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Koza v. New Jersey Department of Labor

January 09, 1998


On appeal from the Final Decision of the New Jersey Department of Labor.

Before Judges Dreier, P.g. Levy and Wecker.

The opinion of the court was delivered by: Dreier, P.j.a.d.

Submitted: December 2, 1997

Petitioner, Jack Koza, appeals for a second time from a final decision of the New Jersey Department of Labor holding that petitioner was responsible for unemployment compensation payments for twenty-two of the twenty-four persons alleged by the Department to have been his employees when he was leader of a band called "Trieste" between 1985 and 1989. In the earlier appeal in this matter, reported at 282 N.J. Super. 560 (App. Div. 1995), we determined that petitioner had satisfied parts A and B of the "ABC test," N.J.S.A. 43:21-19(i)(6)(A),(B) and (C). Id. at 566-67. We remanded "to afford petitioner an opportunity to satisfy part C of the test as suggested by the Supreme Court in Carpet Remnant Warehouse [v. Department of Labor, 125 N.J. 567 (1991).]" Id. at 569.

As we noted in our earlier opinion, the ALJ had failed to appreciate that the band to a large extent had been a cooperative enterprise. Although petitioner obtained most of the bookings, and saw to it that the proper sound equipment was available, he gathered an amorphous group of musician friends, different numbers of whom would play at particular times. As explained later, two musicians contended that they were paid a fixed amount per performance, and thus might satisfy the ABC test. However, most of the testimony established that when the group was paid, petitioner would deduct the group's expenses that he had advanced and then divide the money equally among all of the musicians. We described this in detail in our earlier opinion, see 282 N.J. Super. at 565-66. We noted specifically:

"In reality, this is a group of independent contractors and not an employer with employees. We question whether the ABC test is properly applied to every group effort where the members of the group share the compensation received. For example, if three bricklayers approach a builder and offer their collective services to build a wall, does the one who receives the total payment become the employer of the other two?" [Id. at 566].

It appears that, on remand, our view of the arrangement as gleaned from the testimony at the first hearing was largely disregarded by the agency. The ALJ noted in his opinion that we had "remanded for a narrow purpose -- to give petitioner a second chance to supply the details apropos to his part C burden." While it is true that we directed that the Carpet Remnant Warehouse standards be applied, we did so within the context of the resolution we had made in the first appeal. The working relationship was found to be a group effort or joint venture where petitioner merely was the conduit for the payment of the group's earnings, net of expenses, to be shared by all.

Unfortunately, the hearing fell into the usual but inapplicable analysis of whether the other members of the group had independent stationery, business cards, business phones or the like. The ALJ mentioned but quickly passed over the testimony "that people in this business become known by word of mouth and do not generally have need of business cards, business phones, offices and the like." The ALJ stated: "This may be true to an extent, but the Court in CRW [Carpet Remnant Warehouse] also instructed us to follow the money, a criteri[on] that probably cuts across all enterprise. Individuals who received substantially all of their music income from petitioner are not likely to have been independently established in the music business." This is a nonsequitur. An established musician may choose for a time to play or sing with a particular band full-time or part-time, and then move on. The relationship has no bearing upon whether the individual is established in the music business or not. If Paul Simon decides to go on a tour with Art Garfunkle under an arrangement where they share the proceeds, does either become an employee of the other? We think not, even if one acts as the business manager and collects the proceeds.

What was overlooked is that some of the musicians performed with petitioner as an avocation, others on a full-time basis, and some were freelance musicians or vocalists who had other jobs inside or outside the music industry. One person was a model, another a hair stylist, a third a real estate salesman. Petitioner provided the State with the backgrounds of all twenty-four musicians who had worked with him. With the exception of the two who claimed to the investigators that they did not share in the proceeds, but rather were paid a fixed remuneration from petitioner, the musicians who were asked about the arrangement stated that they did not work for petitioner, they worked with him. We remanded this matter after the initial appeal so that the Carpet Remnant Warehouse standards could be applied to any musicians or other employees who worked for petitioner. We had already made the determination that if the other musicians were participants in bookings secured by petitioner or others that were essentially a succession of joint ventures, there was to be no liability for unemployment compensation contributions. Given the Disposition of the matter before the ALJ and the Commissioner, we were obviously misunderstood.

