niagara Falls Hous. Auth.--Commissioner of Labor), 2016 NY Slip Op 06281, Appellate Division, Third Department 

Devore v DiNapoli, 2016 NY Slip Op 06934, Appellate Division, Third Department

The Cole Decision

The Unemployment Insurance Appeal Board [Board] ruled, among other things, that the Niagara Falls Housing Authority [Authority], a nonprofit governmental agency that provides affordable housing for senior citizens and low-income families, was liable for unemployment insurance contributions on remuneration paid to a certain employee [Claimant] and others similarly situated.

According to the decision, People and Possibilities, a nonprofit organization, was created to receive grants and to provide services to the community and acted as a subsidiary and agent of the Housing Authority. Further, the Housing Authority remained the fiscal and administrative agent for People and Possibilities' SNUG program.*

Claimant was retained by the Authority as an outreach worker — and, later, as a field supervisor — for the Authority's SNUG program. After the grant money had been depleted and Claimant’s work with the Housing Authority concluded, Claimant applied for unemployment insurance benefits.

The Department of Labor issued an initial determination finding that Claimant was an employee of the Authority and that the Authority was liable for unemployment insurance contributions based on remuneration paid to Claimant and others similarly situated.  Following a hearing, an Administrative Law Judge sustained the Department's determination and the Authority filed an administrative appeal.

The Unemployment Insurance Appeal Board [Board] agreed with the Administrative Law Judge’s determination that an employer-employee relationship existed between the Housing Authority and Claimant and that the Housing Authority was liable for contributions based on remuneration paid to Claimant and others similarly situated. The Housing Authority then appealed the Board’s ruling.

The Appellate Division sustained the Board’s determination, explaining that “It is well settled that the existence of an employment relationship is a factual issue for the Board to resolve and its decision will be upheld if supported by substantial evidence.” Noting that no single factor is determinative, the court said that "[t]he relevant inquiry is whether the purported employer exercised control over the results produced or the means used to achieve those results, with control over the latter being the more important factor."

Although the Authority contended that it only exercised incidental control over Claimant, the court said that the record demonstrates that prior to being hired, Claimant filled out an application form and was required to submit a résumé, after which he was interviewed by a panel, which included two officials from the Authority, which determined to employ him.

Further, said the Appellate Division, once hired, Claimant was required to attend training, was required to work 35 hours per week, and was required to fill out and submit weekly time sheets that would have to be approved and signed by his supervisor before receiving remuneration from the Authority.

Other factors considered relevant by the Board in determining the existence of an employer-employee relationship included:

1. Did the claimant did receive fringe benefits?

2. Was the claimant reimbursed for his or her expenses related to the costs of a cell phone, gas, tolls, food and office supplies?

3. Was the claimant provided with office space to use in one of its buildings?

4. Was the claimant required to wear clothing to identify him or her as part of the entity?

5. Was the claimant required to maintain a certain number of clients and to meet with those clients?

6. Was the claimant permitted to subcontract his or her work or employ a substitute to perform his or her work?

7. Was the claimant’s work subject to periodic review and oversight by an entity supervisor?

Considering such factors with respect to the Claimant’s relationship with the Authority, the Appellate Division held that the Board's finding that an employer-employee relationship existed between Claimant and the Housing Authority was supported by substantial evidence and declined to disturbed it.

The Devore v DiNapoli Decision

In Devore v DiNapoli the issue concerned the mirror image of an employer-employee relationship: service provided as an independent contractor.

Cynthia Devore, a medical doctor, provided services as a school physician and medical director for numerous entities since the 1980s. She is also a member of the New York Stateand Local Retirement System. A dispute arose as to whether she was entitled to service credit for certain periods in which she was reported as a part-time employee by Monroe Number 1 BOCES and the Brighton, Greece, Rush-Henrietta, Spencerport and Williamsville Central School Districts [School Districts].

Ultimately the State Comptroller found that Dr. Devore served as an independent contractor for the School Districts for the relevant periods and she appealed.

The Appellate Division said that in "calculating retirement benefits, service credit is available only to employees, not independent contractors”, and “[a]n employer-employee relationship exists when the evidence shows that the employer exercises control over the results produced or the means used to achieve the results.” However, said the court, an employer-employee relationship may also exist under if the putative employer exercised overall “control over important aspects of the services performed other than results or means.” 

