State Shorthand Reporting Services v. New Jersey Department of Labor and Workforce Development ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1500-21
A-1710-21
STATE SHORTHAND
REPORTING SERVICES,
Petitioner-Appellant,
v.
NEW JERSEY DEPARTMENT
OF LABOR AND WORKFORCE
DEVELOPMENT,
Respondent-Respondent.
_______________________________
JERSEY SHORE REPORTING,
LLC,
Petitioner-Appellant,
v.
NEW JERSEY DEPARTMENT
OF LABOR AND WORKFORCE
DEVELOPMENT,
Respondent-Respondent.
_______________________________
Submitted (A-1500-21) and Argued (A-1710-21)
January 16, 2024 — Decided February 12, 2024
Before Judges Mawla, Marczyk, and Chase.
On appeal from the New Jersey Department of Labor
and Workforce Development, Docket Nos. 14-001 and
14-003.
Martin Melody, LLC, attorneys for appellant State
Shorthand Reporting Services, Inc. in A-1500-21
(Eugene J. Melody, of counsel; Nancy S. Martin, on the
briefs).
James Prusinowski argued the cause for appellant
Jersey Shore Reporting, LLC in A-1710-21 (Trimboli
& Prusinowski, LLC, attorneys; James Prusinowski and
Brittany Rose Naimoli, on the briefs).
Ryne Anthony Spengler, Deputy Attorney General,
argued the cause for respondent Department of Labor
and Workforce Development (Matthew J. Platkin,
Attorney General, attorney; Donna Sue Arons,
Assistant Attorney General, of counsel; Kendall James
Collins, Deputy Attorney General, on the briefs).
Einhorn, Barbarito, Frost & Botwinick, PC, attorneys
for amicus curiae Certified Court Reporters
Association of New Jersey in A-1710-21 (Andrew Seth
Berns, of counsel and on the brief; Matheu D. Nunn, on
the brief).
The opinion of the court was delivered by
MARCZYK, J.A.D.
In this appeal, as an issue of first impression, we are asked to consider
whether N.J.S.A. 43:21-19(i)(10)—from the time of its enactment in 2010—
provides an exemption for court reporters under the Unemployment
Compensation Law ("UCL"), N.J.S.A. 43:21-1 to -71, or whether court reporters
A-1500-21
2
must still establish a Federal Unemployment Tax Act ("FUTA") exemption
pursuant N.J.S.A. 43:21-19(i)(1)(G). For the reasons set forth below, we have
determined N.J.S.A. 43:21-19(i)(10) does provide such an exemption and there
is no requirement for court reporters to establish a FUTA exemption.
We consolidate these two appeals for the purpose of issuing a single
opinion. Petitioner Jersey Shore Reporting, LLC ("JSR") appeals from a
December 31, 2021 final administrative action of the Commissioner of the
Department of Labor and Workforce Development ("DOL") finding JSR liable
for contributions under the UCL. Petitioner State Shorthand Reporting Services
("SSRS") also appeals from the Commissioner's December 31, 2021 final
administrative action finding SSRS responsible for contributions under the
UCL. Although we conclude SSRS and JSR are entitled to an exemption under
N.J.S.A. 43:21-19(i)(10), the DOL audited SSRS and JSR for time periods both
before and after that statute's January 16, 2010 effective date. We conclude the
exemption applies to the audit dates after January 16, 2010.
Regarding the audit periods prior to January 16, 2010, we address in the
unpublished portion of this opinion whether JSR and SSRS satisfied N.J.S.A.
43:21-19(i)(6)(A) to (C) ("the ABC test") for the purpose of establishing that
the reporters were independent contractors during that time period. We
determine the Commissioner did not act in an arbitrary or capricious manner in
A-1500-21
3
finding petitioners failed to satisfy the ABC test. Accordingly, we reverse in
part, affirm in part, and remand for the Commissioner to recalculate the
assessments owed by petitioners consistent with this opinion.
I.
A.
We derive the following from the record as it pertains to JSR. JSR is a
registered court reporting agency that provides legal transcription services to
attorneys, courts, and public agencies. The owners of JSR are not court reporters
and therefore only handle administrative matters and brokering the services of
court reporters. JSR fills numerous court reporting jobs each day and solicits
reporters with a mass email based on reporters' preference concerning the
location of the job and days and hours they are available. Generally, the first
reporter to respond gets the assignment. Reporters are not forced to take an
assignment and do not suffer any consequences for not agreeing to take a job.
If JSR cannot fill a slot, it reaches out to other agencies. Reporters are provided
the time and location of an assignment, but no specific instructions.
Once an event is completed, the reporter will inform JSR as to how many
transcripts have been requested, and JSR prints, delivers, and bills for the
services. Reporters can be compensated for an appearance, or an hourly rate
when no transcript is ordered, or on a per-page rate. Reporters who work with
A-1500-21
4
JSR also work with other agencies. The reporters provide their own
stenographic machines. JSR does not: have policies or procedures for reporters;
require reporters to work a certain number of hours; provide supplies; proofread
reporters' work; or pay for supplies or continuing education.
In August 2013, following an audit, the DOL assessed JSR for $39,236.06
in unpaid contributions to the DOL's unemployment and disability benefit funds
as a result of an audit from 2008-2010.1 In January 2015, JSR moved for
summary decision, asserting it was not liable for the contributions. The
administrative law judge ("ALJ") determined there were genuine issues of
material fact regarding whether the ABC test was met that necessitated a hearing
regarding JSR's liability for 2008 and 2009. The ALJ granted JSR's motion for
summary decision for the 2010 time period, finding N.J.S.A. 43:21-19(i)(10)
"amended the UCL . . . to specifically exempt services performed by legal
transcribers or court reporters irrespective of a parallel exemption under" the
FUTA.
On April 23, 2018, the DOL requested the Commissioner review the ALJ's
initial decision. On July 19, 2018, the Commissioner issued a decision and
1
The parties unsuccessfully attempted to mediate. In May 2014, JSR moved
for leave to appeal because the Office of Administrative Law ("OAL") failed to
transfer the contested case for a hearing. In May 2014, we ordered the case
transferred to the OAL for a hearing as a contested case.
