Thursday, February 10, 2011

Lawyer/Lobbyist Who Served As Part-Time Executive Director of Trade Association Was Not Employee Within Meaning of N.Y. Unemployment Insurance Law.

The New York Court of Appeals (the state's highest court) recently decided an unusual employment law case in which it addressed the distinction between an "independent contractor" and an "employee" under the state's unemployment insurance law.  Matter of Empire State Towing & Recovery Ass'n, 15 N.Y.3d 433, 938 N.E.2d 984 (Oct. 26, 2010).

The person in question in the case worked as a lawyer/lobbyist in Albany, New York.  He was hired by Empire State Towing and Recovery Association to provide them with legal and lobbying services.  He later was hired by Empire State to serve as their Executive Director, performing certain "administrative services."  He served in this capacity from 1997 to 2006.  The Department of Labor ruled that he was an employee and ordered the association to pay state unemployment insurance premiums for him.  This decision was affirmed on appeal by the Unemployment Insurance Appeal Board and then by the Appellate Division, Third Department (under a "substantial evidence" standard of review).  The Court of Appeals reversed.

In its decision, the Court of Appeals recited the applicable legal test (citations omitted below):

It is well-settled that

“[w]hether an employment relationship exists within the meaning of the unemployment insurance law is a question of fact, no one factor is determinative and the determination of the appeal board, if supported by substantial evidence on the record as a whole, is beyond further judicial review even though there is evidence in the record that would have supported a contrary decision."

An 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, “control over the means is the more important factor to be considered."  “Incidental control over the results produced -- without further evidence of control over the means employed to achieve the results -- will not constitute substantial evidence of an employer-employee relationship."

So what were the operative facts in this case?  As summarized by the Court of Appeals:

Pursuant to the written agreement, O'Connell maintained a telephone and computer database in the name of the association, mailed dues and membership materials, mailed periodic financial statements to board members, and coordinated publication of a journal. He also attended board meetings, maintained a bank account, and had check writing authority up to $500. For greater monetary amounts, O'Connell had to submit documentation accounting for the required amount and obtain the signature of Empire State Towing's treasurer. O'Connell performed all these services from his own law office, was free to set his own schedule, and was not working exclusively for the association.

In 2004, a part-time assistant was hired to help O'Connell in his duties as executive director. It is conceded that the part-time assistant was an employee of the association.

On this record, the Court of Appeals concluded that there was not substantial evidence that the Executive Director was the association's employee; therefore, he was an independent contractor and the association was not required to pay unemployment insurance premiums for him.

This decision is hard to explain.  The person in question served as an administrative officer of Empire State and performed specific organizational functions for the association; he was not providing independent professional services (as when he provided legal and lobbying services).  Moreover, the person who assisted him in his duties was considered an employee of Empire State, yet the Executive Director was not.  This makes no sense.  The Executive Director was not a provider of third-party membership services; he worked directly for Empire State.  The fact that he only worked part-time and from his own law office didn't change the nature of the employment relationship with Empire State, which clearly exercised control over both the means and the results of the job.

In my opinion, the key fact of this case was that the person in question was a lawyer.  I think the Court of Appeals reached its decision because it wanted to protect the professional independence of lawyers.  I would be surprised if the Court reached the same decision in an otherwise identical case that did not involve a lawyer.  My advice to employers is not to read too much into this decision, which appears to fall outside the main trend of defining most workers (including part-time and at-home workers) as "employees" for purposes of labor and employment law coverage.

For useful commentary on the Empire State case, see here and here.