Whether sufficient overall control existed is a factual issue for the Comptroller, and his resolution of it will be upheld if supported by substantial evidence in the record. 

The record before the court included Dr. Devore’s testimony, as well as testimony of officials from most of the school districts, all of which specified how the school districts exercised significant control over aspects of Dr. Devore’s work. The only potential inconsistency was while the school districts had all categorized Dr. Devore as an employee by 2006, Dr. Devore had previously executed agreements with the school districts that categorized her as an independent contractor.

However, it is the actual relationships between the parties rather than the labels assigned to their relationships pursuant to a contract or otherwise that determine whether an employer-employee relationship exists.**

As the evidence documenting the significant overall control exercised by the school districts over aspects of Dr. Devore's work faced little challenge from the Retirement System and the System rested at the administrative hearing without presenting any witnesses, the Appellate Division held there was a lack of substantial evidence to support the Comptroller's determination that Dr. Devore worked as an independent contractor for the school districts during the periods that she was classified by them as an employee.

The court then annulled so much of the Comptroller's decision as determined that Dr. Devore was not an employee of Williamsville Central School District from July 1, 2002 to November 2008, Greece Central School District from July 1, 2003 to the present, Rush-Henrietta Central School District from February 1, 2006 to the present, Spencerport Central School District from July 1, 2005 to June 30, 2008, and Brighton Central School District from July 2005 to the present. It then remitted the matter to the Comptroller for further proceedings “not inconsistent with this Court's decision; and, as so modified, confirmed” the Comptroller decision.

* See, also, the decision in Davis (Niagara Falls Hous. Auth.--Commissioner of Labor), 2016 NY Slip Op 06283, Appellate Division, Third Department, in which similar factors were considered in relation to claims for unemployment insurance benefits filed by other employees engaged in the Housing Authority's SNUG program, posted on the Internet at http://www.nycourts.gov/reporter/3dseries/2016/2016_06283.htm

** See NYPPL’s posting captioned “Designating an individual an ‘independent contractor’ rather than an ‘employee’ does not control the relationship of that individual to the employing entity” at http://publicpersonnellaw.blogspot.com/2015/05/designating-individual-independent.html. 

The Cole decision is posted on the Internet at:

http://www.nycourts.gov/reporter/3dseries/2016/2016_06281.htm 

The Devore decision is posted on the Internet at: http://www.nycourts.gov/reporter/3dseries/2016/2016_06934.htm

Audits issued by the New York State Comptroller

Audits issued by the New York State Comptroller

Source: Office of the State Comptroller

[Internet links highlighted in color]

On October 24, 2016, New York State Comptroller Thomas P. DiNapoli announced the following audits were issued:

State Education Department: Easter Seals New York, Compliance with the Reimbursable Cost Manual (2015-S-27)

For the three calendar years ended Dec. 31, 2013, Easter Seals NY claimed $688,543 in ineligible costs for its rate-based preschool special education programs. The ineligible costs included: $546,263 in personal service costs for personnel that exceeded SED-approved staffing ratios for the programs;  $110,206 in parent agency administration services provided by Easter Seals NY that included executive compensation above the allowed regional median salary; and $32,074 in other than personal service costs that were either not allowable or unsupported by proper documentation.

State Education Department: Jawonio Inc., Compliance with the Reimbursable Cost Manual (2015-S-49)

For the calendar year ended Dec. 31, 2014, Jawonio claimed $26,975 in ineligible costs for its four rate-based preschool special education programs. The ineligible costs included: $24,611 in personal service costs that consisted of excess severance pay, compensation for work that was not related to the special education programs, excess compensation and fringe benefits, and a non-reimbursable bonus; and $2,364 in other than personal service costs.

State Education Department: Baker Victory Services, Compliance with the Reimbursable Cost Manual (2015-S-57)

Baker Victory, a not-for-profit organization located in Lackawanna, provides a variety of services to the Erie County community, including preschool special education services to children with disabilities. Auditors identified $155,303 in costs the agency claimed that were not in compliance with state rules, including: $85,736 in personal service costs, which consisted of $46,526 in inappropriate bonuses; and $69,567 in other than personal service costs, which included of $53,053 in non-allowable public relations and advertising costs.