A-1500-21
5
accepted the ALJ's denial of summary decision for the audit years of 2008 and
2009 but rejected the ALJ's summary decision for the audit year of 2010 based
on N.J.S.A. 43:21-19(i)(10). The Commissioner instead relied on N.J.S.A.
43:21-19(i)(1)(G), which states:
Notwithstanding any other provision of this subsection,
service in this State with respect to which the taxes
required to be paid under any federal law imposing a
tax against which credit may be taken for contributions
required to be paid into a state unemployment fund or
which as a condition for full tax credit against the tax
imposed by the [FUTA] is required to be covered under
the [UCL] . . . .
According to the Commissioner, N.J.S.A. 43:21-19(i)(1)(G) provides the mere
existence of a state exemption under N.J.S.A. 43:21-19(i)(10) is not enough, and
there must also be a parallel FUTA exemption to be relieved of the obligation
to pay unemployment taxes.
B.
SSRS is also a court reporting agency that provides transcription services
to various entities. It notes court reporters are "strictly regulated" and are
licensed through the Department of Consumer Affairs. They must pass a test
administered through a national court reporting association to become licensed
in New Jersey. The owner and operator of SSRS testified:
She maintains a list of certified court reporters and
assigns jobs to cover a court reporting project on an as
needed basis. Most of the court reporters may work for
A-1500-21
6
several different court reporting agencies at any given
time and do not work exclusively for [SSRS]. In
addition, they may accept or reject any assignment that
[SSRS] offers them. Once a reporter accepts a job, they
are given the date, time[,] and location of the job. The
reporters are responsible for their own equipment,
travel[,] and other job-related expenses. Once a
reporter transcribes a proceeding, he or she emails it to
[SSRS] for delivery to the client. [SSRS] handles all
the billing.
SSRS maintains it does not control or provide instructions for court
reporters. It asserts the reporters operate independently, are free to work
whenever they want, and set their own work schedule.
In August 2013, the DOL assessed SSRS for unpaid contributions to
unemployment and disability funds for the periods of 2006-2008 and 2011-2014.
Based on an audit of those time periods, SSRS had unpaid contributions of
$104,116.45—$38,340.44 for 2006-2008 and $65,776.01 for 2011-2014. SSRS
appealed, and the matter was transferred to the OAL for a hearing before an ALJ
as a contested case. The ALJ ultimately determined, based on the
Commissioner's prior decision in the JSR matter, the exemption under N.J.S.A.
43:21-19(i)(10) requires a parallel FUTA exemption.
II.
A.
JSR and SSRS argue they meet the exemption under N.J.S.A. 43:21-
19(i)(10) and therefore are not liable. They argue the statutory language is clear
A-1500-21
7
and unambiguous and that services provided by certified court reporters should
not be considered employment subject to the UCL. Moreover, the legislative
history of N.J.S.A. 43:21-19(i)(10) supports this interpretation.
JSR contends the Commissioner erred in finding N.J.S.A. 43:21-
19(i)(1)(G) applies to N.J.S.A. 43:21-19(i)(10), thus requiring court reporters to
establish a FUTA exemption. It argues the statute's context and relationship to
surrounding provisions shows N.J.S.A. 43:21-19(i)(1)(G) does not apply to
every provision in N.J.S.A. 43:21-19(i). According to JSR, the statute's
hierarchy shows N.J.S.A. 43:21-19(i)(1)(G), a sub-sub-section, is contained in
and applies only to the provisions in subsection N.J.S.A. 43:21-19(i)(1). That
is, the provision states it applies "[n]otwithstanding any other provision of this
subsection," but JSR contends that it is meant to apply to the actual subsection
of N.J.S.A. 43:21-19(i)(1), not the entire section of N.J.S.A. 43:21-19(i).
JSR argues the Legislature intended to amend the statute to remove the
FUTA exemption from N.J.S.A. 43:21-19(i)(10) requirements. If N.J.S.A.
43:21-19(i)(1)(G) imposed the FUTA exemption on all of N.J.S.A. 43:21-19(i),
JSR argues there would have been no modification to the statute. A FUTA
exemption was required prior to the 2010 amendment, so it follows the
Legislature amended the statute to exempt court reporters. Requiring reporters
to prove a FUTA exemption would render the 2010 amendment meaningless.
A-1500-21
8
JSR argues if the Legislature wanted to require a FUTA exemption on all
categories under the statute, it would have clearly articulated the requirement.
For example, N.J.S.A. 43:21-19(i)(7), which provides for twenty-seven
exemptions, qualifies the exemptions, noting they are available "[p]rovided that
such services are also exempt under the [FUTA] . . . ." JSR notes that if N.J.S.A.
43:21-19(i)(1)(G) applied to the entire statute, N.J.S.A. 43:21-19(i)(7) would be
redundant as it refers to the same tax credits and FUTA. As such, JSR and SSRS
assert the language of N.J.S.A. 43:21-19(i)(10) is clear and unambiguous, and
court reporting services are statutorily exempt from unemployment taxes.
Amicus curiae Certified Court Reporters Association of New Jersey
("CCRA") also contends N.J.S.A. 43:21-19(i)(10) is clear on its face, and the
legislative history explains that court reporters are now considered independent
contractors. Moreover, there is no basis to continue to require a correspo nding
FUTA exemption under N.J.S.A. 43:21-19(i)(1)(G) given the enactment of
N.J.S.A. 43:21-19(i)(10). Furthermore, the Commissioner's interpretation
would render the amendment superfluous, and if the Legislature intended for the
FUTA exemption to still apply, there would have been no need to amend the
statute.
B.
A-1500-21
9
Although we review administrative decisions with a deferential standard
of review, "a reviewing court is 'in no way bound by [an] agency's interpretation
of a statute or its determination of a strictly legal issue.'" Allstars Auto Grp.,
Inc. v. N.J. Motor Vehicle Comm'n, 234 N.J. 150, 158 (2018) (alteration in
original) (quoting Dep't of Children & Fams. v. T.B., 207 N.J. 294, 302 (2011)).
"[If] an agency's determination . . . is a legal determination, the appellate court's
review is de novo." K.K. v. Div. of Med. Assistance and Health Servs., 453 N.J.
Super. 157, 161 (App. Div. 2018) (alteration in original) (quoting L.A. v. Bd. of
Educ. of Trenton, Mercer Cnty., 221 N.J. 192, 204 (2015)).
