In a recently reported court decision issued by New York State’s Appellate Division (the state’s second highest court), the appellate court agreed with the business owner’s argument that certain persons working as pyrotechnicians are independent contractors under the state’s unemployment insurance laws. The author of this article represented the business owner at the hearing and also upon appeal. It was, notably, the second time that the author had appeared to defend this type of claim against the same business owner; the first such occasion was over one decade ago, when the same state agency also sought, again unsuccessfully, to re-classify certain pyrotechnicians as employees. Lighting does strike twice.
The procedural background is worth describing, if only to highlight the seeming inherent unfairness commonly associated with administrative proceedings. Here, the administrative law judge (ALJ) that was assigned to the matter found in favor of the business owner after conducting a full hearing that, incidentally, the claimant-worker never bothered to attend. Evidentially dissatisfied with the outcome at trial, the Commissioner of Labor (the “Agency”) sought to appeal the ALJ’s decision to its own appeals board, whereupon the Unemployment Insurance Appeal Board (the “Appeal Board”) essentially re-interpreted the facts to find in favor of the worker-claimant in the course of reversing the ALJ’s decision in its entirety. The setback left the business owner with two choices: either pay the amounts demanded together with accrued penalties and interest or, alternatively, file an appeal with the courts where administrative matters are subject to review, albeit limited. The business owner pursued the latter option and, to its credit, the appellate division reversed the determinations of the Appeal Board.
The Appellate Division was critical of the Appeal Board for interpreting incidental acts of control as actual acts of control. By doing so, the Appeal Board distorted certain facts to favor the worker that, in turn, would lead the Appeal Board to issue an outcome favorable to the worker. On such example cited by the court involves t-shirts. The testimony before the ALJ was that pyrotechnicians were required to wear t-shirts with the word ‘staff’ on it in order to comply with safety regulations. The testimony established that such outerwear permits law enforcement and emergency personnel to identify persons with authority to be on the display site as distinguished from those individuals that are not prohibited from the display site. While the ALJ determined that the facts and testimony were insufficient to establish that the business owner had control over what the workers wore the Appeal Board found otherwise, declaring the t-shirt as constituting a business uniform. Fortunately, the appellate division interpreted this fact in the same manner that the ALJ did. This determination likely has wide-ranging impact outside the pyrotechnics industry, since many events rely upon workers wearing t-shirts with the words ‘staff’ emblazoned.
The issue of worker classification has been a vexing issue for all business owners. When a business owner factors in direct wage and benefits with the costs associated with back-end administrative functions, such as human resources and bookkeeping, it is obvious that employees are expensive. For this reason, business owners oftentimes have a legitimate business and economic incentive to classify workers as independent contractors rather than employees. There are numerous ways to employ a worker and prudent business-owners should periodically re-examine their workforce to determine whether or not workers are being properly classified so as to maximize revenues while, at the same time, minimizing exposure to employee claims.
In conclusion, the effort expended by state and federal labor agencies seemingly rises in tandem with each fiscal crisis and, for that reason, the past ten years has seen increasing pressure by government, and now lawyers, to seek to classify more workers as employees rather than independent contractors. Now would be an opportune time for business owners to formally and thoroughly review their worker classification policies.