Department of Health: COLA – Child Center of New York (2016-BSE4-01)

Each fiscal year, DOH makes COLA payments to not-for-profit contractors with an eligible contract. Of the $15,538 examined for the Child Center, auditors found $5,756 in overpayments for unallowable and unsupported expenses and $1,970 in noncompliant expenses paid outside the applicable budget year. The remaining $7,812 was appropriate and properly supported.

Roswell Park Cancer Institute: Security Over Electronic Protected Health Information (Follow Up) (2016-F-19)

An initial audit report issued in July 2015, concluded that the Roswell Park Cancer Institute had established a highly developed information security program to protect the electronic protected health information (ePHI) it creates, receives, maintains, or transmits. However, auditors identified some improvement opportunities involving certain administrative, physical, and technical safeguards over the Institute’s ePHI. In a follow-up, auditors found the institute has made good progress addressing the issues identified in the initial audit. Of the four recommendations contained in the audit, two have been implemented and two have been partially implemented.

Department of Transportation (DOT): Railroad Bridge Inspection Program (Follow Up) (2016-F-13)

An initial audit report issued in December 2013 determined that DOT was not sufficiently monitoring whether the railroads complied with its bridge and inspection reporting requirements and made recommendations to improve oversight. In a follow-up report, auditors found DOT has made progress in implementing the recommendations identified in the prior audit report.  Of the six prior audit recommendations, one has been implemented, four have been partially implemented and one is no longer applicable.

Vacating an arbitration award based on allegations the award violated public policy

Vacating an arbitration award based on allegations the award violated public policy

Civil Serv. Empls. Assn., A.F.S.C.M.E. Local 1000, A.F.L.-C.I.O. v County of Nassau, 2016 NY Slip Op 06211, Appellate Division, Second Department

In New York City Tr. Auth. v Transport Workers Union of Am., Local 100, AFL-CIO, 99 NY2d 1, the Court of Appeals ruled that "judicial intervention [in a challenge to an arbitration award] on public policy grounds constitutes a narrow exception to the otherwise broad power of parties to agree to arbitrate all of the disputes arising out of their juridical relationships, and the correlative, expansive power of arbitrators to fashion fair determinations of the parties' rights and remedies." The court further explained that the pubic policy exception applies only in "cases in which public policy considerations, embodied in statute or decisional law, prohibit, in an absolute sense, particular matters being decided or certain relief being granted by an arbitrator.”

When an individual’s employment with the Nassau County Sheriff's Department was terminated he filed a grievance pursuant to the disciplinary procedures of the relevant collective bargaining agreement. The arbitrator designated to hear and determine the matter sustained the grievance and reinstated the individual to his former position with back pay.

The Civil Service Employees Association filed a petition pursuant to CPLR Article 75 on behalf of the individual seeking a court order confirming the arbitration award. Supreme Court granted the petition and Nassau Countyappealed the ruling in an effort to have the award judicially vacated.

The Appellate Division affirmed the lower court’s decision, explaining that upon timely application, an arbitration award should be confirmed unless the award is vacated or modified upon a ground specified in CPLR 7511, i.e.,

“(i) corruption, fraud or misconduct in procuring the award; or

“(ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or

“(iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or

“(iv) failure to follow the procedure of this article [75], unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.”

The court then noted the two “judicially determined” exceptions set out in Board of Educ. of Arlington Cent. School Dist. v Arlington Teachers Assn., 78 NY2d 33, whereby an arbitration award may not be vacated “unless it violates a strong public policy” or it “is irrational.”

In this instance, said the Appellate Division, the public policy considerations invoked by the Nassau Countyfail to meet the strict standards for overturning arbitration awards on public policy grounds.

Addressing Nassau County’s argument that the arbitrator’s award should be vacated on the ground of fraud or other misconduct, the court said the contention was “without merit.”

The decision is posted on the Internet at:

http://www.nycourts.gov/reporter/3dseries/2016/2016_06211.htm