"The overriding goal" of statutory interpretation "is to determine . . . the
intent of the Legislature, and to give effect to that intent." State v. Hudson, 209
N.J. 513, 529 (2012). We begin with the understanding "the language of the
statute, and the words chosen by the Legislature should be accorded their
ordinary and accustomed meaning." Ibid. "Where the plain language of a statute
is clear, we enforce the statute as written." Correa v. Grossi, 458 N.J. Super.
571, 579 (App. Div. 2019) (citing DiProspero v. Penn, 183 N.J. 477, 492
(2005)).
Moreover, "[i]f the language leads to a clearly understood result, the
judicial inquiry ends without any need to resort to extrinsic sources." Hudson,
209 N.J. at 529. "[E]xtrinsic aids may not be used to create ambiguity when the
A-1500-21
10
plain language of the statute itself answers the interpretative question; however,
when the statutory language results in more than one reasonable interpretation,
then resort may be had to other construction tools . . . in the analysis ." Id. at
529-30 (citing State v. Shelley, 205 N.J. 320, 323-24 (2011)). These may
"includ[e] legislative history, committee reports, and contemporaneous
construction." DiProspero, 183 N.J. at 492-93 (quoting Cherry Hill Manor
Assocs. v. Faugno, 182 N.J. 64, 75 (2004)).
N.J.S.A. 43:21-19(i)(10) in pertinent part provides:
Services performed by a legal transcriber, or certified
court reporter certified pursuant to P.L.1940, c.175
[(N.J.S.A. 45:15B-1 to -14)], shall not be deemed to be
employment subject to the [UCL], [N.J.S.A. 43:21-1 to
-71], if those services are provided to a third party by
the transcriber or reporter who is referred to the third
party pursuant to an agreement with another legal
transcriber or legal transcription service, or certified
court reporter or court reporting service, on a freelance
basis, compensation for which is based upon a fee per
transcript page, flat attendance fee, or other flat
minimum fee, or combination thereof, set forth in the
agreement.
[(Emphasis added).]
The express language of N.J.S.A. 43:21-19(i)(10) provides that services
performed by court reporters "shall not be deemed to be employment subject to"
the UCL. This provision is not qualified by reference to any FUTA exemption.
Prior to 2010, under N.J.S.A. 43:21-19(i)(7)(Y), court reporters were also
A-1500-21
11
exempt, provided they were "also exempt under . . . FUTA . . . ." N.J.S.A. 43:21-
19(i)(7)(Y) (2002). We presume the Legislature understood the implications of
removing court reporters from N.J.S.A. 43:21-19(i)(7)(Y) and the corresponding
FUTA mandate and placing the amendment in a different section, specifically
indicating that court reporting services are not to be considered employment
under the UCL. This amendment was designed so that court reporters would no
longer be required to establish a FUTA exemption pursuant to N.J.S.A. 43:21 -
19(i)(7) and were, by the specific terms of the amendment, not to be considered
employees, but rather independent contractors. The Commissioner's
interpretation is at odds with the plain language of the statute.
The DOL asserted before the Commissioner that the Legislature may have
been "well intentioned" in adopting N.J.S.A. 43:21-19(i)(10) and attempting to
grant an exemption to court reporters, but the Legislature was unsuccessful
because N.J.S.A. 43:21-19(i)(1)(G) still requires that petitioners establish a
FUTA exemption. At oral argument, the DOL claimed the amendment set forth
in N.J.S.A. 43:21-19(i)(10) was effectively meaningless.
It is a "well-established canon of statutory interpretation" that the
Legislature is presumed to know the "judicial construction of its enactments."
Johnson v. Scaccetti, 192 N.J. 256, 276 (2007) (quoting DiProspero, 183 N.J. at
494), abrogated on other grounds, Cuevas v. Wentworth Grp., 226 N.J. 480, 506
A-1500-21
12
(2016). Moreover, "[t]he Legislature is presumed to be familiar with its existing
enactments and is presumed to intend that its newer enactments be harmonized
with the existing ones, in light of the Legislature's purpose." Correa, 458 N.J.
Super. at 580. In attempting to harmonize more recent amendments in the
context of existing statutory provisions, as always "[w]e will 'strive for an
interpretation that gives effect to all of the statutory provisions and does not
render any language inoperative, superfluous, void[,] or insignificant.'" Sanchez
v. Fitness Factory Edgewater, LLC, 242 N.J. 252, 261 (2020) (second alteration
in original) (quoting G.S. v. Dep't of Hum. Servs., 157 N.J. 161, 172 (1999)).
The Commissioner's interpretation of N.J.S.A. 43:21-19(i)(10) indicates
the Legislature failed to recognize the requirement under N.J.S.A. 43:21-
19(i)(1)(G) for an employer to still establish a FUTA exemption. The DOL
asserted there are no scenarios in which the new statute, N.J.S.A. 43:21-
19(i)(10), would apply to court reporters that was distinct from the operation of
the prior exemption under N.J.S.A. 43:21-19(i)(7)(Y). We reject such an
interpretation, which would render N.J.S.A. 43:21-19(i)(10) meaningless.
N.J.S.A. 43:21-19(i)(10) must be read in harmony with N.J.S.A. 43:21-
19(i)(7)(Y). The Legislature was fully aware of the prior requirement for court
reporters to establish a FUTA exemption under N.J.S.A. 43:21-19(i)(7)(Y),
which is why it amended the statute to remove the requirement for a FUTA
A-1500-21
13
exemption under N.J.S.A. 43:21-19(i)(10). The Legislature placed N.J.S.A.
43:21-19(i)(10) in a separate section, presumably to remove it from N.J.S.A.
43:21-19(i)(7), which requires a corresponding FUTA exemption. Moreover,
we agree with JSR that the requirement to establish a FUTA exemption under
N.J.S.A. 43:21-19(i)(1)(G) only applies to that specific subsection.
Although we agree a sensible reading of N.J.S.A. 43:21-19(i)(10)
provides an exemption for court reporters, to the extent the statutory language
results in more than one reasonable interpretation, the legislative history
unequivocally establishes the Legislature intended to dispense with the
requirement to establish a FUTA exemption. The Senate Labor Committee
statement provided:
[T]he bill makes an individual who is a legal transcriber
and who works on a freelance basis, compensation for
which is based upon a fee per transcript page, flat
attendance fee, or other flat minimum fee, or
combination thereof, ineligible for unemployment
insurance (UI) benefits and thus not subject to UI taxes.
