GARDEN STATE FIREWORKS, INC. VS. NEW JERSEY DEPARTMENT Â OF LABOR AND WORKFORCE DEVELOPMENT(NEW JERSEY DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1581-15T2
GARDEN STATE FIREWORKS,
INC.,
Petitioner-Appellant,
v.
NEW JERSEY DEPARTMENT OF
LABOR AND WORKFORCE
DEVELOPMENT,
Respondent-Respondent.
___________________________
Argued September 14, 2017 – Decided September 29, 2017
Before Judges Alvarez, Currier, and Geiger.
On appeal from the New Jersey Department of
Labor and Workforce Development, Agency Docket
No. 13-005.
August N. Santore, Jr., argued the cause for
appellant.
Alan C. Stephens, Deputy Attorney General,
argued the cause for respondent (Christopher
S. Porrino, Attorney General, attorney;
Melissa H. Raksa, Assistant Attorney General,
of counsel; Mr. Stephens, on the brief).
PER CURIAM
Plaintiff Garden State Fireworks, Inc. is a New Jersey
corporation that manufactures, stores and sells fireworks, and
facilitates firework shows; pyrotechnicians are hired to conduct
and shoot the fireworks at the shows or displays. The New Jersey
Department of Labor and Workforce Development (the Department)
conducted a routine audit of the company and determined that
plaintiff had improperly classified some of the pyrotechnicians
it hired to run fireworks displays as independent contractors
rather than employees. As a result, the Department ordered
plaintiff to pay unemployment compensation and disability
contributions for these technicians. Plaintiff appealed, and the
Department's order was reversed after trial in the Office of
Administrative Law (OAL). However, in a final administrative
action, the Commissioner of the Department reversed the
Administrative Law Judge's (ALJ) order, finding that the
pyrotechnicians should be classified as employees of the company,
not independent contractors. After a review of plaintiff's
arguments, in light of the record and applicable principles of
law, we reverse.
Following a routine audit, the Department advised plaintiff
that it owed $30,167.30 for unemployment compensation and
disability contributions it had not paid for certain individuals
it had classified as independent contractors and not employees of
the company. After plaintiff requested a hearing, the matter was
transferred to the OAL for further proceedings.
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During the hearing, the Department presented its auditor,
Carol Balfour. Balfour testified that she reviewed the business
records of the company and noted that the pyrotechnicians hired
by plaintiff to conduct the fireworks displays were listed on 1099
forms as "subcontractors." She sent out letters to the
"subcontractors" requesting additional information. Balfour
applied the statutory "ABC test"1 and determined that the
pyrotechnicians did not meet the requirements of the test.
Specifically, the auditor concluded that plaintiff directly
controlled the pyrotechnicians' activities, employed staff members
who performed the same services, and offered no proof that the
pyrotechnicians were in an independently established occupation
or profession. As a result, Balfour categorized the
pyrotechnicians as employees and found plaintiff liable for
various unpaid contributions.
Nunzio Santore, Jr., one of plaintiff's co-owners, testified
that the company has twenty-five to thirty-five full and part-time
employees who work at its facility doing light manufacturing,
sorting, assembling, and packing of fireworks. When a display is
ordered for a specific show, the employees pack the selected
1
N.J.S.A. 43:21-19(i)(6)(A)-(C) is the statute that governs the
determination of whether an individual is classified as an employee
or independent contractor. It is commonly referred to as the "ABC
test."
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fireworks onto trucks. A pyrotechnician is then hired for the
specific show. The technician comes to the facility to pick up
the packed truck and drives it to the site. The technician sets
up the show, shoots off the fireworks and cleans up after the
show, returning the empty truck to plaintiff's facility.
Not surprisingly, plaintiff is busiest between Memorial Day
and Labor Day, with eighty percent of its business taking place
in the week surrounding July 4th. Several of the full-time
employees of the company also perform fireworks displays. Those
individuals receive a W2 form and are paid on the payroll with the
required tax contributions.
Santore described the pyrotechnicians who receive 1099s as
individuals who only work one to three days a year for the company.
Almost all of the pyrotechnicians are in a full-time occupation
or business and come from a variety of backgrounds, including
doctors, teachers, firefighters, and policemen. According to
Santore, on July 4th, the company uses more than one hundred
technicians in firework displays all over the State. Although he
occasionally goes to a site to check on a crew, neither he nor
anyone else at the company supervises the pyrotechnicians. They
receive a flat fee for each show they perform.