We approach our review of this record with the usual understanding that our review of an agency decision is limited, and that an administrative determination will only be overturned if "arbitrary, capricious or unreasonable or [if] it is not supported by substantial credible evidence in the record as a whole." Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980). See also Clowes v. Terminix Int'l, Inc., 109 N.J. 575, 588 (1988) (appellate judgment will be substituted for that of an agency if the agency's judgment is "`so plainly unwarranted that the interests of Justice demand intervention and correction'") (quoting State v. Johnson, 42 N.J. 146, 162 (1964)).

On this appeal we have had an opportunity again to reflect on the joint venture analysis we directed and the Department's continued focus on the ABC test. We conclude that the ABC test is inapplicable here. The preface to subsections (A), (B) and (C) requires that the "employee" provides services "for remuneration." The implication of this section is that the remuneration flow from the putative employer to the alleged employee. In the case of a group of musicians who are sharing the money paid by a club owner for a night's work, the person who receives the money and divides it among the various band members is not paying them "remuneration." He is merely acting as a conduit in distributing the "remuneration" paid to the group by the club owner. The fact that the group has authorized him to pay their expenses off the top and share only the net amount with them does not change the recipient from a conduit to an employer. If, as the ALJ suggested, the key to the ABC test is "to follow the money," this trail should start when the group is paid by the club owner. That is where there was "remuneration." The sharing that followed is not subject to the ABC test.

This analysis should be evident. The indicia of independent contract status has little if any meaning in a setting such as the one before us. If we take the simplest situation where two musicians, such as in the Simon and Garfunkle example noted earlier, agree to play or sing as a duet and are so hired by a succession of clubs, it makes no difference whether they individually possess business cards, offices or business telephones. If an unknown duet is paid $500 per performance, or if the famous duet is paid $5,000,000, it should make no difference whether the club owner hands each of the musicians his share or pays one of them the whole and he divides the proceeds with the other. It further makes no difference if one is the "front person" who has selected the music and the other has rented the sound equipment. If only one has developed a "name," and brings in different performers to share equally in the pay for the performance, it is still no less a joint venture.

What we see before us, as compared with other arrangements, yields a resultant joint venture rather than "employment," even under the term's extended meaning under the Unemployment Compensation Law. There are two New Jersey entertainment cases which reflect a usual employment relationship. Examples of performers receiving pay and being considered employees of the theater or amusement companies can be found in Empire Theater v. Unemployment Compensation Comm'n, 136 N.J.L. 254 (1947), aff'd, 137 N.J.L. 301 (E. & A. 1948) (specialty act performers engaged by a burlesque theater were employees of the theater), and Steel Pier Amusement Co. v. Unemployment Compensation Comm'n, 127 N.J.L. 154 (1941) (members of an orchestra were considered employees of the amusement company, not the orchestra director). We note that in the latter case, the orchestra members were not found to have satisfied part C of the test, but that the resultant employment was considered to have been by the entity hiring the orchestra, not the orchestra leader.

There are also out-of-state cases describing orchestras or bands that operate differently from the one before us, and that were sufficiently institutionalized that they had regular employees with specific salary arrangements, even if the negotiated fees were dependent upon pay from the contractual sums remitted by the band's client. See Cutler v. United States, 180 F. Supp. 360 (Ct. Cl. 1960) (federal unemployment taxes were due from bandleader who paid the musicians working for him based on the union minimum rates and who negotiated the contracts that contained a profit for himself after expenses); Barge v. Indus. Claims Appeals Office of Colorado, 905 P.2d 25 (Colo. Ct. App. 1995) (plaintiff was the acknowledged leader of the band with a memorandum of understanding signed by each musician requiring the musician to conform to the leader's sound and style standards, and the musicians were paid according to a schedule); In re Sybco Int'l, Inc., ___ N.Y.S.2d ___, 1997 W.L. 691162 (A.D. 3d Dept. 1997) (company "in the business of providing musical entertainment for catered functions" found to be an employer, based on the extent of the company's control and the methods of remuneration); In re Philip R. Sims, 602 N.Y.S.2d 225, 226 (A.D. 3d Dept. 1993); (payments to the musicians were based upon hours worked and the local union's scale and included mileage); In re Captain Kishka, Inc., 551 N.Y.S.2d 631 (A.D. 3d Dept. 1990) (same). See also In re S. DiCarlo, Inc., 651 N.Y.S.2d 248 (A.D. 3d Dept. 1996) (where a bar owner was found not to be the employer of ...

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