The bill provides the exemption to all such individuals
categorically without requiring a demonstration that
particular individuals are self-employed under the
standards provided by either the State UI statute or
federal tax rules.
....
The amendments also remove the requirement that the
exemption applies only if there is a parallel exemption
under federal UI law or if the individuals are found to
be self-employed by the IRS under its tax rules.
A-1500-21
14
[S. Labor Comm. Statement to S. 825 (May 4, 2009)
(emphasis added).] 2
The legislative history is unambiguous regarding the elimination of the
requirement for a FUTA exemption and bolsters our interpretation of the statute.
Accordingly, we reverse the Commissioner's holding with respect to the
applicability of N.J.S.A. 43:21-19(i)(10) and conclude petitioners are exempt
from the time of the enactment of the statute in 2010. We remand for the
Commissioner to calculate the assessment regarding those audit periods after the
enactment of N.J.S.A. 43:21-19(i)(10).
III.
We next address the Commissioner's separate determination that
petitioners failed to establish they were independent contractors under the ABC
test.
A.
In July 2020, the Commissioner remanded JSR's case to the ALJ for an
evidentiary hearing regarding the 2008-2010 audit period. In September 2020,
following a hearing, and after evaluating the ABC test, the ALJ found JSR had
no liability for the entire audit period as the court reporters were independent
2
The Assembly Labor Committee statement closely mirrors the Senate's
legislative history. See A. Labor Comm. Statement to A. 3770 (Jan. 4, 2010).
A-1500-21
15
contractors. As to prong A, the ALJ determined the reporters were generally
free from JSR's control because they were not trained by JSR, were free to
choose when to work, and could work for competitors. As to prong B, the ALJ
found the court reporters did not work out of JSR's offices, but rather from client
locations.3 Under prong C, the ALJ found the reporters were free to provide
services to other agencies while continuing to accept work from JSR. He further
found the reporters could likely continue to work with different agencies if a
particular agency failed or went out of business. Thus, according to the ALJ
and citing Hargrove v. Sleepy's LLC, 220 N.J. 289, 306 (2015), they had a
profession "that will plainly persist despite the termination of the challenged
relationship," and JSR met prong C.
On December 31, 2021, the Commissioner rejected the ALJ's decision.
Concerning prong A, although the Commissioner noted the reporters had "some
flexibility" in their work, he found critical aspects of the reporters' work were
controlled by JSR. The Commissioner noted the key components of the work—
finding and maintaining relationships with clients, setting the rate charged to
clients and reporters, determining when work must be completed, and recovering
from clients who fail to pay—"are all set by [JSR]." The "major formal
3
The ALJ noted there were rare circumstances in which work was performed
at the office, such as when a client did not have an available conference room.
A-1500-21
16
elements" of employment were all controlled by the agency. As such, the
Commissioner determined JSR failed to meet prong A.
Under prong B, the Commissioner found the ALJ ignored the fact JSR is
in the business of providing court reporting services to the legal community, and
therefore JSR's place of business is in some part located at client locations within
the legal community. He found:
Much of the actual work, therefore, takes place in these
locations . . . . These services are an integral part of
[JSR]'s business, and delivery of services in these
locations is not a random occurrence. Rather, it is
specifically determined at the time of acceptance of the
contract with [JSR]. These client locations, therefore,
must under Carpet Remnant[ Warehouse, Inc. v. N.J.
Department of Labor, 125 N.J. 567 (1991),] be
considered an extension of [JSR]'s place of business.
Under prong C, the Commissioner found the ALJ "largely ignored the
results of the [DOL]'s thorough audit." He explained:
In conducting an audit for potential
misclassification, it is standard [DOL] practice to
contact the purported employer and all purported
subcontractors and request that they submit
documentation (such as tax returns, business cards,
invoices, letterhead, advertisements they have taken
out, insurance, and other 1099s) that would help the
[DOL] to determine their employment status. . . . Since
there was no real dispute over whether remuneration
had been paid to the court reporters for their services,
that established a presumption of employee status
unless [JSR] could meet each prong of the ABC test. In
practice, as testified to by [the] redetermination auditor
. . . , this meant that if a purported employer did not
A-1500-21
17
provide the [DOL] with relevant documents, the [DOL]
could lawfully infer that the individual was likely an
employee, as no information was provided to rebut the
presumption of employee status. . . .
The Commissioner further noted:
The audit record shows that [JSR] provided
documentation for slightly less than half of the court
reporters that it engaged. [4] . . . The company did not
submit any documents, and no other evidence, to rebut
the lawful presumption that its remaining court
reporters (totaling 52.3%) were not customarily
engaged in an independently established business.
The Commissioner further analyzed Schedule C tax forms for several court
reporters received by the DOL and found "only a small number showed true
independence." He noted multiple reporters clearly earned the entirety of their
annual income from JSR in the 2008-2010 span. Two of them also had JSR
business cards with their names on it. Multiple other reporters earned more than
ninety percent of their annual income from JSR during the audit period. The
4
The Commissioner noted:
In 2008, out of [thirty-two] court reporters engaged by
[JSR], the [DOL] only received documents for
[fifteen]. . . . In 2009, out of [thirty] court reporters
engaged by [JSR], the [DOL] only received documents
for [fifteen]. . . . And in 2010, out of [thirty-one] court
reporters engaged by [JSR], the [DOL] only received
documents for [fourteen]. . . . Adding it together, out
of [ninety-three] court reporters engaged by [JSR]
during the audit period, the [DOL] received
documentation for only [forty-four] (totaling 47.3%).
A-1500-21
18
Commissioner noted these "purported[] independent contractors were in reality
wholly dependent upon [JSR]."
The ALJ noted that if one agency went out of business, the reporters would
be able to secure work from another agency. The Commissioner, quoting Carpet
Remnant, found this was insufficient to overcome the presumption of employee
status because it did not demonstrate the reporters could "continue to exist
independently and apart from" their relationship with JSR as an independent
business. 125 N.J. at 592. Therefore, the Commissioner concluded JSR failed
to meet prong C.