Santore also informed the ALJ that plaintiff carries workers
compensation and general liability insurance coverage for the
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pyrotechnicians as well as its W2 employees. In his experience
of running the business for over forty years, Santore stated that
he has never had a pyrotechnician file an unemployment claim.
Several pyrotechnicians also testified as witnesses for
plaintiff. Daniel Papa, a full-time police officer, stated that
he has set up and run fireworks displays for plaintiff. He advised
that plaintiff's employees have never directed him as to how to
set up the displays, which fireworks to launch, when to launch,
or specified the length of the fireworks display. Papa denied
ever seeking or expecting unemployment compensation from
plaintiff.
Lawrence Neville, owner of a lawn care company, testified
that he had performed three or four fireworks displays per year
for plaintiff for the past ten to twelve years. He also stated
that plaintiff has never directed him as how to perform the
fireworks displays. He denied ever working in the plant. Neville
added that he did not expect that he could file for unemployment
compensation at the conclusion of a fireworks show.
Anthony Brown testified that he worked full time as a
landscaper and performed several fireworks displays yearly for
plaintiff. Like the other pyrotechnicians, Brown stated that if
he ceased doing the fireworks displays, there would be no impact
on his income or lifestyle.
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Plaintiff's accountant, Generoso Romano, testified that he
worked with plaintiff during an Internal Revenue Service (IRS)
audit for the tax years of 2006 through 2010. The audit included
a review of the 1099s that had been issued to the pyrotechnicians
and their classification as "independent contractors." Following
the completion of the audit, the IRS sent plaintiff a Form 886-A,
advising that after reviewing plaintiff's 1099s, it "determined
that we will not change the status of the pyrotechnicians you paid
as independent contractors. These workers meet the safe harbor
provisions of industry practice under Section 530 of the Revenue
Act of 1978 based on the study done by the American Pyrotechnics
Association." Based on the IRS's determination, Romano testified
that plaintiff felt "comfortable . . . in treating [the
pyrotechnicians] as independent contractors[.]" The American
Pyrotechnics Association study was admitted into evidence.
In April 2015, ALJ Mumtaz Bari-Brown issued a written,
comprehensive decision, finding that the pyrotechnicians hired by
plaintiff were independent contractors, thus reversing the
Department's determination. The ALJ informed that the matter was
governed by the statutory "ABC test" under N.J.S.A. 43:21-
19(i)(6)(A)-(C). She also relied on case law application of the
statute, including Carpet Remnant Warehouse, Inc. v. Dep't of
Labor, 125 N.J. 567 (1991). In that case, the Court was asked to
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determine whether carpet installers that performed services for a
carpet distributor were independent contractors. Carpet Remnant,
supra, 125 N.J. at 571. The Court confirmed that the ABC test was
the governing statute. Id. at 582.
The ABC test becomes applicable only after a determination
that the service provided constitutes "employment," which is
defined as "service . . . performed for remuneration or under any
contract of hire, written or oral, express or implied." N.J.S.A.
43:21-19(i)(1)(A). "If the Department determines that the
relationship falls within that definition, and is not statutorily
excluded, see N.J.S.A. 43:21-19(i)(7), then the party challenging
the Department's classification must establish the existence of
all three criteria of the ABC test." Carpet Remnant, supra, 125
N.J. at 581. Those criteria are:
(A) Such individual has been and will
continue to be free from control or direction
over the performance of such service, both
under his contract of service and in fact; and
(B) Such service is either outside the usual
course of the business for which such service
is performed, or that such service is
performed outside of all the places of
business of the enterprise for which such
service is performed; and
(C) Such individual is customarily engaged
in an independently established trade,
occupation, profession or business.
[N.J.S.A. 43:21-19(i)(6)(A)-(C)].
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The failure to satisfy any one of the three criteria results
in an "employment" classification. That determination is fact-
sensitive, requiring an evaluation in each case of the substance,
not the form, of the relationship. Carpet Remnant, supra, 125
N.J. at 581. The ABC test determines whether employers and
employees are obligated to pay unemployment compensation taxes as
well as whether workers are eligible to receive unemployment
benefits. Id. at 582.
The ALJ addressed each prong of the test individually.
