Barnett Laundry & Dry Cleaning Supply Co., Inc. v. Department of Labor

97 N.J.A.R. 2d 67 (Department of Labor 1997)
  • Opinion Date: July 16, 1997

EMPLOYER-EMPLOYEE; UNEMPLOYMENT CONTRIBUTIONS—No unemployment tax contributions are due in respect of an employee who does not receive compensation for services, even if the individual otherwise would be considered an employee.

The New Jersey Department of Labor conducted an audit of a company’s books and concluded that it owed unemployment contributions on remuneration paid to an employee. The company argued that the employee was retired and was receiving pension payments, not salary. Although the employee signed checks on behalf of the company during the years in question, the company claimed he was acting in his capacity as owner of the company and received no salary for that and other minor services. The Department determined that the company incurred tax liability under the Unemployment and Temporary Disability Insurance Law. The company’s appeal was heard before an Administrative Law Judge (“ALJ”).

The ALJ recited N.J.S. 43:21-19(i)(6), which states that services performed by an individual for remuneration are deemed to be employment until it is shown that: (A) the individual is free from control or direction over the performance of the services, (B) the services are either outside the usual course of the company’s business or performed outside of all the places of business of the company, and (C) the individual is engaged in an independently established business. All three prongs of this “ABC Test” must be satisfied before a company can avoid unemployment tax liability. The ALJ found that prong A was met since the individual came and went as he pleased and acted without supervision. However, the individual failed prong B because he placed his signature on company checks and did so while in the company’s main office. Prong C was also failed because the individual was not engaged in business independently. Even though he failed the ABC Test, the ALJ still had to determine that the individual received remuneration from the company. The ALJ found that the only compensation received for the last 10 years was a pension, payment of which was not dependent on performance of services for the company or even on presence in the office. Since no services were performed for compensation, the individual was not an employee, and therefore, the company was not liable for unemployment contributions. The Commissioner of the Department accepted and adopted the ALJ’s decision.