Regarding the proceedings against SSRS, the matter was assigned to an
ALJ, who ordered the matter be placed on the inactive list pending the
processing of an Internal Revenue Service ("IRS") Form SS-8.5 On July 14,
2016, the IRS issued an "information letter" to SSRS, which stated "based solely
on the information you provided . . . we conclude that an employer/employee
relationship does not exist in the situation you described." However, the letter
also stated it "isn't a determination letter and isn't binding."
5
IRS Form SS-8 asks the IRS to determine whether under federal law a worker
is considered an employee or independent contractor for purposes of federal
employment and income taxes. The parties theorized its outcome would affect
the pending case.
A-1500-21
19
The matter was subsequently assigned to a different ALJ. In June 2017,
SSRS filed a motion for summary decision. The ALJ found there were genuine
issues of material fact that necessitated a hearing to determine SSRS's liability
for the 2008-2009 audit period. She thus denied SSRS's motion for summary
decision regarding the 2008-2009 period. Regarding liability from 2011
onward, the ALJ stated the Legislature "amended the UCL in 2010 to
specifically exempt services performed by legal transcribers . . . ." However,
the ALJ found it was an "open question" whether a corresponding FUTA
exemption was required to assert the specialized exemption under N.J.S.A.
43:21-19(i)(7), (i)(9), and (i)(10). Therefore, summary decision on liability for
the 2011-2014 period was also denied because there was a genuine issue of
material fact "as to the effect and extent of the amendments to the UCL, and the
need for a corresponding FUTA exemption."
In October 2019, the ALJ found SSRS had no liability for either audit
period. She cited the Commissioner's prior decision involving JSR, stating in a
footnote the DOL "has ruled that the intention of [the 2010 legislative
amendment to the UCL] was to provide for an exemption, only when someone
has received a corresponding FUTA exemption." In the footnote, the ALJ also
stated "[n]o corresponding FUTA exemption was demonstrated in this case."
However, she did not clearly determine whether SSRS established a FUTA
A-1500-21
20
exemption. She went on to analyze whether the court reporters were
independent contractors under N.J.S.A. 43:21-19(i)(6)(A), (B), and (C), thereby
exempting them from UCL coverage. The ALJ ultimately determined SSRS
satisfied prongs A, B, and C for many of the same reasons as the ALJ in the JSR
case above.
On December 31, 2021, the Commissioner reversed the ALJ's initial
decision and held a putative employer must establish both a UCL exemption and
a FUTA exemption in order to assert the specialized exemption, and SSRS did
not establish a FUTA exemption. The Commissioner noted N.J.A.C. 12:16-
23.26 permits three methods for a putative employer to establish a FUTA
exemption:
(a) Evidence that services are not covered under FUTA
may include among other things:
1. Private letter ruling(s) from the [IRS];
2. An employment tax audit conducted by the
[IRS] after 1987 which determined that there was
to be no assessment of employment taxes for the
services in question; however, the determination
must not have been the result of the application
of Section 530 of the Revenue Act of 1978; or
3. Determination letter(s) from the [IRS].
6
Prior to 2018, a putative employer could provide documentation of responses
to the twenty-point test required by the IRS to meet the criteria for
independence, but the DOL amended the regulation that year to limit it to the
three current forms of proof. 50 N.J.R. 1026(a) (Mar.19, 2018).
A-1500-21
21
The Commissioner pointed out that in adopting N.J.A.C. 12:16-23.2, the
DOL stated "the entire purpose of the proposed amendment is that the [DOL]
would no longer be conducting its own analysis under the IRS test for
independence in order to determine the existence of a FUTA exemption." 50
N.J.R. 2012(a) (Sept. 17, 2018). The Commissioner found SSRS did not
establish a FUTA exemption under any of the three methods because the IRS
letter SSRS obtained did "not make a formal finding as to whether [SSRS] has
established a FUTA exemption under the IRS test." Therefore, SSRS was not
exempt from UCL coverage under N.J.S.A. 43:21-19(i)(10).
The Commissioner also disagreed with the ALJ in her application of the
ABC test. As to prong A, he found "critical aspects of the reporters' work were
controlled by [SSRS]." The Commissioner found SSRS "was responsible for
finding the work in the first place." The company also "negotiated the rate that
was charged to clients without input from the reporters" and "the reporters were
paid whether or not a client pays the company, placing the risk of loss entirely
on the company." SSRS also handled client management, not the reporters
themselves, and "the company performed most of the administrative work of
producing the transcript, billing clients, and scheduling court reporters." The
Commissioner found these characteristics were "indicative of employee status,
as it vests the company with authority over significant formal elements of
A-1500-21
22
employment. . . . [SSRS] exercises effective control and direction over the
performance of services."
Regarding prong B, the Commissioner determined that although the
reporters perform services at remote locations,
[t]hese services are an integral part of [SSRS]'s
business, and delivery of services in these locations is
not a random occurrence. Rather, it is specifically
determined at the time of acceptance of the contract
with [SSRS]. These client locations, therefore must
under Carpet Remnant[, 125 N.J. at 592,] be considered
an extension of [SSRS]'s place of business, as they
constitute places "where the enterprise has a physical
plant or conducts an integral part of its business."
The Commissioner found SSRS failed to meet prong C of the ABC test,
explaining that when the DOL conducts an audit, it requests a variety of records
from the employer and purported independent contractors, including tax returns,
business cards, invoices, letterhead, advertisements they have taken out,
insurance, and other 1099 records, to ascertain the employment status of the
audited workers. Many of the court reporters SSRS utilized did not respond to
the requests for information. The Commissioner noted, "[f]or the 2006-2008
period, . . . [SSRS] provided documentation that was of little value in rebutting
the presumption of employee status. . . . [SSRS] provided a copy of a Yellow
Pages directory for certified court reporters that listed five of its court reporters
A-1500-21
23
on it, as well as sample invoices." 7 The Commissioner observed, "[t]he [DOL]
only received one copy of an IRS Form Schedule C (which is a form submitted
to show profit and loss from a sole proprietorship) for this period." 8 The
Commissioner further observed that if a purported employer did not provide
relevant documents, the DOL "could lawfully infer that the individual was likely
7
The Commissioner noted,
[t]he [DOL]'s auditor received calls from three court
reporters that were no longer with the company, who all
stated that they never submitted their names to be
advertised in the Yellow Pages directory, nor submitted
the invoices presented by [SSRS]. . . . The auditor
concluded that these invoices were not created by the
court reporters themselves, but rather were an internal,
company-created document to determine each
reporter's weekly pay.