Regarding prong "A," the judge found:
The credible evidence supports that
Garden State's subcontractors are free from
control or direction over the performance of
their services. The subcontractors have
discretion to determine the duration and
pattern of fireworks displays, they are paid
by the show, they are free to work as much or
as little as each subcontractor chooses, they
are generally not supervised by Garden State,
and they are free to work for Garden State's
competitors. Therefore, I CONCLUDE that
Garden State established that the
subcontractors have "been and will continue
to be free from control or direction over the
performance of such service." N.J.S.A. 43:21-
19(i)(6)(A).
The ALJ also found that the pyrotechnicians satisfied prong
"B" of the ABC test. Unlike plaintiff's full-time workers, the
technicians did not work at plaintiff's factory. All three
technicians who testified said that their only contact with
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plaintiff was picking up materials and filling out some initial
paperwork for their fireworks displays. Furthermore, plaintiff's
factory workers performed different services than the technicians'
services at the fireworks display site. The judge concluded:
I am persuaded by the credible evidence
presented by Garden State that the
subcontractors perform services outside of all
the employer's places of business. Therefore,
I CONCLUDE that Garden State satisfied Prong
B, and established that the services are
"performed outside of all the places of
business of the enterprise for which said
service[s] [are] performed."
In addressing prong "C," the ALJ pointed out that none of the
contractors relied on plaintiff for their income, nor had any of
them ever applied for unemployment or disability benefits. The
judge found it irrelevant that the technicians did not maintain
independent pyrotechnic companies. She explained that the statute
only requires that the contractor be "customarily engaged in an
independently established trade, occupation, profession or
business[;]" it does not require that the independently
established business be part of the same industry. Based on the
technicians' testimony, the judge also concluded that it would not
have been practical for any of the individuals to form an
independent business to display fireworks only once or twice per
year. Therefore, the judge found:
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Garden State's subcontractors are customarily
engaged in an independently established trade,
occupation, profession or business. Indeed,
they are employed full-time and part-time in
other industries and professions. Moreover,
I am persuaded by the credible evidence
presented by petitioner that if the
subcontractors were to suffer a loss of income
from Garden State it would not significantly
impact their financial situation or
necessitate an application for unemployment
benefits.
As plaintiff met its burden of providing evidence sufficient to
meet all three prongs, the ALJ concluded that the pyrotechnicians
were independent contractors, and she, therefore, reversed the
2
Department's determination.
In a final administrative action, the Department disagreed
with the ALJ's conclusions. The Commissioner asserted that the
ALJ misunderstood the holding in Carpet Remnant and incorrectly
concluded that plaintiff met all three prongs of the ABC test,
particularly prong "C." In discussing prong "C," the Commissioner
stated that:
[T]he requirement that a person be customarily
engaged in an independently established trade,
occupation, profession or business calls for
an "enterprise" or "business" that exists and
can continue to exist independently of and
apart from the particular service
2 The ALJ considered the IRS's classification of the
pyrotechnicians as independent contractors. While recognizing the
determination was neither "controlling [n]or dispositive," she
found the determination could, however, suggest that her
conclusion was not unreasonable.
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relationship. Multiple employment, such as
that relied upon by the ALJ in support of her
conclusion relative to Prong "C" of the ABC
test, does not equate to an independently
established enterprise or business.
The Department also found that plaintiff had not met prongs
"A" and "B" as plaintiff controlled all of the pyrotechnicians,
and all of the sites of fireworks displays are integral parts of
its business. The Commissioner rejected the ALJ's determination
and ordered plaintiff to remit the unpaid unemployment and
temporary disability contributions.
Plaintiff now appeals from the Department's determination,
asserting that it erred in its application of the ABC test.
We are mindful that we have a limited role in reviewing
decisions of an administrative agency. Philadelphia Newspapers,
Inc. v. Bd. of Review, 397 N.J. Super. 309, 317 (App. Div. 2007)
(citing Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562
(1963)). "Therefore, if, in reviewing an agency decision, an
appellate court finds sufficient, credible evidence in the record
to support the agency's conclusions, that court must uphold those
findings even if the court believes that it would have reached a
different result." Id. at 318 (citing Clowes v. Terminix Int'l,
Inc., 109 N.J. 575, 588 (1988)).
"Conversely, a reviewing court is not bound to uphold an
agency determination unsupported by sufficient evidence." Ibid.
11 A-1581-15T2
(citing Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980)).
We do not act simply as a rubber stamp of an agency's decision
where it is not supported by substantial, credible evidence in the
record as a whole or it is arbitrary, capricious or unreasonable.
Ibid.
