On appeal from a Final Decision of the New Jersey Department of Labor.
Approved for Publication July 10, 1995.
Before Judges Dreier and Villanueva. The opinion of the court was delivered by VILLANUEVA, J.A.D.
The opinion of the court was delivered by: VILLANUEVA
Petitioner, Jack Koza, appeals from the Final Decision of respondent, the Department of Labor (the Department), assessing him over $32,000 in unpaid unemployment and disability contributions, including interest and penalties. Petitioner, a musician who performed solo and with various other musicians under the trade name Trieste, did not pay unemployment and disability taxes for the other musicians with whom he performed because he considered them independent contractors rather than employees. One member of the group, Kenneth Schulte, filed a disability claim which he later withdrew, but the Department investigated the matter and determined that petitioner failed to deduct unemployment and disability taxes from the payments made to members of the group. We reverse and remand for further proceedings.
The central issue on appeal is whether the musicians with whom petitioner performed were employees or independent contractors as defined by N.J.S.A. 43:21-19(i)(6)(A)(B)(C) (the ABC test). Petitioner argues that: (1) the Department's actions constituted a new rule which is invalid because the agency failed to comply with the procedures for promulgating new rules under the Administrative Procedure Act; (2) the ABC test and the Department's appeal procedure violates constitutional due process guarantees; and (3) the fact-findings and credibility determinations of the administrative law Judge (ALJ) were unsupported by sufficient credible evidence in the record.
On December 26, 1989, the Department determined through a field audit that petitioner was liable for $11,558.13 in unpaid unemployment and disability taxes for the years 1985-89 based on payments made by petitioner to musicians who performed in the group known as Trieste. The Department informed petitioner of the assessment in a letter dated January 30, 1990. After a meeting with petitioner, one of the auditors determined that, under the ABC test, the musicians were employees of petitioner and thus petitioner was liable for unemployment and disability contributions on their behalf. In letters dated September 11 and September 18, 1990, John Maroney, the Department's chief auditor, affirmed petitioner's liability and increased his assessment by $4,345.74. The sum now demanded exceeds $32,000, with more than half of that representing interest and penalties.
The matter was transferred as a contested case to the Office of Administrative Law (OAL). At the OAL hearing, petitioner testified as to how his business operated. He estimated that about twenty to twenty-five percent of his time was spent performing as a guitarist, with the rest of his time spent studying, writing, and teaching music, as well as recording and rehearsing. He also telephoned club owners and promoters to procure employment, and he advertised his services.
Petitioner had an exclusive agreement with an agent who would book engagements for Trieste. When the agent obtained a job, he would tell petitioner how many musicians the customer, or end purchaser," wanted, and petitioner would then call various musicians and ask them if they were available to play with Trieste on the job. Sometimes petitioner was the sole performer, and other times the group included between two and ten musicians.
After petitioner received payment for a performance, he would deduct expenses and a 15% commission for the booking agent, and then would divide the balance of the money equally between himself and the other musicians. Musicians were always paid by the job, not on an hourly basis. Some customers had a rulebook that each of the musicians was required to sign, and petitioner was generally designated the "leader" when he signed the rulebook. Petitioner testified, however, that, musically, he did not function as a leader of the group. Petitioner explained that if there was music which required a lead guitar, he would be the lead guitar, but if in another piece there was a lead keyboard, the keyboard player would serve that function. He did not play "out front," and he provided no music, bandstands, or individual publicity.
Although petitioner testified that all of the musicians worked in other groups in addition to Trieste, and that Kenneth Schulte in particular was playing piano in a bar and doing studio recording work during 1988, under cross-examination it emerged that Schulte's gross income on his 1988 tax returns was earned entirely from his work with Trieste. However, at the informal hearing with redetermination auditor George Ohland, petitioner submitted resumes of two performers and a newspaper which contained musicians' advertisements. According to petitioner, all the musicians filled out their own Schedule C forms with their federal income tax returns, he did not provide them with any medical benefits or liability insurance and he issued Federal 1099 forms rather than W-2 forms.
Although petitioner stated that he required the musicians whom he hired to sign an agreement specifying that they were independent contractors rather than employees, petitioner apparently did not start using the written agreements until after he was audited.
The ALJ found that petitioner testified "incredibly" when he denied leading the group or telling the other musicians how to play, and when he asserted that the group in fact had no leader. He found that petitioner was the leader of the 24 musicians identified as employees of Trieste, they were subject to his control and direction and he failed to satisfy all three prongs of the ABC test; thus, he was their employer for the purposes of N.J.S.A. 43:21-19. The ALJ recommended that the Department's assessment against petitioner be upheld. The Commissioner of the Department (Commissioner) adopted the fact-findings and the legal Conclusions of the ALJ as to parts A and C of the ABC test, but found it "unnecessary to address whether the correctly determined that petitioner did not satisfy prong B of the test." The Commissioner affirmed the Department's unemployment and disability assessments against petitioner.
On appeal, petitioner contends that he satisfied the ABC test because (a) he had no control over the other musicians' performance of their services; (b) they did not perform their services at his principal place of business, which was his home; and (c) ...