8
The Commissioner noted:
Being registered and filing taxes as a business can
potentially show that an individual has met the C prong,
though it is not dispositive. A key element of the
[DOL]'s analysis of a Schedule C [form] is the
proportion of income that comes from each source, on
the theory that the greater number of sources of income,
the more likely that an individual can "continue to exist
independently of and apart from" his relationship with
his putative employer, and thereby show that he
engages in an independent business under the C prong.
Carpet Remnant[, 125 N.J. at 592-93]. But this single
Schedule C did not demonstrate independence to the
auditor's satisfaction.
A-1500-21
24
an employee, as no information was provided to rebut the presumption of
employee status."
Lastly, the Commissioner stated:
In order to meet the C prong, it is not enough to
establish that these reporters could pick up more work
from another agency. Rather, it must be demonstrated
that they could "continue to exist independently of and
apart from" their relationship with [SSRS] as an
independent business. Carpet Remnant[, 125 N.J.] at
592. Put another way, these reporters' purportedly
independent businesses will not "plainly persist despite
the termination of the challenged relationship," because
for many of them they were never independent in the
first place. Trauma Nurses, Inc. v. Board of Review,
242 N.J. Super. [135,] 142 [(App. Div. 1990)] . . . .
As a result of finding no UCL exemptions and that SSRS did not meet the
requirements of the ABC test, he ordered SSRS to remit to the DOL $104,116.45
in unpaid unemployment and temporary disability contributions, plus any
interest or penalties that may apply.
B.
JSR argues its reporters are independent contractors under the ABC test.
It analogizes the facts of this case to Trauma Nurses. It argues reporters are free
to choose when and where to work and are free to work with other agencies.
Moreover, JSR does not perform evaluations, pay any expenses, or provide
practices, procedures, training, equipment, or insurance benefits.
A-1500-21
25
Under prong A, JSR argues it does not exert a significant degree of control
over reporters' work. For example, reporters can reject work with no
consequences; it provides no direction for the work other than the job's date,
time, and location; and it does not control the kind of equipment used by the
reporter. Further, JSR points out some of the reporters subcontract their wor k.
Under prong B, JSR compares itself to the agency in Trauma Nurses,
arguing it is a "broker" that places reporters with clients. It argues it merely
facilitates a reporter to attend a proceeding according to the client's needs. As
such, JSR engages reporters to perform work outside of JSR's core business,
which is court reporter brokerage. JSR also argues the reporters work at
proceedings at attorneys' offices, workers' compensation court, and doctors'
offices, among other places. It further argues the Commissioner's decision is
contrary to the principles in Carpet Remnant and East Bay Drywall, LLC v.
Department of Labor, 251 N.J. 477, 496 (2022). See Carpet Remnant, 125 N.J.
at 592 ("'[P]laces of business' . . . refers only to those locations wher e the
enterprise has a physical plant or conducts an integral part of its business. . . .
[T]he residences of [the business's] customers are clearly 'outside of all the
places of business of [the business].'" (quoting N.J.S.A. 43:21-19(i)(6)(B))).
JSR argues prong C is satisfied because the reporters have a profession
that will plainly persist despite termination of the work relationship. In the past,
A-1500-21
26
it has engaged reporters who previously worked with agencies that went out of
business for the exact same type of work. It also references examples when it
lost a contract, and the reporters were engaged by other agencies. In short, the
reporters "follow the work." JSR further asserts the Commissioner incorrectly
relied on the fact some reporters do not work with multiple agencies. It argues
the standard does not require the reporters to work regularly with other agencies
but asks whether the reporters would get work with other agencies at the end of
their relationship with JSR. 9
SSRS contests the Commissioner's finding that significant aspects of the
reporters' work were controlled by SSRS and argues it satisfied prong A. It
notes: the court reporters were permitted to turn down assignments without
discipline from the agency; they can work for competitors of SSRS; SSRS does
not supply equipment to court reporters; SSRS does not proofread reporters'
work; only reporters can make corrections to transcripts; and reporters testified
they would continue in their profession if SSRS went out of business. SSRS
also relies on Trauma Nurses, 242 N.J. at 144, where the Court found the nurses
were independent contractors of a nursing agency because the nurses could work
as much or as little as they wanted and were free to work elsewhere.
9
CCRA advances similar arguments regarding the ABC test.
A-1500-21
27
SSRS argues it satisfied prong B because reporters' services are performed
at law firms, court buildings, meeting halls, and business offices. SSRS
contends it is clear the reporters' services are performed outside of SSRS's
business enterprise. Further, SSRS has no control over the places where the
services are performed.
Regarding prong C, SSRS contends the individuals working as reporters
do so in an independently established trade. Multiple reporters testified if a
court reporting agency went out of business, the reporter could obtain work at
another agency. SSRS cites East Bay for the proposition that "[t]he thrust of
prong C broadly asks whether a worker can maintain a business independent of
and apart from the employer." 251 N.J. at 496. Here, SSRS argues the reporters
are not dependent on their agency for finding work and are able to switch
agencies when one closes or a relationship otherwise terminates.
SSRS also argues they have established a FUTA exemption for the audit
period of 2006-2008. They state prior to 2010, court reporters were exempt from
unemployment tax if: (1) there was a FUTA exemption or (2) the individuals
satisfied the ABC test for independent contractors. SSRS argues it had a FUTA
exemption at the time of the first audit. It asserts evidence of a FUTA exemption
included "[d]ocumentation of responses to the [twenty-point] test[] required by
the [IRS] to meet its criteria for independence." In 2018, the Administrative
A-1500-21
28
Code was amended to eliminate the IRS test for independence, but the IR S test
was still in effect during SSRS's audits, so it argues it should be able to use the
test. SSRS argues it would satisfy the IRS test.
Lastly, SSRS contends that if the court reporters are determined to be
employees, the assessments must be recalculated because there were multiple
delays and stays in the matter over the course of several years, purportedly
through no fault of their own. 10 SSRS argues it would be unjust to assess any
interest or penalties against it for the periods of inaction during the proceedings.