To satisfy prong "A," plaintiff must show that the "individual
has been and will continue to be free from control or direction
over the performance of such service, both under his contract of
service and in fact[.]" N.J.S.A. 43:21-19(i)(6)(A). This prong
requires a company to establish not only that it "has not exercised
control in fact, but also that the employer has not reserved the
right to control the individual's performance." Carpet Remnant,
supra, 125 N.J. at 582. Factors indicative of control include:
"whether the worker is required to work any set hours or jobs,
whether the enterprise has the right to control the details and
the means by which the services are performed, and whether the
services must be rendered personally." Philadelphia Newspapers,
supra, 397 N.J. Super. at 321 (quoting Carpet Remnant, supra, 125
N.J. at 590).
Here, plaintiff provided the technicians with the required
supplies and then gave them virtually complete control over the
performance of the fireworks displays. The technicians testified
that none of plaintiff's employees directed them as to which
12 A-1581-15T2
fireworks to launch, when to launch, or how to set up the displays.
The Department's determination that plaintiff controlled the
technicians' performance lacks fair support in the evidence. See
Philadelphia Newspapers, supra, 397 N.J. Super. at 323 (concluding
"the record is devoid of evidence demonstrating that claimant was
customarily engaged in an independently established trade or
activity from the mere delivery of [the company's] newspapers 'at
the time of rendering the service involved'").
Prong "B" requires a showing that the services are outside
of either the employer's usual course of business or all of the
employer's places of business. Carpet Remnant, supra, 125 N.J.
at 584. The Department concluded that plaintiff's places of
business included everywhere it conducted a fireworks display. As
the Court stated in Carpet Remnant, such a definition of "place
of business" would render a person's ability to satisfy the
alternative standard of prong "B" "practically impossible." Id.
at 592. The Court, therefore, refined the standard to refer "only
to those locations where the enterprise has a physical plant or
conducts an integral part of its business." Ibid. The Court
determined that the residences of all of the claimant's customers
where carpet was installed were "clearly 'outside of all [its]
place of business.'" Ibid. (quoting N.J.S.A. 43:21-19(i)(6)(B)).
Here, we can similarly conclude that the Department's broad
13 A-1581-15T2
interpretation of "place of business" was not supported by prior
judicial considerations of the statute and would render this
required prong meaningless as the standard could never be met. We
are satisfied that the pyrotechnicians' work conducted entirely
at locations outside of plaintiff's primary plant satisfied prong
"B."
In its discussion of the ALJ's determination of prong "C,"
the Department declared it to be "fatally flawed." We disagree.
This prong is satisfied "when a person has a business, trade,
occupation, or profession that will clearly continue despite
termination of the challenged relationship." Philadelphia
Newspapers, supra, 397 N.J. Super. at 323. If the person is so
"dependent on the employer" that upon "termination of that
relationship" he would "join the ranks of the unemployed," then
the prong would not be satisfied. Carpet Remnant, supra, 125 N.J.
at 585-86.
Here, the record revealed that the pyrotechnicians were all
either retirees or full-time employees outside of their work for
plaintiff. Although only three of the more than one hundred
pyrotechnicians testified, the parties agreed that their testimony
constituted a wholly representative sample of the technicians.
All three of the technicians that testified stated that they did
not rely on plaintiff as their primary source of income and would
14 A-1581-15T2
never have expected unemployment compensation from plaintiff.
Santore testified that he had never had a pyrotechnician request
or even inquire about receiving unemployment compensation after
the fireworks shows were completed. The technicians only performed
services for plaintiff during one or two weeks of each year, and
none of them relied on plaintiff as the main source of their
income. We are satisfied that the Department erroneously applied
prong "C" as interpreted by the governing case law.
As we have stated, the ABC test is fact-sensitive. We look
to the substance of the relationship, not solely its form. See
Carpet Remnant, supra, 125 N.J. at 581. Here, it is difficult to
conceive that an individual who does work for a company one to
three days a year, while working full-time in another profession,
could be reasonably considered an employee of that company. As
the Court stated in Carpet Remnant, "in cases in which satisfaction
of the C standard convincingly demonstrates a person's
ineligibility for unemployment benefits, it would be inappropriate
for the Commissioner to apply the A or B tests restrictively and
mechanically if their applicability is otherwise uncertain." Id.
at 590.
Based on our review of the record, we find insufficient
evidence to support the Commissioner's determination that the
15 A-1581-15T2
pyrotechnicians did not meet the ABC test. We, therefore, reverse
the Department's determination.
Reversed.
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