C.
The scope of our review is narrow. Appellate courts review decisions
"made by an administrative agency entrusted to apply and enforce a statutory
scheme under an enhanced deferential standard." East Bay, 251 N.J. at 493
(citing Hargrove, 220 N.J. at 301-02). That enhanced deference stems, in part,
from "the executive function of administrative agencies." Mazza v. Bd. of Trs.,
Police & Firemen's Ret. Sys., 143 N.J. 22, 25 (1995). "An agency's
determination on the merits 'will be sustained unless there is a clear showing
that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the
10
The delays included: writing to the IRS; appealing and waiting for a hearing
at the OAL; investigation of a fraudulent letter sent to the IRS; placement of the
case on the inactive list with the OAL three times; and the COVID-19 pandemic
delaying the Commissioner's final decision by twenty-two months.
A-1500-21
29
record.'" Saccone v. Bd. of Trs., Police & Firemen's Ret. Sys., 219 N.J. 369,
380 (2014) (quoting Russo v. Bd. of Trs., Police & Firemen's Ret. Sys., 206 N.J.
14, 27 (2011)). The reviewing court "does not substitute its judgment of the
facts for that of an administrative agency." Campbell v. N.J. Racing Comm'n,
169 N.J. 579, 587 (2001) (citation omitted). Rather, the reviewing court
"defer[s] to matters that lie within the special competence" of the administrative
agency. Balagun v. N.J. Dep't of Corr., 361 N.J. Super. 199, 202 (App. Div.
2003). The party challenging the administrative action bears the burden of
making that showing. Lavezzi v. State, 219 N.J. 163, 171 (2014).
On appeal, the judicial role in reviewing an administrative action is
generally limited to three inquires:
(1) whether the agency's action violates express or
implied legislative policies, that is, did the agency
follow the law;
(2) whether the record contains substantial evidence
to support the findings on which the agency based its
action; and
(3) whether in applying the legislative policies to the
facts, the agency clearly erred in reaching a conclusion
that could not reasonably have been made on a showing
of the relevant factors.
[Allstars Auto Grp., 234 N.J. at 157 (quoting In re
Stallworth, 208 N.J. 182, 194 (2011)).]
A-1500-21
30
"When an agency's decision meets those criteria, then a court owes substantial
deference to the agency's expertise and superior knowledge of a particular field."
In re Herrmann, 192 N.J. 19, 28 (2007). 11
The statutory framework at issue in this appeal, the UCL, N.J.S.A. 43:21-
1 to -71, "was designed to act as a cushion 'against the shocks and rigors of
unemployment.'" East Bay, 251 N.J. at 494 (quoting Carpet Remnant, 125 N.J.
at 581). Whether a putative employer is required to pay into an unemployment
benefits fund under N.J.S.A. 43:21-7, turns on whether its workers are
employees or independent contractors. Id. at 484-85. Importantly, "[b]ecause
the statute is remedial, its provisions have been construed liberally, permitting
a statutory employer-employee relationship to be found even though that
relationship may not satisfy common-law principles [of employment]." Id. at
494 (second alteration in original) (quoting Carpet Remnant, 125 N.J. at 581).
11
Furthermore, "where there is substantial evidence in the record to support
more than one regulatory conclusion, it is the agency's choice which governs."
In re Adoption of Amends. to Ne., Upper Raritan, Sussex Cnty., 435 N.J. Super.
571, 583 (App Div. 2014) (quoting Murray v. State Health Benefits Comm'n,
337 N.J. Super. 435, 442 (App. Div. 2001)). "If the Appellate Division is
satisfied after its review that the evidence and the inferences to be drawn
therefrom support the agency head's decision, then it must affirm even if the
court feels that it would have reached a different result itself." Id. at 584(quoting Clowes v. Terminix Int'l, Inc., 109 N.J. 575, 588 (1988)).
A-1500-21
31
The UCL sets forth the ABC test for making that determination. 12 Id. at
485; N.J.S.A. 43:21-19(i)(6)(A) to (C). Any service performed for renumeration
12
We limit our discussion to the ABC test in this matter. In the JSR matter, the
ALJ also applied the IRS twenty-point test and the new IRS three-factor test.
The DOL repealed N.J.A.C. 12:16-23.2(a)(4) which previously allowed the use
of the IRS twenty-point test. N.J.A.C. 12:16-23.2(a) (2018). The DOL
determined its prior use of the IRS's tests for independence put it in an
"extremely difficult, if not untenable, position of having to ascertain, without
the benefit of a determination from the IRS" whether its test was met for
particular services. 50 N.J.R. 2012(a) (Sept. 17, 2018). We agree the purpose
of the adoption was for the DOL to stop conducting its own analysis of the IRS
tests to determine if there was a FUTA exemption and required more definitive
findings from the IRS as set forth in N.J.A.C. 12:16-23.2.
Moreover, under the "time of decision" rule, the Commissioner declined
to apply the IRS test and found the ALJ erred when he applied it. The time of
decision rule applies not only to statutes passed by the Legislature, but also to
regulations enacted by administrative agencies. In such administrative law
contexts, a court will routinely apply a government agency's rules and
regulations as they exist at the time that the case or appeal is decided. See, e.g.,
In re Protest of Coastal Permit Program Rules, 354 N.J. Super. 293, 333 (App.
Div. 2002); Walker v. N.J. Dep't of Insts. & Agencies, 147 N.J. Super. 485, 489
(App. Div. 1977).
We agree with the Commissioner the time of decision rule applies, and
thus we also do not address the IRS tests for independence as to JSR or SSRS.
Consequently, because JSR did not present any of the three remaining forms of
proof (private letter ruling from the IRS, an IRS audit, or an IRS determination
letter) accepted under N.J.A.C. 12:16-23.2(a) to establish a FUTA exemption,
the Commissioner properly found there was no FUTA exemption. Moreover,
the non-binding IRS letter obtained by SSRS was not a determination letter
under N.J.A.C. 12:16-23.2(a), and therefore did not prove that SSRS had a
FUTA exemption.
A-1500-21
32
under any express or implied contract is presumed to be employment unless the
ABC test is satisfied. East Bay, 251 N.J. at 495. The statutory test reads:
Services performed by an individual for renumeration
shall be deemed to be employment . . . unless and until
it is shown to the satisfaction of the [DOL] that:
(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;
(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).]
Because the statutory ABC test is formulated in the conjunctive and
presumes that services for renumeration constitute employment, the party
challenging the DOL's determination of an employer-employee relationship has
the burden of "establish[ing] the existence of all three criteria." East Bay, 251
N.J. at 495 (quoting Carpet Remnant, 125 N.J. at 581) (emphasis added). The
ABC test "is fact-sensitive, requiring an evaluation in each case of the substance,
not the form, of the relationship." Id. at 496 (quoting Carpet Remnant, 125 N.J.
A-1500-21
33
at 581). "The factfinder must look beyond the employment contract and the
payment method to determine the true nature of the relationship." Ibid.
Because we conclude below the Commissioner did not act in an arbitrary
or capricious manner in finding JSR and SSRS failed to satisfy prong C, we
defer to the agency decision. Moreover, we confine our analysis to that prong,
and we need not address prongs A and B.13 See id. at 495 (citing Carpet
Remnant, 125 N.J. at 581 (the ABC test is formulated in the conjunctive
requiring the worker to prove all three criteria)).
Prong C relies on whether the reporters are "customarily engaged in an
independently established trade, occupation, profession or business." N.J.S.A.
43:21-19(i)(6)(C). The Court in East Bay noted, "[p]rong C 'provides the closest
connection between the obligation to pay taxes and the eligibility for benefits.'"
251 N.J. at 496 (quoting Carpet Remnant, 125 N.J. at 589). "[T]he [prong] C
standard is satisfied when a person has a business, trade, occupation, or
profession that will clearly continue despite termination of the challenged
relationship." Id. at 497 (second alteration in original) (quoting Carpet
Remnant, 125 N.J. at 586). Importantly, "[t]he present tense of the verb, 'is' [as
used in the statute], indicates that the employee must be engaged in such
13
We do not intimate any views on whether the Commissioner's analysis of
prongs A and B was arbitrary or capricious.
A-1500-21
34
independently established activity at the time of rendering the service involved."
Gilchrist v. Div. of Emp. Sec., 48 N.J. Super 147, 158 (App. Div. 1957). Stated
another way, "[i]f the worker 'would join the ranks of the unemployed' when the
relationship ends, the worker cannot be considered independent under prong C."
East Bay, 251 N.J. at 497 (quoting Carpet Remnant, 125 N.J. at 585-86).
A non-exhaustive list of the relevant factors to consider under prong C
includes: "the duration and strength of the [worker]s' businesses, the number of
customers and their respective volume of business, the number of employees,
and the extent of the [worker]s' tools, equipment, vehicles, and similar
resources." Carpet Remnant, 125 N.J. at 593. Moreover, the amount of
renumeration received from the putative employer compared to other sources is
also an important consideration. Ibid. Notably, our Supreme Court has
acknowledged that "even wholly dependent employees may choose to work for
more than one employer . . . ." East Bay, 251 N.J. at 498.
The Commissioner determined JSR and SSRS offered insufficient
evidence to satisfy prong C and rebut the presumption the reporters were
employees, rather than engaged in "a profession that will plainly persist despite
the termination of the challenged relationship." Hargrove, 220 N.J. at 306.
Additionally, the records cited by the Commissioner regarding the court
reporters supported his conclusion the court reporters were not customarily
A-1500-21
35
engaged in an independently established business. Moreover, with respect to
JSR, the record supported the Commissioner's finding that many of the reporters
derived all or most of their renumeration from JSR.
It was JSR's and SSRS's burden to prove prong C. However, JSR only
provided information on less than half of its reporters. SSRS likewise provi ded
very limited information. Moreover, SSRS conceded it "does not know how
often court reporters are working for other agencies." In this regard, the Trauma
Nurses Court's analysis under prong C is distinguishable because there is no
indication that broker failed to provide the Commissioner sufficient information
to evaluate prong C. Rather, the Court noted those nurses did not work
exclusively through the agency and demonstrated they worked "simultaneously
for other brokers, hospitals and health care institutions." Trauma Nurses, 242
N.J. at 148. Here the Commissioner was not satisfied petitioners established the
reporters were "customarily engaged" in an independent trade at the time of the
audits while rendering services for petitioners due to the insufficient proofs
provided. See Gilchrist, 48 N.J. Super at 158.
Although JSR argued that the reporters could find work with another
agency if it were to go out of business, the Commissioner rejected this argument
based on the proofs submitted and principles noted above. Despite requests for
information, JSR and SSRS did not provide the DOL sufficient evidence to
A-1500-21
36
demonstrate the independence of the reporters. Accordingly, the DOL and the
Commissioner presumed the reporters were employees, as petitioners failed to
rebut the presumption under N.J.S.A. 43:21-19(i)(6).
The Commissioner noted the reporters' work, despite arguments
otherwise, will not plainly persist because they were never independent in the
first place. Our role is not to substitute our judgment for that of the
Commissioner. Campbell, 169 N.J. at 587. Rather, we must determine whether
the Commissioner's decision was arbitrary or capricious. In light of petitioners'
burden of proof, there was ample evidence in the record to support the
Commissioner's conclusion as to prong C. Accordingly, petitioners are
responsible for those assessments imposed by the Commissioner that pre-date
the adoption of N.J.S.A. 43:21-19(i)(10). To the extent we have not addressed
them, any remaining arguments raised by the parties lack sufficient merit to
warrant discussion. R. 2:11-3(e)(1)(E).
Reversed in part, affirmed in part, and remanded for the Commissioner to
recalculate the amount owed by petitioners consistent with this opinion. 14 We
do not retain jurisdiction.
14
SSRS asserts it was unfairly assessed certain costs during the lengthy time
period this case was inactive through no fault of its own. The DOL argues there
is nothing in the record to suggest any assessments were attributed to the delays
in adjudicating this matter. Because we are remanding for the assessment to be
A-1500-21
37
recalculated consistent with this opinion, to the extent any interest or penalties
were assessed against either petitioner due to delays not caused by them, the
Commissioner shall adjust its final assessment accordingly.
A-1500-21
38